U.S. Concrete, Inc.
US CONCRETE INC (Form: 10-Q, Received: 08/08/2017 16:46:59)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2017
 
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
COVERPAGELOGOA01A01A09.JPG
U.S. CONCRETE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
76-0586680
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

331 N. Main Street, Euless, Texas 76039
(Address of principal executive offices, including zip code)
(817) 835-4105
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
 
(Do not check if a smaller reporting company)
 
 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
There were 16,005,083 shares of common stock, par value $.001 per share, of the registrant outstanding as of August 3, 2017 .




U.S. CONCRETE, INC.

INDEX

 
 
Page
No.
Part I – Financial Information
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
  38
Item 2.
Item 3.
Item 4.
 
 
Part II – Other Information
 
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
 
 
 







2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

June 30, 2017

December 31, 2016

(Unaudited)


ASSETS
 

 
Current assets:
 

 
Cash and cash equivalents
$
271,739


$
75,774

Trade accounts receivable, net of allowances of $5,221 and $5,960 as of June 30, 2017 and December 31, 2016, respectively
218,252


207,292

Inventories
44,127


41,979

Prepaid expenses
7,244


5,534

Other receivables
6,954


8,691

Other current assets
1,324


2,019

Total current assets
549,640


341,289

Property, plant and equipment, net of accumulated depreciation, depletion, and amortization of $157,015 and $137,629 as of June 30, 2017, and December 31, 2016, respectively
407,120


337,412

Goodwill
135,338


133,271

Intangible assets, net
120,658


130,973

Other assets
2,069


2,457

Total assets
$
1,214,825


$
945,402

LIABILITIES AND EQUITY
 


 

Current liabilities:
 


 

Accounts payable
$
116,895


$
110,694

Accrued liabilities
83,078


85,243

Current maturities of long-term debt
21,048


16,654

Derivative liabilities
61,261

 
57,415

Total current liabilities
282,282


270,006

Long-term debt, net of current maturities
652,821


432,644

Other long-term obligations and deferred credits
62,391


46,267

Deferred income taxes
11,985


7,656

Total liabilities
1,009,479


756,573

Commitments and contingencies (Note 15)





Equity:
 


 

Preferred stock



Common stock
17


17

Additional paid-in capital
264,643


249,832

Accumulated deficit
(34,765
)

(39,296
)
Treasury stock, at cost
(24,549
)

(21,724
)
Total stockholders' equity
205,346


188,829

Total liabilities and equity
$
1,214,825


$
945,402


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

3


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
 
 
Three Months Ended
June 30,

Six Months Ended
June 30,
 
2017

2016

2017

2016
Revenue
$
340,926


$
275,750


$
640,059


$
520,795

Cost of goods sold before depreciation, depletion and amortization
263,574


222,216


499,333


420,974

Selling, general and administrative expenses
30,200


23,180


56,017


46,343

Depreciation, depletion and amortization
16,350


13,015


32,209


24,656

Loss on revaluation of contingent consideration
720

 
364

 
1,328

 
1,611

Gain on sale of assets
(198
)

(114
)

(390
)

(13
)
Operating income
30,280


17,089

 
51,562

 
27,224

Interest expense, net
(10,368
)

(6,598
)

(20,510
)

(12,298
)
Derivative loss
(15,766
)
 
(2,562
)

(13,910
)

(15,342
)
Loss on extinguishment of debt


(12,003
)



(12,003
)
Other income, net
596


510


1,304


1,007

Income (loss) from continuing operations before income taxes
4,742


(3,564
)
 
18,446

 
(11,412
)
Income tax expense (benefit)
6,911


(251
)

13,613


1,740

(Loss) income from continuing operations
(2,169
)

(3,313
)
 
4,833

 
(13,152
)
Loss from discontinued operations, net of taxes
(180
)

(164
)

(302
)

(352
)
Net (loss) income
$
(2,349
)

$
(3,477
)
 
$
4,531

 
$
(13,504
)












Basic (loss) income per share:
 


 


 


 

(Loss) income from continuing operations
$
(0.14
)

$
(0.22
)

$
0.31


$
(0.89
)
Loss from discontinued operations, net of taxes
(0.01
)

(0.01
)

(0.02
)

(0.02
)
Net (loss) income per share – basic
$
(0.15
)

$
(0.23
)
 
$
0.29

 
$
(0.91
)
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 

 
 

 
 

 
 

(Loss) income from continuing operations
$
(0.14
)
 
$
(0.22
)
 
$
0.29

 
$
(0.89
)
Loss from discontinued operations, net of taxes
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.02
)
Net (loss) income per share – diluted
$
(0.15
)

$
(0.23
)
 
$
0.27

 
$
(0.91
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 


 


 


 

Basic
15,703


14,920


15,601


14,854

Diluted
15,703

 
14,920

 
16,531

 
14,854


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


4


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
# of Shares
 
Par Value
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Treasury
Stock
 
Total
Equity
BALANCE, December 31, 2015
14,871

 
$
16

 
$
201,015

 
$
(48,157
)
 
$
(18,867
)
 
$
134,007

Stock-based compensation expense

 

 
4,121

 

 

 
4,121

Excess tax benefits from share-based compensation

 

 
3,908

 

 

 
3,908

Restricted stock vesting
8

 

 

 

 

 

Restricted stock grants, net of cancellations
171

 

 

 

 

 

Stock options exercised
1

 

 
28

 

 

 
28

Warrants exercised
219

 

 
11,131

 

 

 
11,131

Other treasury shares purchases
(42
)
 

 

 

 
(2,654
)
 
(2,654
)
Net loss

 

 

 
(13,504
)
 

 
(13,504
)
BALANCE, June 30, 2016
15,228

 
$
16

 
$
220,203

 
$
(61,661
)
 
$
(21,521
)
 
$
137,037

 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2016
15,696

 
$
17

 
$
249,832

 
$
(39,296
)
 
$
(21,724
)
 
$
188,829

Stock-based compensation expense

 

 
4,253

 

 

 
4,253

Restricted stock vesting
9

 

 

 

 

 

Restricted stock grants, net of cancellations
152

 

 

 

 

 

Stock options exercised
6

 

 
132

 

 

 
132

Warrants exercised
171

 

 
10,426

 

 

 
10,426

Other treasury share purchases
(41
)
 

 

 

 
(2,825
)
 
(2,825
)
Net income

 

 

 
4,531

 

 
4,531

BALANCE, June 30, 2017
15,993

 
$
17

 
$
264,643

 
$
(34,765
)
 
$
(24,549
)
 
$
205,346


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



5


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Six Months Ended
June 30,
 
2017

2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
Net income (loss)
$
4,531


$
(13,504
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 


 

Depreciation, depletion and amortization
32,209


24,656

Debt issuance cost amortization
1,041


1,017

Amortization of discount on long-term incentive plan and other accrued interest
374


250

Amortization of premium on long-term debt
(775
)
 

Net loss on derivative
13,910


15,342

Net loss on revaluation of contingent consideration
1,328


1,611

Net gain on sale of assets
(390
)

(13
)
Loss on extinguishment of debt

 
12,003

Deferred income taxes
4,816


2,863

Provision for doubtful accounts and customer disputes
1,896


522

Stock-based compensation
4,253


4,121

Changes in assets and liabilities, excluding effects of acquisitions:
 


 

Accounts receivable
(12,856
)

(3,834
)
Inventories
(1,942
)

(2,583
)
Prepaid expenses and other current assets
98


(798
)
Other assets and liabilities
(22
)

