Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2018
or
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 001-34530
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12737972&doc=17
 U.S. CONCRETE, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
76-0586680
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
331 N. Main Street, Euless, Texas 76039
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (817) 835-4105
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $.001
 
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)     Yes o      No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the last reported sale price of $52.50 of the registrant’s common stock as of June 30, 2018, the last business day of the registrant’s most recently completed second fiscal quarter: $732,340,560. For purposes of this computation, all officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.
There were 16,646,789 shares of common stock, par value $.001 per share, of the registrant outstanding as of February 20, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the registrant's 2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Part III of this report.



U.S. CONCRETE, INC.
FORM 10-K
For the Year Ended December 31, 2018
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



i

Table of Contents

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

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

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

Known material factors that could cause our actual results to differ from those in the forward-looking statements also include those described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by federal securities laws.


ii

Table of Contents

PART I
Item 1.  Business

U.S. Concrete, Inc. is a Delaware corporation founded and incorporated in 1997. In this report, 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 or content indicates otherwise.

General

Our principal business is producing ready-mixed concrete and supplying aggregates in select geographic markets in the United States, U.S. Virgin Islands and Canada. We are a leading supplier for large-scale commercial and industrial, residential and infrastructure (including streets, highways and other public works) construction projects in high-growth markets across the country. We hold leading ready-mixed concrete market positions in New York, Philadelphia, San Francisco, Dallas-Fort Worth and Washington, D.C., and our materials have been used in some of the most complex and highly specialized construction projects of the last decade. U.S. Concrete has continued to grow both organically and through a series of strategic acquisitions of independent producers in our target markets.

We operate principally in the Atlantic Region (which we define to include New York, New Jersey, Washington, D.C. and Pennsylvania), Texas / Oklahoma, and the West Coast Region (which we define to include California and British Columbia, Canada) with those markets representing approximately 34%, 34% and 31%, respectively, of our consolidated revenue for 2018. We believe we are well positioned for strong growth in these attractive regions.

Total revenue for 2018 was $1.5 billion, of which we derived approximately 86.7% from our ready-mixed concrete segment, 9.1% from our aggregate products segment (excluding $46.1 million sold internally) and 4.2% from our other operations. For 2018, we had net income attributable to U.S. Concrete of $30.0 million.

We serve substantially all segments of the construction industry in our select geographic markets. Our customers include contractors for commercial and industrial, residential and infrastructure. Ready-mixed concrete product revenue by type of construction activity for the past three years was:
 
2018
2017
2016
Commercial and industrial
56%
56%
58%
Residential
25%
26%
26%
Infrastructure
19%
18%
16%

In 2017, we completed our largest acquisition to date with the purchase of Polaris Materials (“Polaris”), a construction aggregate producer in British Columbia, Canada. This acquisition added a significant amount of aggregates production and reserves to our portfolio. The Polaris acquisition represented a key step in our vertical integration growth strategy. Beyond our own traditional regions, we also serve aggregates-only markets in Southern California and Hawaii. Also in 2017, we acquired Corbett Aggregate Companies, LLC ("Corbett") located in Quinton, New Jersey, another significant step in vertically integrating our operations. Corbett provides a critical component to our aggregates needs in New York City, through our New York Sand & Stone business unit and their network of aggregates terminals.

In 2015, we completed a significant ready-mixed concrete acquisition of Ferrara Bros. Building Materials, in Queens, New York. This acquisition significantly expanded our footprint in New York City and allowed us to serve all five boroughs. In subsequent acquisitions in 2016, we completed a series of acquisitions of Jenna Concrete, Nycon Supply Co. and Kings Ready Mix as part of a strategy to strengthen and expand our New York City operations. These acquisitions expanded our ready-mixed concrete operations, adding New York as a major contributor to our success.


1

Table of Contents

Our Competitive Strengths

Our competitive strengths lie in manufacturing and delivering high-performance concrete in challenging, urban markets. We are well positioned to supply large, complex projects through our unique plant networks in large metropolitan markets that are difficult to serve. Such projects include infrastructure projects with complex Federal Highway Administration or Federal Aviation Administration specifications and high levels of delivery requirements. Through this operational excellence, we can leverage our competitive strengths by testing and then sharing best practices among our operating units.

Our ability to source raw materials further adds to our operational excellence, continuing to enhance our competitive strengths. Our aggregate and sand vertical integration in areas of the country where aggregates are expensive and depleting, coupled with our water borne and strategically located docks further strengthens our self-supply model.

While zoning and permitting regulations make it difficult to permit new quarries and ready-mixed concrete plants in many of the markets we serve, the barriers to entry also make our market positions more valuable. Our ability to internally source aggregates requirements for our most challenging projects, and in every market we serve, gives us a distinct competitive strength.

Our comprehensive asset base enables greater efficiencies and asset utilization, while scale leverages purchasing power advantages and delivery and asset utilization efficiencies. To further enhance our asset base, we have increased our investment in technology to drive continued improvements, such as our proprietary dispatch and analytics system, Where’s My ConcreteTM.

Sustainability and environmentally friendly solutions continue to grow and be in high demand in our industry. We take pride in our leadership and commitment to deliver these critical solutions. We were the first company in the U.S. concrete industry to adopt the 2030 Challenge to develop Environmental Product Declarations ("EPD") for our ready-mixed concrete products. This challenge, issued by Architecture 2030, calls on architecture, planning and building industries worldwide to specify, design and manufacture products that meet specific carbon reduction targets between now and the year 2030. Our operating unit in Northern California, Central Concrete Supply Co., was the first of our business units to adopt the challenge, and our EPD adoption spread across the company. Currently, our operating units combined have over 13,000 EPDs.

Beyond EPDs, we have found a competitive strength in low CO2 concrete mix designs aimed at reducing a construction project's total carbon footprint. Our early development of EF® Technology lead to development and adoption of many CO2 reducing capabilities from raw material substitution to injecting CO2 into concrete mixes. Many of these sustainability measures also positively affect the performance of the final product, giving us a value proposition of multiple competitive strengths.

Our national research laboratory, while working closely with each of our regional laboratories, is developing industry leading solutions and ensuring local capability needs are met. Concrete mix design expertise and the ability to meet stringent specifications through the work of these labs is yet another competitive strength that ties the more upstream raw material sourcing and asset base to our downstream value-added products.

Our ability to replicate this model successfully through strategic acquisitions is another competitive strength. Our mergers and acquisitions team has deep industry relationships, which facilitate proprietary sourcing of successful acquisitions. A repeatable acquisition and integration process maximizes our synergies.

These strengths give us distinct competitive advantages, and together have allowed us to grow and continue our positive momentum into the future. The ability to self-supply aggregates and use our technical expertise to design and track our shipments, coupled with our intense focus on operational excellence will further our model of continuous improvement.

Our Business Strategy

We strive to be the top one or two producer in the ready-mixed concrete markets we serve and operate in some of the fastest growing and most attractive metropolitan markets in the United States, including New York, Philadelphia, San Francisco, Dallas/Fort Worth and Washington, D.C. These markets represent five of the top 12 metropolitan statistical areas.

Our business is uniquely local. Given the relatively low selling price of aggregates, transportation costs can quickly exceed the product cost. Further, due to the chemical reaction while in the mixer truck, concrete is a perishable product and must be unloaded within 60 to 90 minutes from being loaded from the concrete batch plant.


2

Table of Contents

Our business strategies are (1) market focus, including growing our markets through acquisitions, (2) vertically integrate through aggregates, (3) do what we know, and (4) focus on growing profits.

Market focus - Go where the people are
Markets drive our strategic growth initiatives. There are 11 identified megaregions in the United States that drive 75% of the gross domestic product and house 70% of the nation’s population, but only represent 15% of the U.S. land mass. By focusing on these megaregions, we can be very deliberate on how and when we enter markets. Further, by being selective on which markets we want to be in and the projects we want to pursue, we can spend more time on developing relationships with the targets we prioritize. We are focused on building strong, defensible positions in strong, growing and vibrant markets, which are virtually impossible to replicate.

Vertically integrate through aggregates
Our ready-mixed concrete operations consume a significant amount of aggregates. Aggregates are a major component in ready-mixed concrete, comprising approximately 75% by weight. We believe those ready-mixed concrete operations where we are vertically integrated through aggregates have a competitive advantage. Internally sourcing aggregates provides a consistent and reliable stream of raw materials for our ready-mixed concrete operations. In addition to consuming high margin aggregates internally, third party sales are available for other aggregate products. These high margin sales enhance our profitability. Aggregates also provide an additional growth segment for the Company to expand through strategic acquisitions.

Do what we know
We would expect to be a leading supplier of building materials in our current and future markets. We are dedicated to increasing our aggregates positions and related downstream products, such as ready-mixed concrete, in the future.

Drive margin improvement
We are focused on driving continuous improvement, resulting in increasing profit margins. We are best in class in ready-mixed concrete margins, but there is still more work to be done. We will continue to push new technology, sales programs, raw material sourcing, and any opportunity to drive more profit while operating safely.

Our Industry

Ready-mixed concrete manufacturers produce concrete and deliver it in an unhardened state to end users, such as contractors, who then pour and form the concrete at construction sites. Downstream applications include commercial, industrial, residential, infrastructure, and other construction sectors. The industry is composed of varying sized family owned businesses to multi-national corporations. As concrete is a perishable product, production facilities are typically located within 60 to 90 minutes from construction projects. The National Ready Mixed Concrete Association (“NRMCA”) estimated there were about 5,500 ready-mixed concrete plants and 55,000 ready-mixed concrete mixer trucks that delivered approximately 351 million cubic yards of product to the point of placement, accounting for $35 billion in revenue across the United States in 2017.

The aggregates industry produces engineered granular materials consisting of crushed stone, gravel, and sand of varying mineralogies, manufactured to specific grades and sizes for use in downstream construction applications. Crushed stone, sand, and gravel are used as aggregate in foundations for infrastructure and buildings or as road base. Crushed stone is also an input to cement, concrete products, and personal consumer goods. The Phoenix Center for Advanced Legal & Economic Public Policy Studies estimates the aggregates industry generates $27 billion in annual revenue and accounts for more than 100,000 jobs. The industry is highly competitive, with more than 4,000 private companies and government agencies producing approximately 2.3 billion tons annually. Due to high transportation costs, approximately 90% of aggregates are consumed within 50 miles of the place of extraction.

The key industry drivers include infrastructure funding, residential construction spending, private nonresidential construction spending, fluctuations in interest rates, weather conditions, and national, regional and local economic conditions. Ready-mixed concrete and aggregates are used in streets and highways, foundations and suspended floors, tilt walls, transportation terminals, sporting stadiums and petrochemical plants, among other uses. Private investment is influenced by long-term interest rates. A low inflationary outlook and interest rate stability foster investment in construction markets, which increases the demand for ready-mixed concrete and aggregates.

3

Table of Contents


Our Products

Ready-mixed concrete

Our standard ready-mixed concrete products consist of proportioned mixes we produce and deliver in an unhardened plastic state for placement and shaping into designed forms at the job site. Selecting the optimum mix for a job entails determining not only the ingredients that will produce the desired permeability, strength, appearance and other properties of the concrete after it has hardened and cured, but also the ingredients necessary to achieve a workable consistency considering the weather and other conditions at the job site. We believe we can achieve product differentiation for the mixes we offer because of the variety of mixes we can produce, our volume production capacity and our scheduling, delivery and placement reliability. Additionally, we believe our environmentally friendly technology initiative, which utilizes alternative materials and mix designs that result in lower CO2 emissions, helps differentiate us from our competitors. We also believe we distinguish ourselves with our value-added service approach that emphasizes reducing our customers’ overall construction costs by reducing the in-place cost of concrete and the time required for construction.

Our volumetric concrete operations, the largest volumetric operation in the country, expand our ready-mixed concrete delivery and service offerings primarily in Texas. Volumetric ready-mixed concrete trucks mix concrete to the customer's specification on the job site, better serving smaller jobs and specialized applications, and allowing flexibility for servicing remote job locations. Because of their versatility, these trucks offer the contractor multiple options for a single job without the inconvenience or added costs typically associated with standard ready-mixed trucks delivering special or short-loads to a job site. Because of their unique on-demand production capabilities, these trucks minimize the amount of wasted concrete, which improves margins and reduces environmental impact.

We also provide portable and mobile concrete plants for high-volume or remote projects. Our fast-track mobilization business unit, U.S. Concrete On-Site, Inc., can dispatch a portable or mobile ready-mixed concrete plant anywhere in the continental U.S. These mobile solutions have reached an exceptional level of turnkey operations customized to deliver outstanding on-site solutions for all types of concrete construction, throughout the country. Not only are we providing industry leading concrete production operations to our customers, we are providing technical services and a substantial mitigation of risk with on-site production.

Aggregate products

We produce crushed stone, sand and gravel from 19 aggregates facilities located in New Jersey, Texas, Oklahoma, the U.S. Virgin Islands and British Columbia, Canada. We sell these aggregates for use in commercial, industrial and public works projects in the markets they serve, as well as consume them internally in the production of ready-mixed concrete in those markets. We produced approximately 10.4 million tons of aggregates during the year ended December 31, 2018, with British Columbia, Canada representing 48%, Texas / Oklahoma representing 30%, New Jersey representing 19% and the U.S. Virgin Islands representing 3% of the total production. While we consume some of this production internally, we sell the majority of our aggregate products to third parties. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability.

Other
Other products include our building materials stores, hauling operations, aggregates distribution terminals, a recycled aggregates operation and concrete blocks. Two specific products included in this category are ARIDUS® Rapid Drying Concrete technology and the Where’s My Concrete family of web and mobile applications.

