2014.06.30 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2014
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.

Commission File Number: 001-34530
U.S. CONCRETE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
76-0586680
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

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

Large accelerated filer ¨ Accelerated filer þ    Non-accelerated filer ¨   Smaller reporting company ¨
  (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
Indicate by check mark whether the registrant has filed all documents required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes þ No ¨

There were 13,989,663 shares of common stock, par value $.001 per share, of the registrant outstanding as of August 6, 2014.



U.S. CONCRETE, INC.

INDEX

 
 
Page
No.
Part I – Financial Information
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 25
Item 2.
Item 3.
Item 4.
 
 
Part II – Other Information
 
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
 
 
 







2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

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

June 30, 2014

December 31, 2013

(Unaudited)


ASSETS
 

 
Current assets:
 

 
Cash and cash equivalents
$
86,873


$
112,667

Trade accounts receivable, net of allowances of $2,470 and $2,813 as of June 30, 2014 and December 31, 2013, respectively
112,109


92,163

Inventories
28,069


27,610

Deferred income taxes
1,210


708

Prepaid expenses
4,304


3,416

Other receivables
3,059


3,205

Assets held for sale
4,991


—

Other current assets
533


2,457

Total current assets
241,148


242,226

Property, plant and equipment, net of accumulated depreciation, depletion, and amortization of $61,996 and $54,694 as of June 30, 2014 and December 31, 2013, respectively
148,552


138,560

Goodwill
14,496


11,646

Intangible assets, net
12,333


13,073

Other assets
8,486


8,485

Total assets
$
425,015


$
413,990

LIABILITIES AND EQUITY
 


 

Current liabilities:
 


 

Accounts payable
$
42,872


$
38,518

Accrued liabilities
45,657


42,950

Current maturities of long-term debt
3,698


3,990

Liabilities held for sale
557


—

Derivative liabilities
24,061


21,690

Total current liabilities
116,845


107,148

Long-term debt, net of current maturities
209,556


210,154

Other long-term obligations and deferred credits
6,086


7,921

Deferred income taxes
5,755


5,040

Total liabilities
338,242


330,263

Commitments and contingencies (Note 16)





Equity:
 


 

Preferred stock
—


—

Common stock
15


14

Additional paid-in capital
154,591


152,695

Accumulated deficit
(56,617
)

(63,325
)
Treasury stock, at cost
(11,216
)

(5,657
)
Total stockholders’ equity
86,773


83,727

Total liabilities and equity
$
425,015


$
413,990

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

3

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

Six months ended June 30,
 
2014

2013

2014

2013
Revenue
$
180,358


$
157,390


$
326,615


$
282,815

Cost of goods sold before depreciation, depletion and amortization
145,324


128,065


269,849


236,657

Selling, general and administrative expenses
14,388


16,188


28,031


30,533

Depreciation, depletion and amortization
5,484


4,540


10,382


9,365

Loss (gain) on sale of assets
46


(31
)

(303
)

(26
)
Income from operations
15,116


8,628


18,656


6,286

Interest expense, net
5,055


2,588


10,065


5,360

Derivative loss
(1,748
)

(1,916
)

(2,371
)

(20,362
)
(Loss) gain on extinguishment of debt
—


(6
)

—


4,304

Other income, net
537


484


1,026


977

Income (loss) from continuing operations before income taxes
8,850


4,602


7,246


(14,155
)
Income tax expense (benefit)
730


(3,069
)

752


(8,266
)
Income (loss) from continuing operations
8,120


7,671


6,494


(5,889
)
(Loss) income from discontinued operations, net of taxes
(259
)

(996
)

214


(1,800
)
Net income (loss)
$
7,861


$
6,675


$
6,708


$
(7,689
)












Basic income (loss) per share:
 


 


 


 

Income (loss) from continuing operations
$
0.60


$
0.61


$
0.48


$
(0.47
)
(Loss) income from discontinued operations, net of taxes
(0.02
)

(0.08
)

0.01


(0.15
)
Net income (loss) per share – basic
$
0.58


$
0.53


$
0.49


$
(0.62
)












Diluted income (loss) per share:











Income (loss) from continuing operations
$
0.59


$
0.57


$
0.47


$
(0.47
)
(Loss) income from discontinued operations, net of taxes
(0.02
)

(0.07
)

0.01


$
(0.15
)
Net income (loss) per share – diluted
$
0.57


$
0.50


$
0.48


$
(0.62
)












Weighted average shares outstanding:
 


 


 


 

Basic
13,557


12,550


13,562


12,455

Diluted
13,872


13,634


13,874


12,455





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


4

U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
# of Shares
 
Par Value
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Treasury
Stock
 
Total
Equity
BALANCE, December 31, 2012
13,358

 
$
13

 
$
136,451

 
$
(43,196
)
 
$
(744
)
 
$
92,524

Stock-based compensation expense
—

 
—

 
3,545

 
—

 
—

 
3,545

Restricted stock vesting
90

 
—

 
—

 
—

 
—

 
—

Restricted stock grants
182

 
1

 
—

 
—

 
—

 
1

Stock options exercised
10

 
—

 
122

 
—

 
—

 
122

Conversion of convertible debt
2

 
—

 
37

 
—

 
—

 
37

Other treasury shares purchases
(154
)
 
—

 
—

 
—

 
(2,135
)
 
(2,135
)
Net loss
—

 
—

 
—

 
(7,689
)
 
—

 
(7,689
)
BALANCE, June 30, 2013
13,488

 
$
14

 
$
140,155

 
$
(50,885
)
 
$
(2,879
)
 
$
86,405

 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2013
14,036

 
$
14

 
$
152,695

 
$
(63,325
)
 
$
(5,657
)
 
$
83,727

Stock-based compensation expense
—

 
—

 
1,550

 
—

 
—

 
1,550

Restricted stock vesting
15

 
—

 
—

 
—

 
—

 
—

Restricted stock grants
142

 
1

 
—

 
—

 
—

 
1

Stock options exercised
23

 
—

 
335

 
—

 
—

 
335

Warrants exercised
1

 
—

 
11

 
—

 
—

 
11

Share repurchase program
(200
)
 
—

 
—

 
—

 
(4,824
)
 
(4,824
)
Other treasury share purchases
(32
)
 
—

 
—

 
—

 
(735
)
 
(735
)
Net income
—

 
—

 
—

 
6,708

 
—

 
6,708

BALANCE, June 30, 2014
13,985

 
$
15

 
$
154,591

 
$
(56,617
)
 
$
(11,216
)
 
$
86,773





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



5

U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six months ended June 30,
 
2014

2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
Net income (loss)
$
6,708


$
(7,689
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 


 

Depreciation, depletion and amortization
10,382


9,440

Debt issuance cost amortization
819


1,389

Gain on extinguishment of debt
—


(4,304
)
Amortization of facility exit costs
—


(106
)
Amortization of discount on long-term incentive plan and other accrued interest
202


252

Net loss on derivative
2,371


20,362

Net (gain) loss on sale of assets
(943
)

204

Deferred income taxes
674


(8,644
)
Deferred rent
—


516

Provision for doubtful accounts and customer disputes
179


637

Stock-based compensation
1,550


3,545

Changes in assets and liabilities, excluding effects of acquisitions:
 


 

Accounts receivable
(21,075
)

(18,139
)
Inventories
(844
)

(367
)
Prepaid expenses and other current assets
(690
)

2,313

Other assets and liabilities
(297
)

(1,377
)
Accounts payable and accrued liabilities
7,268


11,379

Net cash provided by operating activities
6,304


9,411

CASH FLOWS FROM INVESTING ACTIVITIES:
 


 

Purchases of property, plant and equipment
(19,894
)

(8,116
)
Payments for acquisitions
(4,363
)

—

Proceeds from disposals of property, plant and equipment
2,487


173

Payments for disposal of business units
—


(1,866
)
Net cash used in investing activities
(21,770
)

(9,809
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 


 

Proceeds from revolver borrowings
159


68,474

Repayments of revolver borrowings
(159
)

(60,774
)
Proceeds from exercise of stock options and warrants
346


122

Payments of other long-term obligations
(2,250
)

—

Payments for other financing
(2,169
)

(921
)
Debt issuance costs
(696
)

(1,970
)
Payments for share repurchases
(4,824
)