780

Accounts payable and accrued liabilities
4,684


(6,915
)
Net cash provided by operating activities
53,155


35,518

CASH FLOWS FROM INVESTING ACTIVITIES:
 


 

Purchases of property, plant and equipment
(18,692
)

(22,933
)
Payments for acquisitions, net of cash acquired
(32,836
)

(44,272
)
Proceeds from disposals of property, plant and equipment
841


373

Proceeds from disposal of businesses
873


250

Net cash used in investing activities
(49,814
)

(66,582
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 


 

Proceeds from revolver borrowings


128,789

Repayments of revolver borrowings


(173,789
)
Proceeds from issuance of debt
211,500

 
400,000

Repayments of debt


(200,000
)
Premium paid on early retirement of debt

 
(8,500
)
Proceeds from exercise of stock options and warrants
494


110

Payments of other long-term obligations
(4,536
)

(2,979
)
Payments for other financing
(8,778
)

(5,033
)
Debt issuance costs
(3,231
)

(7,689
)
Other treasury share purchases
(2,825
)

(2,654
)
Net cash provided by financing activities
192,624


128,255

NET INCREASE IN CASH AND CASH EQUIVALENTS
195,965


97,191

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
75,774


3,925

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
271,739


$
101,116


6


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

 
Six Months Ended
June 30,
 
2017
 
2016
Supplemental Disclosure of Cash Flow Information:
 

 
 

Cash paid for interest
$
20,155

 
$
10,781

Cash paid for income taxes
$
12,302

 
$
2,744

 
 
 
 
Supplemental Disclosure of Non-cash Investing and Financing Activities:
 
 
 
Capital expenditures funded by capital leases and promissory notes
$
24,393

 
$
18,495

Settlement of accounts receivable for acquisition of a business
$

 
$
1,000


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

7


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

1.
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of U.S. Concrete, Inc. and its subsidiaries (collectively, "we," "us," "our," "U.S. Concrete," or the "Company") and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for reporting interim financial information. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2016 (the " 2016 Form 10-K").  In the opinion of our management, all adjustments necessary to state fairly the information in our unaudited condensed consolidated financial statements and to make such financial statements not misleading have been included. All adjustments are of a normal or recurring nature.  Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of our results expected for the year ending December 31, 2017 , or for any future period.

The preparation of financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates. Estimates and assumptions that we consider critical and that involve complex judgments in the preparation of our financial statements include those related to our business combinations, goodwill and goodwill impairment, impairment of long-lived assets, accruals for self-insurance programs, income taxes, derivative instruments, and contingent consideration.

Certain reclassifications have been made to prior year balances to conform with the current year presentation.

2.
RECENT ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Standards/Updates Adopted This Year

In March 2016, the Financial Accounting Standards Board ("FASB") issued an amendment related to share-based payments to employees, which simplifies several aspects of the accounting for employee share-based payment transactions for public entities. In the first quarter of 2017, we adopted all applicable aspects of this standard on a prospective basis with the exception of the presentation of excess tax benefits on the statement of cash flows, which we adopted on a retrospective basis, and the election to account for forfeitures as they occur, which we adopted on a modified-retrospective basis. The new standard requires companies to recognize all excess tax benefits and tax deficiencies in the income statement when the awards vest or are settled, rather than recognized as additional paid-in capital in the equity section of the balance sheet. Upon adoption, we recognized  $0.2 million  in discrete tax benefits related to share-based payment accounting, resulting in a lower effective tax rate. This standard also affects the average shares outstanding used in the diluted earnings per share calculation, as we no longer increase or decrease the assumed proceeds from an employee vesting in, or exercising, a share-based payment award by the amount of excess tax benefits or deficiencies taken to additional paid-in capital.

The guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than a financing activity. Retrospective application of the cash flow presentation requirement resulted in an increase to net cash provided by operating activities of $3.9 million and a decrease to net cash provided by financing activities of $3.9 million for the six months ended June 30, 2016. Further, this guidance permits an entity to make an accounting policy election to either estimate forfeitures on stock compensation awards, as previously required, or to recognize forfeitures as they occur. We elected to change our accounting policy from estimating forfeitures expected to occur to recognizing forfeitures as they occur. This change in policy did not have a material impact on our financial condition, results of operations, or cash flows.

In July 2015, the FASB issued guidance requiring inventory to be measured at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. We adopted this guidance as of January 1, 2017, when it became effective for us. There was no impact on our consolidated financial statements or results of operations as a result of adopting this standard.


8



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


Standards/Updates Not Yet Adopted

In January 2017, the FASB issued new guidance to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. This guidance is effective in 2020, but early adoption is permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the impact that this guidance will have on our financial condition and results of operations.

In January 2017, the FASB issued an update under business combinations in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The amendments in this update provide a screen to determine when a set of assets is not of a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted for transactions for which the acquisition (or disposal) date occurs before the effective date of the amendments, if the transaction has not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the impact that this standard will have on our financial condition, results of operations, and cash flows.

In August 2016, the FASB issued guidance to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new amendment is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those periods, with early adoption permitted. We are currently evaluating the impact that this standard will have on our statement of cash flows.

In February 2016, the FASB issued an amendment related to leases. The new guidance requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous guidance. The new standard is effective for annual periods beginning after December 15, 2018 and interim periods within those periods, with early adoption permitted. The Company's undiscounted minimum contractual commitments under long-term operating leases, which were not recorded on the consolidated balance sheets, were $69.4 million as of June 30, 2017 and $79.1 million as of December 31, 2016. These amounts estimate the effect to total assets and total liabilities that the new accounting standard would have as of those dates. We are currently evaluating the impact that this standard will have on our financial condition and results of operations, and cash flows. The standard will be adopted in the first quarter of 2019 using a modified retrospective transition beginning with the earliest comparative period presented.

In May 2014, the FASB issued guidance that outlines a single comprehensive model for accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The guidance is effective for interim and annual reporting periods that begin after December 15, 2017. Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). While we continue to evaluate the effect that the updated standard will have on our consolidated financial condition, results of operations and cash flows, we do not expect its adoption to have a material impact on our financial results. We primarily earn our revenue by producing and delivering ready-mixed concrete, aggregates, and related building materials, as requested by our customers primarily through purchase orders. We generally do not have significant customer contracts and do not provide post-delivery services, such as paving or finishing. As such, adoption of the new guidance should not result in significant changes in the amount of revenue recognized or the timing of when such revenue is recognized. We expect to adopt the new guidance in the first quarter of 2018, when it becomes effective for us, using the modified retrospective transition method.

For a description of our significant accounting policies, see Note 1 of the consolidated financial statements in our 2016 Form 10-K.

9



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




3.
ACQUISITIONS

2017 Acquisitions

On April 7, 2017 , we completed the acquisition of certain assets from Corbett Aggregate Companies, LLC ("Corbett"), in Quinton, New Jersey and Salem, New Jersey. The acquisition included approximately 401 acres of land with over 35 million tons of proven aggregates reserves. Also included in the acquisition was a long-term lease with the South Jersey Port Corporation for an export dock as well as a licensing agreement with the exclusive right to move coarse and fine aggregates through the North Shore Terminal located on Staten Island, New York. We are accounting for this transaction as a business acquisition in accordance with our accounting policy, as we acquired inputs and processes that have the ability to create outputs.

The consideration for this acquisition was satisfied by $ 29.6 million in cash and potential contingent consideration of $ 23.0 million based on the amount of reserves permitted over a two -year minimum period. See Note 11 for additional information regarding contingent consideration. The cash portion was funded through cash on hand.

