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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.

Commission file number 001-34530
https://cdn.kscope.io/e3a2187f404d04a7d5f54701bc470c31-logo1a09.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) (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
 
 Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.001
 
 USCR
 
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  No 

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   No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No 

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   No 

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
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       No

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 $49.69 of the registrant’s common stock as of June 30, 2019: $679,967,699. 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.

As of February 19, 2020, there were 16,699,313 shares of the registrant's common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the registrant's 2020 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.



TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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

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.


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PART I
Item 1.  Business

Overview

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.

U.S. Concrete is a leading heavy building materials supplier of aggregates and ready-mixed concrete in select geographic markets in the United States, the U.S. Virgin Islands and Canada. The Company is focused on growing both organically and through strategic acquisitions in our target markets, particularly within our aggregate products segment. 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 vertically integrated (aggregates and ready-mixed concrete) market positions in New York City, New Jersey, Dallas-Fort Worth, West Texas and the San Francisco Bay Area.

In 2017, we completed our largest acquisition to date with the purchase of Polaris Materials Corp. (“Polaris”), a construction aggregate producer in British Columbia, Canada, that sells primarily to customers in the United States. This acquisition added a significant amount of aggregates production and reserves to our portfolio, represented a key step in our vertical integration for the San Francisco Bay Area, and provides us a broader growth platform for the entire West Coast. Beyond our traditional markets, Polaris also serves 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 provided 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.

We operate principally in our East Region (which we define to include New York City, New Jersey, Washington, D.C., and Philadelphia), our Central Region (which we define as Texas and Oklahoma), and our West Region (which we define to include California and British Columbia, Canada) with those markets representing approximately 34%34% and 30%, respectively, of our consolidated revenue for 2019. We believe we are well positioned for strong growth in these attractive regions.

Total revenue for 2019 was $1.5 billion, of which we derived approximately 86.5% from our ready-mixed concrete segment, 9.6% from our aggregate products segment (excluding $53.5 million sold internally) and 3.9% from our other operations. For 2019, we had net income attributable to U.S. Concrete of $14.9 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:
 
2019
 
2018
 
2017
Commercial and industrial
60%
 
56%
 
56%
Residential
22%
 
25%
 
26%
Infrastructure
18%
 
19%
 
18%

Recent Developments

2020 Acquisition of Aggregates Company in New York

On February 24, 2020, we acquired all of the equity of Coram Materials Corp. and certain of its affiliates (collectively, “Coram”) for $142.0 million, subject to certain post-closing adjustments (the “Acquisition”). Coram is a premier provider of high-quality sand and gravel products located on Long Island, New York. Coram’s operations supply natural sand to the New York City area, which is used in concrete and other applications across industry sectors and within all construction categories. Coram owns approximately 41.9 million tons of proven and permitted reserves and approximately 7.5 million tons of proven, but unpermitted, reserves. The Acquisition increases the vertical integration of our New York City operations and reduces our dependency on third-party suppliers. In addition, the Acquisition strengthens our competitive position, while furthering our strategy of expanding into higher margin aggregates businesses at attractive valuations. We funded the purchase price for the Acquisition by borrowing

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$140.0 million under our asset-based revolving credit facility (the “Revolving Facility”). We have additional committed financing to further support our liquidity needs, and we will seek to refinance or replace this borrowing as conditions permit. The remaining $2.0 million of the purchase price will be paid over the next two years.

Our Competitive Strengths

Large, high quality, vertically integrated asset base in attractive construction markets
Our core competitive strength lies in building strong, vertically integrated market positions in complex urban environments that require manufacturing and time-sensitive delivery of high performance concrete in challenging settings.

We have developed strategic raw materials sourcing capabilities, particularly our aggregate and sand vertical integration in areas of the country where aggregates are expensive and depleting. These sources coupled with our water borne and strategically located docks further strengthens our self-supply model.

Our ability to internally source aggregates requirements for our most challenging projects, and in every market we serve, gives us a distinct competitive strength. Zoning and permitting regulations make it difficult to permit new quarries and ready-mixed concrete plants in many of the markets we serve. This acts as a barrier to entry that makes our strong market positions more valuable. In addition, our business is uniquely local and given the relatively low selling price of aggregates, transportation costs can quickly exceed the product cost. Further, due to the occurrence of chemical reactions during transport, concrete is a perishable product and must be unloaded within 60 to 90 minutes from being loaded into the mixer truck at the concrete batch plant. These factors serve to make our strategic locations near highly attractive, large and growing construction markets a meaningful competitive advantage.

Our sourcing network extends and supports our large, high quality asset base, which is comprised of more than 195 ready mixed concrete plant facilities, 19 aggregates facilities and seven distribution terminals, and is well positioned to supply large, complex projects 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 extensive delivery requirements. Our comprehensive asset base enables greater efficiencies and asset utilization, while scale leverages purchasing power advantages and delivery and asset utilization efficiencies.

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.

Top 3 positions in favorable geographic markets with attractive fundamentals
We operate in favorable construction markets where we believe we have an advantage compared to our competitors given our ability to handle complex projects across a broad array of industry sectors. We have a large, high-quality asset base focused in the Texas/Oklahoma, Northern California, New York City/New Jersey, Washington, D.C. and U.S. Virgin Islands markets. Our management team believes we have a leading market position in all of our geographic markets.

Focus on environmental sustainability
Sustainability and environmentally friendly solutions continue to grow and be in high demand in our industry, and we expect domestic and global sustainable demand to continue to grow at attractive rates. We are a leader in the sustainable concrete market and we take pride in our commitment to deliver these critical solutions. We were the first company in the United States 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 15,000 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 national and regional research laboratories have developed significant expertise in concrete mix design, enabling industry leading solutions while ensuring local capability needs are met. For example, 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 to sequester it and improve the performance of the concrete.

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Our EF Technology innovation and other sustainability measures also positively affect the performance of the final product, further enhancing our value proposition.

Long-term customer relationships
Our management and sales personnel focus on developing and maintaining successful long-term relationships with our key customers. Customer concentration in our key markets allows us to better serve our new and existing customers with expedited delivery, lower transportation costs and scale efficiencies. Key elements of our customer-focused approach include (i) corporate-level marketing and sales expertise; (ii) technical service expertise to develop innovative new branded products; and (iii) training programs that emphasize successful marketing and sales techniques that focus on the sale of high margin concrete mix designs.