ARIDUS Rapid Drying Concrete reduces the drying time and risks associated with excess moisture vapor in concrete slabs, enabling faster, more effective floor topping installations. ARIDUS was developed and patented by U.S. Concrete’s National Research Laboratory, USC Technologies, Inc., to address changes in environmental government regulations that limit or restrict volatile organic compounds in flooring adhesives.

Where’s My Concrete is our real-time cloud-based data delivery program that helps concrete producers provide value-added service and transparency to their customers, while improving their own business through critical analytics and operational efficiencies. We use this program in our operations as well as market it to third parties.


4

Table of Contents

Sources and Availability of Raw Materials

We obtain most of the raw materials necessary to manufacture ready-mixed concrete on a daily basis. These materials include water, cement and other cementitious materials (such as fly ash and slag), aggregates (stone, gravel, and sand), and chemical admixtures. A standard cubic yard of concrete typically weighs 4,125 pounds and includes approximately 250 pounds of water, 550 pounds of cementitious material, 1,525 pounds of sand, and 1,800 pounds of stone.

Cement is the binding agent used to bind water, crushed stone, and sand, in the production of ready-mixed concrete. Other industrial byproducts such as fly ash from coal burning power plants and slag from the manufacture of iron and silica fume have cementitious properties that allow it to be used as a substitute for cement, depending on specification. We purchase cementitious materials from a few suppliers in each of our major geographic markets. Aggregates are typically produced locally and are procured from a network of internal and external suppliers in each of our markets. In 2018, our ready-mixed concrete businesses purchased 32% of their aggregate products needs from internally operated quarries and sites. Chemical admixtures are generally purchased from suppliers under national purchasing agreements.

With the exception of chemical admixtures, each plant typically maintains an inventory level of these materials sufficient to satisfy its operating needs for a few days. Inventory levels do not decline significantly or comparatively with declines in revenue during seasonally lower periods. We generally maintain inventory at specified levels to maximize purchasing efficiencies and to be able to respond quickly to customer demand. Generally, we negotiate with suppliers on a company-wide basis and at the local market level to obtain the most competitive pricing available.

Competition

The ready-mixed concrete industry is highly competitive. Our leadership position in a market depends largely on the location and operating costs of our plants and prevailing prices in that market. Price is the primary competitive factor among suppliers for small or less complex jobs, such as residential construction. However, the ability to meet demanding specifications for strength or sustainability, timeliness of delivery and consistency of quality and service, in addition to price, are the principal competitive factors among suppliers for large or complex jobs. Our competitors range from small, owner-operated private companies to subsidiaries of operating units of large, vertically integrated manufacturers of cement and aggregates. Our vertically integrated competitors generally have greater financial and marketing resources than we have, providing them with a competitive advantage. Competitors having lower operating costs than we do or having the financial resources to enable them to accept lower margins than we do will have a competitive advantage over us for jobs that are particularly price-sensitive. Competitors having greater financial resources or less financial leverage than we do may be able to invest more in new mixer trucks, ready-mixed concrete plants and other production equipment or pay for acquisitions, which could provide them a competitive advantage over us.

Employees

As of December 31, 2018, we had 740 salaried employees, including executive officers and management, sales, technical, administrative and clerical personnel and 2,561 hourly personnel. The number of employees fluctuates depending on the number and size of projects ongoing at any particular time, which may be impacted by variations in weather conditions throughout the year.

Governmental Regulation and Environmental Matters

A wide range of federal, state and local laws, ordinances and regulations apply to our operations, including the following matters:

water usage;
land usage;
street and highway usage;
noise levels; and
health, safety and environmental matters.


5

Table of Contents

In many instances, we are required to have various certificates, permits, or licenses to conduct our business. Our failure to maintain these required authorizations or to comply with applicable laws or other governmental requirements could result in substantial fines or possible revocation of our authority to conduct some of our operations. Delays in obtaining approvals for the transfer or grant of authorizations, or failures to obtain new authorizations, could impede acquisition efforts.

Environmental laws that impact our operations include those relating to air quality, solid waste management and water quality. These laws are complex and subject to frequent change. They impose strict liability in some cases without regard to negligence or fault. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, businesses may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. These laws also may expose us to liability for the conduct of, or conditions caused by, others or for acts that complied with all applicable laws when performed.

We have conducted Phase I environmental site assessments, which are non-intrusive investigations conducted to evaluate the potential for significant on-site environmental impacts, on substantially all the real properties we own or lease and have engaged independent environmental consulting firms to complete those assessments. We have not identified any environmental concerns associated with those properties that we believe are likely to have a material adverse effect on our business, financial position, results of operations, or cash flows, but we can provide no assurance material liabilities will not occur. In addition, our compliance with any amended, new or more stringent laws, stricter interpretations of existing laws, or the future discovery of environmental conditions could require additional, material expenditures.

We believe we have all material permits and licenses we need to conduct our operations and are in substantial compliance with applicable regulatory requirements relating to our operations. We purchased certain emissions credits for $2.8 million in the third quarter of 2018 to expand our sales capacity in California for Polaris aggregate products.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's website address, www.sec.gov. Our SEC filings are also available on our website, free of charge, at www.us-concrete.com as soon as reasonably practicable after we electronically file those materials with, or furnish them to, the SEC.  

Item 1A.  Risk Factors

The following risk factors represent our current view of the known material risks facing our businesses and are important to understanding our business.  These important factors, among others, sometimes have affected, or in the future could affect, our actual results and could cause our actual consolidated results during 2019 and beyond, to differ materially from those expressed in any forward-looking statements made by us or on our behalf.  In addition, these risks and uncertainties could adversely impact our business, financial condition, results of operations, cash flows, common stock price and the price of our debt.  Further, the risk factors described below are not the only risks we face. Our business, financial condition and results of operations may also be affected by additional risks and uncertainties that are not currently known to us, that we currently consider immaterial, or that are not specific to us. This discussion includes a number of forward-looking statements.  Please see “Cautionary Statement Concerning Forward-Looking Statements” preceding Item 1 of this report.

Business Risks

Our business depends on activity within the construction industry and the economic strength of our principal markets.
We serve substantially all end markets of the construction industry, and our results of operations are directly affected by the level of activity in the construction industry in the geographic markets we serve. Demand for our products, particularly in the commercial and industrial and residential construction markets, could decline if companies and consumers cannot obtain credit for construction projects or if a slow down in economic activity results in delays or cancellations of projects. During 2018, commercial and industrial construction and residential construction accounted for 56% and 25% of our ready-mixed concrete revenue, respectively. In addition, federal and state budget issues may hurt the funding available for infrastructure spending, particularly street, highway and other public works projects, which accounted for 19% of our revenue in 2018.

6

Table of Contents

We operate principally in the Atlantic Region (New York, New Jersey, Washington, D.C. and Pennsylvania); Texas / Oklahoma; and West Coast with those markets representing approximately 34%, 34% and 31%, respectively, of our consolidated revenue for 2018. Our earnings depend on the economic strength of these markets because of the high cost to transport our products relative to their price. If economic and construction activity diminishes in our principal markets, our results of operations and liquidity could be materially adversely affected.
There are risks related to our internal growth and operating strategy.

Our ability to generate internal growth will be affected by, among other factors, our ability to:

attract new customers;
differentiate ourselves in a competitive market by emphasizing new product development and value added services;
hire and retain employees; and
minimize operating and overhead expenses.

Our inability to achieve internal growth could materially and adversely affect our business, financial condition, results of operations, liquidity and cash flows.

One key component of our operating strategy is to operate our businesses on a decentralized basis, with local or regional management retaining responsibility for day-to-day operations, profitability and the internal growth of the individual business. If we do not implement and maintain proper overall business controls, this decentralized operating strategy could result in inconsistent operating and financial practices and our overall profitability could be adversely affected.

Our failure to successfully identify, manage and integrate acquisitions could reduce our earnings and slow our growth.

In the past three years, we have completed numerous acquisitions. On an ongoing basis, as part of our strategy to pursue growth opportunities, we continue to evaluate strategic acquisition opportunities that have the potential to support and strengthen our business. There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Our ability to complete acquisitions is dependent upon, among other things, the willingness of acquisition candidates we identify to sell; our ability to obtain financing or capital, if needed, on satisfactory terms; and, in some cases, regulatory approvals. The investigation of acquisition candidates and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we fail to complete any acquisition for any reason, including events beyond our control, the costs incurred up to that point for the proposed acquisition likely would not be recoverable.

Potential acquisition targets may be in geographic regions in which we do not currently operate, which could result in unforeseen operating difficulties and difficulties in coordinating geographically dispersed operations, personnel and facilities. In addition, if we enter into new geographic markets, we may be subject to additional and unfamiliar legal and regulatory requirements. Compliance with regulatory requirements may impose substantial additional obligations on us and our management, cause us to expend additional time and resources in compliance activities and increase our exposure to penalties or fines for non-compliance with such additional legal requirements. Our recently completed acquisitions and any future acquisitions could cause us to become involved in labor, commercial, or regulatory disputes or litigation related to any new enterprises and could require us to invest further in operational, financial and management information systems and to attract, retain, motivate and effectively manage local or regional management and additional employees. Upon completion of an acquisition, key members of the acquired company management team may resign, which could require us to attract and retain new management and could make it difficult to maintain customer relationships. Our inability to effectively manage the integration of our completed and future acquisitions could prevent us from realizing expected rates of return on an acquired business and could have a material and adverse effect on our business, financial condition, results of operations, liquidity and cash flows.

7

Table of Contents


Tightening of mortgage lending or mortgage financing requirements, higher interest rates or the limitation of the home mortgage interest deduction and the property tax deduction could adversely affect the residential construction market and reduce the demand for new home construction.
Approximately 25% of our revenue for 2018 was from residential construction contractors. While mortgage lending conditions have improved and lending volumes have increased since 2010, tightening of mortgage lending, mortgage financing requirements or higher interest rates could adversely affect the ability to obtain credit for some borrowers, or reduce the demand for new home construction, which could have a material adverse effect on our business and results of operations. In addition, the limitation of the home mortgage interest and property tax deductions could reduce the demand for new home construction, which could have a material adverse effect on our business and results of operations. Another downturn in new home construction could also adversely affect our customers focused in residential construction, possibly resulting in slower payments, higher default rates in our accounts receivable and an overall increase in working capital.
Our ready-mixed concrete segment's revenue attributable to street, highway and other public works projects could be negatively impacted by a decrease or delay in governmental spending.

During 2018, approximately 19% of our ready-mixed concrete revenue was from street, highway and other public works projects. Construction activity on streets, highways and other public works projects is directly related to the amount of government funding available for such projects, which is affected by budget constraints currently being experienced by federal, state and local governments. In addition, prolonged government shutdowns or reductions in government spending, may result in us experiencing delayed orders, delayed payments and declines in revenue, profitability and cash flows. Reduced levels of governmental funding for public works projects or delays in that funding could adversely affect our business, financial condition, results of operations and cash flows.

Our business is seasonal and subject to adverse weather.

Since our business is primarily conducted outdoors, erratic weather patterns, seasonal changes and other weather-related conditions affect our business. Adverse weather conditions, including hurricanes and tropical storms, cold weather, snow and heavy or sustained rainfall, reduce construction activity, restrict the demand for our products and impede our ability to efficiently deliver concrete. Adverse weather conditions could also increase our costs and reduce our production output as a result of power loss, needed plant and equipment repairs, delays in obtaining permits, time required to remove water from flooded operations and similar events. In addition, during periods of extended adverse weather or other operational delays, we may elect to continue to pay certain hourly employees to maintain our workforce, which may adversely impact our results of operations. Severe drought conditions can also restrict available water supplies and restrict production. Consequently, these events could adversely affect our business, financial condition, results of operations, liquidity and cash flows.

Our operating results may vary significantly from one reporting period to another and may be adversely affected by the cyclical nature of the markets we serve.

The relative demand for our products is a function of the highly cyclical construction industry. As a result, our revenue may be adversely affected by declines in the construction industry generally and in our regional markets. Our results also may be materially affected by:

the level of commercial and residential construction in our regional markets, including reductions in the demand for new residential housing construction below current or historical levels;
the availability of funds for public or infrastructure construction from local, state and federal sources;
unexpected events that delay or adversely affect our ability to deliver concrete according to our customers’ requirements;
changes in interest rates and lending standards;
changes in the mix of our customers and business, which result in periodic variations in the margins on jobs performed during any particular quarter;
the timing and cost of acquisitions and difficulties or costs encountered when integrating acquisitions;
the budgetary spending patterns of customers;

8

Table of Contents

increases in construction and design costs;
power outages and other unexpected delays;
our ability to control costs and maintain quality;
employment levels; and
regional or general economic conditions.

Accordingly, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for the entire year. Furthermore, negative trends in the ready-mixed concrete or aggregates industries or in our geographic markets could have material adverse effects on our business, financial condition, results of operations, liquidity and cash flows.

Significant downturn in the construction industry may result in an impairment of our goodwill.

We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. During our annual impairment test, we may identify events or changes in circumstances that could indicate the fair value of one or more of our reporting units is below its carrying value. For example, a significant downturn in the construction industry may have an adverse effect on the fair value of our reporting units. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, non-cash write-down of goodwill.

Our business depends of the availability of aggregate reserves or deposits and our ability to mine them economically.

Aggregates are a key component of ready-mixed concrete. In 2018, our ready-mixed concrete businesses purchased 32% of their aggregates needs from internally operated quarries and sites and 68% from third parties. In addition, in 2018, our aggregates segment sold $136.5 million of aggregates to third parties and $46.1 million of aggregates to our ready-mixed concrete operations, generating $41.6 million of Adjusted EBITDA.