—

Other treasury share purchases
(735
)

(2,135
)
Net cash (used in) provided by financing activities
(10,328
)

2,796

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(25,794
)

2,398

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
112,667


4,751

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
86,873

 
$
7,149

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Cash paid for interest
$
9,473

 
$
2,527

Cash paid for income taxes
$
285

 
$
290

 
 
 
 
Supplemental Disclosure of Non-cash Investing and Financing Activities:
 
 
 
Conversion of convertible debt to equity
$
—

 
$
25

Capital expenditures funded by capital leases and promissory notes
$
552

 
$
—


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

6

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

1.
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of U.S. Concrete, Inc. and its subsidiaries (collectively, "we," "us," "our," "U.S. Concrete," or the "Company") and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for reporting interim financial information. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Form 10-K").  In the opinion of our management, all adjustments necessary to state fairly the information in our unaudited consolidated financial statements and to make such financial statements not misleading have been included. All adjustments are of a normal or recurring nature.  Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of our results expected for the year ending December 31, 2014, or for any future period.

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

2.
RECENT ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
    
In June 2014, the Financial Accounting Standards Board (the "FASB") issued an amendment related to recognition of stock compensation expense for awards with certain performance targets. The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and the related expense should be recognized in accordance with current accounting guidance for performance-based stock awards. The amendment provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of this guidance on the first day of fiscal year 2016 to have a material impact on our consolidated financial statements and results of operations.

In May 2014, the FASB issued an amendment related to revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed under U.S. GAAP. The underlying principle of the new amendment is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it ultimately expects to receive in exchange for the goods or services. The amendment also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The amendment provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements and results of operations.

In April 2014, the FASB issued an amendment on reporting discontinued operations and disclosures of disposals of components of an entity. Specifically, the amendment revises the definition of a discontinued operation, expands disclosure requirements for transactions that meet the definition of a discontinued operation and requires entities to disclose additional information about individually significant components that are disposed of or held for sale and do not qualify as discontinued operations. Additionally, entities will be required to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the statement of financial position and to separately present certain information related to the operating and investing cash flows of the discontinued operation, for all comparative periods, in the statement of cash flows. The amendment is effective for annual and interim periods beginning after December 15, 2014 and is to be adopted on a prospective basis for all disposals (except disposals classified as held for sale prior to the adoption date) or components initially classified as held for sale in periods beginning on or after the adoption date, with early adoption permitted. We do not expect the adoption of this guidance on the first day of fiscal year 2015 to have a material impact on our consolidated financial statements and results of operations.

In July 2013, the FASB issued an amendment on the financial statement presentation for an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment specifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred

7
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions. The guidance is effective for annual and interim reporting periods beginning after December 15, 2013. We adopted this guidance effective January 1, 2014, and there was no material impact on our consolidated financial statements or results of operations.

For a description of our significant accounting policies, see Note 1 of the consolidated financial statements in our 2013 Form 10-K.
 
3.
ACQUISITIONS AND DISPOSITIONS

Purchase of West Texas Assets

On February 10, 2014, we acquired one ready-mixed concrete plant and related assets in our west Texas market from Young Ready Mix, Inc. and Rodney and Tina Young for $0.4 million in cash and two promissory notes totaling $0.8 million with a fixed annual interest rate of 0% and an effective interest rate of 3.75% per annum. The notes are payable monthly for a term of three years ending February 2017. We acquired plant and equipment valued at $1.0 million and recognized goodwill of $0.1 million.

On March 18, 2014, we acquired one ready-mixed concrete plant and related assets in our west Texas market from T&S Ventures, LLC for $2.7 million in cash. We acquired plant, equipment, and inventory valued at $0.8 million and recognized goodwill of $1.9 million.

The purchase of these assets allows us to expand our business in our existing west Texas market. We have prepared and recorded the purchase price allocations for these acquisitions on a preliminary basis, and any changes to the purchase price allocations will be made as soon as practical, but no later than one year from the respective acquisition dates. The goodwill ascribed to both west Texas acquisitions is related to the synergies we expect to achieve with expansion in the west Texas market in which we already operate. The goodwill will be deductible for tax purposes and relates to our ready-mixed concrete reportable segment. See Note 13 for additional information regarding income taxes.