Our customer engagement model results in contractors returning year after year to us as a supplier they can trust. In 2019, no single customer or project accounted for more than 10% of our total revenue. Our broad, yet targeted, customer base enables us to develop an efficient, stable business model and tap into the market in a variety of ways. We believe that by providing high quality, reliable services and customized products and solutions, we are able to maintain important long-term relationships. To further entrench our customer relationships, we have invested in technology, such as our proprietary dispatch and analytics system, Where’s My Concrete?TM, providing a higher level of service and real-time information to our customers.

A top supplier to large and complex commercial projects
We provide alternative solutions for designers and contractors by offering value-added concrete products, such as color-conditioned, fiber-reinforced, steel reinforced and high-performance concrete. We believe this innovation enhances our ability to compete for and win supply contracts for some of the largest and most prestigious commercial projects.

Solid balance sheet and ample liquidity
We have successfully improved our financial performance by refocusing our financial objectives over the past several years. Our management team has focused on reducing our cost structure while expanding our existing and acquired businesses in our core operating regions to drive strong performance. As a result, we have grown revenue, improved profit margins and increased liquidity. We benefit from available liquidity through our Revolving Facility and cash flow from operations. We believe our solid balance sheet and ample liquidity will allow us to take advantage of strategic opportunities as well as provide ample cushion against general downturns in economic activity.

Demonstrable track record of successful acquisitions
Our ability to replicate our business 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.

Experienced management team.
Our senior management team consists of 14 executives with an average of more than 20 years of industry experience and is comprised of individuals with a proven track record in the construction materials industry. Our Chief Executive Officer and Chairman of the Board, William J. Sandbrook, and our President and Chief Operating Officer, Ronnie Pruitt, both have over 25 years of construction materials industry experience. Our management team’s deep market knowledge enables us to effectively assess potential new opportunities to solidify our leading market presence. We will continue to focus on recruiting and retaining motivated and knowledgeable professional managers to continue to develop our business and maintain our leading market positions.

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 City, Philadelphia, Washington, D.C., Dallas-Fort Worth and the San Francisco Bay Area. These markets represent five of the top 12 metropolitan statistical areas.


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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 at the concrete batch plant.

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

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 our 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 us to expand through strategic acquisitions.

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 20% 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 very difficult to replicate.

Do what we know
We expect to be a leading supplier of heavy 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.

Drive margin improvement
We are focused on driving continuous improvement, resulting in increasing profit margins. We believe 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

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 National Stone, Sand & Gravel Association (“NSSGA”) estimates that the U.S. domestic production and use of construction aggregates amounted to 2.5 billion tons of crushed stone, sand and gravel, valued at $25.1 billion. The aggregates industry employs approximately 100,000 highly skilled men and women. Due to high transportation costs, approximately 90% of aggregates are consumed within 50 miles of the place of extraction.

Ready-mixed concrete manufacturers produce concrete and deliver it in an unhardened state to end users, such as contractors, who then place 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 6,800 ready-mixed concrete plants and 70,000 ready-mixed concrete mixer trucks that delivered approximately 371 million cubic yards of product to the point of placement, accounting for $40 billion in revenue across the United States in 2019.

The key drivers for aggregates and ready-mixed concrete 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.

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We expect that U.S. infrastructure, including transportation, water and other systems, will continue to benefit from strong investment for years to come. The country's vast network of transportation infrastructure, power grids and communications facilities are aging and in need of repair and upgrade. In 2017, the American Society of Civil Engineers gave U.S. infrastructure a grade of D+, indicating significant under investment. In 2018, the Department of Transportation reported that 64% of highways were in less than good condition and 25% of bridges were in need of significant repair amounting to an estimated backlog of $836 billion of capital and investment needs.

U.S. residential new construction peaked in 2006 before the economic downturn drove new home construction to Depression-era levels. Since 2011, the recovery of residential new construction has generated increasing demand for aggregates and concrete. We expect the housing recovery to continue, supported by strong job creation, a high level of consumer confidence, and millennials increasingly entering the housing market. Average industry forecasts from leading industry associations (e.g., National Association of Homebuilders, National Association of Realtors, Mortgage Bankers Association and Fannie Mae) suggests total housing starts (both single and multi-family) will grow from 1.29 million in 2019 to 1.39 million in 2021, representing a 3.6% compounded annual growth rate.

The non-residential construction market contracted significantly during the economic downturn as the construction of commercial buildings such as office buildings, warehouses, commercial and industrial buildings slowed. In recent years, however, the market has experienced sustained growth as the economy continues a slow but steady recovery. The steady recovery of the non-residential construction industry is observed in the Dodge Momentum Index, a leading indicator which has shown steady improvement in the market since the economic downturn. We expect continued job growth, low office vacancy rates, and overall gross domestic product ("GDP") growth to continue to support the non-residential construction market. According to the American Institute of Architects Consensus Construction Forecast, the U.S. non-residential construction sector is expected to grow 1.5% through 2020, followed by 0.9% growth in 2021.

Our Products

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 we serve, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 11.5 million tons of aggregates during the year ended December 31, 2019, with British Columbia, Canada representing 43%, Texas and Oklahoma representing 32%, New Jersey representing 22% and the U.S. Virgin Islands representing 3% of the total production. While we consumed 34% of this production internally in 2019, we currently 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.

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.


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We also provide portable and mobile concrete plants for high-volume or remote projects. While currently operating predominantly in our existing regions, 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. 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.

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.

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 2019, our ready-mixed concrete businesses purchased 34% 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

Because of the impact of transportation costs on the aggregates industry, our competition in the aggregates product segment tends to be limited to producers in proximity to each of our facilities. The industry is highly fragmented and includes smaller private aggregates producers in addition to large, national companies. All of our locations experience competition from local companies in addition to larger public companies. Competition is based on location, price, quality of aggregates and level of customer service. Our primary public company competitors are Cemex S.A.B. de C.V., CRH PLC, Heidelberg Cement AG, LafargeHolcim Ltd., Martin Marietta Materials, Inc., Summit Materials, Inc. and Vulcan Materials Company. Companies in the industry tend to grow by acquiring existing facilities to enter new markets or expand their existing market positions.