Because aggregates are inexpensive, they are generally cost prohibitive to transport long distances, except in large quantities by water. As a result, access to local supplies of aggregates, whether mined locally or shipped there by water, is critical to the operations of our ready-mixed concrete business. One of our most significant challenges is finding aggregate deposits that we can mine economically with appropriate permits, either within our markets or in long-haul transportation corridors that can economically serve our markets. Due to urban growth, available quarrying locations have been reduced, and communities have imposed restrictions on mining, making aggregates supplies scarce in certain markets. If we are unable to access economical sources of aggregates either internally or from third parties, our business, financial condition, results of operations, liquidity and cash flows might be materially and adversely affected.

We may lose business to competitors who underbid us, and we may be otherwise unable to compete favorably in our highly competitive industry.

Our competitive position in a given market depends largely on the location and operating costs of our plants and prevailing prices in that market. Price is the primary competitive factor among suppliers for small or less complex jobs, principally in residential construction. However, timeliness of delivery and consistency of quality and service, as well as price, are the principal competitive factors among suppliers for large or complex jobs. Concrete manufacturers like us generally obtain customer contracts through local sales and marketing efforts directed at general contractors, developers, governmental agencies and homebuilders. As a result, we depend on local relationships. We generally do not have long-term sales contracts with our customers.

Our competitors range from small, owner-operated private companies to subsidiaries or operating units of large, vertically integrated manufacturers of cement and aggregates. Our vertically integrated competitors generally have greater manufacturing, financial and marketing resources than we have, providing them with competitive advantages. Competitors having lower operating costs than we do or having the financial resources to enable them to accept lower margins than we do may have competitive advantages over us for jobs that are particularly price-sensitive. Competitors having greater financial resources or less financial leverage than we do to invest in new mixer trucks, build plants in new areas, or pay for acquisitions also may have competitive advantages over us.


9

Table of Contents

We depend on third parties for concrete equipment and supplies essential to operate our business.

We rely on third parties to sell or lease property, plant and equipment to us and to provide us with supplies, including cement and other raw materials, necessary for our operations. We cannot assure you that our favorable working relationships with our suppliers will continue in the future. Also, there have historically been periods of supply shortages in the concrete industry, particularly in a strong economy.

If we are unable to purchase or lease necessary properties or equipment, our operations could be severely impacted. If we lose our supply contracts and receive insufficient supplies from third parties to meet our customers’ needs or if our suppliers experience price increases or disruptions to their business, such as labor disputes, supply shortages, or distribution problems, our business, financial condition, results of operations, liquidity and cash flows could be materially and adversely affected.

Residential construction and related demand for ready-mixed concrete has increased between 2012 and 2018. While cement prices increased as a result of this increased demand, cement supplies were at levels that indicated a very low risk of cement shortages in most of our markets. Should demand increase substantially beyond our current expectations, we could experience shortages of cement in future periods, which could adversely affect our operating results by decreasing sales of ready-mixed concrete and increasing our costs of raw materials.

We use large amounts of electricity and diesel fuel that are subject to potential reliability issues, supply constraints, and significant price fluctuation, which could affect our financial position, operating results and liquidity.
In our production and distribution processes, we consume significant amounts of electricity and diesel fuel. The availability and pricing of these resources are subject to market forces that are beyond our control. Furthermore, we are vulnerable to any reliability issues experienced by our suppliers, which also are beyond our control. Our suppliers contract separately for the purchase of such resources and our sources of supply could be interrupted should our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability. Variability in the supply and prices of these resources could materially affect our financial position, results of operations and liquidity from period to period.
We are dependent on information technology to support many facets of our business.
If our information systems are breached, shutdown, destroyed or fail due to cyberattack, unauthorized access, natural disaster or equipment breakdown, by employees, malicious third parties, or other unauthorized persons, our business could be interrupted, proprietary information could be lost, stolen or destroyed, and our reputation could be damaged. We take measures to protect our information systems and data from such occurrences, but as cyberattacks become increasingly sophisticated, there can be no guarantee that our actions, efforts, and security measures adopted will always prevent them. Our business could be negatively affected by any such occurrences.
The departure of key personnel could disrupt our business.

We depend on the efforts of our officers and, in many cases, on senior management of our businesses. Our success will depend on retaining our officers and senior-level managers. We need to ensure that key personnel are compensated fairly and competitively to reduce the risk of departure of key personnel to our competitors or other industries. To the extent we are unable to attract or retain qualified management personnel, our business, financial condition, results of operations, liquidity and cash flows could be materially and adversely affected. We do not carry key personnel life insurance on any of our employees.

Shortages of qualified employees may harm our business.

Our ability to provide high-quality products and services on a timely basis depends on our success in employing an adequate number of skilled plant managers, technicians and drivers. Like many of our competitors, we experience shortages of qualified personnel from time to time. We may not be able to maintain an adequate skilled labor force necessary to operate efficiently and to support our growth strategy, and our labor expenses may increase as a result of a shortage in the supply of skilled personnel.


10

Table of Contents

Collective bargaining agreements, work stoppages, and other labor relations matters may result in increases in our operating costs, disruptions in our business and decreases in our earnings.

As of December 31, 2018, approximately 34.6% of our employees were covered by collective bargaining agreements, which expire between 2018 and 2024. We are actively negotiating four of our contracts which had expired as of December 31, 2018. Our inability to negotiate acceptable new contracts or extensions of existing contracts with these unions could cause work stoppages by the affected employees. In addition, any new contracts or extensions could result in increased operating costs attributable to both union and nonunion employees. If any such work stoppages were to occur, or if other of our employees were to become represented by a union, we could experience a significant disruption of our operations and higher ongoing labor costs, which could materially and adversely affect our business, financial condition, results of operations, liquidity and cash flows. Also, labor relations matters affecting our suppliers of cement and aggregates could adversely impact our business from time to time.

Participation in multi-employer defined benefit plans may impact our financial condition, results of operations and cash flows.

We contribute to 17 multi-employer defined benefit plans, which are subject to the requirements of the Pension Protection Act of 2006 (the “PPA”). For multi-employer defined benefit plans, the PPA established new funding requirements or rehabilitation requirements, additional funding rules for plans that are in endangered or critical status and enhanced disclosure requirements to participants regarding a plan’s funding status. The Worker, Retiree and Employer Recovery Act of 2008 (the “WRERA”) provided some funding relief to defined benefit plan sponsors affected by the financial crisis. The WRERA allowed multi-employer plan sponsors to elect to freeze their funded status at the same funding status as the preceding plan year (for example, a calendar year plan that was not in critical or endangered status for 2008 was able to elect to retain that status for 2009) and sponsors of multi-employer plans in endangered or critical status in plan years beginning in 2008 or 2009 were allowed a three-year extension of funding improvement or rehabilitation plans (extending the timeline for these plans to achieve their goals from 10 years to 13 years, or from 15 years to 18 years for seriously endangered plans). A number of the multi-employer pension plans to which we contribute are underfunded and are currently subject to funding improvement or rehabilitation requirements. Additionally, if we were to withdraw partially or completely from any plan that is underfunded, we would be liable for a proportionate share of that plan’s unfunded vested benefits. Based on the information available from plan administrators, we believe that our portion of the contingent liability in the case of a full or partial withdrawal from or termination of several of these plans or the inability of plan sponsors to meet the funding or rehabilitation requirements would be material to our financial condition, results of operations and cash flows.

Our overall profitability is sensitive to price changes and variations in sales volumes.

Generally, our customers are price-sensitive. Prices for our products are subject to changes in response to relatively minor fluctuations in supply and demand, general economic conditions and market conditions, all of which are beyond our control. Our overall profitability is sensitive to price changes, and variations in sales volumes and pricing could have a material adverse effect.

Any material nonpayment or nonperformance by any of our key customers could have a material adverse effect on our business and results of operations.

Any material nonpayment or nonperformance by any of our key customers could have a material adverse effect on our revenue and cash flows. Remedies are available to us in the event of nonpayment, including liens or other legal remedies; however, cash flows may be delayed or we may receive significantly less than the amount owed to us. In the event of any customer's breach, we may also choose to renegotiate any agreement on less favorable terms, including with respect to price, for us to preserve the relationship with that customer.

Instability in the financial and credit sectors may impact our business and financial condition in ways that we currently cannot predict.

Adverse or worsening economic trends could have a negative impact on our suppliers and our customers and their financial condition and liquidity, which could cause them to fail to meet their obligations to us and could have a material adverse effect on our revenue, income from operations and cash flows. The uncertainty and volatility of the financial and credit sectors could have further impacts on our business and financial condition that we currently cannot predict or anticipate.

11

Table of Contents

Turmoil in the global financial system could have an impact on our business and our financial condition. Accordingly, our ability to access the capital markets could be restricted or be available only on unfavorable terms. Limited access to the capital markets could adversely impact our ability to take advantage of business opportunities or react to changing economic and business conditions and could adversely impact our ability to execute our long-term growth strategy. Ultimately, we could be required to reduce our future capital expenditures substantially. Such a reduction could have a material adverse effect on our revenue, income from operations and cash flows.

If one or more of the lenders under our asset-based revolving credit facility (the "Revolving Facility"), which provides for aggregate borrowings of up to $350.0 million, subject to the borrowing base, were to become unable or unwilling to perform their obligations under that facility, our borrowing capacity could be reduced. Our inability to borrow additional amounts under our Revolving Facility could limit our ability to fund our future operations and growth.

Governmental regulations, including environmental regulations, may result in increases in our operating costs and capital expenditures and decreases in our earnings.

A wide range of federal, state and local laws, ordinances and regulations apply to our operations, including the following matters:

water usage;
land usage;
street and highway usage;
noise levels; and
health, safety and environmental matters.

In many instances, we must have various certificates, permits, or licenses to conduct our business. Our failure to maintain required certificates, permits, or licenses or to comply with applicable governmental requirements could result in substantial fines or possible revocation of our authority to conduct some of our operations. Delays in obtaining approvals for the transfer or grant of certificates, permits or licenses, or failure to obtain new certificates, permits or licenses, could impede the implementation of any acquisitions.

Governmental requirements that impact our operations include those relating to air quality, solid and hazardous waste management and cleanup and water quality. These requirements are complex and subject to change. Certain laws, such as the Comprehensive Environmental Response, Compensation and Liability Act, can impose strict liability in some cases without regard to negligence or fault, including for the conduct of or conditions caused by others, or for our acts that complied with all applicable requirements when we performed them. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements, or the future discovery of environmental conditions may require us to make unanticipated material expenditures. In addition, we may fail to identify, or obtain indemnification for, environmental liabilities of acquired businesses. We generally do not maintain insurance to cover environmental liabilities.

Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating costs.

Operating mixer trucks, particularly when loaded, exposes our drivers and others to traffic hazards. Our drivers are subject to the usual hazards associated with providing services on construction sites, while our plant personnel are subject to the hazards associated with moving and storing large quantities of heavy raw materials. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. Although we conduct training programs designed to reduce these risks, we cannot eliminate these risks. We maintain insurance coverage in amounts we believe are consistent with industry practice; however, this insurance may not be adequate to cover all losses or liabilities we may incur in our operations, and we may not be able to maintain insurance of the types or at levels we deem necessary or adequate, or at rates we consider reasonable. A partially or completely uninsured claim, if successful and of sufficient magnitude, could have a material adverse effect on us.


12

Table of Contents

The insurance policies we maintain are subject to varying levels of deductibles. Losses up to the deductible amounts are accrued based on our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. If we were to experience insurance claims or costs above our estimates, our business, financial condition, results of operations, liquidity and cash flows might be materially and adversely affected.

There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
    
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. These provisions provide for the identification of material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

If, as a result of deficiencies in our internal controls, we cannot provide reliable financial statements, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information, the market price of our securities could decrease, and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected. In addition, failure to maintain effective internal control over our financial reporting could result in investigations or sanctions by regulatory authorities. In addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, result in higher borrowing costs and affect how our stock trades. This could in turn affect our ability to access public debt or equity markets for capital.

The adoption of new accounting standards may affect our financial results.

The accounting standards we apply in preparing our financial statements are reviewed by regulatory bodies and are changed from time to time. New or revised accounting standards could, either positively or negatively, affect results reported for periods after adoption of the standards as compared to the prior periods, or require retrospective application changing results reported for prior periods.

The Sarbanes-Oxley Act of 2002 and other related rules and regulations, have increased the scope, complexity and cost of corporate governance. Reports from the Public Company Accounting Oversight Board’s (“PCAOB”) inspections of public accounting firms continue to outline findings and recommendations that could require these firms to perform additional work as part of their financial statement audits. The Company’s costs to respond to these additional requirements may increase.


13

Table of Contents

U.S. tax legislation enacted in 2017 may adversely affect our business, results of operations, financial condition and cash flows.

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact us: (1) reduction of the U.S. federal corporate income tax rate from 35% to 21%; (2) extension and expansion of the bonus depreciation provisions; (3) creation of a new limitation on deductible interest expense; (4) repeal of the domestic production activities deduction; (5) enactment of a provision designed to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries; (6) further limitation of the deductibility of certain executive compensation; and (7) limitation of certain other deductions. During 2018, we completed our accounting for the income tax effects of the Tax Act in accordance with SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” and recorded additional income tax expense of $2.1 million as a reduction to the provisional tax benefits of $7.6 million recorded in the fourth quarter of 2017. In addition, we recognized additional income tax expense of $6.6 million to establish a valuation allowance related to the interest expense limitation carryforward attribute resulting from the Tax Act, which we do not believe is more likely than not to be realized under the current interpretation of the applicable statute. We also recorded income tax expense of $1.1 million related to the taxation of GILTI, which we have accounted for as a period cost. These items of additional income tax expense were the primary reasons our 2018 effective income tax rate of 34.9% was substantially higher than the U.S. federal statutory rate of 21.0%.