The fair value of assets acquired and liabilities assumed in the Corbett acquisition were as follows: $ 49.1 million of property, plant, and equipment, $ 0.2 million of inventory, and less than $0.1 million of other current assets. We recognized goodwill of $ 0.9 million equal to the excess of the purchase consideration over the fair value of the assets acquired and the liabilities assumed. The recording of this business combination is preliminary and remains subject to adjustments, including, but not limited to, the fair value of contingent consideration and property, plant, and equipment.

2016 Acquisitions

During 2016 , we completed four acquisitions that expanded our ready-mixed concrete operations in the New York Metropolitan market for total consideration of $142.8 million and two individually immaterial ready-mixed concrete operations in our West Texas market for total consideration of $3.5 million . The combined assets acquired through the New York acquisitions included land, 10 ready-mixed concrete plants, and a fleet of 189 mixer trucks. On February 26, 2016 , we completed the acquisition of all of the assets of Greco Brothers Concrete of L.I., Inc. ("Greco"), located in Brooklyn. On June 24, 2016 , we completed the acquisition of the assets of Nycon Supply Corp. ("Nycon"), located in Queens. On August 10, 2016 , we completed the acquisition of the assets of Jenna Concrete Corp. ("Jenna"), located in Bronx. On August 22, 2016 , we completed the acquisition of the assets of Kings Ready Mix Inc. ("Kings"), located in Brooklyn. In addition, on March 31, 2016 and September 13, 2016 , we acquired two individually immaterial ready-mixed concrete operations in our West Texas market.

The consideration for these six acquisitions was satisfied by $131.7 million in cash, $6.1 million in payments deferred over a three -year period, the issuance of $1.0 million of credits applied against existing trade accounts receivable, plus 136,215 shares of our common stock, calculated in accordance with the terms of the purchase agreement, and valued at approximately $7.5 million on the date of issuance. We funded the cash portion of these acquisitions through a combination of cash on hand and borrowings under our asset-based revolving credit facility (the "Revolving Facility").

We made changes to the preliminary purchase price allocations for the 2016 acquisitions during the first six months of 2017, primarily related to working capital adjustments and the fair value of identifiable intangible assets. The recording of three of the six business combinations is preliminary, and we expect to record adjustments as we accumulate information needed to estimate the fair value of the assets acquired and liabilities assumed. We expect further adjustments including, but not limited to, adjustments related to determination of the conclusion of tax attributes as of the acquisition date and the fair value of identifiable intangible assets.


10



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


The following table presents the total consideration for the 2016 acquisitions and the provisional amounts related to the assets acquired and liabilities assumed based on the estimated fair values as of the respective acquisition date (in thousands):

 
2016 Acquisitions
Cash
$
9

Accounts receivable (1)
12,314

Inventory
1,249

Other current assets
68

Property, plant and equipment
34,918

Definite-lived intangible assets
47,144

Total assets acquired
95,702

Current liabilities
7,055

Other long-term liabilities
3,165

Total liabilities assumed
10,220

Goodwill
60,035

Total consideration (fair value) (2)
$
145,517


(1)
The aggregate fair value of the acquired accounts receivable approximates the aggregate gross contractual amount as of the respective acquisition dates.
(2)
Deferred payments included at fair value.


The accounting for business combinations requires the significant use of estimates and is based on information that was available to management at the time these condensed consolidated financial statements were prepared. We utilized recognized valuation techniques, including the income approach, sales approach, and cost approach to value the net assets acquired. Any changes to the provisional business combination accounting will be made as soon as practical, but no later than one year from the respective acquisition dates.

Acquired Intangibles

Intangible assets acquired in 2016 totaling $47.1 million consisted of trade names, customer relationships, non-compete agreements, and leasehold interests. The amortization period of these intangible assets range from seven months to seven years . The major classes of intangible assets acquired in the 2016 acquisitions were as follows (in thousands of dollars):
 
Weighted Average Amortization Period (In Years)
 
Fair Value At Acquisition Date
Customer relationships
6.00
 
$
34,064

Trade names
2.62
 
2,818

Non-compete agreements
5.00
 
5,307

Leasehold interests
5.00
 
4,955

Total
 
 
$
47,144



11



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


As of June 30, 2017 , the estimated future aggregate amortization expense of definite-lived intangible assets from the acquisitions was as follows (in thousands):
 
Year Ending December 31,
2017 (remainder of the year)
$
4,262

2018
8,523

2019
8,258

2020
7,729

2021
6,805

Thereafter
3,275

Total
$
38,852


Also included in other non-current liabilities in the accompanying condensed consolidated balance sheet is an unfavorable lease intangible with a gross carrying amount of $0.4 million and a net carrying amount of $0.3 million as of June 30, 2017 . This unfavorable lease intangible will be amortized over its remaining lease term.

During the three and six months ended June 30, 2017 , we recorded $2.1 million and $4.3 million of amortization expense related to these intangible assets and unfavorable lease intangibles.

The goodwill ascribed to each of the 2016 and 2017 acquisitions is related to the synergies we expect to achieve with expansion in the markets in which we already operate as well as entry into new metropolitan areas of our existing geographic markets. The goodwill associated with our 2016 acquisitions relates to our ready-mixed concrete reportable segment. See Note 6 for the allocation of goodwill from our 2017 acquisition to our segments. We expect the goodwill to generally be deductible for tax purposes. See Note 12 for additional information regarding income taxes.

Actual and Pro Forma Impact of Acquisitions

During the three months ended June 30, 2017 , we recorded approximately $42.2 million of revenue and $6.4 million of operating income in our condensed consolidated statements of operations related to the 2016 and 2017 acquisitions. During the three months ended June 30, 2016 , we recorded approximately $2.8 million of revenue and $0.3 million of operating income in our condensed consolidated statements of operations related to the 2016 acquisitions.

During the six months ended June 30, 2017 , we recorded approximately $82.1 million of revenue and $12.7 million of operating income in our condensed consolidated statements of operations related to the 2016 and 2017 acquisitions. During the six months ended June 30, 2016 , we recorded approximately $2.9 million of revenue and less than $0.1 million of operating income in our condensed consolidated statements of operations related to the 2016 acquisitions.


12



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


The unaudited pro forma information presented below reflects the combined financial results for all of the acquisitions completed during 2016 and 2017, excluding the two 2016 individually immaterial acquisitions in West Texas described above, because historical financial results for these operations were not material and were impractical to obtain from the former owners. All other acquisitions have been included and represent our estimate of the results of operations for the three and six months ended June 30, 2017 and 2016 , as if the 2017 acquisition had been completed on January 1, 2016, and the 2016 acquisitions had been completed on January 1, 2015 (in thousands, except per share information):

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
344,349

 
$
316,312

 
$
647,407

 
$
609,462

Net (loss) income
$
(1,914
)
 
$
(974
)
 
$
5,867

 
$
(7,573
)
 
 
 
 
 
 
 
 
(Loss) income per share, basic
$
(0.12
)
 
$
(0.07
)
 
$
0.38

 
$
(0.51
)
(Loss) income per share, diluted
$
(0.12
)
 
$
(0.07
)
 
$
0.35

 
$
(0.51
)

The above pro forma results are unaudited and were prepared based on the historical U.S. GAAP results of the Company and the historical results of the five acquired companies for which financial information was available, based on data provided by the former owners. These results are not necessarily indicative of what the Company's actual results would have been had the 2017 acquisition occurred on January 1, 2016, and the 2016 acquisitions occurred on January 1, 2015.