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

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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, 2019, we had 712 salaried employees, including executive officers and management, sales, technical, administrative and clerical personnel and 2,461 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;
operating hours; and
health, safety and environmental matters.

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

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

We have conducted Phase I environmental site assessments, which are non-intrusive investigations conducted to evaluate the potential for significant on-site environmental impacts, on substantially all the real properties we own or lease and have engaged independent environmental consulting firms to complete those assessments. We have not identified any environmental concerns associated with those properties that we believe are likely to have a material adverse effect on our business, financial position, results of operations, or cash flows, but we can provide no assurance material liabilities will not occur. In addition, 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 have certain emissions credits that expand our sales capacity in California for Polaris aggregate products.

Available Information

We file annual, quarterly and current reports, proxy statements, amendments to these reports filed or furnished pursuant to Section 13(a) or 15(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and other information with the Securities Exchange Commission (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.  


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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 2020 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 2019, commercial and industrial construction and residential construction accounted for 60% and 22% of our ready-mixed concrete revenue, respectively. In addition, federal and state budget issues may limit the funding available for infrastructure spending, particularly street, highway and other public works projects, which accounted for 18% of our revenue in 2019.

We operate principally in the East Region (New York City, New Jersey, Washington, D.C. and Philadelphia); Central Region (Texas and Oklahoma); and West Region (California and British Columbia, Canada) with those markets representing approximately 34%, 34% and 30%, respectively, of our consolidated revenue for 2019. 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, complete, manage and integrate acquisitions could reduce our earnings and slow our growth.

We have completed numerous acquisitions, including most recently the Acquisition. 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

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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.

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 22% of our revenue for 2019 was from residential construction contractors. 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. A 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 2019, approximately 18% 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.


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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;
increases in construction and design costs;
power outages and other unexpected delays;
our ability to control costs and maintain quality;
pricing pressure due to changes in asset utilization or economic weakness;
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 on the availability of aggregate reserves or deposits and our ability to mine them economically.

Aggregates are a key component of ready-mixed concrete. In 2019, our ready-mixed concrete businesses purchased 34% of their aggregates needs from internally operated quarries and sites and 66% from third parties. In addition, in 2019, our aggregates segment sold $141.7 million of aggregates to third parties and $53.5 million of aggregates to our ready-mixed concrete operations, generating a total Adjusted EBITDA of $53.8 million.

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.


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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.

We depend on third parties for concrete equipment and materials 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 materials, including cement, aggregates and other 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.

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.

Delays or interruptions of our transportation logistics could affect operating results.

Our products are distributed to our markets either by trucks, which are primarily Company-owned and/or Company-managed, or ships. Transportation logistics play an important role in allowing us to supply products to our customers. Any significant delays, disruptions, or the non-availability of our transportation support system could negatively affect our operations. Transportation operations are subject to factors outside of our control, including capacity constraints, high fuel costs and various hazards, including extreme weather conditions and slowdowns due to labor strikes and other work stoppages. If there are material changes in the availability or cost of transportation services, we may not be able to arrange alternative and timely means to transport our products or fuels at a reasonable cost, which could materially affect our financial position and results of operations.

A significant disruption of our information technology systems may harm our business.

We are dependent on our own and our third-party providers’ information technology to support many facets of our business. If our information technology 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 negatively impacted, proprietary information could be lost, stolen or destroyed, and our reputation could be damaged. We take

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measures to protect our information technology 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. Further, while we maintain cyber insurance, it may not be sufficient to cover all losses that result from interruptions or breaches of our information technology systems. Any such disruptions could have a material adverse effect on our financial condition, results of operations and liquidity.

The departure of key personnel could affect our financial results.

We depend on the efforts of our officers and, in many cases, on senior management of our businesses. Our success depends 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 their departure to our competitors or other industries. Effective succession planning is also important for our long-term success. Our failure to ensure effective transfers of knowledge and smooth transitions involving senior-level management could adversely affect our strategic planning and execution. To the extent we are unable to attract or retain qualified management personnel, or effectively implement succession plans, 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.

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, 2019, approximately 34.0% of our employees were covered by collective bargaining agreements, which expire between 2018 and 2024. We are actively negotiating two of our contracts which had expired as of December 31, 2019. Our inability to negotiate acceptable new contracts or extensions of existing contracts with these unions could cause work stoppages by the affected employees. In addition, any new contracts or extensions could result in increased operating costs attributable to both union and nonunion employees. If any such work stoppages were to occur, or if other of our employees were to become represented by a union, we could experience a significant disruption of our operations and higher ongoing labor costs, which could materially and adversely affect our business, financial condition, results of operations, liquidity and cash flows. Also, labor relations matters affecting our suppliers of cement and aggregates could adversely impact our business from time to time.

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

We actively 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.


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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 results of operations and cash flows.

Any material nonpayment or nonperformance by any of our key customers could have a material adverse effect on our results of operations 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 for us to preserve the customer relationship.

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

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

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

If one or more of the lenders under our Revolving 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 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;
operating hours; 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

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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.

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 against certain workers' compensation, automobile and general liability risks. Under certain components of our insurance program, we share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations. This insurance may not be adequate to cover all losses or liabilities we may incur in our operations, and we may not be able to maintain insurance of the types or at levels we deem necessary or adequate, or at rates we consider reasonable. A partially or completely uninsured claim, if successful and of sufficient magnitude, could have a material adverse effect on us.

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

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

14


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.

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. We have established 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. Certain provisions of the Tax Act, primarily the interest expense limitation, have resulted in our effective income tax rate being 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.

15


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

As of December 31, 2019, 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, 2019, we did not have borrowings outstanding 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 assets to fund our working capital, capital expenditures, acquisitions and debt service requirements;
our interest expense could increase 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 or 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.

Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service and other obligations. The Third Loan Agreement and the Indenture restrict our

16


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, 2019, 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 and/or subject us to interest rate risk, 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.