We may incur material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications.

Our operations involve providing products that must meet building code or other regulatory requirements and contractual specifications for durability, stress-level capacity, weight-bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us, and our reputation could be damaged. In the past, we have had significant claims of this kind asserted against us that we have resolved. There currently are claims, and we expect that in the future there will be additional claims, of this kind asserted against us. If a significant product-related claim or claims are resolved against us in the future, that resolution may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.

Some of our plants are susceptible to damage from natural disasters, for which we have a limited amount of insurance; our business and profitability could be adversely affected if the operations of one or more of our facilities were interrupted or shut down as the result of a natural disaster.

We maintain only a limited amount of insurance for natural disasters. A natural disaster or other serious disruption to our facilities due to earthquake, hurricane, fire, flood, severe weather or any other cause could substantially disrupt our operations. In addition, we could incur significantly higher costs during the time it takes us to reopen or replace one or more of our facilities, which may or may not be reimbursed by insurance. The adverse effects of a natural disaster could materially and adversely affect our business, financial condition, results of operations, liquidity and cash flows.

Increasing insurance claims and expenses could lower our profitability and increase our business risk.

The nature of our business subjects us to product liability, property damage, business interruption, personal injury and workers’ compensation claims from time to time. Increased premiums charged by insurance carriers may further increase our insurance expense as coverage expires or otherwise cause us to raise our self-insured retention. If the number or severity of claims within our self-insured retention increases, we could suffer losses in excess of our reserves. An unusually large liability claim or a string of claims based on a failure repeated throughout our mass production process may exceed our insurance coverage or result in direct damages if we were unable or elected not to insure against certain hazards because of high premiums or other reasons. In addition, the availability of, and our ability to collect on, insurance coverage is often subject to factors beyond our control. Further, allegations relating to workers’ compensation violations may result in investigations by insurance regulatory or other governmental authorities, which investigations, if any, could have a direct or indirect material adverse effect on our ability to pursue certain types of business which, in turn, could have a material adverse effect on our business, financial position, results of operations, liquidity and cash flows.


14

Table of Contents

Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.

As of December 31, 2018, we had $600.0 million aggregate principal amount of outstanding 6.375% Senior Notes due 2024 ("2024 Notes") issued as securities pursuant to the Indenture, dated as of June 7, 2016, among the Company, certain subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (the "Trustee") as supplemented to date (the "Indenture"). We and certain of our subsidiaries are also parties to a Third Amended and Restated Loan and Security Agreement (the “Third Loan Agreement”), with certain financial institutions named therein, as lenders (the “Lenders”), and Bank of America, N.A. as agent and sole lead arranger, that is secured by certain assets of the Company and the guarantors. The Third Loan Agreement provides for aggregate borrowings of up to $350.0 million subject to a borrowing base under the Revolving Facility. As of December 31, 2018, we had $15.0 million of outstanding borrowings under the Revolving Facility.

The covenants in the Third Loan Agreement and the Indenture allow us to incur additional indebtedness from other sources in certain circumstances.

As a result of our existing indebtedness and our capacity to incur additional indebtedness, we are, and anticipate continuing to be, a highly leveraged company. A significant portion of our cash flow will be required to pay interest and principal on our outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings available under our Revolving Facility, to enable us to repay our indebtedness, including the 2024 Notes, or to fund other liquidity needs. This level of indebtedness could have important consequences, including the following:

it requires us to use a significant percentage of our cash flow from operations for debt service and the repayment of our indebtedness, including indebtedness we may incur in the future, and such cash flow may not be available for other purposes;
it limits our ability to borrow money or sell stock to fund our working capital, capital expenditures, acquisitions and debt service requirements;
our interest expense could increase significantly if interest rates in general increase, because borrowings under our Revolving Facility bear interest at floating rates;
it may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
it may make us more vulnerable to a downturn in our business or the economy;
it may increase our cost of borrowing;
it may restrict us from exploiting business opportunities;
debt service requirements could make it more difficult for us to make payments on the 2024 Notes and our other indebtedness;
the interest limitation enacted as part of the Tax Act could increase our effective tax rate and income taxes payable; and
there would be a material adverse effect on our business and financial condition, if we were unable to refinance, service our indebtedness or obtain additional financing, as needed.

We may not be able to generate sufficient cash flows to meet our debt service obligations and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash from our operations in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Our business may not generate sufficient cash flow from operations and future sources of capital under the Revolving Facility otherwise may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we complete an acquisition, our debt service requirements could increase. We may need to refinance or restructure all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including the Revolving Facility and the 2024 Notes, on commercially reasonable terms, or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity, reducing or delaying capital expenditures, strategic acquisitions, investments and alliances or restructuring or refinancing our indebtedness. We may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.


15

Table of Contents

Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. The Third Loan Agreement and the Indenture restrict our ability to conduct asset sales and to use the proceeds from asset sales. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair, and any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our debt may accelerate our debt and, to the extent such debt is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our debt.

We may still be able to incur significantly more debt, including secured debt. This could intensify already-existing risks related to our indebtedness.

The terms of the Indenture and the Third Loan Agreement contain restrictions on our and the guarantors’ ability to incur additional indebtedness. However, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we or the guarantors could incur significant additional indebtedness in the future, much of which could constitute secured, senior, or pari passu indebtedness. As of December 31, 2018, our Revolving Facility provided for unused borrowing capacity of up to $243.7 million.

The Indenture permits us to incur certain additional secured debt, allows our non-guarantor subsidiaries to incur additional debt and does not prevent us from incurring other liabilities that do not constitute indebtedness as defined in the Indenture. The Indenture also, under certain circumstances, allows us to designate some of our restricted subsidiaries as unrestricted subsidiaries. Those unrestricted subsidiaries will not be subject to many of the restrictive covenants in the Indenture, and, therefore will be able to incur indebtedness beyond the limitations specified in the Indenture and engage in other activities in which restricted subsidiaries may not engage. If new debt is added to our currently anticipated debt levels, the related risks that we and the guarantors now face could intensify.

We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. Moreover, although the Third Loan Agreement and the Indenture contain restrictions on our ability to make restricted payments, including the declaration and payment of dividends, we will be able to make substantial restricted payments under certain circumstances.

The amount of borrowings permitted under our Revolving Facility may fluctuate significantly, which may adversely affect our liquidity, results of operations and financial position.

The amount of borrowings permitted at any time under our Revolving Facility is limited to a periodic borrowing base valuation of, among other things, our eligible accounts receivable, inventory and mixer trucks and, under certain circumstances, our machinery. As a result, our access to credit under our Revolving Facility is potentially subject to significant fluctuations depending on the value of the borrowing base eligible assets as of any measurement date, as well as certain discretionary rights of the administrative agent of our Revolving Facility in respect of the calculation of such borrowing base value. Our inability to borrow at current advance rates or at all under, or the early termination of, our Revolving Facility may adversely affect our liquidity, results of operations and financial position.

Repayment of our debt is dependent on cash flow generated by our subsidiaries.

We are a holding company and substantially all of our tangible assets are owned by our subsidiaries. As such, repayment of our indebtedness, to a certain degree, is dependent on the generation of cash flows by our subsidiaries (including any subsidiaries that are not guarantors) and their ability to make such cash available to us, by dividend, loan, debt repayment, or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions or other payments to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions or our permanently invested assertion may limit our ability to obtain cash from our subsidiaries. While the terms of the Indenture and the Third Loan Agreement limit the ability of certain of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments, these limitations are subject to important qualifications and exceptions. In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make required payments on our indebtedness.


16

Table of Contents

A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the 2024 Notes. Credit ratings are not recommendations to purchase, hold or sell the 2024 Notes. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure of the 2024 Notes.

Our debt agreements may restrict our ability to operate our business and to pursue our business strategies. Our failure to comply with the covenants contained in the Third Loan Agreement, the Indenture or any agreement under which we have incurred other indebtedness, including as a result of events beyond our control, could result in an event of default which could materially and adversely affect our operating results and our financial condition.

The Third Loan Agreement and the Indenture impose, and future financing agreements are likely to impose, operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and limit or prohibit our ability to, among other things:

incur additional indebtedness or issue disqualified stock or preferred stock;
pay dividends or make other distributions, repurchase or redeem our stock or subordinated indebtedness, or make certain investments;
prepay, redeem, or repurchase certain debt;
sell assets and issue capital stock of our restricted subsidiaries;
incur liens;
enter into agreements restricting our restricted subsidiaries’ ability to pay dividends, make loans to other U.S. Concrete entities or restrict the ability to provide liens;
enter into transactions with affiliates;
consolidate, merge, or sell all or substantially all of our assets; and
with respect to the Indenture, designate our subsidiaries as unrestricted subsidiaries.

The restrictive covenants in the Third Loan Agreement also require us to maintain specified financial ratios and satisfy other financial condition tests in certain circumstances.

These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.

Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain these financial tests. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all. In addition, an event of default under the Third Loan Agreement would permit the Lenders to terminate all commitments to extend further credit under the Revolving Facility. Furthermore, if we were unable to repay the amounts due and payable under our Revolving Facility, those Lenders could proceed against the collateral granted to them to secure that indebtedness.

As a result of these restrictions, we may be:

limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.

17

Table of Contents

These restrictions, along with restrictions that may be contained in agreements evidencing or governing future indebtedness, may affect our ability to grow in accordance with our growth strategy.

The Third Loan Agreement contains a fixed charge coverage ratio covenant if our Availability (as defined in the Third Loan Agreement) falls below a certain threshold. In addition, the Revolving Facility requires us to comply with various operational and other covenants. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operationsunder the heading “Liquidity and Capital Resources for a discussion of the financial covenants contained in the Third Loan Agreement. If we were required to repurchase any of our debt securities upon a change of control, we may not be able to refinance or restructure the payments on those debt securities. If, as or when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, the Third Loan Agreement, the Lenders could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against the assets securing their borrowings.

The Third Loan Agreement provides the Lenders considerable discretion to impose reserves or availability blocks or reduce the advance rates used to calculate the value of our borrowing base, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the Lenders will not take such actions during the term of that facility and, further, were they to do so, the resulting impact of such actions could materially and adversely impair our ability to make interest payments on the 2024 Notes, among other matters.

Our subsidiary, Polaris Materials Corporation, exposes us to legal, political and economic risks in Canada as well as currency exchange rate fluctuations that could negatively impact our business and financial results.

International business is subject to a variety of risks, including:

imposition of governmental controls and changes in laws, regulations or policies;
currency exchange rate fluctuations, devaluations and other conversion restrictions;
uncertain and changing tax rules, regulations and rates;
logistical challenges;
changes in regulatory practices, including tariffs and taxes;
changes in labor conditions;
general economic, political and financial conditions in foreign markets; and
exposure to civil or criminal liability under the U.S. Foreign Corrupt Practices Act (“FCPA”), the Canadian Corruption of Foreign Public Officials Act, anti-boycott rules, trade and export control regulations, as well as other international regulations.

U.S. international trade policy is subject to change, including, for example, the government’s decision to renegotiate the North American Free Trade Agreement, which could cause an increase in customs duties that, in turn, could adversely affect intercompany transactions among operating subsidiaries in Canada and the U.S. and increase transaction costs with third-party suppliers and customers.

Common Stock Investment Risks

We do not intend to pay dividends on our common stock.

We have not declared or paid any dividends on our common stock to date, and we do not anticipate paying any dividends on our common stock in the foreseeable future. We intend to reinvest all future earnings in the development and growth of our business. In addition, our Third Loan Agreement and the Indenture limit our ability to pay dividends, and future loan agreements may also prohibit the payment of dividends. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, business opportunities, contractual restrictions and other factors deemed relevant. To the extent we do not pay dividends on our common stock, investors must look solely to stock appreciation for a return on their investment in our common stock.


18

Table of Contents

Our stock price may be volatile.

In recent years, the stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of specific companies. The market price of our common stock may fluctuate based on a number of factors, including:

our operating performance and the performance of other similar companies;
news announcements relating to us or our competitors, the job market in general and unemployment data;
changes in earnings estimates or recommendations by research analysts;
changes in general economic conditions;
changes in interest rates and inflation;
the arrival or departure of key personnel;
acquisitions or other transactions involving us or our competitors; and
other developments affecting us, our industry or our competitors.

Our amended and restated certificate of incorporation, third amended and restated bylaws and Delaware law contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.

Provisions in our amended and restated certificate of incorporation, our third amended and restated bylaws and applicable provisions of the General Corporation Law of the State of Delaware may make it more difficult or expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our stockholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of our common stock.  In addition, Delaware law prohibits us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than 15% of our common stock cannot acquire us for a period of three years from the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors.

Failure to meet our financial guidance or achieve other forward-looking statements we have provided to the public could result in a decline in our stock price.

From time to time, we provide public guidance on our expected financial results or disclose other forward-looking information for future periods. We manage our business to maximize our growth and profitability and not to achieve financial or operating targets for any particular reporting period. Although we believe that public guidance may provide investors with a better understanding of our expectations for the future and is useful to our existing and potential shareholders, such guidance is subject to risks, uncertainties and assumptions. Any such guidance or other forward-looking statements are predictions based on our then existing expectations and projections about future events that we believe are reasonable. Actual events or results may differ materially from our expectations, and as such, our actual results may not be in line with guidance we have provided. We are under no duty to update any of our forward-looking statements to conform to actual results or to changes in our expectations, except as required by federal securities laws. If our financial results for a particular period do not meet our guidance or the expectations of investors, or if we reduce our guidance for future periods, the market price of our common stock may decline and stockholders could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk.


Item 1B. Unresolved Staff Comments

None.