The pro forma impact of these acquisitions have not been included as they are immaterial to our financial statements individually and in the aggregate.

Sale of Pennsylvania Precast Operations

On January 30, 2014, our Board of Directors (the "Board") approved the sale of our one remaining precast concrete operation in Pennsylvania, as this business no longer fits our goal of becoming the preeminent supplier of ready-mixed concrete in the United States. As such, the related assets and liabilities have been classified as held for sale effective with the first quarter of 2014. In April 2014, following a broker-led auction process, we signed a definitive agreement with Architectural Precast Products, Inc. for the sale of our Pennsylvania precast operation. The parties agreed to terminate the agreement prior to June 30, 2014. The broker is responding to inquiries from other interested buyers and the operation remains available for sale with a transaction closing expected during 2014. The results of operations for this unit have been included in discontinued operations for the periods presented. Listed below are the major classes of assets and liabilities expected to be sold as part of any transaction that are included in held for sale captions on the accompanying condensed consolidated balance sheet as of June 30, 2014 (in thousands):

 
 
June 30, 2014
Assets held for sale:
 
 
Trade accounts receivable, net
 
$
950

Inventories
 
435

Other current assets
 
1,882

Property, plant and equipment, net
 
1,724

Total assets held for sale
 
$
4,991

 
 
 
Liabilities held for sale:
 
 
Accounts payable
 
$
488

Accrued liabilities
 
69

Total liabilities held for sale
 
$
557


8
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Purchase of Bodin Concrete Assets

On July 26, 2013, we acquired three ready-mixed concrete plants and related assets in our north Texas market from Bodin Concrete, LP for $4.4 million in cash. We acquired plant and equipment valued at $3.3 million and recognized goodwill of $1.1 million. The goodwill ascribed to the purchase is related to the synergies we expected to and have achieved with expansion into the eastern corridor of the north Texas market in which we already operate. The goodwill is deductible for tax purposes and relates to our ready-mixed concrete reportable segment. See Note 13 for additional information regarding income taxes.

Sale of Smith Precast Operations

On December 17, 2012, we completed the sale of substantially all of our assets associated with our Smith Precast operations ("Smith") located in Phoenix, Arizona, to Jensen Enterprises, Inc. ("Jensen") for $4.3 million in cash and the assumption of certain obligations. The results of operations for this unit have been included in discontinued operations for the periods presented.

During the third quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $0.5 million to Jensen related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities.

Purchase of Bode Gravel and Bode Concrete Equity Interests

On October 30, 2012, we completed the acquisition of all of the outstanding equity interests of Bode Gravel Co. and Bode Concrete LLC (collectively, the "Bode Companies") pursuant to an equity purchase agreement dated October 17, 2012. The Bode Companies operated two fixed and one portable ready-mixed concrete plant and 41 mixer trucks in the San Francisco, California area. The purchase price for the acquisition was $24.5 million in cash, plus working capital and closing adjustments of $1.6 million, plus potential earn-out payments ("Bode Earn-out"). The earn-out payments, which are contingent upon reaching negotiated volume hurdles, have an aggregate present value of up to $7.0 million in cash payable over a six-year period, and resulted in total consideration fair value of $33.1 million. During the first quarter of 2014, we completed the first Bode Earn-out payment in the amount of $2.3 million.

Sale of California Precast Operations

On August 20, 2012, we sold substantially all of our California precast operations to Oldcastle Precast, Inc. ("Oldcastle") for $21.3 million in cash, plus net working capital adjustments.  In conjunction with the sale to Oldcastle, we also entered into certain sublease and license agreements with Oldcastle for certain land and property that is leased or owned by us.  The results of operations for these units have been included in discontinued operations for the periods presented.

During the first quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $1.9 million to Oldcastle related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities. At June 30, 2014, $0.1 million of the re-acquired receivables are recorded in other receivables on the accompanying condensed consolidated balance sheet.

On March 28, 2014, we completed the sale of our remaining owned assets related to our California precast operations. We sold land and building for net proceeds of $1.5 million in cash and recorded a gain on the transaction of $0.6 million. The gain is included in discontinued operations in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2014.