Further, borrowings under our Revolving Facility are at variable rates of interest based on the base rate or the London interbank offered rate (LIBOR) and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness could increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

To the extent we make borrowings based on LIBOR, LIBOR tends to fluctuate based on multiple factors, including general short-term interest rates, rates set by the U.S. Federal Reserve and other central banks, the supply of and demand for credit in the London interbank market and general economic conditions. On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established or if LIBOR continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index. Changes to the reference rates on which the interest rates of our borrowings are based may have a negative impact on our interest expense and profitability.

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

17


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.

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.


18


As a result of these restrictions, we may be:

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

These restrictions, along with restrictions that may be contained in agreements evidencing or governing future indebtedness, may affect our ability to grow in accordance with our growth strategy.
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 or meet our other obligations as they become due, 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. For example, in November 2018, the U.S. negotiated and signed a new trade deal with Canada and Mexico known in the U.S. as the United States-Mexico-Canada-Agreement (the "USMCA"), aimed at re-negotiating and updating the terms of the North American Free Trade Agreement ("NAFTA"). The USMCA was revised by the parties on December 10, 2019. The USMCA requires ratification by legislative bodies in all three countries before it can take effect. As of the date of this filing, the USMCA has been ratified by the U.S. and Mexico. If the USMCA is not ratified by Canada and the U.S. were to withdraw from or materially modify NAFTA or other international trade agreements to which it is a party, or if the U.S. were to engage in trade disputes or the imposition of tariffs, such actions could cause an increase in customs duties that, in turn, could adversely affect intercompany transactions among our 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

19


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.

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.


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Item 2.  Properties

We operate in select geographic markets, with a focus on vertically integrating our ready-mixed concrete operations through our aggregate products. The following map depicts our locations:

https://cdn.kscope.io/e3a2187f404d04a7d5f54701bc470c31-locationmap.jpg
https://cdn.kscope.io/e3a2187f404d04a7d5f54701bc470c31-usvimap.jpg
Ready-mixed concrete segment

The table below lists our concrete plant facilities as of December 31, 2019. 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
 
 
 
2019 Production
(in thousands
of cubic yards)
Locations
 
Fixed Standard
 
Volumetric
 
Portable
 
Fixed Standard
 
Portable
 
Total
 
Texas/Oklahoma
 
90

 
18

 
15

 
1

 
1

 
125

 
4,188

New Jersey/New York/Washington, D.C./Pennsylvania
 
38

 

 
1

 
1

 
1

 
41

 
2,978

Northern California
 
20

 

 
4

 
2

 

 
26

 
1,931

U.S. Virgin Islands
 
3

 

 

 
1

 

 
4

 
84

Total
 
151

 
18

 
20

 
5

 
2

 
196

 
9,181



21


Aggregate products segment

The table below lists our aggregate facilities as of December 31, 2019.

 
 
 
 
 
 
 
 
Percent of Reserves Owned and Leased
Locations
 
Number of Producing Quarries
 
Total Estimated Minimum Reserves
(in thousand tons)(1)
 
2019 Production
(in thousand tons)
 
Owned
 
Leased
British Columbia, Canada
 
1

 
97,800

 
4,937

 
%
 
100
%
Texas/Oklahoma
 
12

 
48,600

 
3,671

 
27
%
 
73
%
New Jersey
 
4

 
65,600

 
2,486

 
100
%
 
%
U.S. Virgin Islands
 
2

 
29,600

 
416

 
44
%
 
56
%
Total
 
19

 
241,600

 
11,510

 
 
 
 

(1) All reserves are permitted for extraction, considered to be proven and probable and considered to be recoverable aggregates of suitable quality for economic extraction.

We produce crushed stone aggregates, sand and gravel from 19 aggregates facilities located in Canada, Texas, Oklahoma, New Jersey 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 we 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.

We also have undeveloped quarries with reserves acquired in recent years that are not yet permitted. These reserves are not included in the table or narrative above.

Other

As of December 31, 2019, we also leased four aggregates distribution terminals in New York and one in New Jersey, the operations of which are not in a reportable segment.

Item 3.  Legal Proceedings
 
The information set forth under the heading “Legal Proceedings” in Note 17, “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.



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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 19, 2020, we had 136 holders of record of our common stock and approximately 24,600 beneficial holders of our common stock. 

We have never declared or paid any dividends on our common stock and currently do not intend to do so. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources" and the notes to our consolidated financial statements included in this report for more information concerning restrictions on our payment of cash dividends.

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, 2019:

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
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under Plans or Programs
(in millions)(2)
October 1 - October 31, 2019
 
20,588

 
$
48.29

 

 
$
43.3

November 1 - November 30, 2019
 

 

 

 
43.3

December 1 - December 31, 2019
 
366

 
41.32

 

 
43.3

Total
 
20,954

 
$
48.17

 

 
$
43.3


(1)
Represents 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.

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Performance Graph
    
The following performance graph compares the cumulative total return to holders of our common stock since the last trading day of 2014 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, 2014 and is calculated assuming the quarterly reinvestment of dividends, as applicable.

Comparison of 5 Year Cumulative Total Return
https://cdn.kscope.io/e3a2187f404d04a7d5f54701bc470c31-chart-359e8e39e89f560f803.jpg
 
12/31/14
 
12/31/15
 
12/31/16
 
12/31/17
 
12/31/18
 
12/31/19
U.S. Concrete, Inc.
$
100.00

 
$
185.10

 
$
230.23

 
$
294.02

 
$
124.01

 
$
146.43

Russell 2000
$
100.00

 
$
95.59

 
$
115.95

 
$
132.94

 
$
118.30

 
$
148.49

Peer Group
$
100.00

 
$
98.61

 
$
144.34

 
$
150.01

 
$
104.78

 
$
147.33


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 SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.


24


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 that were completed at various times in 2015 through 2018, including the acquisition of a company with non-controlling interests in 2017. 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.