19

Table of Contents

Item 2.  Properties

Ready-mixed concrete

The table below lists our concrete plant facilities as of December 31, 2018. While these plants are of varying ages, we believe they are generally in good condition, well maintained and sufficient for our current needs.

 
 
Owned
 
Leased
 
 
 
2018 Production
(in thousands
of cubic yards)
Locations
 
Fixed Standard
 
Volumetric
 
Portable
 
Fixed Standard
 
Portable
 
Total
 
Texas / Oklahoma
 
88

 
17

 
13

 
1

 
1

 
120

 
4,199

New Jersey / New York / Washington, D.C./ Pennsylvania
 
44

 

 
1

 
3

 

 
48

 
3,053

Northern California
 
20

 

 
4

 
2

 

 
26

 
2,212

U.S. Virgin Islands
 
3

 

 

 
1

 

 
4

 
82

Total
 
155

 
17

 
18

 
7

 
1

 
198

 
9,546


Aggregate products

The table below lists our aggregate facilities as of December 31, 2018.
Locations
 
Owned
 
Leased
 
Total
 
2018 Production
(in thousands of tons)
British Columbia, Canada
 

 
1

 
1

 
4,971

Texas / Oklahoma
 
5

 
7

 
12

 
3,144

New Jersey
 
3

 
1

 
4

 
2,001

U.S. Virgin Islands
 
2

 

 
2

 
317

Total
 
10

 
9

 
19

 
10,433


We produce crushed stone aggregates, sand and gravel from 19 aggregates facilities located in New Jersey, Texas, Oklahoma, Canada and the U.S. Virgin Islands. We also lease another quarry to a third party who remits a royalty to us based on the volume of product produced and sold from the quarry. We sell our aggregates for use in commercial, industrial and public works projects or consume them internally in the production of ready-mixed concrete in the markets they serve.  Also included in our aggregate products segment are two distribution terminals in California to which we ship the aggregates we produce from our Canadian quarry. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability.

Other

As of December 31, 2018, we also leased four aggregates distribution terminals in New York and one in New Jersey.



20

Table of Contents

Item 3.  Legal Proceedings
 
The information set forth under the heading “Legal Proceedings” in Note 16, “Commitments and Contingencies,” to our consolidated financial statements included in this report is incorporated by reference into this Item 3. 


Item 4.  Mine Safety Disclosures

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



21

Table of Contents

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Capital Market under the ticker symbol “USCR.”

As of February 20, 2019, we had 154 holders of record of our common stock and approximately 27,800 beneficial holders of our common stock. 

Issuer Purchases of Equity Securities

The following table provides information with respect to our purchases of shares of our common stock during the three month period ended December 31, 2018:

Calendar month
 
Total number of shares purchased(1)
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs(2)
 
Approximate dollar value of shares that may yet be purchased under plans or programs
(in millions)(2)
October 1 - October 31, 2018
 
450

 
$
37.05

 

 
$
50.0

November 1 - November 30, 2018
 
60,000

 
37.19

 
60,000

 
47.8

December 1 - December 31, 2018
 
121,466

 
36.73

 
121,100

 
43.3

Total
 
181,916

 
$
36.88

 
181,100

 
$
43.3


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

22

Table of Contents


Performance Graph
    
The following performance graph compares the cumulative total return to holders of our common stock since the last trading day of 2013 with the cumulative total returns of the Russell 2000 index and a peer group selected by us (the "Peer Group"). The companies included in the Peer Group are Cemex, S.A.B. de C.V., Eagle Materials Inc., Martin Marietta Materials Inc., Summit Materials, Inc. and Vulcan Materials Company. The graph assumes that the value of the investment in our common stock, the Russell 2000 index and each peer group was $100 on December 31, 2013 and is calculated assuming the quarterly reinvestment of dividends, as applicable.

Comparison of 5 Year Cumulative Total Return
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12737972&doc=16
 
12/31/13
 
12/31/14
 
12/31/15
 
12/31/16
 
12/31/17
 
12/31/18
U.S. Concrete, Inc.
$
100.00

 
$
125.72

 
$
232.70

 
$
289.44

 
$
369.64

 
$
155.90

Russell 2000
$
100.00

 
$
104.89

 
$
100.26

 
$
121.63

 
$
139.44

 
$
124.09

Peer Group
$
100.00

 
$
99.82

 
$
98.44

 
$
144.08

 
$
149.74

 
$
104.59


The stock price performance included in this graph is not necessarily indicative of future stock price performance.

The above performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.


23

Table of Contents

Item 6.  Selected Financial Data

The following table provides selected consolidated financial data for the periods shown. The data has been derived from our audited consolidated financial statements. Our historical results are not necessarily indicative of future performance or results of operations. Our results include the impacts of business combinations in each of the five years shown below. All of the data in the table should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
(in millions except per share data)
FOR THE YEAR
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
1,506.4

 
$
1,336.0

 
$
1,168.2

 
$
974.7

 
$
703.7

Income (loss) from continuing operations attributable to U.S. Concrete
 
$
30.0

 
$
26.1

 
$
9.6

 
$
(5.1
)
 
$
21.6

Loss from discontinued operations, net of taxes
 
$

 
$
(0.6
)
 
$
(0.7
)
 
$
(0.3
)
 
$
(1.0
)
Net income (loss) attributable to U.S. Concrete
 
$
30.0

 
$
25.5

 
$
8.9

 
$
(5.4
)
 
$
20.6

 
 
 
 
 
 
 
 
 
 
 
PER SHARE INFORMATION
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per share attributable to U.S. Concrete:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
1.82

 
$
1.64

 
$
0.63

 
$
(0.36
)
 
$
1.59

Loss from discontinued operations, net of taxes
 

 
(0.04
)
 
(0.04
)
 
(0.02
)
 
(0.07
)
Net income (loss) per share attributable to U.S. Concrete - basic
 
$
1.82

 
$
1.60

 
$
0.59

 
$
(0.38
)
 
$
1.52

 
 
 
 
 
 
 
 
 
 
 
Diluted income (loss) per share attributable to U.S. Concrete:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
1.82

 
$
1.57

 
$
0.59

 
$
(0.36
)
 
$
1.55

Loss from discontinued operations, net of taxes
 

 
(0.04
)
 
(0.04
)
 
(0.02
)
 
(0.07
)
Net income (loss) per share attributable to U.S. Concrete - diluted
 
$
1.82

 
$
1.53

 
$
0.55

 
$
(0.38
)
 
$
1.48

 
 
 
 
 
 
 
 
 
 
 
AS OF END OF YEAR
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,371.3

 
$
1,276.1

 
$
945.4

 
$
681.7

 
$
453.7

Total debt
 
$
714.1

 
$
693.4

 
$
449.3

 
$
275.6

 
$
213.7





24

Table of Contents

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.

Our Business

Our principal business is producing ready-mixed concrete and supplying aggregates in select geographic markets in the United States, U.S. Virgin Islands and Canada. We operate our business through two primary segments, which are ready-mixed concrete and aggregate products. The results of operations for certain previously sold precast operations have been included in discontinued operations for 2016 and 2017.

Ready-mixed concrete. Our ready-mixed concrete segment (which represented 86.7% of our revenue for 2018) 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, Washington, D.C., Pennsylvania, Northern California, Oklahoma and the U.S. Virgin Islands. Ready-mixed concrete is a highly versatile construction material that results from combining coarse and fine aggregates, such as gravel, crushed stone and sand, with water, various chemical admixtures and cement. We also provide services intended to reduce our customers’ overall construction costs by lowering the installed, or “in-place,” cost of concrete. These services include the formulation of mixtures for specific design uses, on-site and lab-based product quality control and customized delivery programs to meet our customers’ needs.

Aggregate products. Our aggregate products segment (which represented 9.1% of our revenue for 2018, excluding $46.1 million of intersegment sales) produces crushed stone, sand and gravel from 19 aggregates facilities located in New Jersey, Texas, Oklahoma, the U.S. Virgin Islands, and British Columbia, Canada. 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 10.4 million tons of aggregates during 2018, with British Columbia, Canada representing 48%, Texas / Oklahoma representing 30%, New Jersey representing 19% and the U.S. Virgin Islands representing 3% of the total production. We consumed 32% of our aggregate production internally and sold 68% to third-party customers in 2018. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability. In addition, we own one quarry in West Texas, which we lease to third parties and receive a royalty based on the volumes produced and sold during the terms of the leases.

Overview

The geographic markets for our products are generally local, except for our Canadian aggregate products operation, 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 in 2018 increased 6.3% to 9.5 million cubic yards from 9.0 million cubic yards in 2017. Sales volume for 2018 was up compared to 2017, primarily due to increased construction activity and acquisitions completed in 2018 and the latter portion of 2017. In addition, our average ready-mixed concrete sales price rose 1.2% from 2017 to 2018, resulting in the 8th consecutive year of increased average selling prices.

We were able to leverage efficiencies to drive incremental margins on higher volume during 2018. Partially offsetting these improvements was higher cement and aggregate costs, some of which we were not able to pass through to our customers. We continue to closely monitor our operating costs and capital expenditures.


25

Table of Contents

In September 2017, Hurricanes Irma and Maria made landfall in the U.S. Virgin Islands ("USVI"). These storms resulted in extensive damage, flooding and power outages throughout the islands for an extended period of time. We recorded impairments related to inventory and property, plant and equipment of approximately $1.1 million in 2017. In addition, during the fourth quarter of 2017, based on the uncertainty of the timing of the business recovery and its impact on our projected cash flows, we recorded a non-cash goodwill impairment charge of $5.8 million, representing a full impairment of the goodwill related to our USVI operations. Although we had not fully restored our operations by the end of 2018, our USVI volume and revenue had returned to pre-hurricane levels.

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

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

Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America ("U.S. GAAP"), and is not a measure of our cash flows or ability to fund our cash needs. Our 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 and the Indenture.  See Note 19, "Segment Information," to our consolidated financial statements included in this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to income (loss) from continuing operations.

Acquisitions and Divestitures

We completed five acquisitions during 2018 that expanded our ready-mixed concrete operations in our Atlantic Region (which we define to include New York, New Jersey, Washington, D.C. and Pennsylvania) and expanded our ready-mixed concrete and aggregate products operations in West Texas. In addition, we completed eight acquisitions during 2017, which expanded our ready-mixed concrete operations in Northern California, facilitated vertical integration on the West Coast and expanded our aggregates operations in the Atlantic Region. During 2018, we sold our Dallas/Fort Worth area lime operations, a Michigan aggregates property, and an aggregates operation in New Jersey that no longer fit into our operating plans.

For additional information on our acquisitions, see Note 2, "Business Combinations" to our consolidated financial statements included in this report.


26

Table of Contents

Results of Operations

2018 Compared to 2017

($ in millions except selling prices)
 
2018
 
2017
 
Increase / (Decrease)
 
% Change(1)
Revenue
 
$
1,506.4

 
100.0
 %
 
$
1,336.0

 
100.0
 %
 
$
170.4

 
12.8
 %
Cost of goods sold before depreciation, depletion and amortization
 
1,212.2

 
80.5

 
1,056.6

 
79.1

 
155.6

 
14.7

Selling, general and administrative expenses
 
126.5

 
8.4

 
119.2

 
8.9

 
7.3

 
6.1

Depreciation, depletion and amortization
 
91.8

 
6.1

 
67.8

 
5.1

 
24.0

 
35.4

Change in value of contingent consideration
 

 

 
7.9

 
0.6

 
(7.9
)
 
NM
Impairment of goodwill and other assets
 
1.3

 
0.1

 
6.2

 
0.5

 
(4.9
)
 
(79.0
)
Gain on sale of business and assets, net
 
(15.3
)
 
(1.0
)
 
(0.7
)
 
(0.1
)
 
14.6

 
NM
Operating income
 
89.9

 
6.0

 
79.0

 
5.9

 
10.9

 
13.8

Interest expense, net
 
46.4

 
3.1

 
42.0

 
3.1

 
4.4

 
10.5

Derivative loss
 

 

 
0.8

 
0.1

 
(0.8
)
 
NM
Loss on extinguishment of debt
 

 

 
0.1

 

 
(0.1
)
 
NM
Other income, net
 
(4.6
)
 
(0.3
)
 
(2.5
)
 
(0.2
)
 
2.1

 
84.0

Income from continuing operations before income taxes
 
48.1

 
3.2

 
38.6

 
2.9

 
9.5

 
24.6

Income tax expense
 
16.8

 
1.1

 
12.4

 
0.9

 
4.4

 
35.5

Income from continuing operations
 
31.3

 
2.1

 
26.2

 
2.0

 
5.1

 
19.5
Loss from discontinued operations, net of taxes
 

 

 
(0.6
)
 

 
(0.6
)
 
NM
Net income
 
31.3

 
2.1

 
25.6

 
1.9

 
5.7

 
22.3

Less: Net income attributable to non-controlling interest
 
(1.3
)
 
(0.1
)
 
(0.1
)
 

 
(1.2
)
 
NM
Net income attributable to U.S. Concrete
 
$
30.0

 
2.0
 %
 
$
25.5

 
1.9
 %
 
$
4.5

 
17.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 
 

 
 

 
 

 
 

 
 
 
 

Average selling price per cubic yard
 
$
136.42

 
 
 
$
134.86

 
 

 
$
1.56

 
1.2
 %
Sales volume in thousand cubic yards
 
9,546

 
 
 
8,984

 
 

 
562

 
6.3
 %
Aggregate Products Data:
 
 

 
 
 
 

 
 

 
 
 
 

       Average selling price per ton (2)
 
$
11.28

 
 
 
$
12.92

 
 

 
$
(1.64
)
 
(12.7
)%
       Sales volume in thousand tons
 
11,110

 
 

 
6,197

 
 

 
4,913

 
79.3
 %

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





27

Table of Contents

Revenue. Our 2018 total revenue grew by $170.4 million, or 12.8%, year-over-year primarily driven by contributions from our acquisitions. We estimate that acquisitions completed after April 1, 2017 accounted for approximately $154.7 million, or 90.8%, of our 2018 revenue increase. As our business is seasonal and subject to adverse weather, our 2018 results were negatively impacted by inclement weather in various regions and during various periods of the year. Ready-mixed concrete sales grew by $93.5 million, or 7.7%, driven by a 6.3% increase in sales volume and a 1.2% increase in our average selling price. Sales of aggregate products rose to $182.6 million in 2018 from $90.7 million in 2017, an increase of $91.9 million, or 101.3%, due to a 79.3% increase in volume partially offset by a 12.7% decrease in average selling price. The aggregate products revenue increase included $43.8 million of shipping revenue attributable to Polaris Materials ("Polaris"), the construction aggregate producer in British Columbia, Canada, which we acquired near the end of 2017. Other product revenue and eliminations, which included aggregates distribution, building materials, lime slurry, hauling business, aggregate recycling, concrete block and eliminations of our intersegment sales, decreased by $15.0 million, or 46.4%, from $32.3 million in 2017, to $17.3 million in 2018, primarily due to decreased aggregates distribution sales and the impact of increased intersegment sales.