4.
DISCONTINUED OPERATIONS

As disclosed in Note 3 above, we completed the sale of our California and Arizona precast operations in August 2012 and December 2012, respectively. In January 2014, our Board approved the sale of our one remaining precast concrete operation in Pennsylvania. Accordingly, we have classified this operation's assets and liabilities as held for sale in the accompanying condensed consolidated balance sheet effective with the first quarter of 2014. We have presented the results of operations for these units for all periods as discontinued operations in the accompanying condensed consolidated statements of operations.


9
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The results of these discontinued operations are as follows (in thousands):

 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
1,532

 
$
5,130

 
$
4,883

 
$
7,446

Depreciation, depletion and amortization (“DD&A”)
—

 
38

 
—

 
75

Operating expenses excluding DD&A
1,845

 
6,158

 
5,102

 
9,030

Loss from discontinued operations
(313
)
 
(1,066
)
 
(219
)
 
(1,659
)
Gain (loss) on settlement of assets
20

 
(4
)
 
640

 
(230
)
(Loss) income from discontinued operations, before income taxes
(293
)
 
(1,070
)
 
421

 
(1,889
)
Income tax (benefit) expense
(34
)
 
(74
)
 
207

 
(89
)
(Loss) income from discontinued operations, net of taxes
$
(259
)
 
$
(996
)
 
$
214

 
$
(1,800
)

5.
INVENTORIES
 
Inventory consists of the following (in thousands):

 
June 30, 2014
 
December 31, 2013
Raw materials
$
25,108

 
$
25,019

Building materials for resale
1,757

 
1,383

Other
1,204

 
1,208

Total inventory
$
28,069

 
$
27,610


6.     INTANGIBLE ASSETS, NET

Our purchased intangible assets are as follows (in thousands):

 
 
June 30, 2014
 
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (in years)
Customer relationships
 
$
13,500

 
$
(2,250
)
 
$
11,250

 
8.33
Trade name
 
1,300

 
(217
)
 
1,083

 
8.33
Total purchased intangible assets
 
$
14,800

 
$
(2,467
)
 
$
12,333

 
8.33

 
 
December 31, 2013
 
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (in years)
Customer relationships
 
$
13,500

 
$
(1,575
)
 
$
11,925

 
8.83
Trade name
 
1,300

 
(152
)
 
1,148

 
8.83
Total purchased intangible assets
 
$
14,800

 
$
(1,727
)
 
$
13,073

 
8.83

We recorded $0.4 million and $0.7 million of amortization expense on our purchased intangible assets for the three and six months ended June 30, 2014, respectively, which is included in our condensed consolidated statements of operations. We recorded $0.4 million and $1.2 million of amortization expense on our purchased intangible assets for the three and six months ended June 30, 2013, respectively, which is included in our condensed consolidated statements of operations.


10
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


As of June 30, 2014, the estimated remaining amortization of our finite-lived intangible assets is as follows (in thousands):

 
Total for Year
2014
740

2015
1,480

2016
1,480

2017
1,480

2018
1,480

Thereafter
5,673

Total
$
12,333


7.
ACCRUED LIABILITIES

A summary of our accrued liabilities is as follows (in thousands):

 
June 30, 2014
 
December 31, 2013
Accrued materials
$
12,865

 
$
10,077

Accrued insurance reserves
10,407

 
9,713

Accrued compensation and benefits
9,049

 
8,179

Accrued property, sales and other taxes
4,974

 
5,485

Bode Earn-out, current portion
2,250

 
2,250

Deferred rent
2,085

 
2,157

Accrued interest
1,470

 
1,896

Other
2,557

 
3,193

Total accrued liabilities
$
45,657

 
$
42,950


8.     DEBT
 
A summary of our debt and capital leases is as follows (in thousands):

 
June 30, 2014
 
December 31, 2013
Senior secured notes due 2018
$
200,000

 
$
200,000

Senior secured credit facility due 2018
—

 
—

Convertible notes due 2015
117

 
117

Capital leases
5,197

 
5,746

Other financing
7,940

 
8,281

Total Debt
213,254

 
214,144

Less:  current maturities
3,698

 
3,990

Long-term debt, net of current maturities
$
209,556

 
$
210,154


Senior Secured Notes due 2018

On November 22, 2013, we completed an offering of $200.0 million aggregate principal amount of 8.5% senior secured notes due 2018 (the "2018 Notes") at an offering price of 100%. We used a portion of the net proceeds from the 2018 Notes to repay all of our outstanding borrowings under the Revolving Facility (as defined below) and to redeem all $61.1 million of our outstanding 9.5% senior secured notes due 2015 (the "2013 Notes").