($ in millions except per share)
 
2019
 
2018
 
2017
 
2016
 
2015
FOR THE YEAR
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
1,478.7

 
$
1,506.4

 
$
1,336.0

 
$
1,168.2

 
$
974.7

Income (loss) from continuing operations
 
$
16.3

 
$
31.3

 
$
26.2

 
$
9.6

 
$
(5.1
)
Loss from discontinued operations, net of taxes
 
$

 
$

 
$
(0.6
)
 
$
(0.7
)
 
$
(0.3
)
Net income (loss) attributable to U.S. Concrete
 
$
14.9

 
$
30.0

 
$
25.5

 
$
8.9

 
$
(5.4
)
 
 
 
 
 
 
 
 
 
 
 
PER SHARE INFORMATION
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per share attributable to U.S. Concrete:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.91

 
$
1.82

 
$
1.64

 
$
0.63

 
$
(0.36
)
Loss from discontinued operations, net of taxes
 

 

 
(0.04
)
 
(0.04
)
 
(0.02
)
Net income (loss) per share attributable to U.S. Concrete - basic
 
$
0.91

 
$
1.82

 
$
1.60

 
$
0.59

 
$
(0.38
)
 
 
 
 
 
 
 
 
 
 
 
Diluted income (loss) per share attributable to U.S. Concrete:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.91

 
$
1.82

 
$
1.57

 
$
0.59

 
$
(0.36
)
Loss from discontinued operations, net of taxes
 

 

 
(0.04
)
 
(0.04
)
 
(0.02
)
Net income (loss) per share attributable to U.S. Concrete - diluted
 
$
0.91

 
$
1.82

 
$
1.53

 
$
0.55

 
$
(0.38
)
 
 
 
 
 
 
 
 
 
 
 
AS OF END OF YEAR
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,433.3

 
$
1,371.3

 
$
1,276.1

 
$
945.4

 
$
681.7

Total debt
 
$
687.3

 
$
714.1

 
$
693.4

 
$
449.3

 
$
275.6




25


Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion, which presents our results, should be read in conjunction with the accompanying consolidated financial statements and notes thereto, along with Item 1A. Risk Factors and “Cautionary Statement Concerning Forward-Looking Statements” preceding Item 1 of this report. In addition, a detailed discussion of the 2018 year-over-year changes from 2017 can be found in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2018 and is hereby incorporated by reference into this Annual Report on Form 10-K.

Our Business

We are a leading heavy building materials supplier of aggregates and ready-mixed concrete in select geographic markets in the United States, the U.S. Virgin Islands and Canada. We operate through two primary segments, which are ready-mixed concrete and aggregate products.

Ready-mixed concrete. Our ready-mixed concrete segment (which represented 86.5% of our revenue for 2019) engages principally in the formulation, production and delivery of ready-mixed concrete to our customers’ job sites. We provide our ready-mixed concrete from our operations in Texas, New Jersey, New York City, Washington, D.C., Philadelphia, Northern California, Oklahoma and the U.S. Virgin Islands. 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 9.6% of our revenue for 2019, excluding $53.5 million of intersegment sales) produces crushed stone, sand and gravel from 19 aggregates facilities located in British Columbia, Canada, Texas, Oklahoma, New Jersey, and the U.S. Virgin Islands. We sell aggregates for use in commercial, industrial and public works projects, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 11.5 million tons of aggregates during 2019, with British Columbia, Canada representing 43%, Texas and Oklahoma representing 32%, New Jersey representing 22% and the U.S. Virgin Islands representing 3% of the total production. We consumed 34% of our aggregate production internally and sold 66% to third-party customers in 2019. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability. In addition, we own a 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, Polaris Materials Corporation (“Polaris”), which primarily serves markets in California. Our operating results are subject to fluctuations in the level and mix of construction activity that occur in our markets. The level of activity affects the demand for our products, while the product mix of activity among the various segments of the construction industry affects both our relative competitive strengths and our operating margins. Commercial and industrial projects generally provide more opportunities to sell value-added products that are designed to meet the high-performance requirements of those types of projects.

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

Our ready-mixed concrete sales volume in 2019 decreased 3.8% from 2018 levels to 9.2 million cubic yards and generated revenue of $1,278.6 million. Ready-mixed concrete sales volume for 2019 was down compared to 2018 primarily due to delayed projects, regional softness and limited driver availability. Partially offsetting the volume decline, our ready-mixed concrete average selling price (“ASP”) rose 1.9% from 2018, resulting in the 9th consecutive year of increased ASP.


26


Our aggregate products sales volume in 2019 increased 2.5% compared to 2018, and ASP increased 5.8% in 2019 compared to 2018, resulting in an all-time annual high total aggregate products revenue of $195.2 million, including intersegment sales of $53.5 million, as we benefited from our 2018 acquisitions being operational for a full year and increased demand from our existing operations along with lower downtime at our quarries.

Despite the record volumes in aggregate products, total Company revenue declined 1.8% from 2018, and with increases in certain expenses in 2019 and the impact from $15.3 million of gains on the sale of assets and businesses in 2018 that did not recur at the same level in 2019, our income before income taxes was $19.5 million lower in 2019 compared to 2018.    

Acquisitions and Divestitures

We completed five acquisitions during 2018 that expanded our ready-mixed concrete operations in our East Region (which we define to include New York City, New Jersey, Washington, D.C. and Philadelphia) and expanded our ready-mixed concrete, aggregate products and other non-reportable operations in West Texas. Also 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 our operating plans.

2020 Acquisition of Aggregates Company in New York

On February 24, 2020, we acquired all of the equity of Coram Materials Corp. and certain of its affiliates (collectively, “Coram”) for $142.0 million, subject to certain post-closing adjustments (the “Acquisition”). Coram is a premier provider of high-quality sand and gravel products located on Long Island, New York. Coram’s operations supply natural sand to the New York City area, which is used in concrete and other applications across industry sectors and within all construction categories. Coram owns approximately 41.9 million tons of proven and permitted reserves and approximately 7.5 million tons of proven, but unpermitted reserves. The Acquisition increases the vertical integration of our New York City operations and reduces our dependency on third-party suppliers. In addition, the Acquisition strengthens our competitive position, while furthering our strategy of expanding into higher margin aggregates businesses. We funded the purchase price for the Acquisition by borrowing $140.0 million under our Revolving Facility. We will seek to refinance or replace this borrowing as conditions permit. The remaining $2.0 million of the purchase price will be paid over the next two years.

