UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 001-34530
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
Address of principal executive offices, including zip code: 331 N. Main Street, Euless , Texas 76039
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 | ||||||
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.
| ☑ | 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 Exchange Act). Yes ☐ No ☑
There were 16,675,705 shares of common stock, par value $0.001 per share, of the registrant outstanding as of October 20, 2020.
INDEX
| Page No. | ||||||||
| Part I – Financial Information | ||||||||
| Item 1. | Financial Statements (Unaudited) | |||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II – Other Information | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 4. | ||||||||
| Item 6. | ||||||||
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
| September 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Other receivables, net | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation, depletion and amortization of $ | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Current operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current maturities | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other long-term obligations and deferred credits | |||||||||||
| Deferred income taxes | |||||||||||
| Total liabilities | |||||||||||
| Equity: | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Total shareholders' equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of goods sold before depreciation, depletion and amortization | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||||||||||||||
| Change in value of contingent consideration | ( | |||||||||||||||||||||||||
| Loss (gain) on sale/disposal of assets, net | ( | ( | ||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | ||||||||||||||||||||||||||
| Net income attributable to U.S. Concrete | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per share attributable to U.S. Concrete: | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY
(in millions)
(Unaudited)
| # of Common Shares | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Shareholders' Equity | Non-controlling Interest | Total Equity | |||||||||||||||||||||||||||||||||||
| December 31, 2018 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ( | — | |||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||
| March 31, 2019 | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | ( | — | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| June 30, 2019 | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| December 31, 2019 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| — | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ( | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||
| March 31, 2020 | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ( | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| June 30, 2020 | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| September 30, 2020 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Change in value of contingent consideration | ( | ||||||||||
| Gains from eminent domain matter and property insurance claims | ( | ||||||||||
| Deferred income taxes | |||||||||||
| Provision for doubtful accounts and customer disputes | |||||||||||
| Stock-based compensation | |||||||||||
| Other, net | ( | ( | |||||||||
| Changes in assets and liabilities, excluding effects of acquisitions: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets and liabilities | ( | ||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Payment for acquisition of business | ( | ||||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Proceeds from eminent domain matter and property insurance claims | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from issuance of debt | |||||||||||
| Proceeds from revolver borrowings | |||||||||||
| Repayments of revolver borrowings | ( | ( | |||||||||
| Payments for acquisition-related liabilities | ( | ( | |||||||||
| Payments for finance leases, promissory notes and other | ( | ( | |||||||||
| Proceeds from finance leases and other | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Shares redeemed for employee income tax obligations | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | ( | ||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | |||||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
4
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Net cash paid for interest | $ | $ | |||||||||
| Net cash paid for (refund from) income taxes | $ | ( | $ | ||||||||
| Supplemental Disclosure of Non-cash Investing and Financing Activities: | |||||||||||
| Capital expenditures funded by finance leases and promissory notes | $ | $ | |||||||||
| Acquisitions funded by deferred consideration | $ | $ | |||||||||
| Transfer of non-controlling interest | $ | $ | |||||||||
Approximately $0.6 million of accounts payable owed by the Company was effectively settled as part of the Coram Acquisition, as defined in Note 3 to these condensed consolidated financial statements, and was eliminated in consolidation in 2020.
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
2. SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies, including a description of our business combination valuation methodologies, are included in Note 1 to the consolidated financial statements in our 2019 10-K. The policies that follow primarily represent updates to certain of our policies or disclosures since January 1, 2020.
Credit Losses. Effective January 1, 2020, we adopted Financial Accounting Standards Board ("FASB") "Current Expected Credit Losses" ("ASC 326"). While the prior accounting rules used a model of incurred losses to estimate credit losses on certain types of financial instruments, including trade accounts receivable, ASC 326 requires entities to use a forward-looking approach based on expected losses, which may result in the earlier recognition of allowances for losses. We applied the new credit loss model on a prospective basis and recorded a cumulative-effect adjustment, net of taxes, of $3.3 million to opening retained earnings for the increase to the allowance for doubtful accounts. With the adoption of ASC 326, we amended our accounting policy for accounts receivable, which follows.