The unaudited pro forma net income (loss) and net income (loss) per share amounts above reflect the following adjustments (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Decrease (increase) in intangible amortization expense
$
18

 
$
(2,080
)
 
$
137

 
$
(4,161
)
Exclusion of buyer transaction costs
$
163

 
$
263

 
$
392

 
$
812

Decrease (increase) in interest expense
$
86

 
$
(93
)
 
$
170

 
$
(184
)
Increase in income tax expense
$
(299
)
 
$
(1,720
)
 
$
(824
)
 
$
(3,676
)

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


13



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


4.
DISCONTINUED OPERATIONS

Discontinued operations primarily relate to real estate leases and subleases of our former precast concrete operations disposed of in prior years. The lease obligations will expire by June 30, 2018.

The results of these discontinued operations were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Operating expenses
$
295

 
$
271

 
$
495

 
$
571

Loss from discontinued operations, before income taxes
(295
)
 
(271
)
 
(495
)
 
(571
)
Income tax benefit
(115
)
 
(107
)
 
(193
)
 
(219
)
Loss from discontinued operations, net of taxes
$
(180
)
 
$
(164
)
 
$
(302
)
 
$
(352
)

Cash flows from operating activities included operating cash flows used in discontinued operations of $0.6 million and $0.3 million during the six months ended June 30, 2017 and 2016, respectively. Cash flows from investing activities included investing cash flows provided by discontinued operations of $0.6 million and $0.3 million for the six months ended June 30, 2017 and 2016, respectively.

5.
INVENTORIES
 
Inventories as of June 30, 2017 and December 31, 2016 consisted of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Raw materials
$
40,442

 
$
38,752

Building materials for resale
2,336

 
1,923

Other
1,349

 
1,304

Total inventories
$
44,127

 
$
41,979


6.       GOODWILL AND OTHER INTANGIBLES

Goodwill

The changes in goodwill by reportable segment from December 31, 2016 to June 30, 2017 were as follows (in thousands):
 
 
Ready-Mixed Concrete Segment
 
Aggregate Products Segment
 
Other Non-Reportable Segments
 
Total
Balance at December 31, 2016
 
$
127,515

 
$
2,494

 
$
3,262

 
$
133,271

2017 acquisition
 

 

 
891

 
891

Adjustment for prior period business combination (1)
 

 
1,176

 

 
1,176

Balance at June 30, 2017
 
$
127,515

 
$
3,670

 
$
4,153

 
$
135,338


(1)
Reflects the correction of a $1.2 million prior period error in the acquisition accounting for a 2015 acquisition. This correction was recorded in the current period as it was not material to the prior periods and had no impact on the Condensed Consolidated Statements of Operations of any period.


14



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


Other Intangibles

Our purchased intangible assets were as follows as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
June 30, 2017
 
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (In Years)
Definite-lived intangible assets
 
 
 
 
 
 
 
 
Customer relationships
 
$
82,293

 
$
(22,184
)
 
$
60,109

 
5.49
Trade names
 
44,456

 
(6,585
)
 
37,871

 
20.05
Non-competes
 
16,875

 
(6,836
)
 
10,039

 
3.36
Leasehold interests
 
12,480

 
(2,535
)
 
9,945

 
7.05
Favorable contract
 
3,650

 
(2,434
)
 
1,216

 
1.17
Total definite-lived intangible assets
 
159,754

 
(40,574
)
 
119,180

 
10.03
Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
Land rights (1)
 
1,478

 

 
1,478

 
 
Total purchased intangible assets
 
$
161,232

 
$
(40,574
)
 
$
120,658

 
 

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

 
 
December 31, 2016
 
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (In Years)
Definite-lived intangible assets
 
 
 
 
 
 
 
 
Customer relationships
 
$
82,174

 
$
(16,414
)
 
$
65,760

 
5.97
Trade names
 
44,456

 
(4,948
)
 
39,508

 
20.20
Non-competes
 
16,862

 
(5,160
)
 
11,702

 
3.81
Leasehold interests
 
12,480

 
(1,693
)
 
10,787

 
7.46
Favorable contract
 
3,650

 
(1,912
)
 
1,738

 
1.67
Total definite-lived intangible assets
 
159,622

 
(30,127
)
 
129,495

 
10.19
Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
Land rights (1)
 
1,478

 

 
1,478

 
 
Total purchased intangible assets
 
$
161,100

 
$
(30,127
)
 
$
130,973

 
 

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


15



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


As of June 30, 2017 , the estimated remaining amortization of our definite-lived intangible assets was as follows (in thousands):
 
Year Ending December 31,
2017 (remainder of the year)
$
10,287

2018
20,143

2019
18,301

2020
16,110

2021
14,687

Thereafter
39,652

Total
$
119,180


Also included in other non-current liabilities in the accompanying condensed consolidated balance sheet are unfavorable lease intangibles with a gross carrying amount of $1.5 million and a net carrying amount of $1.2 million as of June 30, 2017 . These unfavorable lease intangibles have a weighted average remaining life of 5.33 years .

We recorded $5.1 million and $3.5 million of amortization expense on our definite-lived intangible assets and unfavorable lease intangibles for the three months ended June 30, 2017 and 2016 , respectively. We recorded $10.3 million and $6.9 million of amortization expense on our definite-lived intangible assets and unfavorable lease liabilities for the six months ended June 30, 2017 and 2016 , respectively. This amortization expense is included in the accompanying condensed consolidated statements of operations.


7.
ACCRUED LIABILITIES

Our accrued liabilities were as follows (in thousands):

 
June 30, 2017
 
December 31, 2016
Accrued materials
$
23,134

 
$
20,349

Accrued insurance reserves
16,043

 
15,206

Accrued compensation and benefits
13,751

 
2,217

Accrued property, sales and other taxes
7,776

 
9,227

Deferred consideration
7,414

 
16,553

Accrued interest
3,278

 
11,829

Contingent consideration, current portion
2,518

 
2,418

Deferred rent
2,236

 
2,232

Other
6,928

 
5,212

Total accrued liabilities
$
83,078

 
$
85,243



16



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


8.
DEBT
 
Our debt and capital leases were as follows (in thousands):

 
June 30, 2017
 
December 31, 2016
Senior unsecured notes due 2024 and unamortized premium (1)
$
610,724

 
$
400,000

Senior secured credit facility

 

Capital leases
48,149

 
37,860

Other financing
25,575

 
20,248

Debt issuance costs
(10,579
)
 
(8,810
)
Total debt
673,869

 
449,298

Less: current maturities
(21,048
)
 
(16,654
)
Long-term debt, net of current maturities
$
652,821

 
$
432,644


(1)
The effective interest rates for these notes as of June 30, 2017 and December 31, 2016 were 6.47% and 6.62% , respectively.

Senior Unsecured Notes due 2024

In 2016, we issued $400.0 million aggregate principal amount of 6.375% senior unsecured notes due 2024 (the "2024 Notes"). On January 9, 2017, we completed an offering of $200.0 million aggregate principal amount of additional 2024 Notes (the "Additional Notes") at an issue price of 105.75% . The terms of the Additional Notes are identical to the terms of the 2024 Notes, other than the issue date, the issue price, the first interest payment date, and the provisions relating to transfer restrictions and registration rights. We used the net proceeds from the offering of the Additional Notes, which were approximately $208.4 million , to increase our liquidity.

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. We pay interest on the 2024 Notes 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 Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

incur additional debt or issue disqualified stock or preferred stock;
pay dividends or make other distributions, repurchase or redeem our stock or subordinated indebtedness or make certain investments;
sell assets and issue capital stock of our restricted subsidiaries;
incur liens;
allow to exist certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
enter into transactions with affiliates;
consolidate, merge or sell all or substantially all of our assets; and
designate our subsidiaries as unrestricted subsidiaries.