Cost of goods sold before depreciation, depletion and amortization ("DD&A"). Cost of goods sold before DD&A increased $155.6 million, or 14.7%, in 2018 as compared to 2017, primarily attributable to the increase in revenue. The volume growth in our ready-mixed concrete segment resulted in higher material costs, delivery costs and variable costs, which primarily includes labor and benefits, shipping, utilities and repairs and maintenance. Our increased variable costs were primarily driven by Polaris' shipping expenses. Our fixed costs increased over the comparable prior year period primarily due to higher costs to operate our facilities, as well as operating additional locations and trucks in 2018. As a percentage of revenue, cost of goods sold before DD&A increased from 79.1% in 2017 to 80.5% in 2018.

Selling, general and administrative ("SG&A") expenses.  SG&A expenses for 2018 increased $7.3 million, or 6.1%, as compared to 2017.  The increase resulted from various factors, including: marketing and promotions, non-cash stock compensation expense, litigation settlement costs, the impact of additional costs of acquired businesses, and other general and administrative expenses incurred by our corporate and regional offices to support our growth initiatives and acquisition strategy. As a percentage of total revenue, SG&A expenses decreased from 8.9% in 2017 to 8.4% in 2018.

Depreciation, depletion and amortization.  DD&A expense for 2018 increased $24.0 million, or 35.4%, primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through recent acquisitions and depletion on acquired mineral deposits. Approximately 50% of the increase was attributable to Polaris.

Change in value of contingent consideration. We recorded net non-cash expense of less than $0.1 million for the revaluation of contingent consideration in 2018 compared to $7.9 million in 2017. These non-cash expenses were related to the fair value changes in contingent consideration associated with certain acquisitions. The key inputs in determining the fair value of our contingent consideration at December 31, 2018 included discount rates ranging from 3.70% to 15.75% and management's estimates of future sales volumes, amount of reserves permitted and EBITDA. Changes in these inputs impact the valuation of our contingent consideration and result in gain or loss in each reporting period. The non-cash expense from fair value changes in contingent consideration in 2018 was primarily due to the offsetting changes in the probability-weighted assumptions related to the achievement of permitted reserves and those related to future EBITDA thresholds. The non-cash expense from fair value changes in contingent consideration in 2017 was primarily due to the changes in the probability-weighted assumptions related to the achievement of sales volumes and EBITDA thresholds.

Impairment of goodwill and other assets. We recorded a $1.3 million non-cash impairment in the second quarter of 2018 to reduce an aggregate property to its fair value. The asset was near the end of its economic life and was sold in the third quarter of 2018. In 2017, we recorded a non-cash impairment of $6.2 million, of which $5.8 million related to an impairment of goodwill for our USVI operations as a result of the fourth quarter annual goodwill impairment evaluation. The rest of the 2017 amount related to property, plant and equipment in the USVI that was destroyed by the hurricanes.

Gain on sale of business and assets, net. The net $15.3 million gain on sale of business and assets recorded in 2018 was primarily as a result of the divestiture of our lime operations in the third quarter of 2018. In addition, we recorded net gains on sales of excess vehicles and equipment in both 2018 and 2017.

Interest expense, net.  Net interest expense increased by $4.4 million, or 10.5%, to $46.4 million in 2018 from $42.0 million in 2017, primarily due to borrowings under our asset-based revolving credit facility (the "Revolving Facility") and an increase in capital leases.


28

Table of Contents

Income tax expense.  We recorded income tax expense allocated to continuing operations of approximately $16.8 million for 2018 and $12.4 million for 2017. For 2018, our effective tax rate differed substantially from the federal statutory rate primarily due to $6.6 million of additional income tax expense to record a valuation allowance for an interest expense limitation carryforward attribute resulting from the Tax Act (defined below), which we do not believe is more likely than not to be realized under the current interpretation of the applicable statute. For 2017, our effective tax rate differed substantially from the federal statutory rate primarily due to the adjustment of our net deferred income tax liability to reflect the change in the federal statutory tax rate from 35% to 21%, for which we recorded a provisional non-cash $7.6 million deferred income tax benefit.

Under U.S. tax law, we treat our Canadian and USVI subsidiaries (collectively, “foreign subsidiaries”) as controlled foreign corporations. We consider the undistributed earnings of our foreign subsidiaries, if any, and other outside basis differences in our investments in our foreign subsidiaries to be indefinitely reinvested and no foreign withholding or other income taxes have been provided thereon. Due to the complexities in the tax laws, it is not practicable to estimate the amount of deferred incomes 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 to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, the following that impacted us: (1) reduction of the U.S. federal corporate income tax rate from 35% to 21%; (2) extension and expansion of the bonus depreciation provisions; (3) creation of a new limitation on deductible interest expense; (4) enactment of a new provision designed to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries; (5) repeal of the domestic production activities deduction; (6) further limitation of the deductibility of certain executive compensation; and (7) limitation of certain other deductions. During 2018, we completed our accounting for the income tax effects of the Tax Act and recognized $2.1 million of income tax expense as a reduction to the provisional tax benefits recognized in 2017.


29

Table of Contents

Segment information

For a discussion of our segments and segment Adjusted EBITDA, see "Basis of Presentation" under this Item 7, earlier in this report. For a discussion and reconciliation of our segment Adjusted EBITDA, see Note 19, "Segment Information," to our consolidated financial statements in this report.

Ready-mixed concrete

($ in millions except selling prices)
2018
 
2017
 
Increase / (Decrease)
 
% Change
Ready-mixed Concrete Segment:
 
 
 
 
 
 
 
      Revenue
$
1,306.5

 
$
1,213.0

 
$
93.5

 
7.7
 %
      Segment revenue as a percentage of total revenue
86.7
%
 
90.8
%
 
 
 
 
      Adjusted EBITDA
$
179.2

 
$
185.8

 
$
(6.6
)
 
(3.6
)%
      Adjusted EBITDA as a percentage of segment revenue
13.7
%
 
15.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 

 
 

 
 
 
 

Average selling price per cubic yard (1)
$
136.42

 
$
134.86

 
$
1.56

 
1.2
 %
Sales volume in thousand cubic yards
9,546

 
8,984

 
562

 
6.3
 %
(1) Calculation excludes certain ancillary revenue that is reported within the segment.

Revenue.  Our ready-mixed concrete sales provided 86.7% and 90.8% of our total revenue in 2018 and 2017, respectively. Segment revenue for 2018 increased $93.5 million, or 7.7%, over 2017 levels. We estimate that approximately $74.4 million of this increase, or 79.6%, was due to acquisitions completed after April 1, 2017. The 2018 revenue increase was driven by the 6.3% increase in sales volume, or 562 thousand cubic yards, and the 1.2% increase in our average selling price. The majority of the sales volume increase was in Texas and California. Increased volume provided $75.8 million, or 81.1%, of our ready-mixed concrete revenue growth, and the higher average selling price provided $17.7 million, or 18.9%, of our ready-mixed concrete revenue growth.
 
Adjusted EBITDA.  In 2018, our ready-mixed concrete Adjusted EBITDA decreased $6.6 million, or 3.6%, as compared to 2017. While our revenue for the segment increased, multiple weather events throughout the country during 2018, which when combined with costs relating to driver shortages and increased raw materials costs, hindered profitability. Our variable costs primarily consist of raw material costs, labor and benefits costs, utilities and delivery costs, all of which were higher in 2018 than in 2017. Our fixed costs primarily consist of property taxes, equipment rental, quality control, dispatch and plant management costs. In 2018, our fixed costs increased due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year. Segment Adjusted EBITDA as a percentage of segment revenue decreased to 13.7% in 2018.


30

Table of Contents

Aggregate products

($ in millions except selling prices)
2018
 
2017
 
Increase / (Decrease)
 
% Change
Aggregate Products Segment:
 
 
 
 
 
 
 
Sales to external customers
$
136.5

 
$
49.8

 
 
 
 
Intersegment sales
46.1

 
40.9

 
 
 
 
Total aggregate products revenue
$
182.6

 
$
90.7

 
$
91.9

 
101.3
 %
Segment revenue, excluding intersegment sales, as a percentage of total company revenue
9.1
%
 
3.7
%
 
 
 
 
Adjusted EBITDA
$
41.6

 
$
27.2

 
$
14.4

 
52.9
 %
Adjusted EBITDA as a percentage of segment revenue
30.5
%
 
30.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate Products Data:
 

 
 

 
 
 
 

Average selling price per ton (1)
$
11.28

 
$
12.92

 
$
(1.64
)
 
(12.7
)%
Sales volume in thousand tons
11,110

 
6,197

 
4,913

 
79.3
 %

(1) Our calculation of the aggregate products segment ASP excludes certain other ancillary revenue and Polaris’s freight revenue.  We define revenue for our aggregate products ASP calculation as amounts billed to external and internal customers for coarse and fine aggregate products, excluding delivery charges.  Our definition and calculation of ASP may differ from other companies in the construction materials industry.

Revenue.  Sales of our aggregate products provided 9.1% and 3.7% of our total revenue for 2018 and 2017, respectively, excluding intersegment sales of $46.1 million and $40.9 million, respectively. Segment revenue increased $91.9 million, or 101.3%, over prior year levels. We estimate that $86.8 million, or 94.5%, of the revenue increase was due to recent acquisitions, the most significant of which was Polaris.

We sell our aggregate products to external customers and internally to our ready-mixed concrete segment at market price. Our sales volume increased 4.9 million tons, which provided $63.5 million, or 69.1%, of our aggregate products revenue increase. Polaris shipping charges to deliver aggregate products to external customers, as well as other charges, all of which are included in revenue, increased $46.6 million, providing 50.7% of our increase in aggregate products revenue. The acquisitions of Corbett and Polaris in 2017 resulted in a shift in product mix, which resulted in an overall lower ASP for the segment in 2018 as compared to 2017.

Adjusted EBITDA.  Adjusted EBITDA for our aggregate products segment increased to $41.6 million in 2018 from $27.2 million in 2017, primarily reflecting the higher sales volume partially offset by the related higher cost of goods sold associated with the increased volume. Our variable costs associated with cost of goods sold, which includes quarry labor and benefits, utilities, repairs and maintenance, and pit costs to prepare the stone and gravel for use, all rose due to the higher sales volumes. Our quarry fixed costs, which primarily include property taxes, equipment rental and plant management costs, were higher compared to the previous year. Overall, our segment Adjusted EBITDA as a percentage of segment revenue improved to 30.5% in 2018 from 30.0% in 2017.

31

Table of Contents

2017 Compared to 2016

The following table sets forth selected historical statement of operations information and that information as a percentage of revenue for each of the periods indicated, as well as the increase or decrease from the prior year in dollars and percent.   