Accounts receivable consist primarily of receivables from contracts with customers for the sale of ready-mixed concrete, aggregates and other products. Accounts receivable initially are recorded at the transaction amount. We utilize liens or other legal remedies in our collection efforts of certain accounts receivable. Each reporting period, we evaluate the collectability of the receivables and record an allowance for doubtful accounts and customer disputes for our estimated losses on balances that may not be collected in full, which reduces the accounts receivable balance. Additions to the allowance result from a provision for bad debt expense that is recorded to selling, general and administrative expenses. A provision for customer disputes recorded as a reduction to revenue also increases the allowance. Accounts receivable are written off and reflected as a reduction to the allowance if and when we determine the receivable will not be collected.
6
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We determine the amount of bad debt expense and customer dispute losses each reporting period and the resulting adequacy of the allowance at the end of each reporting period by using a combination of historical loss experience, customer-by-customer analysis, and subjective assessments of our loss exposure. For accounts receivable balances as of and prior to December 31, 2019, our estimate of allowance for doubtful accounts was based on our estimated probable losses. Beginning January 1, 2020, upon our adoption of ASC 326, our allowance for doubtful accounts is based on our estimated expected losses, and the underlying evaluations include analysis of forward-looking information, including economic conditions.
Fair Value Measurements. As of January 1, 2020, we adopted a FASB update to disclosure requirements for fair value measurement, which removed, modified and added certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The adoption of this update did not have a material impact on the consolidated financial statements. See Note 10 for additional information.
Subsidiary Guarantees. In March 2020, the SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. The Company adopted these amendments as of March 31, 2020. Accordingly, combined summarized financial information has been presented only for the issuers and guarantors of our registered securities for the most recent fiscal year and the year-to-date interim period, and the required disclosures have been moved from the notes to these condensed consolidated financial statements to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Leases. During the nine months ended September 30, 2020, we entered into agreements for a deferral of certain finance lease payments and either extended maturity dates by 90 days, increased future monthly payments for additional interest, or agreed to pay the deferred amount in lump sum at maturity. The agreements were entered into to help mitigate the cash flow impact from the COVID-19 pandemic. In April 2020, the FASB issued interpretive guidance providing companies with the option to elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the enforceable rights and obligations existed in the original lease. Entities may make the elections as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, we can evaluate whether to account for these concessions (1) as if there were no changes made to the lease agreement and accordingly, continue to recognize expense and increase accounts payable, (2) as a resolution of a contingency that fixes previously variable lease payments and remeasure the lease liability without reconsideration of the lease classification, or (3) as negative variable lease payments and accordingly, negative lease expense. We elected to account for the lease payment deferrals as a resolution of a contingency that fixes previously variable lease payments and remeasure the lease obligations, with no reconsideration of lease classification during the quarter ended June 30, 2020. As of September 30, 2020, we expect to repay the remaining $6.2 million deferred amount over the next 5.4 years.
Debt. During the nine months ended September 30, 2020, we entered into agreements to defer certain promissory note payments and extend maturity dates by 90 days to mitigate the cash flow impact from the COVID-19 pandemic. The promissory note deferrals resulted in changes to the effective interest rates of these agreements. As of September 30, 2020, we expect to repay the remaining $2.1 million deferred amount over the next 3.3 years.
3. BUSINESS COMBINATION
On February 24, 2020, we acquired all of the equity of Coram Materials Corp. and certain of its affiliates (collectively, "Coram Materials"). Coram Materials is a sand and gravel products provider located on Long Island in New York. This acquisition increased the vertical integration of our New York City operations.