17



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


The 2024 Notes are issued by U.S. Concrete, Inc. (the "Parent"). Our obligations under the 2024 Notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of our restricted subsidiaries that guarantees any obligations under the Revolving Facility or that guarantees certain of our other indebtedness or certain indebtedness of our restricted subsidiaries (other than foreign restricted subsidiaries that guarantee only indebtedness incurred by another foreign subsidiary).

U.S. Concrete, Inc. does not have any independent assets or operations, and none of its foreign subsidiaries guarantee the 2024 Notes. There are no significant restrictions on the ability of the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan. For additional information regarding our guarantor and non-guarantor subsidiaries, see the information set forth in Note 17.

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.

Senior Secured Credit Facility

On November 18, 2015, we entered into the Second Amended and Restated Loan and Security Agreement (the “Second A/R Loan Agreement”) with Bank of America, N.A., as administrative agent, and certain financial institutions named therein, as lenders (the "Lenders"), which amended and restated the First Amended and Restated Loan and Security Agreement dated October 29, 2013 (the "2013 Loan Agreement") and provides us with the Revolving Facility of up to $250.0 million . The maturity date of the Revolving Facility is November 18, 2020. As of June 30, 2017 , we had no outstanding borrowings on the Second A/R Loan Agreement, and we had $14.3 million of undrawn standby letters of credit under the Revolving Facility.

Our actual maximum credit availability under the Revolving Facility varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves imposed by the Lenders and other adjustments, all as specified in the Second A/R Loan Agreement and discussed further below. Our availability under the Revolving Facility at June 30, 2017 increased to $232.5 million from $221.3 million at December 31, 2016 . The Second A/R Loan Agreement also contains a provision for over-advances and protective advances by Lenders, in each case, of up to $25.0 million in excess of borrowing base levels. The Second A/R Loan Agreement provides for swingline loans, up to a $15.0 million sublimit, and letters of credit, up to a $30.0 million sublimit.

Up to $30.0 million of the Revolving Facility is available for the issuance of letters of credit, and any such issuance of letters of credit will reduce the amount available for loans under the Revolving Facility. Loans under the Revolving Facility are limited by a borrowing base which is equal to the lessor of (a) the aggregate amount of Revolver Commitments minus each of the LC Reserve and the Tax Amount, all as defined in the Second A/R Loan Agreement, and (b) (i) 90% of the face amount of eligible accounts receivable (reduced to 85% under certain circumstances), plus (ii) the lesser of (x) 70% of the value of eligible inventory or (y) 90% of the product of (A) the net orderly liquidation value of inventory divided by the value of the inventory and (B) multiplied by the value of eligible inventory, plus (iii) (w) 85% of the net orderly liquidation value (as determined by the most recent appraisal) of eligible trucks, plus (x) 80% of the cost of eligible trucks that have been acquired since the date of the latest appraisal of eligible trucks minus (y) 85% of the net orderly liquidation value of eligible trucks that have been sold since the date of the latest appraisal, minus (z) 85% of the depreciation amount applicable to eligible trucks, plus (iv) (x) 85% of the net orderly liquidation value (as determined by the most recent appraisal) of eligible machinery minus (y) 85% of the net orderly liquidation value of eligible machinery that have been sold since the date of the latest appraisal, minus (z) 85% of the depreciation amount applicable to eligible machinery, minus (v) the Availability Reserve and minus (vi) the Tax Amount, each as defined in the Second A/R Loan Agreement; provided that, notwithstanding anything herein to the contrary, in determining the borrowing base, the borrowing base pursuant to this clause (b), the borrowing base attributable to the eligible trucks and eligible machinery set forth in clauses (b) (iii) and (iv) above shall not exceed 30% of the borrowing base as of such date of determination. The administrative agent may, in its permitted discretion, reduce the advance rates set forth above, adjust reserves or reduce one or more of the other elements used in computing the borrowing base.


18



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


The Second A/R Loan Agreement also requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months, as determined in accordance with the Second A/R Loan Agreement. For the trailing 12-month period ended June 30, 2017 , our fixed charge coverage ratio was 2.53 to 1.0. As of June 30, 2017 , we were in compliance with all covenants under the Second A/R Loan Agreement.

The Second A/R Loan Agreement is secured by a first priority lien on substantially all of the personal property of the Company and our guarantors, subject to permitted liens and certain exceptions.

Capital Leases and Other Financing

We have a series of promissory notes with various lenders for the purchase of mixer trucks and other machinery and equipment in an aggregate original principal amount of $42.7 million , with fixed annual interest rates ranging from less than 2.50% to 4.86% , payable monthly for terms ranging from less than one to five years.

We have leasing agreements with various other lenders for the purchase of mixer trucks and other machinery and equipment for a total original principal amount of $64.5 million , with fixed annual interest rates ranging from less than 0.01% to 5.24% , payable monthly for terms ranging from two to five years. The lease terms include one dollar buyout options at the end of the lease terms. Accordingly, these financings have been classified as capital leases. The current portion of capital leases included in current maturities of long-term debt was $12.9 million as of June 30, 2017 and $9.8 million as of December 31, 2016 .

The weighted average interest rate of our capital leases and other financings was 3.21% as of June 30, 2017 and 3.11% as of December 31, 2016 .

9.
WARRANTS

On August 31, 2010, we issued warrants to acquire common stock in two tranches: Class A Warrants to purchase an aggregate of approximately 1.5 million shares of common stock and Class B Warrants to purchase an aggregate of approximately 1.5 million shares of common stock (collectively, the "Warrants").  The Warrants were issued to holders of our predecessor common stock pro rata based on a holder’s stock ownership as of August 31, 2010 and will expire on August 31, 2017. The Warrants are included in derivative liabilities on the accompanying condensed consolidated balance sheets (see Note 10) and are recorded at their fair value (see Note 11). The Warrants are also included in the potentially dilutive securities included in the calculation of diluted earnings (loss) per share as shares of our common stock would be issued if the Warrants were exercised (see Note 14). The Warrants are classified as a current liability on the accompanying condensed consolidated balance sheets, as they can be exercised by the holders at any time. As of June 30, 2017 , there were approximately 0.7 million Class A Warrants and 0.4 million Class B Warrants outstanding.


19



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


10.
DERIVATIVES

We are exposed to certain risks relating to our ongoing business operations.  However, derivative instruments are not used to hedge these risks.  In accordance with FASB Accounting Standards Codification ("ASC") 815 - Derivatives and Hedging ("ASC 815"), we are required to account for our warrants, issued on August 31, 2010, as derivative instruments.  None of our derivative instruments manage business risk or are executed for speculative purposes.

The following table presents the fair value of our derivative instruments as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
 
 
Fair Value 
Derivative Instruments Not Designated As
Hedging Instruments Under ASC 815
 
Balance Sheet Location
 
June 30, 2017
 
December 31, 2016
Warrants
 
Derivative liabilities
 
$
61,261

 
$
57,415


The following table presents the effect of derivative instruments on our condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 , respectively, excluding income tax effects (in thousands):



 
Three Months Ended
Derivative Instruments Not Designated As
Hedging Instruments Under ASC 815

Location of Loss Recognized
 
June 30, 2017

June 30, 2016
Warrants

Derivative loss
 
$
(15,766
)
 
$
(2,562
)

 
 
 
 
Six Months Ended
Derivative Instruments Not Designated As
Hedging Instruments Under ASC 815
 
Location of Loss Recognized
 
June 30, 2017
 
June 30, 2016
Warrants
 
Derivative loss
 
$
(13,910
)
 
$
(15,342
)


Warrant volume positions represent the number of shares of common stock underlying the instruments.  The table below presents our volume positions as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
Number of Shares
Derivative Instruments Not Designated As
Hedging Instruments Under ASC 815
 
June 30, 2017
 
December 31, 2016
Warrants
 
1,127

 
1,395


We do not have any derivative instruments with credit features requiring the posting of collateral in the event of a credit downgrade or similar credit event.