The 2018 Notes are governed by an indenture (the “Indenture”) dated as of November 22, 2013, by and among us and U.S. Bank National Association, as trustee and noteholder collateral agent (the “Notes Collateral Agent”). We are obligated to pay

11
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


interest on the 2018 Notes on June 1 and December 1 of each year, which commenced on June 1, 2014. The 2018 Notes mature on December 1, 2018, and are redeemable at our option prior to maturity at prices specified in the Indenture. The Indenture contains negative covenants that restrict the ability of us and our restricted subsidiaries to engage in certain transactions, as described below, and also contains customary events of default.

The Indenture contains certain covenants that restrict or limit our ability to, among other things,

•
incur additional indebtedness or issue disqualified stock or preferred stock;
•
pay dividends or make other distributions or repurchase or redeem our stock or subordinated indebtedness or make investments;
•
prepay, redeem or repurchase certain debt;
•
sell assets or 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;
•
engage in certain sale/leaseback transactions; and
•
designate our subsidiaries as unrestricted subsidiaries.
As defined in the Indenture, we are entitled to incur indebtedness if, on the date of such incurrence and given effect thereto on a pro forma basis, the consolidated coverage ratio exceeds 2.0 to 1.0.

Our obligations under the 2018 Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by each of our existing and future domestic subsidiaries that guarantee the indebtedness under the Revolving Facility. Each guarantee is subject to release in the following customary circumstances:

•
a disposition of all or substantially all of the assets of the guarantor subsidiary, by way of merger, consolidation or otherwise; provided the proceeds of the disposition are applied in accordance with the Indenture;

•
a disposition of the capital stock of the guarantor subsidiary to a third person, if the disposition complies with the Indenture and as a result the guarantor subsidiary ceases to be a restricted subsidiary;

•
the designation by us of the guarantor subsidiary as an unrestricted subsidiary or the guarantor subsidiary otherwise ceases to be a restricted subsidiary, in each case in accordance with the Indenture; or

•
legal or covenant defeasance of the 2018 Notes and discharge of our obligations under the Indenture.

The 2018 Notes are issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional basis by each of its direct and indirect wholly owned subsidiaries. There are no non-guarantor subsidiaries. U.S. Concrete, Inc. does not have any independent assets or operations. There are no significant restrictions on the ability of the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan.

The 2018 Notes and the guarantees thereof rank equally in right of payment with all of our existing and future senior indebtedness. The 2018 Notes and the guarantees thereof are secured by first-priority liens on certain of the property and assets directly owned by us, including material owned real property, fixtures, intellectual property, capital stock of subsidiaries and certain equipment, subject to permitted liens and certain exceptions, and by a second-priority lien on the assets securing the Revolving Facility on a first-priority basis, including inventory (including as-extracted collateral), accounts, certain specified mixer trucks, chattel paper, general intangibles (other than collateral securing the 2018 Notes on a first-priority basis), instruments, documents, cash, deposit accounts, securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related books and

12
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


records and all proceeds and products of the foregoing, subject to permitted liens and certain exceptions. The 2018 Notes and the guarantees thereof are effectively subordinated to all indebtedness and other obligations, including trade payables, of each of our future subsidiaries that are not guarantors.

Senior Secured Credit Facility due 2018

On October 29, 2013, we entered into a First Amended and Restated Loan and Security Agreement (the "2013 Loan Agreement") with certain financial institutions named therein, as lenders (the "Lenders"), and Bank of America, N.A., as agent and sole lead arranger (the "Administrative Agent"), which amended and restated our existing credit agreement and provides us with an asset-based revolving credit facility (the "Revolving Facility"). On May 15, 2014, we amended the 2013 Loan Agreement to permit us to redeem our stock in an amount up to $50.0 million, provided that no default or event of default under the terms of the 2013 Loan Agreement exists and is continuing or would result from the stock redemption. We must pay for any stock redemptions with cash on hand, and we must not have any Revolver Loans (as defined in the 2013 Loan Agreement) outstanding at the time of any stock redemption.