The acquisition of all of the equity of Coram Materials (the "Coram Acquisition") was accounted for as a business combination. We funded the initial cash purchase consideration through borrowings under our Revolving Facility (as defined in Note 7). The combined assets acquired through the Coram Acquisition included an aggregates facility with 330 acres of land, including 180 mining acres containing approximately 41.9 million tons of in-place, proven and permitted aggregate reserves and approximately 7.5 million tons of in-place, proven, but unpermitted reserves. To effect this transaction, we incurred $0.6 million of transaction costs, which were included in selling and general administrative expenses in our condensed consolidated statements of operations for the nine months ended September 30, 2020.
7
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our accounting for the Coram Acquisition is preliminary. We expect to record adjustments as we accumulate information needed to estimate the fair value of assets acquired and liabilities assumed including working capital and property, plant and equipment. The fair value of acquired receivables, inventory, machinery and equipment, land and buildings are based on inputs derived principally from, or corroborated by, observable market data (i.e., Level 2 inputs). The fair value of machinery and equipment, land and buildings was based on a market valuation approach or a cost valuation approach when a market valuation approach was unavailable. The estimates used for determining the fair value of the mineral reserves were unobservable and significant to the overall measurement (i.e., Level 3 inputs). The fair value of the mineral reserves was determined using an excess earnings approach, which required management to estimate future cash flows, net of capital investments in the specific operation. Management’s cash flow projections involved the use of significant estimates and assumptions with respect to the expected production of the aggregate facility over the estimated time period, sales prices, shipment volumes, and expected profit margins. The present value of the projected net cash flows represents the preliminary fair value assigned to mineral reserves. The discount rate is a significant assumption used in the valuation model.
The total consideration for the Coram Acquisition and the amounts related to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date were as follows:
| ($ in millions) | Coram Materials | ||||
Accounts receivable(1) | $ | ||||
| Inventory | |||||
| Other current assets | |||||
| Property, plant and equipment | |||||
| Total assets acquired | |||||
| Current liabilities | |||||
| Other long-term liabilities | |||||
| Total liabilities assumed | |||||
Total consideration (fair value)(2) | $ | ||||
(1) The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount.
(2) Consisted of a $140.2 million initial cash payment, a $1.7 million present value of deferred consideration, and a $1.6 million working capital adjustment paid in August 2020, less a $0.6 million settlement of accounts payable owed by the Company to Coram Materials at the acquisition date. The total amount of deferred consideration was $2.0 million, which is payable over two years .
Impact of Coram Acquisition
During the three months ended September 30, 2020, the Coram Materials business generated revenue of $10.2 million, including intersegment sales of $4.4 million, and generated operating income of $6.3 million. During the period from the acquisition date to September 30, 2020, the Coram Materials business generated revenue of $19.8 million, including intersegment sales of $8.1 million, and generated operating income of $7.4 million. The results of this acquired business are included in our aggregate products segment.
8
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial results shown below represent our estimate of the Company's results of operations as if the Coram Acquisition had been completed on January 1, 2019.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in millions except per share) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Net income attributable to U.S. Concrete | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to U.S. Concrete - basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to U.S. Concrete - diluted | $ | $ | $ | $ | |||||||||||||||||||
The above pro forma results are unaudited and were prepared based on the historical U.S. GAAP results of the Company and the historical results of Coram Materials, based on data provided by the former owners. These results are not necessarily indicative of what the Company's actual results would have been had the Coram Acquisition occurred on January 1, 2019 and do not reflect any operational efficiencies or potential cost savings that may occur as a result of the consolidation of these operations.