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


27


Results of Operations
($ in millions except selling prices)
 
2019
 
2018
 
Increase/(Decrease)
 
% Change(1)
Revenue
 
$
1,478.7

 
100.0
 %
 
$
1,506.4

 
100.0
 %
 
$
(27.7
)
 
(1.8
)%
Cost of goods sold before depreciation, depletion and amortization
 
1,187.6

 
80.3

 
1,212.2

 
80.5

 
(24.6
)
 
(2.0
)
Selling, general and administrative expenses
 
130.0

 
8.8

 
126.5

 
8.4

 
3.5

 
2.8

Depreciation, depletion and amortization
 
93.2

 
6.3

 
91.8

 
6.1

 
1.4

 
1.5

Change in value of contingent consideration
 
2.8

 
0.2

 

 

 
2.8

 
NM
Asset impairment
 

 

 
1.3

 
0.1

 
(1.3
)
 
NM
Gain on sale/disposal of assets and businesses, net
 
(0.1
)
 
0.0

 
(15.3
)
 
(1.0
)
 
(15.2
)
 
99.3

Operating income
 
65.2

 
4.4

 
89.9

 
6.0

 
(24.7
)
 
(27.5
)
Interest expense, net
 
46.1

 
3.1

 
46.4

 
3.1

 
(0.3
)
 
(0.6
)
Other income, net
 
(9.5
)
 
(0.6
)
 
(4.6
)
 
(0.3
)
 
4.9

 
106.5

Income before income taxes
 
28.6

 
1.9

 
48.1

 
3.2

 
(19.5
)
 
(40.5
)
Income tax expense
 
12.3

 
0.8

 
16.8

 
1.1

 
(4.5
)
 
(26.8
)
Net income
 
16.3

 
1.1

 
31.3

 
2.1

 
(15.0
)
 
(47.9
)
Less: Net income attributable to non-controlling interest
 
(1.4
)
 
(0.1
)
 
(1.3
)
 
(0.1
)
 
0.1

 
7.7

Net income attributable to U.S. Concrete
 
$
14.9

 
1.0
 %
 
$
30.0

 
2.0
 %
 
$
(15.1
)
 
(50.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Ready-Mixed Concrete Data:
 
 

 
 

 
 

 
 

 
 
 
 

Average selling price per cubic yard
 
$
138.97

 
 
 
$
136.42

 
 

 
$
2.55

 
1.9
 %
Sales volume in thousand cubic yards
 
9,181

 
 
 
9,546

 
 

 
(365
)
 
(3.8
)%
Aggregate Products Data:
 
 

 
 
 
 

 
 

 
 
 
 

       Average selling price per ton(2)
 
$
11.93

 
 
 
$
11.28

 
 

 
$
0.65

 
5.8
 %
       Sales volume in thousand tons
 
11,392

 
 

 
11,110

 
 

 
282

 
2.5
 %

(1) “NM” is defined as “not meaningful.”
(2) Our calculation of the aggregate products segment ASP excludes certain other ancillary revenue and Polaris's freight revenue.  We define revenue for this 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.

The following discussion reflects 2019 (current year) results compared to 2018 (prior year), unless otherwise noted.

Revenue. Our consolidated revenue declined by $27.7 million, or 1.8%, primarily due to lower sales of ready-mixed concrete and the impact from the 2018 divestiture of the Dallas-Fort Worth area lime operations, partially offset by higher sales of aggregate products. As our business is seasonal and subject to adverse weather, our results in both years were negatively impacted by inclement weather in various regions and during various periods of the year. Ready-mixed concrete sales declined by $27.9 million, or 2.1%, due to a 3.8% decline in sales volume partially offset by a 1.9% increase in ASP. By market, our ready-mixed concrete operations in New York City, California and North Texas experienced sales declines, while New Jersey, Washington, D.C., West Texas and the U.S. Virgin Islands delivered sales increases. Sales of aggregate products rose to $195.2 million from $182.6 million in 2018, an increase of $12.6 million, or 6.9%, driven by a 5.8% increase in ASP and a 2.5% increase in volume. The increase in our aggregate products revenue was generated from our operations in West Texas, the U.S. Virgin Islands, New Jersey and British Columbia. Our North Texas aggregate products sales experienced declines due primarily to weather-related issues. Other product revenue and eliminations, which included aggregates distribution, building materials, hauling business, aggregate recycling, concrete block, lime operations until its divestiture in September 2018, and eliminations of our intersegment sales, decreased by $12.4 million, or 71.7%, from $17.3 million in 2018, to $4.9 million in 2019. This decline was primarily a result of the divestiture of our lime business, which provided $7.4 million of revenue in 2018, and the impact of eliminations for higher intersegment sales in 2019.


28


Cost of goods sold before depreciation, depletion and amortization (“DD&A”). Cost of goods sold before DD&A decreased $24.6 million, or 2.0%. Cost of goods sold before DD&A declined at a higher rate than revenue, primarily as we operated our aggregate pits and quarries more efficiently in 2019. Our variable costs in our ready-mixed concrete segment, which include primarily raw material costs, labor and benefits costs, utilities and delivery costs, were lower overall primarily related to the lower sales volume; however, on a percentage basis these variable costs did not decline consistently with revenue due to increases in certain raw materials costs that we were not able to fully pass on to our customers. Our fixed costs in our ready-mixed concrete segment increased, primarily due to higher costs to operate our facilities, as well as operating additional locations in 2019. Variable costs in our aggregate products segment, which include quarry labor and benefits, utilities, repairs and maintenance, pit costs to prepare the stone and gravel for use, and delivery costs, increased primarily due to the higher sales volume. Total fixed costs in our aggregate products segment, which include primarily property taxes, equipment rental and plant management costs, were higher, as the 2018 acquisitions only operated for part of 2018 whereas they were fully operational in 2019.

Selling, general and administrative (“SG&A”) expenses.  SG&A expenses increased $3.5 million, or 2.8%, primarily as a result of an $8.7 million increase in stock-based compensation expense, partially offset by lower acquisition costs. The increase in stock-based compensation expense was primarily due to the increase in our stock price from the time the 2019 annual equity award was approved by our Board of Directors at the beginning of March 2019 to when our stockholders approved the equity plan amendment (and the award was deemed granted for accounting purposes) at our annual stockholders' meeting in May 2019. If the award issuance date and the accounting grant date had been the same, our stock-based compensation expense would have been more comparable. As a percentage of total revenue, SG&A expenses increased from 8.4% in 2018 to 8.8% in 2019.