($ in millions except selling prices)
 
2017
 
2016
 
Increase / Decrease
 
% Change
Revenue
 
$
1,336.0

 
100.0
 %
 
$
1,168.2

 
100.0
 %
 
$
167.8

 
14.4%
Cost of goods sold before depreciation, depletion and amortization
 
1,056.6

 
79.1

 
922.3

 
79.0

 
134.3

 
14.6
Selling, general and administrative expenses
 
119.2

 
8.9

 
100.0

 
8.6

 
19.2

 
19.2
Depreciation, depletion and amortization
 
67.8

 
5.1

 
54.9

 
4.7

 
12.9

 
23.5
Change in value of contingent consideration
 
7.9

 
0.6

 
5.2

 
0.4

 
2.7

 
51.9
Impairment of goodwill and other assets
 
6.2

 
0.5

 

 

 
6.2

 
NM
Gain on sale of assets, net
 
(0.7
)
 
(0.1
)
 
(1.4
)
 
(0.1
)
 
(0.7
)
 
(50.0)
Operating income
 
79.0

 
5.9

 
87.2

 
7.5

 
(8.2
)
 
(9.4)
Interest expense, net
 
42.0

 
3.1

 
27.7

 
2.4

 
14.3

 
51.6
Derivative loss
 
0.8

 
0.1

 
19.9

 
1.7

 
(19.1
)
 
(96.0)
Loss on extinguishment of debt
 
0.1

 

 
12.0

 
1.0

 
(11.9
)
 
NM
Other income, net
 
(2.5
)
 
(0.2
)
 
(3.2
)
 
(0.3
)
 
(0.7
)
 
(21.9)
Income from continuing operations before income taxes
 
38.6

 
2.9

 
30.8

 
2.6

 
7.8

 
25.3
Income tax expense
 
12.4

 
0.9

 
21.2

 
1.8

 
(8.8
)
 
(41.5)
Income from continuing operations
 
26.2

 
2.0

 
9.6

 
0.8

 
16.6

 
172.9
Loss from discontinued operations, net of taxes
 
(0.6
)
 

 
(0.7
)
 
(0.1
)
 
(0.1
)
 
14.3

Net income
 
25.6

 
1.9

 
8.9

 
0.8

 
16.7

 
187.6
Less: Net income attributable to non-controlling interest
 
(0.1
)
 

 

 

 
(0.1
)
 
NM
Net income attributable to U.S. Concrete
 
$
25.5

 
1.9
 %
 
$
8.9

 
0.8
 %
 
$
16.6

 
186.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 
 

 
 

 
 

 
 

 
 
 
 

Average selling price per cubic yard
 
$
134.86

 
 
 
$
130.35

 
 

 
$
4.51

 
3.5
%
Sales volume in thousand cubic yards
 
8,984

 
 
 
8,122

 
 

 
862

 
10.6
%
Aggregate Products Data:
 
 

 
 
 
 

 
 

 
 
 
 

       Average selling price per ton
 
$
12.92

 
 
 
$
11.97

 
 

 
$
0.95

 
7.9
%
       Sales volume in thousand tons
 
6,197

 
 

 
5,563

 
 

 
634

 
11.4
%

Revenue. Our 2017 total revenue grew by $167.8 million, or 14.4%, year-over-year primarily due to increased ready-mixed concrete sales both organically and through recent acquisitions. We estimate that acquisitions completed after January 1, 2016 accounted for approximately $101.8 million, or 60.6%, of our 2017 revenue increase. All of our major markets experienced higher total revenue for 2017 compared to 2016. Our 2017 results were negatively impacted by inclement weather in various regions and during various periods of the year, including Hurricanes Irma and Maria, which hit our USVI operations in September 2017. Because of these hurricanes, our USVI operations were essentially shut down for several months following the storms and were not fully operational at the end 2017.


32

Table of Contents

Ready-mixed concrete sales grew by $152.0 million, or 14.3%, driven by a 10.6% increase in sales volume and a 3.5% increase in our average selling price. Sales of aggregate products rose to $90.7 million in 2017 from $76.4 million in 2016, an increase of $14.3 million, or 18.7%, due to an 11.4% increase in volume and a 7.9% increase in average selling price. Other product revenue and eliminations, which includes aggregates distribution, building materials, lime slurry, hauling business, aggregate recycling, concrete block and eliminations of our intersegment sales, increased by $1.5 million, or 4.9%, from $30.8 million in 2016, to $32.3 million in 2017, primarily due to increased aggregates distribution sales.

Cost of goods sold before depreciation, depletion and amortization. Cost of goods sold before DD&A increased $134.3 million, or 14.6%, in 2017 as compared to 2016, primarily attributable to the increase in revenue. The volume growth in our ready-mixed concrete segment resulted in higher material costs, delivery costs and plant variable costs. Our fixed costs increased over the comparable prior year period primarily due to higher costs to operate our facilities, as well as additional locations and trucks than in the previous year. Cost of goods sold before DD&A also increased in 2017 due to higher self-insurance reserves for certain workers’ compensation and automobile liability losses, the margin impact of certain purchase accounting adjustments related to inventory and quarry dredge costs for a specific event. Cost of goods sold before DD&A includes the impact of costs in our USVI operations for September through December of 2017, including an impairment of inventory, with significantly lower corresponding revenue due to Hurricanes Irma and Maria. As a percentage of revenue, cost of goods sold before DD&A increased slightly.

Selling, general and administrative expenses.  SG&A expenses for 2017 increased $19.2 million, or 19.2% as compared to 2016.  The increase resulted from various factors, including: acquisition related professional fees, which increased $7.9 million; non-cash stock compensation expense, which increased $1.2 million due to the fair value of awards granted in 2017; higher personnel expenses, including certain officer transition expenses; and other general and administrative expenses by our corporate and regional offices to support our growth initiatives and acquisition strategy. As a percentage of total revenue, SG&A expenses increased from 8.6% in 2016 to 8.9% in 2017.

Depreciation, depletion and amortization.  DD&A expense for 2017 increased $12.9 million, or 23.5%, primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through recent acquisitions as well as incremental intangible amortization expense of $4.2 million related to our acquisitions.

Change in value of contingent consideration. We recorded non-cash expense of $7.9 million for the revaluation of contingent consideration in 2017 compared to $5.2 million in 2016. These non-cash expenses were related to the fair value changes in contingent consideration associated with certain acquisitions. The non-cash expense from fair value changes in contingent consideration in 2017 was primarily due to the changes in the probability-weighted assumptions related to the achievement of sales volumes and EBITDA thresholds. The non-cash expense from fair value changes in contingent consideration in 2016 was primarily due to the passage of time as well as changes in the probability-weighted assumptions related to the achievement of sales volumes.

Impairment of goodwill and other assets. We recorded a non-cash impairment of $6.2 million in 2017, of which $5.8 million related to an impairment of goodwill for our USVI operations as a result of the fourth quarter annual goodwill impairment evaluation. The remainder of the amount was related to destroyed property, plant and equipment also in our USVI operations.

Gain on sale of assets, net. We recorded a net gain on disposal of assets of $0.7 million in 2017 versus $1.4 million in 2016. Our gain on sale of assets in 2017 and 2016 included sales of excess vehicles and equipment. Our gain on sale of assets in 2016 was primarily related to land sales in Texas.

Operating income. Operating income decreased $8.2 million to $79.0 million in 2017 from $87.2 million in 2016. Operating income as a percentage of revenue decreased to 5.9% in 2017 as compared to 7.5% in 2016, primarily reflecting higher SG&A and DD&A expenses, as well as higher self-insurance reserves for certain workers’ compensation and automobile liability losses and the impact of hurricane losses. Partially offsetting these higher costs was an estimated $7.9 million contribution to operating income from our 2017 and 2016 acquisitions.

Interest expense, net.  Net interest expense increased by $14.3 million, or 51.6%, to $42.0 million in 2017 from $27.7 million in 2016, primarily related to higher debt levels, partially offset by lower effective interest rates in 2017 as compared to 2016.

Derivative loss. We recorded a non-cash loss on derivatives of $0.8 million in 2017 and $19.9 million in 2016 related to the fair value changes in our Warrants which expired on August 31, 2017. These non-cash losses were primarily due to increases in the price of our common stock.


33

Table of Contents

Loss on extinguishment of debt. For 2016, we recorded a $12.0 million pre-tax loss on early extinguishment of debt. The loss consisted of a redemption premium of $8.5 million and a $3.5 million non-cash loss for the write-off of unamortized deferred financing costs.

Income tax expense.  We recorded income tax expense allocated to continuing operations of approximately $12.4 million for 2017 and $21.2 million for 2016. For 2017, our effective tax rate differed substantially from the federal statutory rate primarily due to the adjustment to our net deferred income tax liability from the change to the federal statutory tax rate from 35% to 21%, for which we recorded a non-cash $7.6 million deferred income tax benefit. For 2016, our effective tax rate differed substantially from the federal statutory rate primarily due to the tax impact of our Warrants, for which we recorded a $19.9 million non-cash derivative loss. The derivative loss was excluded from the calculation of our income tax provision, thus increasing our tax expense. In addition, certain state income taxes were calculated on bases different from pre-tax income (loss), which resulted in recording income tax expense in certain states with a pre-tax loss.

In accordance with U.S. GAAP, intra-period tax allocation provisions require allocation of a tax expense or benefit to continuing operations due to current income (loss) from discontinued operations. We recorded a tax benefit of $0.5 million for 2017 and $0.4 million for 2016 allocated to discontinued operations.

Under U.S. tax law, we have elected to treat our U.S. Virgin Island subsidiaries as controlled foreign corporations. As such, we would normally consider our undistributed earnings of our U.S. Virgin Island subsidiaries, if any, to be indefinitely reinvested and, accordingly, we would normally not record incremental U.S. income taxes thereon. As of December 31, 2017, our U.S. Virgin Islands subsidiaries had no undistributed earnings, which was due to recent losses.

Loss from discontinued operations, net of taxes.  The results of operations for our previously sold precast concrete units located in Pennsylvania, California and Arizona were included in discontinued operations for all periods presented. We recorded a pre-tax loss of $1.1 million and $1.2 million in 2017 and 2016, respectively, primarily related to real estate leases and subleases that expired by June 30, 2018.


34

Table of Contents

Segment information

For a discussion of our segments and segment Adjusted EBITDA, see "Basis of Presentation", under this Item 7, earlier in this report. For a discussion and reconciliation of our segment Adjusted EBITDA, see Note 19, "Segment Information," to our consolidated financial statements in this report.

Ready-mixed concrete

The following table sets forth key financial information for our ready-mixed concrete segment for the periods indicated:
($ in millions except selling prices)
2017
 
2016
 
Increase / (Decrease)
 
% Change
Ready-mixed Concrete Segment:
 
 
 
 
 
 
 
      Revenue
$
1,213.0

 
$
1,061.0

 
$
152.0

 
14.3
%
      Segment revenue as a percentage of total revenue
90.8
%
 
90.8
%
 
 
 
 
      Adjusted EBITDA
$
185.8

 
157.5

 
$
28.3

 
18.0
%
      Adjusted EBITDA as a percentage of segment revenue
15.3
%
 
14.8
%
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 

 
 

 
 
 
 

Average selling price per cubic yard (1)
$
134.86

 
$
130.35

 
$
4.51

 
3.5
%
Sales volume in thousand cubic yards
8,984

 
8,122

 
862

 
10.6
%

(1) Calculation excludes certain ancillary revenue that is reported with the segment.

Revenue.  Our ready-mixed concrete sales provided 90.8% of our total revenue in both 2017 and 2016. Segment revenue for 2017 increased $152.0 million, or 14.3%, over 2016 levels. We estimate that approximately $90.1 million of this increase, or 59.3%, was due to acquisitions completed after January 1, 2016. The 2017 revenue increase was driven primarily by a 10.6% increase in sales volume, or 0.9 million cubic yards. Increased volume provided $112.4 million, or 73.9%, of our ready-mixed concrete revenue growth, and a 3.5% increase in average selling price provided $39.6 million, or 26.1%, of our ready-mixed concrete revenue growth. Our sales volume in 2017 was higher in all of our major metropolitan markets due to increased construction activity and acquisitions despite more adverse weather days. In addition, the average selling price increased in all of our major metropolitan markets in which we operate. Hurricanes Irma and Maria hit our USVI operations in September 2017 and had a negative impact on our ready-mixed concrete revenue, as our USVI operations were essentially shut down for several months following the storms and were not fully operational by the end of 2017.
 
Adjusted EBITDA.  Adjusted EBITDA for our ready-mixed concrete segment increased by $28.3 million, or 18.0%. We estimate that $17.3 million, or 61.1%, of our 2017 Adjusted EBITDA increase resulted from acquisitions completed after January 1, 2016. Driving the growth in Adjusted EBITDA was a 10.6% increase in sales volume and a 3.5% increase in our average selling price, which resulted in $152.0 million in higher revenue. Partially offsetting the growth in revenue was the increased cost of goods sold associated with the higher volume of sales. Our variable costs, which include primarily raw material costs, labor and benefits costs, utilities and delivery costs, were all higher primarily due to the increased volume. Our fixed costs, which consist primarily of property taxes, equipment rental, quality control, dispatch and plant management costs, increased during 2017 due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year. Segment Adjusted EBITDA as a percentage of segment revenue increased to 15.3% in 2017. We were able to leverage increased efficiencies to drive incremental margins on higher volume. 

35

Table of Contents

Aggregate products

The following table sets forth key financial information for our aggregate products segment for the periods indicated:

($ in millions except selling prices)
2017
 
2016
 
Increase / (Decrease)
 
% Change
Aggregate Products Segment:
 
 
 
 
 
 
 
Sales to external customers
$
49.8

 
$
41.7

 
 
 
 
Intersegment sales
$
40.9

 
34.7

 
 
 
 
Total aggregate products revenue
$
90.7

 
$
76.4

 
$
14.3

 
18.7
%
Segment revenue, excluding intersegment sales, as a percentage of total company revenue
3.7
%
 
3.6
%
 
 
 
 
Adjusted EBITDA
$
27.2

 
$
21.7

 
$
5.5

 
25.3
%
Adjusted EBITDA as a percentage of total aggregate products revenue
30.0
%
 
28.4
%
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate Products Data:
 

 
 

 
 
 
 

Average selling price per ton (1)
$
12.92

 
$
11.97

 
$
0.95

 
7.9
%
Sales volume in thousand tons
6,197

 
5,563

 
634

 
11.4
%
(1) Our calculation of the aggregate products segment ASP excludes certain other ancillary revenue and Polaris’s freight revenue.  We define revenue for our aggregate products ASP calculation as amounts billed to external and internal customers for coarse and fine aggregate products, excluding delivery charges.  Our definition and calculation of ASP may differ from other companies in the construction materials industry.

Revenue.  Sales of our aggregate products provided 3.7% and 3.6% of our total revenue for 2017 and 2016, respectively, excluding intersegment sales of $40.9 million and $34.7 million, respectively. Segment revenue increased $14.3 million, or 18.7%, over prior year levels. We estimate that $13.6 million, or 95.1%, of the revenue increase was due to recent acquisitions. Hurricanes Irma and Maria hit our USVI operations in September 2017 and had a negative impact on our aggregate products revenue, as our USVI operations were essentially shut down for several months following the storms and were not fully operational by the end of 2017.