The unaudited pro forma amounts above reflect the following adjustments:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Decrease (increase) in cost of goods sold related to fair value increase in inventory | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Decrease (increase) in depreciation, depletion and amortization expense | ( | ( | ( | ||||||||||||||||||||
| Exclusion of buyer transaction costs | |||||||||||||||||||||||
| Exclusion of seller transaction costs | |||||||||||||||||||||||
| Increase in interest expense | ( | ( | ( | ||||||||||||||||||||
| Decrease (increase) in income tax expense | ( | ( | ( | ||||||||||||||||||||
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CUSTOMER DISPUTES
| ($ in millions) | ||||||||
| Balance, December 31, 2019 | $ | |||||||
| Balance, January 1, 2020 | ||||||||
| Provision for doubtful accounts and customer disputes | ||||||||
| Uncollectible receivables written off, net of recoveries | ( | |||||||
| Other adjustments | ( | |||||||
| Balance, September 30, 2020 | $ | |||||||
9
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. INVENTORIES
| ($ in millions) | September 30, 2020 | December 31, 2019 | |||||||||
| Raw materials | $ | (1) | $ | ||||||||
| Building materials for resale | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
(1) Excludes $2.1 million of inventory that was classified as long-term because it was not expected to be sold in the next 12 months.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
We perform our annual goodwill impairment testing in the fourth quarter of each year. In addition to the annual impairment test, we are required to regularly assess whether a triggering event has occurred that would require interim impairment testing. We determined that the significant decline in the overall financial markets, including U.S. Concrete's market capitalization, as a result of the COVID-19 pandemic qualified as a triggering event that warranted further analysis to determine if there was an impairment loss as of March 31, 2020. As allowed, we elected to perform a qualitative assessment for our reporting units to assess whether it was more likely than not that the goodwill was impaired as of March 31, 2020. Considering the existing excess fair value identified in our 2019 impairment assessment, our qualitative assessment included a review of our previous forecasts, assumptions and analyses in light of more current information such as: (1) projected revenues, expenses and cash flows, including the expected duration and extent of impact to our business and our customers from the COVID-19 pandemic; (2) current discount rates; (3) the reduction in our market capitalization; and (4) changes to the regulatory environment. Based on the qualitative assessment, we determined that it was more likely than not that the goodwill was not impaired. As a result, no quantitative assessment was necessary. Based on the qualitative assessment earlier in the year, combined with an improvement of financial market conditions and the Company's market capitalization, we determined that no further interim asset impairment testing was needed as of September 30, 2020.
The goodwill balance was as follows:
| ($ in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
| Goodwill, gross | $ | $ | ||||||||||||
| Accumulated impairment | ( | ( | ||||||||||||
| Goodwill, net | $ | $ | ||||||||||||
Goodwill by reportable segment was as follows:
| ($ in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
| Ready-mixed concrete | $ | $ | ||||||||||||
| Aggregate products | ||||||||||||||
| Other non-reportable segments | ||||||||||||||
| Goodwill, net | $ | $ | ||||||||||||
10
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Intangible Assets
| September 30, 2020 | ||||||||||||||||||||||||||
| ($ in millions) | Gross | Accumulated Amortization | Net | Weighted Average Remaining Life (In Years) | ||||||||||||||||||||||
| Definite-lived intangible assets | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Trade names | ( | |||||||||||||||||||||||||
| Non-competes | ( | |||||||||||||||||||||||||
| Leasehold interests | ( | |||||||||||||||||||||||||
| Environmental credits | ( | |||||||||||||||||||||||||
| Total definite-lived intangible assets | ( | |||||||||||||||||||||||||
| Indefinite-lived intangible assets | ||||||||||||||||||||||||||
| Land rights | — | |||||||||||||||||||||||||
| Total purchased intangible assets | $ | $ | ( | $ | ||||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||
| ($ in millions) | Gross | Accumulated Amortization | Net | Weighted Average Remaining Life (In Years) | ||||||||||||||||||||||
| Definite-lived intangible assets | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Trade names | ( | |||||||||||||||||||||||||
| Non-competes | ( | |||||||||||||||||||||||||
| Leasehold interests | ( | |||||||||||||||||||||||||
| Favorable contracts | ( | |||||||||||||||||||||||||
| Environmental credits | ( | |||||||||||||||||||||||||
| Total definite-lived intangible assets | ( | |||||||||||||||||||||||||
| Indefinite-lived intangible assets | ||||||||||||||||||||||||||
| Land rights | — | |||||||||||||||||||||||||
| Total purchased intangible assets | $ | $ | ( | $ | ||||||||||||||||||||||
As of September 30, 2020, the estimated remaining amortization of our definite-lived intangible assets was as follows (in millions):
| 2020 (remainder of the year) | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total | $ | ||||
11
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
| ($ in millions) | September 30, 2020 | December 31, 2019 | |||||||||
| $ | $ | ||||||||||
| Asset based revolving credit facility | |||||||||||
| Delayed draw term loan facility | |||||||||||
| Finance leases | |||||||||||
| Promissory notes | |||||||||||
| Debt issuance costs | ( | ( | |||||||||
| Total debt | |||||||||||
| Less: current maturities | ( | ( | |||||||||
| Long-term debt, net of current maturities | $ | $ | |||||||||
(1) The effective interest rate for these notes was 6.56
(2) The effective interest rate for these notes was equal to the stated rate.