Depreciation, depletion and amortization.  DD&A expense increased $1.4 million, or 1.5%, primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through acquisitions and depletion on acquired mineral deposits.

Change in value of contingent consideration. We recorded net non-cash losses on revaluation of contingent consideration of $2.8 million in 2019 compared to less than $0.1 million in 2018. 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, 2019 included discount rates ranging from 3.70% to 7.46% and management's estimates of future sales volumes and EBITDA. Changes in these inputs impact the valuation of our contingent consideration and result in a gain or loss in each reporting period. The non-cash expense from fair value changes in contingent consideration in 2019 was primarily due to the changes in those related to future EBITDA thresholds. 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.

Asset impairment. 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.

Gain on sale of business and assets, net. The 2019 net $0.1 million gain on sale of business and assets was primarily a result of gains on sales of excess vehicles and equipment offset by the loss of $0.7 million related to a mixer truck fire that occurred during the first quarter of 2019. The 2018 net $15.3 million gain on sale of business and assets was primarily 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 2018.

Interest expense, net.  Net interest expense decreased by $0.3 million, or 0.6%, primarily due to a decrease in borrowings under our asset-based revolving credit facility partially offset by an increase in finance lease interest expense.

Other income, net.  Other income, net, in 2019 included a gain from an eminent domain proceeding in Washington, D.C. and insurance proceeds from the 2017 hurricane losses in our operations in the U.S. Virgin Islands.

Income tax expense.  We recorded income tax expense of $12.3 million for 2019 and $16.8 million for 2018. For 2019, our effective tax rate differed substantially from the federal statutory rate primarily due to $5.8 million of additional income tax expense to record a valuation allowance for (1) 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 and (2) certain foreign losses generated for which we do not believe the tax benefits are more likely than not to be realized. 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.


29


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.

Segment information

Our chief operating decision maker reviews operating results based on our two reportable segments, which are ready-mixed concrete and aggregate products, and evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our 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, eminent domain matter and hurricane-related losses (gains), net. Acquisition-related costs include 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 (each as defined in Item 1A of this report).  See Note 20, "Segment Information," to our consolidated financial statements included in this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to net income. The following discussion reflects 2019 (current year) results compared to 2018 (prior year), unless otherwise noted.


30


Ready-mixed concrete
($ in millions except selling prices)
2019
 
2018
 
Increase/(Decrease)
 
% Change
Ready-Mixed Concrete Segment:
 
 
 
 
 
 
 
      Revenue
$
1,278.6

 
$
1,306.5

 
$
(27.9
)
 
(2.1
)%
      Segment revenue as a percentage of total revenue
86.5
%
 
86.7
%
 
 
 
 
      Adjusted EBITDA
$
157.7

 
$
179.2

 
$
(21.5
)
 
(12.0
)%
      Adjusted EBITDA as a percentage of segment revenue
12.3
%
 
13.7
%
 
 
 
 
 
 
 
 
 
 
 
 
Ready-Mixed Concrete Data:
 

 
 

 
 
 
 

Average selling price per cubic yard(1)
$
138.97

 
$
136.42

 
$
2.55

 
1.9
 %
Sales volume in thousand cubic yards
9,181

 
9,546

 
(365
)
 
(3.8
)%
(1) Calculation excludes certain ancillary revenue that is reported within the segment.

Adjusted EBITDA.  Adjusted EBITDA for our ready-mixed concrete segment decreased primarily as a result of lower sales volume, partially offset by lower costs and higher ASP. Results included the impact of a full year of fixed costs from our acquisitions that occurred during the first half of 2018, which due to lower demand in 2019, were unable to fully contribute to our Adjusted EBITDA. Segment Adjusted EBITDA as a percentage of segment revenue decreased by 1.4%.

Aggregate products

($ in millions except selling prices)
2019
 
2018
 
Increase
 
% Change
Aggregate Products Segment:
 
 
 
 
 
 
 
Sales to external customers
$
141.7

 
$
136.5

 
 
 
 
Intersegment sales
53.5

 
46.1

 
 
 
 
Total aggregate products revenue
$
195.2

 
$
182.6

 
$
12.6

 
6.9
%
Segment revenue, excluding intersegment sales, as a percentage of total Company revenue
9.6
%
 
9.1
%
 
 
 
 
Adjusted EBITDA
$
53.8

 
$
41.6

 
$
12.2

 
29.3
%
Adjusted EBITDA as a percentage of segment revenue
27.6
%
 
22.8
%
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate Products Data:
 

 
 

 
 
 
 

Average selling price per ton(1)
$
11.93

 
$
11.28

 
$
0.65

 
5.8
%
Sales volume in thousand tons
11,392

 
11,110

 
282

 
2.5
%

(1)
We sell aggregate products to our ready-mixed concrete segment businesses at market price.
(2)
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 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.

The following discussion reflects 2019 (current year) results compared to 2018 (prior year), unless otherwise noted.

Adjusted EBITDA. Adjusted EBITDA for our aggregate products segment increased by $12.2 million, or 29.3%. Overall, our segment Adjusted EBITDA as a percentage of segment revenue improved to 27.6% from 22.8%. Our Adjusted EBITDA benefited from higher revenue, lower freight costs and our ability to leverage fixed costs on higher volumes. Our variable costs associated with cost of goods sold, which include primarily quarry labor and benefits, pit costs to prepare the stone and gravel for use, repairs and maintenance, and utilities, rose due to the higher sales volumes.


31


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 2019 with $40.6 million of cash and cash equivalents and had $243.7 million available for future borrowings under the Revolving Facility, providing total available liquidity of $284.3 million. On February 24, 2020, we borrowed $140.0 million under the Revolving Facility to finance our acquisition of Coram.

The following key financial measurements reflect our financial condition as of December 31, 2019 and 2018:
($ in millions)
 
2019
 
2018
Cash and cash equivalents
 
$
40.6

 
$
20.0

Working capital
 
$
103.7

 
$
71.2

Total debt(1)
 
$
687.3

 
$
714.1

    
(1) Total debt includes long-term debt, net of unamortized debt issuance costs, including current maturities, finance 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 have additional committed financing to further support our liquidity needs and we will seek to refinance or replace the debt acquired to purchase Coram as conditions permit. We may seek financing for additional acquisitions, which could include debt or equity capital.