Under the terms of the 2013 Loan Agreement and in conjunction with the issuance of our 2018 Notes, the maximum credit availability under our Revolving Facility increased to $125.0 million, and the expiration date of the 2013 Loan Agreement was extended to October 2, 2018. The Revolving Facility retains an uncommitted accordion feature that may allow for an increase in the total commitments under the facility to as much as $175.0 million. As of June 30, 2014, we had no outstanding borrowings and $11.3 million of undrawn standby letters of credit under the 2013 Loan Agreement.

Our actual maximum credit availability under the 2013 Loan Agreement varies from time to time and is determined by calculating a borrowing base, which is based on the value of our eligible accounts receivable, inventory and vehicles, which serve as priority collateral on the facility, minus reserves imposed by the Lenders and other adjustments, all as specified in the 2013 Loan Agreement and discussed further below.  Our availability under the 2013 Loan Agreement at June 30, 2014 increased to $110.4 million from $88.3 million at December 31, 2013. The 2013 Loan Agreement also contains a provision for discretionary over-advances and involuntary protective advances by the Lenders of up to $12.5 million in excess of borrowing base levels.  The 2013 Loan Agreement provides for swingline loans, up to a $10.0 million sublimit, and letters of credit, up to a $30.0 million sublimit.  

Advances under the Revolving Facility are in the form of either base rate loans or "LIBOR Loans" denominated in U.S. dollars.  The interest rate for base rate loans denominated in U.S. dollars fluctuates and is equal to the greater of (a) Bank of America’s prime rate; (b) the Federal funds rate, plus 0.50%; or (c) the rate per annum for a 30-day interest period equal to the British Bankers Association LIBOR Rate, as published by Reuters at approximately 11:00 a.m. (London time) two business days prior ("LIBOR"), plus 1.0%; in each case plus the Applicable Margin, as defined in the 2013 Loan Agreement.  The interest rate for LIBOR Loans denominated in U.S. dollars is equal to the rate per annum for the applicable interest period equal to LIBOR, plus the Applicable Margin, as defined in the 2013 Loan Agreement. Issued and outstanding letters of credit are subject to a fee equal to the Applicable Margin, as defined in the 2013 Loan Agreement, a fronting fee equal to 0.125% per annum on the stated amount of such letters of credit, and customary charges associated with the issuance and administration of letters of credit.  Among other fees, we pay 0.25% or 0.375% per annum (due monthly) on the aggregate unused revolving commitments under the Revolving Facility. The Applicable Margin ranges from 0.25% to 0.75% for base rate loans and from 1.5% to 2.0% for LIBOR Loans, and is determined based on Average Availability for the most recent fiscal quarter, as defined in the 2013 Loan Agreement.

Up to $30.0 million of the Revolving Facility is available for the issuance of letters of credit, and any such issuance of letters of credit will reduce the amount available for loans under the Revolving Facility.  Advances under the Revolving Facility are limited by a borrowing base which is equal to the lessor of the Revolving Facility minus the LC Reserve, the Senior Notes Availability Reserve, and the Tax Reserve, all defined in the 2013 Loan Agreement, or the sum of (a) 90% of the face amount of eligible accounts receivable (reduced to 85% under certain circumstances), plus (b) the lesser of (i) 55% of the value  of eligible inventory or (ii) 85% of the product of (x) the net orderly liquidation value of inventory divided by the value of the inventory and (y) multiplied by the value of eligible inventory, and (c) the lesser of (i) $30.0 million (which may increase up to $40 million on the occasion of a Revolver Commitments Increase Event, as defined in the 2013 Loan Agreement), or (ii) the sum of (A) 85% of the net orderly liquidation value (as determined by the most recent appraisal) of eligible trucks plus (B) 80% of the cost of newly acquired eligible trucks since the date of the latest appraisal of eligible trucks minus (C) 85% of the net orderly liquidation value of eligible trucks that have been sold since the latest appraisal date and 85% of the depreciation amount applicable to eligible trucks since the date of the latest appraisal of eligible trucks, minus (D) such reserves as the Administrative Agent may establish from time to time in its permitted discretion.  The Administrative Agent may, in its permitted discretion, reduce the advance rates set forth above, adjust reserves or reduce one or more of the other elements used in computing the borrowing base.