We sell our aggregate products to external customers and internally to our ready-mixed concrete segment at a market price. Approximately 45.1% of our 2017 aggregate products sales, or $40.9 million, were to our ready-mixed concrete segment, versus 45.4%, or $34.7 million, in 2016. Our sales volume increased 0.6 million tons, which provided approximately $7.6 million, or 53.1%, of our aggregate products revenue increase. Contributing to our overall aggregate products revenue was an increase in our average selling price of 7.9%, which resulted in approximately $5.9 million, or 41.3%, of our increase in aggregate products revenue. Freight charges to deliver aggregate products to external customers, as well as other charges, all of which are included in revenue, increased approximately $0.8 million providing 5.6% of our increase in aggregate products revenue.

Adjusted EBITDA.  Adjusted EBITDA for our aggregate products segment increased to $27.2 million in 2017 from $21.7 million in 2016, primarily reflecting the higher sales volume and higher average selling price, partially offset by the related higher cost of goods sold associated with the increased volume. Our variable costs associated with cost of goods sold, which includes quarry labor and benefits, utilities, repairs and maintenance, pit costs to prepare the stone and gravel for use and delivery costs, all rose due to the higher sales volumes. Our quarry fixed costs, which include primarily property taxes, equipment rental and plant management costs, were higher compared to the previous year. Overall, our segment Adjusted EBITDA as a percentage of segment revenue was 30.0% in 2017 and 28.4% in 2016.



36

Table of Contents

Liquidity and Capital Resources

Overview
Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our Revolving Facility, which provides for aggregate borrowings of up to $350 million, subject to a borrowing base.

We ended 2018 with $20.0 million of cash and cash equivalents and had $243.7 million available for future borrowings under the Revolving Facility, providing total available liquidity of $263.7 million.

The following key financial measurements (in millions) reflect our financial condition as of December 31, 2018 and 2017:
 
 
2018
 
2017
Cash and cash equivalents
 
$
20.0

 
$
22.6

Working capital
 
$
71.2

 
$
103.2

Total debt(1)
 
$
714.1

 
$
693.4

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

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

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

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

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

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

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


37

Table of Contents

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, 2018, we were in compliance with all covenants under the Third Loan Agreement.

Senior Unsecured Notes due 2024

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

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

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

For additional information regarding our guarantor and non-guarantor subsidiaries, see the information set forth in Note 22, “Supplemental Condensed Consolidating Financial Information,” to our consolidated financial statements included in this report.

Other Debt

We have financing agreements with various lenders for the purchase of mixer trucks and other machinery and equipment with $99.5 million in remaining principal as of December 31, 2018.

For additional information regarding our arrangements relating to outstanding indebtedness, see the information set forth in Note 8, "Debt," to our consolidated financial statements included in this report.

38

Table of Contents

Cash Flows

($ in millions)
 
2018
 
2017
 
2016
Net cash provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
122.8

 
$
94.8

 
$
116.0

Investing activities
 
(91.7
)
 
(334.3
)
 
(162.7
)
Financing activities
 
(33.4
)
 
186.3

 
118.6

Effect of exchange rates on cash and cash equivalents
 
(0.3
)
 

 

Net increase (decrease) in cash
 
$
(2.6
)
 
$
(53.2
)
 
$
71.9


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. Net cash provided by operating activities in 2018 was $122.8 million compared to $94.8 million in 2017 and $116.0 million in 2016. Overall, the generation of cash from operations in 2018, 2017 and 2016 was driven primarily by the increase in revenue and operating performance of the Company, with 2017 being impacted by higher payments of interest and income taxes.

We used $91.7 million to fund investing activities in 2018, $334.3 million in 2017 and $162.7 million in 2016. We paid $72.3 million, $295.1 million and $127.9 million to fund acquisitions in 2018, 2017 and 2016, respectively. In addition, we incurred $39.9 million, $42.7 million and $40.4 million in 2018, 2017 and 2016, respectively, primarily to fund purchases of machinery and equipment as well as mixers, trucks and other vehicles to service our business. Investing activities also included proceeds from the sale of businesses and property, plant and equipment of $20.7 million, $3.5 million and $4.3 million during 2018, 2017 and 2016, respectively. Proceeds were higher in 2018 primarily from the sale of our Dallas / Fort Worth area lime operations.

We expect our capital expenditures for 2019 to be between $60.0 million and $70.0 million, including expenditures financed through capital leases, but excluding any acquisitions. These capital 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. In addition to financing certain of these expenditures through capital leases, we expect to fund these expenditures with cash flows from operations and existing cash and cash equivalents. Our capital expenditure budget and allocation of it to the foregoing investments are estimates and are subject to change.

Our net cash used in financing activities was $33.4 million in 2018 compared to net cash provided by financing activities of $186.3 million in 2017 and $118.6 million in 2016. 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 related to our capital leases and other financings 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 Second Share Repurchase Program.

Financing activities in 2017 included the proceeds from a $200.0 million offering of 6.375% senior unsecured notes due 2024, including the premium on the issue price and net of related debt issuance costs, as well as $9.0 million of net borrowings under our Revolving Facility to operate our business and fund acquisitions. In addition, we made payments of $20.3 million related to our capital leases and other financings and paid $9.0 million for contingent and deferred consideration obligations. Also during 2017, we received proceeds of $2.7 million from exercises of Warrants and stock options.

Financing activities in 2016 included the proceeds from our $400.0 million 2024 Notes offering, net of related debt issuance costs; redemption of $200.0 million of our senior secured notes due 2018, including an $8.5 million redemption premium; and repayment of our then existing borrowings under our Revolving Facility. In addition, we made payments of $13.4 million related to our capital leases and other financings and paid $4.7 million for contingent and deferred consideration obligations.



39

Table of Contents

Off-Balance Sheet Arrangements

Other than our operating leases, which are shown below, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. At December 31, 2018, we had $17.6 million of undrawn letters of credit outstanding. We are also contingently liable for performance under $36.6 million in performance bonds relating to our operations. For additional discussion on our operating leases, see Note 16, "Commitments and Contingencies," to our consolidated financial statements included in this report.

Commitments

The following are our contractual commitments associated with our indebtedness, lease obligations and acquisition-related contingent consideration and deferred payment obligations as of December 31, 2018 (in millions):
 
Contractual obligations
 
Total
 
Less Than 1 Year
 
1-3 Years
 
3-5 Years
 
More Than 5 Years
Principal on debt
 
$
723.1

 
$
30.8

 
$
51.4

 
$
32.5

 
$
608.4

Interest on debt
 
214.0

 
41.3

 
79.7

 
77.1

 
15.9

Operating leases
 
94.2

 
18.5

 
27.2

 
17.2

 
31.3

Contingent consideration(1)
 
65.3

 
36.6

 
19.6

 
9.1

 

Deferred consideration payments (2)
 
7.3

 
4.2

 
2.5

 
0.3

 
0.3

Total
 
$
1,103.9

 
$
131.4

 
$
180.4

 
$
136.2

 
$
655.9


(1)
Consists of estimated fair value of contingent consideration obligations, including accretion, associated with acquisitions completed from 2015 through 2018. The fair value of estimated payouts is based on probability weighted assumptions related to the achievement of various contractual provisions. As more fully described in Note 12, "Fair Value Disclosures," to our consolidated financial statements, changes in the fair value of these obligations will occur until to the final payment in 2023.
(2)
Consists of deferred consideration obligations, including accretion, associated with acquisitions.

The following are our commercial commitments as of December 31, 2018 (in millions):
 
Other commercial commitments
 
Total
 
Less Than 1 Year
 
1-3 Years
 
3-5 Years
 
More Than 5 Years
Standby letters of credit
 
$
17.6

 
$
17.5

 
$

 
$

 
$
0.1

Performance bonds
 
36.6

 
36.6

 

 

 

Total
 
$
54.2

 
$
54.1

 
$

 
$

 
$
0.1


The following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued employment costs, 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.  As of December 31, 2018, the total unrecognized tax benefit related to uncertain tax positions was $4.6 million.  We believe it is unlikely a reduction in our uncertain tax positions will occur within the next 12 months.

40

Table of Contents

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 which we believe are critical and involve complex judgment in their application to our financial statements. Actual results in these areas could differ from our estimates.

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. Any adjustments subsequent to the conclusion of the measurement period will be recorded to our consolidated statements of operations. See Note 2, "Business Combinations," to our consolidated financial statements included in this report for additional information about our acquisitions.
 

Goodwill and Goodwill Impairment

We record as goodwill the amount by which the total purchase price we pay in our acquisition transactions exceeds our estimated fair value of the identifiable net assets we acquire. We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. The impairment evaluation of goodwill is a critical accounting estimate because goodwill represented 17.5% of the Company's total assets at December 31, 2018, 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.

The Company's reporting units, which represent the level at which goodwill is tested for impairment, are based on the geographic regions within its operating segments. We estimate the fair value of our reporting units and compare the result to the reporting unit's carrying value. 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. Multiples of invested capital to EBITDA are calculated using a weighted average of two selected 12 month periods 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. If the fair value exceeds the carrying value, the 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.


41

Table of Contents

We completed our annual impairment assessment during the fourth quarter of 2018 as of October 1, 2018, and determined that there was no impairment. Our fair value estimates were determined using estimates and assumptions that we believed were reasonable at the time, including assumptions regarding future operating results for businesses we have recently acquired. 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, 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.

Impairment of Long-Lived Assets

We evaluate the recoverability of our long-lived assets when changes in circumstances indicate that the carrying amount of the asset may not be recoverable in accordance with authoritative accounting guidance related to the impairment or disposal of long-lived assets. We compare the carrying values of long-lived assets to our projection of future undiscounted cash flows attributable to those assets.  If the carrying value of a long-lived asset exceeds the future undiscounted cash flows we project will be derived from that asset, we record an impairment loss equal to the excess of the carrying value over the fair value. Actual useful lives and future cash flows could be different from those that we estimate. These differences could have a material effect on our future operating results. In the second quarter of 2018, we recorded a $1.3 million non-cash impairment for an aggregate property that was near the end of its economic life and was sold in the third quarter of 2018.

Insurance Programs

We maintain third-party insurance coverage in amounts and against the risks we believe are reasonable.  We share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations.  We believe our workers’ compensation, automobile and general liability per occurrence retentions are consistent with industry practices and suitable for a company of our size and with our risk profile, although there are variations among our business units.  We fund these deductibles and record an expense for losses we expect under the programs. We determine the expected losses using a combination of our historical loss experience and subjective assessments of our future loss exposure. The estimated losses are subject to uncertainty from various sources, including changes in claims reporting and settlement patterns, claims development, 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, was $20.4 million as of December 31, 2018 and $19.2 million as of December 31, 2017.

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, 2018 and 2017 of $9.2 million and $20.7 million, respectively, for certain deferred tax assets due to uncertainty regarding their ultimate realization.  In 2018, we established an additional valuation allowance of $6.6 million related to an interest expense limitation carryforward attribute resulting from the Tax Act, which we do not believe is more likely than not to be realized under the current interpretation of the applicable statute.

42

Table of Contents

Additionally, the valuation allowance of $2.6 million related to our New Jersey state net operating losses was released due to recent state law changes that will allow us to utilize those attributes before they expire.

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.

Contingent Consideration

We record an estimate of the fair value of contingent consideration within accrued liabilities and other long-term obligations.  On a quarterly basis, we revalue the liabilities and record increases or decreases in the fair value as an adjustment to earnings.  Changes to the contingent consideration liabilities can result from adjustments to the discount rate, accretion of interest expense due to the passage of time or changes in the assumptions regarding probabilities of successful achievement of related milestones and the estimated timing in which the milestones are achieved.  The assumptions used in estimating fair value require significant judgment.  The use of different assumptions and judgments could result in a materially different estimate of fair value.  The key inputs in determining fair value of our contingent consideration obligations, which were $60.7 million and $61.8 million at December 31, 2018 and 2017, respectively, included discount rates ranging from 3.70% to 15.75% and management's estimates of future sales volumes, amount of reserves permitted and EBITDA.  For further information, see Note 12, "Fair Value Disclosures," to our consolidated financial statements included in this report for additional information about our contingent consideration obligations.

Other

We record accruals for legal and other contingencies when estimated future expenditures associated with those contingencies become probable and the amounts can be reasonably estimated.  However, new information may become available, or circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount required to be accrued for such matters (and, therefore, a decrease or increase in reported net income in the period of such change).

Recent Accounting Pronouncements

For a discussion of recently issued accounting guidance that may affect our financial statements, see Note 1, "Organization and Summary of Significant Accounting Policies," to our consolidated financial statements included in this report.



43

Table of Contents

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. However, we were required to account for our Warrants as derivative instruments in 2017 and 2016.

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 $15.0 million of outstanding borrowings under the Revolving Facility as of December 31, 2018, a 100 basis point change in the interest rate would increase or decrease annual interest expense by $0.2 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 aggregates 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.    


44

Table of Contents

Item 8.  Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 

45

Table of Contents

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, 2018 and December 31, 2017, and the related consolidated statements of operations, total equity and cash flows for each of the two years in the period ended December 31, 2018, 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, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, 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, 2018, 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 26, 2019 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.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Dallas, Texas
February 26, 2019

46

Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
U.S. Concrete, Inc.
We have audited the consolidated balance sheet of U.S. Concrete, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2016 (not presented herein), and the related consolidated statements of operations, changes in equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Concrete, Inc. and subsidiaries as of December 31, 2016 (not presented herein), and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Dallas, Texas
February 28, 2017








47

Table of Contents


U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
($ in millions except per share amounts)

 
 
December 31,