20



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


11.
FAIR VALUE DISCLOSURES

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

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain assets and liabilities within the fair value hierarchy.

The following tables present our fair value hierarchy for liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 (in thousands):
 
June 30, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative – Warrants
$
61,261

 
$

 
$
61,261

 
$

Contingent consideration, including current portion (1) (2) (3) (4) (5)
52,032

 

 

 
52,032

 
$
113,293

 
$

 
$
61,261

 
$
52,032


 
December 31, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative – Warrants
$
57,415

 
$

 
$
57,415

 
$

Contingent consideration, including current portion (1) (2) (4) (5) (6)
32,212

 

 

 
32,212

 
$
89,627

 
$

 
$
57,415

 
$
32,212

 
(1)
The current portion of contingent consideration is included in accrued liabilities in our condensed consolidated balance sheets. The long-term portion of contingent consideration is included in other long-term obligations and deferred credits in our condensed consolidated balance sheets.
(2)
Includes the fair value of the contingent consideration associated with the 2015 acquisition of Ferrara Bros. Building Materials Corp. ("Ferrara Bros. Contingent Consideration"). The fair value was determined based on the expected vesting of incentive awards granted to the former owners at acquisition based on probability-weighted assumptions related to the achievement of certain annual EBITDA thresholds, using a discount rate of 8.75% as of both June 30, 2017 and December 31, 2016 . The fair value of the Ferrara Bros. Contingent Consideration was $27.2 million and $26.3 million as of June 30, 2017 and December 31, 2016 , respectively. The Ferrara Bros. Contingent Consideration payments were capped at $35.0 million over a four -year period beginning in 2017 as of both June 30, 2017 and December 31, 2016 .
(3)
Includes the fair value of the contingent consideration associated with the 2017 acquisition of certain assets of Corbett Aggregates Company, LLC. ("Corbett Contingent Consideration"). The fair value was determined based on the expected consideration that will be due to the former owner based on the probability-weighted assumptions related to the achievement of obtaining permits for mining all available reserves, using a discount rate of 5.0% as of June 30, 2017. The fair value of the Corbett Contingent Consideration was $20.7 million as of June 30, 2017. The Corbett Contingent Consideration payments were capped at $23.0 million over a two -year minimum period as of June 30, 2017 .

21



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


(4)
Includes the fair value of the earn-out payments associated with the 2015 acquisition of Right Away Redy Mix, Inc. (the "Right Away Earn-out"). The fair value was determined based on expected payouts that will be due to the former owners based on probability-weighted assumptions related to the achievement of annual sales volume milestones, using a discount rate of 8.50% as of both June 30, 2017 and December 31, 2016 . The fair value of the Right Away Earn-out was $3.5 million and $3.9 million as of June 30, 2017 and December 31, 2016 , respectively. The remaining Right Away Earn-out payments were capped at $4.3 million over a four -year period and $5.0 million over a five -year period as of June 30, 2017 and December 31, 2016 , respectively.
(5)
Includes the fair value of the earn-out payments associated with the 2015 acquisition of DuBrook Concrete, Inc. ("DuBrook Earn-out"). The fair value was determined based on the expected payouts that will be due to the former owners based on probability-weighted assumptions related to the achievement of sales volume milestones, using a discount rate of 15.75% as of both June 30, 2017 and December 31, 2016 . The fair value of the DuBrook Earn-out was $0.6 million as of both June 30, 2017 and December 31, 2016 . The Dubrook Earn-out payments are not capped; however, we do not expect total payments to be in excess of $0.7 million over a three -year period as of both June 30, 2017 and December 31, 2016 , respectively.
(6)
Includes the fair value of the earn-out payments associated with the 2012 acquisition of Bode Gravel Co. and Bode Concrete LLC ("Bode Earn-out"). The fair value was determined based on expected payouts that will be due to the former owners based on the achievement of certain incremental sales volume milestones, using a contractual discount rate of 7.0% . These payments were capped at a fair value of $1.4 million as of December 31, 2016 . The final Bode Earn-out payment was made in January 2017.

The liability for the Warrants was valued utilizing a Black-Scholes-Merton model. Inputs into the model were based upon observable market data.  The key inputs in determining our derivative liabilities include our stock price, stock price volatility, and risk free interest rates. As of June 30, 2017 , observable market data existed for all of the key inputs in determining the fair value of our Warrants.

The liabilities for the Right Away Earn-out and the Ferrara Bros. Contingent Consideration were valued using Monte Carlo simulations which incorporated probability-weighted assumptions related to the achievement of specific milestones mentioned above. The liabilities for the Corbett Contingent Consideration were valued using the income approach which incorporated probability-weighted assumptions related to the achievement of specific milestones mentioned above. The liabilities for the Bode Earn-out, the DuBrook Earn-out, and the contingent consideration associated with one of the individually immaterial 2015 acquisitions were valued using a discounted cash flow technique. Inputs into the model were based upon observable market data where possible. Where observable market data did not exist, we modeled inputs based upon similar observable inputs. The key inputs in determining the fair value of the contingent consideration as of June 30, 2017 and December 31, 2016 included discount rates ranging from 5.00% to 15.75% and management's estimates of future sales volumes, EBITDA and permitted reserves. Changes in these inputs will impact the valuation of our contingent consideration obligations and will result in gain or loss each quarterly period.

A reconciliation of the changes in Level 3 fair value measurements from December 31, 2016 to June 30, 2017 is provided below (in thousands):
 
Contingent Consideration
Balance at December 31, 2016
$
32,212

Acquisitions (1)
20,621

Total losses included in earnings (2)
1,328

Payment on contingent consideration
(2,129
)
Balance at June 30, 2017
$
52,032


(1)
Represents the fair value of the contingent consideration associated with the Corbett acquisition as of the acquisition date.
(2)
Represents the net loss on revaluation of contingent consideration, which is included in loss on revaluation of contingent consideration in our condensed consolidated statements of operations.

Our other financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt.  We consider the carrying values of cash and cash equivalents, accounts receivable and accounts payable to be representative of their respective fair values because of their short-term maturities or expected settlement dates.  The fair value of our 2024 Notes, estimated based on broker/dealer quoted market prices (i.e., Level 2 inputs), was $634.5 million as of June 30, 2017 . The carrying value of any outstanding amounts under our Second A/R Loan Agreement approximates fair value due to the floating interest rate. There were no such amounts outstanding as of June 30, 2017 or December 31, 2016 .