Our working capital needs are typically at their lowest level in the first quarter, increase in the second and third quarters to fund increases in accounts receivable and inventories during those periods, and then decrease in the fourth quarter. Availability under the 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 margins due to shifts in our product mix or increases in the cost of our raw materials, fuel and fixed costs;
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

32


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.

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, 2019, we were in compliance with all covenants under the Third Loan Agreement.

On February 24, 2020, we borrowed $140.0 million under the Revolving Facility to finance our acquisition of Coram. We have additional committed financing to further support our liquidity needs and we will seek to refinance or replace this debt as conditions permit.

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 21, “Supplemental Condensed Consolidating Financial Information,” to our consolidated financial statements included in this report.

Other Debt

We have financing agreements with various lenders primarily for the purchase of mixer trucks and other machinery and equipment with $87.7 million in outstanding principal as of December 31, 2019.

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.

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Cash Flows

($ in millions)
 
2019
 
2018
 
2017
Net cash provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
138.8

 
$
122.8

 
$
94.8

Investing activities
 
(33.8
)
 
(91.7
)
 
(334.3
)
Financing activities
 
(84.2
)
 
(33.4
)
 
186.3

Effect of exchange rates on cash and cash equivalents
 
(0.2
)
 
(0.3
)
 

Net increase (decrease) in cash
 
$
20.6

 
$
(2.6
)
 
$
(53.2
)

Our net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss including non-controlling interest. Overall, the generation of cash from operations was driven primarily by the change in operating performance of the Company, with 2019 being positively impacted by income tax refunds received and 2017 being adversely impacted by higher payments of income taxes. We also had ongoing initiatives to optimize our working capital, which helped to improve cash provided by operating activities in 2019.

Our net cash used to fund investing activities was higher in 2018 and 2017, when we completed multiple acquisitions. We paid $72.3 million in 2018 and $295.1 million in 2017 to fund acquisitions. In addition, we incurred $42.7 million, $39.9 million and $42.7 million in 2019, 2018 and 2017, 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/or property, plant and equipment of $2.9 million in 2019, $20.7 million in 2018 and $3.5 million in 2017. Proceeds were higher in 2018 primarily from the sale of our Dallas/Fort Worth area lime operations.

In 2020, we expect to invest between $65.0 million and $75.0 million in capital, including expenditures financed through finance leases, but excluding any acquisitions. These expenditures are planned primarily for maintenance and expansion, land purchases and new plants, as well as plant improvements, plant equipment, drum mixer trucks and other rolling stock. In addition to financing certain of these expenditures through finance 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.

Financing activities in 2019 included $15.0 million of net repayments under our Revolving Facility. In addition, in 2019, we made payments of $32.8 million primarily related to our finance leases and promissory notes and paid $33.4 million for contingent and deferred consideration obligations. Financing activities in 2018 included $6.0 million of net borrowings under our Revolving Facility to operate our business and fund acquisitions. In addition, we made payments of $29.6 million primarily related to our finance leases and promissory notes and paid $5.9 million for contingent and deferred consideration obligations. We also repurchased 0.2 million shares of our common stock at a cost of $6.7 million during 2018 under the 2017 share repurchase program. 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 primarily related to our finance leases and promissory notes 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.

Contingent Liabilities and Commitments

We have entered into standby letter of credit agreements in the normal course of business primarily relating to self-insurance. At December 31, 2019, we had $19.7 million of undrawn letters of credit outstanding. We are also contingently liable for performance under $14.4 million in performance bonds relating to our operations. In the Company's past experience, no material claims have been made against these financial instruments.

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Commitments

The following are our contractual commitments associated with our indebtedness, operating lease obligations and acquisition-related contingent consideration and deferred payment obligations as of December 31, 2019 (in millions):
 
Contractual obligations
 
Total
 
Less Than 1 Year
 
1-3 Years
 
3-5 Years
 
More Than 5 Years
Principal on debt
 
$
687.7

 
$
32.5

 
$
43.5

 
$
611.7

 
$

Interest on debt
 
174.3

 
40.9

 
78.9

 
54.5

 

Operating leases
 
91.2

 
16.9

 
28.3

 
21.1

 
24.9

Contingent consideration(1)
 
28.6

 
10.8

 
17.8

 

 

Deferred consideration payments(2)
 
2.8

 
2.2

 
0.4

 
0.2

 

Total
 
$
984.6

 
$
103.3

 
$
168.9

 
$
687.5

 
$
24.9


(1)
Estimated future payments of contingent consideration obligations associated with certain acquisitions. As more fully described in Note 13, "Fair Value Disclosures," to our consolidated financial statements where the fair value of this amount is presented, changes may occur until to the final payment in 2023.
(2)
Consists of deferred consideration obligations associated with acquisitions.

The following long-term liabilities included on the consolidated balance sheet are excluded from the contractual obligations table: 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.    

Critical Accounting Policies and Estimates

Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. See Note 1, "Organization and Summary of Significant Accounting Policies," to our consolidated financial statements included in this report for more information about our significant accounting policies. We believe the most complex and sensitive judgments, because of their significance to our financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. We have listed below those policies that we believe are critical and involve complex judgment in their application to our financial statements. Actual results in these areas could differ from our estimates.

Business Combinations

The acquisition method of accounting requires that we recognize the net assets acquired in business combinations at their acquisition date fair value. Goodwill is measured as the consideration transferred at the acquisition date in excess of the net fair value of the net assets acquired and liabilities assumed. The measurement of the fair value of net assets acquired requires considerable judgment. Although independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities, the appraised values are usually based on significant estimates provided by management, such as forecasted revenue or profit.

In determining the fair value of intangible assets, we utilize the cost approach (primarily through the cost-to-recreate method), the market approach and the income approach. The income approach may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. These cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements.

While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period they are determined, with the corresponding offset to goodwill. Any adjustments subsequent to the conclusion of the measurement period will be recorded to our consolidated statements

35


of operations.