Senior Unsecured Notes
On September 23, 2020, we completed a private offering of $400.0 million aggregate principal amount of 5.125 % senior unsecured notes due 2029 (the "2029 Notes"). In connection with issuing the 2029 Notes, we incurred $6.1 million of debt issuance costs. In October 2020, we used the net proceeds from the offering plus borrowings from our Revolving Facility (as defined below) to redeem $400.0 million of our outstanding 6.375 % senior unsecured notes due 2024 (the "2024 Notes") at a price of 103.188 %. We incurred a $12.5 million pre-tax loss on the partial redemption of the 2024 Notes, which includes the redemption premium of $12.8 million and a $3.5 million write-off of pro rata unamortized debt issuance costs, net of $3.8 million of pro rata unamortized premium, which will be recognized in the fourth quarter of 2020.
The 2029 Notes are governed by an indenture (the "2029 Indenture") dated as of September 23, 2020, among U.S. Concrete, Inc. (the "Issuer"), as issuer, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2029 Notes accrue interest at a rate of 5.125 % per annum. We will pay interest on the 2029 Notes on March 1 and September 1 of each year, beginning on March 1, 2021. The 2029 Notes mature on March 1, 2029, and are redeemable at our option prior to maturity at prices specified in the 2029 Indenture. The 2029 Indenture contains negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions, as described below, and also contains customary events of default.
12
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The 2029 Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:
•incur additional debt or issue disqualified stock or preferred stock;
•pay dividends or make other distributions, repurchase or redeem our stock or subordinated indebtedness or make certain investments;
•sell assets and issue capital stock of our restricted subsidiaries;
•incur liens;
•allow certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
•enter into transactions with affiliates;
•consolidate, merge or sell all or substantially all of our assets; and
•designate our subsidiaries as unrestricted subsidiaries.
Our obligations under the 2029 Notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of our restricted subsidiaries that guarantees any obligations under the Revolving Facility or that guarantees certain of our other indebtedness or certain indebtedness or our restricted subsidiaries (other than foreign restricted subsidiaries that guarantee only indebtedness incurred by another foreign subsidiary).
The Issuer does not have any independent assets or operations, and the 2029 Notes are not guaranteed by any of the Issuer's direct or indirect foreign subsidiaries (or any domestic subsidiaries of any such foreign subsidiaries), U.S. Virgin Islands subsidiaries or domestic subsidiaries that are not wholly owned. There are no significant restrictions on the ability of the Issuer or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The 2029 Notes and the guarantees thereof are effectively subordinated to all of our and our guarantors' existing and future secured obligations, including obligations under the Revolving Facility, the Credit Facility (as defined below) and our finance leases, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and our guarantors' future subordinated indebtedness; pari passu in right of payment with any of our and our guarantors' existing and future senior indebtedness, including our and our guarantors' obligations under the Revolving Facility, the Credit Facility, the 2024 Notes and our finance leases; and structurally subordinated to all existing and future indebtedness and other claims and liabilities, including trade payables and preferred stock, of any non-guarantor subsidiaries.