22



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


12.
INCOME TAXES

We recorded income tax expense allocated to continuing operations of $6.9 million and $13.6 million for the three and six months ended June 30, 2017 , respectively. We recorded a tax benefit allocated to continuing operations of $0.3 million and income tax expense allocated to continuing operations of $1.7 million for the three and six months ended June 30, 2016 , respectively. We recorded a tax benefit of $0.1 million and $0.2 million allocated to discontinued operations for the three and six months ended June 30, 2017 . We recorded a tax benefit of $0.1 million and $0.2 million allocated to discontinued operations for the three and six months ended June 30, 2016 , respectively. For the six months ended June 30, 2017 , our effective tax rate differed from the federal statutory rate primarily due to adjustments related to certain state net operating loss (“NOL”) carryforwards that will not be utilized prior to expiration and other cumulative adjustments to deferred income taxes, which both resulted in additional income tax expense. In addition, the adoption of ASU 2016-09 on January 1, 2017 (see Note 2) required the current period income tax benefit related to stock compensation to be reflected in the income statement instead of additional paid-in-capital, as previously required. For the six months ended June 30, 2016 , our effective tax rate differed from the federal statutory tax rate primarily due to the application of a valuation allowance that reduced the recognized benefit of our deferred tax assets. In addition, certain state income taxes are calculated on a basis other than pre-tax income (loss). In addition, for both the three months ended June 30, 2017 and 2016, our effective tax rate differed from the federal statutory rate due to the tax impact of derivative gains and losses related to our Warrants.  These derivative gains and losses were excluded from the calculation of our income tax provision and were treated as an unrecognized tax position. For the six months ended June 30, 2017 , our tax provision excluded $5.4 million of tax benefit related to our $13.9 million derivative loss. For the six months ended June 30, 2016 , our tax provision excluded $4.1 million of tax benefit related to our $15.3 million derivative loss.

In accordance with U.S. GAAP, we reduce the value of deferred tax assets to the amount that is more likely than not to be realized in future periods. The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on generating sufficient taxable income during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and established valuation allowances as of June 30, 2017 and December 31, 2016 for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability was approximately $12.0 million as of June 30, 2017 and approximately $7.7 million as of December 31, 2016 . We made income tax payments of approximately $6.6 million and $12.3 million during the three and six months ended June 30, 2017 . We made income tax payments of approximately $0.6 million and $2.7 million during the three and six months ended June 30, 2016 .

We record changes in our unrecognized tax benefits based on anticipated federal and state tax filing positions on a quarterly basis. For the six months ended June 30, 2017 and 2016 , we recorded unrecognized tax benefits of $5.7 million and $4.5 million , respectively.



13.
STOCKHOLDERS' EQUITY
 
Common Stock and Preferred Stock
 
The following table presents information regarding our common stock (in thousands):
 
June 30, 2017
 
December 31, 2016
Shares authorized
100,000

 
100,000

Shares outstanding at end of period
15,993

 
15,696

Shares held in treasury
929

 
888


There was no preferred stock issued or outstanding as of June 30, 2017 or December 31, 2016 .


23



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


Share Repurchase Program

In May 2014, our Board authorized a program to repurchase up to $50.0 million of our outstanding common stock (the "Share Repurchase Program") until the earlier of March 31, 2017, or a determination by the Board to discontinue the Share Repurchase Program. We made no repurchases of our common stock as of March 31, 2017 under the Share Repurchase Program.

In March 2017, given the impending expiration of our Share Repurchase Program, our Board authorized a new share repurchase program to repurchase up to $50.0 million of our outstanding common stock (the "Second Share Repurchase Program") effective April 1, 2017 until the earlier of March 31, 2020, or a determination by the Board to discontinue the Second Share Repurchase Program. We made no repurchases of our common stock as of June 30, 2017 under the Second Share Repurchase Program.

Treasury Stock

Employees may elect to satisfy their minimum tax obligations on the vesting of their equity awards by having the required tax payments withheld based on a number of vested shares having an aggregate value on the date of vesting equal to the tax obligation.  As a result of such employee elections, we withheld approximately 41,000 shares with a total value of approximately $2.8 million during the six months ended June 30, 2017 . We withheld approximately 42,000 shares with a total value of approximately $2.7 million during the six months ended June 30, 2016 . We accounted for the minimum withholding of these shares as treasury stock.

14.
NET EARNINGS (LOSS) PER SHARE

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

The following is a reconciliation of the components of the basic and diluted earnings (loss) per share calculations for the three and six months ended June 30, 2017 and 2016 (in thousands):

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017 (1)
 
2016 (1)
 
2017
 
2016 (1)
Numerator:
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(2,169
)
 
$
(3,313
)
 
$
4,833

 
$
(13,152
)
Loss from discontinued operations, net of taxes
(180
)
 
(164
)
 
(302
)
 
(352
)
Numerator for diluted earnings (loss) per share
$
(2,349
)
 
$
(3,477
)
 
$
4,531

 
$
(13,504
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
15,703

 
14,920

 
15,601

 
14,854

Restricted stock awards and restricted stock units

 

 
123

 

Warrants

 

 
791

 

Stock options

 

 
16

 

Denominator for diluted earnings (loss) per share
15,703

 
14,920

 
16,531

 
14,854


(1) We reported a loss from continuing operations for the three months ended June 30, 2017 and the three and six months ended June 30, 2016, and thus the share count used in the basic and diluted earnings per share calculation is the same.     


24



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


For the three and six months ended June 30, 2017 and 2016 , our potentially dilutive shares include the shares underlying our restricted stock awards, restricted stock units, stock options and Warrants. The following table shows the type and number (in thousands) of potentially dilutive shares excluded from the diluted earnings (loss) per share calculations for the periods presented as their effect would have been anti-dilutive or they have not met their performance target:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Potentially dilutive shares:
 
 
 
 
 
 
 
Unvested restricted stock awards and restricted stock units
275

 
265

 
131

 
265

Stock options
19

 
30

 

 
30

Warrants
1,127

 
1,955

 

 
1,955

Total potentially dilutive shares
1,421

 
2,250

 
131

 
2,250


15.
COMMITMENTS AND CONTINGENCIES
 
Legal Proceedings
 
From time to time, and currently, we are subject to various claims and litigation brought by employees, customers and other third-parties for, among other matters, personal injuries, property damages, product defects and delay damages that have, or allegedly have, resulted from the conduct of our operations.  As a result of these types of claims and litigation, we must periodically evaluate the probability of damages being assessed against us and the range of possible outcomes.  In each reporting period, if we determine that the likelihood of damages being assessed against us is probable, and if we believe we can estimate a range of possible outcomes, then we will record a liability. The amount of the liability will be based upon a specific estimate, if we believe a specific estimate to be likely, or it will reflect the low end of our range. Currently, there are no material legal proceedings pending against us.
 
In the future, we may receive funding deficiency demands from multi-employer pension plans to which we contribute.  We are unable to estimate the amount of any potential future funding deficiency demands because the actions of each of the contributing employers in the plans has an effect on each of the other contributing employers and the development of a rehabilitation plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan assumptions.

As of June 30, 2017 , there are no material product defect claims pending against us.  Accordingly, our existing accruals for claims against us do not reflect any material amounts relating to product defect claims.  While our management is not aware of any facts that would reasonably be expected to lead to material product defect claims against us that would have a material adverse effect on our business, financial condition or results of operations, it is possible that claims could be asserted against us in the future.  We do not maintain insurance that would cover all damages resulting from product defect claims.  In particular, we generally do not maintain insurance coverage for the cost of removing and rebuilding structures.  In addition, our indemnification arrangements with contractors or others, when obtained, generally provide only limited protection against product defect claims.  Due to inherent uncertainties associated with estimating claims in our business, we cannot estimate the amount of any future loss that may be attributable to product defect claims related to ready-mixed concrete we have delivered prior to June 30, 2017 .

On March 28, 2017, Hans Ruedelstein, individually and on behalf of all others similarly situated, filed a purported class action lawsuit in the United States District Court of Northern Texas, Fort Worth Division, against the Company, William J. Sandbrook, William M. Brown and Joseph C. Tusa, Jr. alleging violations of certain federal securities laws.  The case was filed purportedly on behalf of purchasers of the Company's stock between March 6, 2015 and March 23, 2017. The complaint does not specify an amount of damages sought. On June 22, 2017, Robert Abric and Donald Bellafiore were appointed as co-lead plaintiffs. The Company denies the allegations in the complaint and intends to vigorously pursue its defense.


25



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


We believe that the resolution of all litigation currently pending or threatened against us or any of our subsidiaries will not materially exceed our existing accruals for those matters.  However, because of the inherent uncertainty of litigation, there is a risk that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a party as more information becomes available or proceedings progress, and any such increase in accruals could have a material adverse effect on our consolidated financial condition or results of operations.  We expect in the future that we and our operating subsidiaries will, from time to time, be a party to litigation or administrative proceedings that arise in the normal course of our business.

We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting that we may be in violation of environmental laws and regulations. Based on experience and the information currently available, our management does not believe that these claims will materially exceed our related accruals.  Despite compliance and experience, it is possible that we could be held liable for future charges, which might be material, but are not currently known to us or cannot be estimated by us.  In addition, changes in federal or state laws, regulations or requirements, or discovery of currently unknown conditions, could require additional expenditures.

As permitted under Delaware law, we have agreements that provide indemnification of officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is not limited; however, we have a director and officer insurance policy that potentially limits our exposure and enables us to recover a portion of future amounts that may be paid.  As a result of the insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of June 30, 2017 .

We and our subsidiaries are parties to agreements that require us to provide indemnification in certain instances when we acquire businesses and real estate and in the ordinary course of business with our customers, suppliers, lessors and service providers.

Insurance Programs

We maintain third-party insurance coverage against certain risks in amounts we believe are reasonable.  Under certain components of our insurance program, we share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations.  Generally, our deductible retentions per occurrence for auto, workers’ compensation and general liability insurance programs are $1.0 million , although certain of our operations are self-insured for workers’ compensation.  We fund these deductibles and record an expense for expected losses under the programs.  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 patterns, claims settlement patterns, judicial decisions, legislation and economic conditions.  Although we believe the estimated losses we have recorded are reasonable, significant differences related to the items we have noted above could materially affect our insurance obligations and future expense. The amount recorded in accrued liabilities in our condensed consolidated balance sheet for estimated losses was $14.7 million as of June 30, 2017 , compared to $13.5 million as of December 31, 2016 .

Performance Bonds
 
In the normal course of business, we are contingently liable for performance under $29.3 million in performance bonds that various contractors, states and municipalities have required as of June 30, 2017 . The bonds principally relate to construction contracts, reclamation obligations, licensing and permitting. We and our subsidiaries have indemnified the underwriting insurance company against any exposure under the performance bonds. No material claims have been made against these bonds as of June 30, 2017 .

Employment Agreements

We have employment agreements with executive officers and certain key members of management under which severance payments would become payable in the event of specified terminations without cause or after a change of control. 



26



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


16.
SEGMENT INFORMATION

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

Our ready-mixed concrete segment produces and sells ready-mixed concrete. This segment serves the following markets: Texas, Northern California, New York, New Jersey, Washington, D.C., Oklahoma, and the U.S. Virgin Islands. Our aggregate products segment includes crushed stone, sand and gravel products and serves the North Texas, West Texas, New York, New Jersey, Oklahoma, and U.S. Virgin Islands markets in which our ready-mixed concrete segment operates. Other products not associated with a reportable segment include our building materials stores, hauling operations, lime slurry, ARIDUS ® Rapid Drying Concrete technology, brokered product sales, a recycled aggregates operation, an aggregate distribution operation, and an industrial waterfront marine terminal and sales yard. The financial results of the acquisitions have been included in their respective reportable segment or in other products as of their respective acquisition dates.

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

Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as income (loss) from continuing operations plus the provision (benefit) for income taxes, net interest expense, depreciation, depletion and amortization, derivative gain (loss), gain (loss) on revaluation of contingent consideration, and gain (loss) on extinguishment of debt. Additionally, we adjust Adjusted EBITDA for items similar to certain of those used in calculating our compliance with debt covenants. The additional items that are adjusted to determine our Adjusted EBITDA are:

non-cash stock compensation expense,
acquisition-related professional fees, and
corporate officer severance expense.

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

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

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


27



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


The following tables set forth certain financial information relating to our continuing operations by reportable segment (in thousands):



Three Months Ended
June 30,

Six Months Ended
June 30,
 

2017

2016

2017

2016
Revenue:

 

 




Ready-mixed concrete








Sales to external customers

$
310,122


$
248,532


$
585,578


$
472,621

Aggregate products








Sales to external customers

12,036


10,607


21,333


18,466

Intersegment sales

10,730


8,517


19,257


15,803

Total aggregate products
 
22,766

 
19,124

 
40,590

 
34,269

Total reportable segment revenue

332,888


267,656


626,168


506,890

Other products and eliminations

8,038


8,094


13,891


13,905

Total revenue

$
340,926


$
275,750

 
$
640,059

 
$
520,795










Reportable Segment Adjusted EBITDA:

 

 

 

 
Ready-mixed concrete

$
49,646


$
32,660


$
91,150


$
60,415

Aggregate products

8,674


5,151


12,671


8,075

Total reportable segment Adjusted EBITDA

$
58,320

 
$
37,811

 
$
103,821

 
$
68,490










Reconciliation of Total Reportable Segment Adjusted EBITDA to Income (Loss) From Continuing Operations:










Total reportable segment Adjusted EBITDA
 
$
58,320

 
$
37,811

 
$
103,821

 
$
68,490

Other products and eliminations from operations
 
3,166

 
2,674

 
6,023

 
4,232

Corporate overhead
 
(14,714
)
 
(10,710
)
 
(25,706
)
 
(20,522
)
Depreciation, depletion and amortization for reportable segments
 
(15,292
)
 
(11,899
)
 
(30,145
)
 
(22,594
)
Interest expense, net
 
(10,368
)
 
(6,598
)
 
(20,510
)
 
(12,298
)
Corporate loss on early extinguishment of debt
 

 
(12,003
)
 

 
(12,003
)
Corporate derivative gain (loss)
 
(15,766
)
 
(2,562
)
 
(13,910
)
 
(15,342
)
Loss on revaluation of contingent consideration for reportable segments
 
(720
)
 
(364
)
 
(1,328
)
 
(1,611
)
Corporate, other products and eliminations other income, net
 
116

 
87

 
201

 
236

Income (loss) from continuing operations before income taxes
 
4,742

 
(3,564
)
 
18,446

 
(11,412
)
Income tax expense
 
6,911

 
(251
)
 
13,613

 
1,740

Income (loss) from continuing operations
 
$
(2,169
)
 
$
(3,313
)
 
$
4,833

 
$
(13,152
)





 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
 
Ready-mixed concrete
 
$
6,216

 
$
7,014

 
$
12,323

 
$
12,171

Aggregate products
 
1,409

 
3,014

 
5,677

 
8,013

Other products and corporate
 
349

 
1,685

 
692

 
2,749

Total capital expenditures
 
$
7,974

 
$
11,713

 
$
18,692

 
$
22,933



28



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


 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue by Product:
 
 
 
 
 
 
 
 
Ready-mixed concrete
 
$
310,122

 
$
248,532

 
$
585,578

 
$
472,621

Aggregate products
 
12,036

 
10,607

 
21,333

 
18,466

Aggregates distribution
 
7,500

 
6,515

 
12,953

 
11,281

Building materials
 
6,674

 
5,498

 
10,744