Asset Based Revolving Credit Facility
As of September 30, 2020, we had $1.1 million of undrawn standby letters of credit under our senior secured credit facility ("Revolving Facility"). Loans under the Revolving Facility are in the form of either base rate loans or London Interbank Offered Rate ("LIBOR") loans denominated in U.S. dollars. The interest rate for loans under the Revolving Facility was 3.50 % as of September 30, 2020.
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 certain other adjustments. Our availability under the Revolving Facility at September 30, 2020 was $240.4 million. We are required, upon the occurrence of certain events, to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months. The Revolving Facility is secured by a first priority lien and security interest on substantially all of our and our guarantor subsidiaries’ personal property (the "Revolving Facility Collateral"). The agreement governing the Revolving Facility contains customary representations, warranties, covenants and events of default. As of September 30, 2020, we were in compliance with all covenants under the loan agreement that governs the Revolving Facility. On July 30, 2020, we elected to reduce the commitment amount of the Revolving Facility from $350.0 million to $300.0 million effective August 4, 2020. The reduction did not result in any change in our total available liquidity.
13
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Delayed Draw Term Loan Facility
On April 17, 2020, we entered into a secured delayed draw term loan agreement (the "Agreement") with certain subsidiaries as guarantors thereto, Bank of America, N.A. as administrative agent and collateral agent, and the lenders and other parties named therein. The Agreement provided for an initial $180.0 million delayed draw term loan facility (the "Credit Facility") that was reduced to $179.6 million as of September 30, 2020, as permitted borrowings are reduced by approximately $0.4 million each quarter through September 30, 2021. The Agreement permits borrowings until December 15, 2021, and any such borrowings will mature May 1, 2025 (subject to a springing maturity on March 1, 2024 to the extent any of our 2024 Notes remain outstanding on such date). In connection with entering into the Agreement, we incurred $2.9 million of debt issuance costs, the unamortized portion of which was included in other assets on the Company's condensed consolidated balance sheet as of September 30, 2020, because there were no outstanding borrowings under the Credit Facility. We entered into the Agreement to enhance our liquidity and financial flexibility.
8. LEASES
Supplemental balance sheet information related to leases was as follows:
| ($ in millions) | Balance Sheet Classification | September 30, 2020 | December 31, 2019 | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Operating | Operating lease assets | $ | $ | |||||||||||||||||
| Finance | Property, plant and equipment, net | (1) | (2) | |||||||||||||||||
| Total lease assets | $ | $ | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Operating | Current operating lease liabilities | $ | $ | |||||||||||||||||
| Finance | Current maturities of long-term debt | |||||||||||||||||||
| Operating | Long-term operating lease liabilities | |||||||||||||||||||
| Finance | Long-term debt, net of current maturities | |||||||||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||||||||
(1) Net of $35.1 million of accumulated amortization.
(2) Net of $29.4 million of accumulated amortization.
14
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental statement of operations information related to leases was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Operating lease cost | |||||||||||||||||||||||||||||
| Cost of goods sold before depreciation, depletion and amortization | $ | $ | $ | $ | |||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||
| Total operating lease cost | (1) | (2) | (3) | (4) | |||||||||||||||||||||||||
| Finance lease cost | |||||||||||||||||||||||||||||
| Depreciation, depletion and amortization | |||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||
| Total finance lease cost | |||||||||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | |||||||||||||||||||||||||
(1) Included short-term lease and variable lease costs of $1.0 million.
(2) Included short-term lease and variable lease costs of $1.9 million.
(3) Included short-term lease and variable lease costs of $3.7 million.
(4) Included short-term lease and variable lease costs of $5.2 million.
Maturities of lease liabilities were as follows:
| ($ in millions) | Operating Leases | Finance Leases | ||||||||||||
| 2020 (remainder of year) | $ | $ | ||||||||||||
| 2021 | ||||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||