The 2013 Loan Agreement contains usual and customary negative covenants for transactions of this type, including, but not limited to, restrictions on our ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise

13
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


transfer any of our assets; create or incur indebtedness; create liens; pay dividends; repurchase stock; and make investments or acquisitions.  The negative covenants are subject to certain exceptions as specified in the 2013 Loan Agreement.  The 2013 Loan Agreement also requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months, as determined in accordance with the 2013 Loan Agreement.  For the trailing 12-month period ended June 30, 2014, our fixed charge coverage ratio was 1.74 to 1.0. As of June 30, 2014, the Company was in compliance with all covenants under the 2013 Loan Agreement.

The 2013 Loan Agreement also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, a change of control of the Company, material money judgments and failure to maintain subsidiary guarantees.

The 2013 Loan Agreement is secured by a first-priority lien on certain assets of the Company and the guarantors, including inventory (including as extracted collateral), accounts, certain specified mixer trucks, general intangibles (other than collateral securing the 2018 Notes, on a first-priority basis, as described above), instruments, documents, chattel paper, cash, deposit accounts, securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related books and records and all proceeds and products of the foregoing, subject to permitted liens and certain exceptions.  The 2013 Loan Agreement is also secured by a second-priority lien on the collateral securing the 2018 Notes on a first-priority basis.

Convertible Notes due 2015

On August 31, 2010, we issued $55.0 million aggregate principal amount of 9.5% Convertible Notes due 2015 (the "Convertible Notes").  Under the terms of the indenture governing the Convertible Notes, the Convertible Notes bore interest at a rate of 9.5% per annum and mature on August 31, 2015. Interest payments were payable quarterly in cash in arrears. Additionally, at issuance, we recorded a discount of approximately $13.6 million related to an embedded derivative that was bifurcated and separately valued (see Note 11). This discount was being accreted over the term of the Convertible Notes and included in interest expense.

On March 22, 2013, we completed our offer to exchange (the "Exchange Offer") up to $69.3 million aggregate principal amount of newly issued 2013 Notes for all $55.0 million of outstanding Convertible Notes. At the time of settlement, we issued $61.1 million aggregate principal amount of 2013 Notes in exchange for $48.5 million of Convertible Notes, plus approximately $0.3 million in cash for accrued and unpaid interest on the Convertible Notes exchanged in the Exchange Offer. After giving effect to the exchange, $6.5 million aggregate principal amount of Convertible Notes remained outstanding as of March 22, 2013.

In accordance with the terms of the indenture governing the Convertible Notes, we provided a Conversion Event Notice, as defined in the indenture, to the remaining holders of Convertible Notes on June 18, 2013. Holders had until the close of business on August 2, 2013, the Conversion Termination Date (as defined in the indenture), to tender their Convertible Notes for shares of common stock. Prior to August 3, 2013, remaining note holders tendered $6.4 million of Convertible Notes in exchange for 0.6 million shares of common stock. As of August 3, 2013, the remaining Convertible Notes no longer include a conversion feature and ceased to accrue interest. After giving effect to the tendered Convertible Notes, $0.1 million aggregate principal amount of Convertible Notes remain outstanding as of June 30, 2014.

We recorded to our consolidated statements of operations, interest expense related to the coupon rate and amortization of the discount on our Convertible Notes of zero and $0.2 million for the three months ended June 30, 2014 and 2013, respectively, and zero and $2.0 million for the six months ended June 30, 2014 and 2013, respectively.

Capital Leases and Other Financing

In connection with an acquisition we completed in October 2010, we issued a promissory note for $2.6 million of the purchase price, payable monthly for a term of five years, with a fixed annual interest rate of 5.0%.

In connection with an acquisition we completed in September 2012, we issued a promissory note in the amount of $1.9 million with a fixed annual interest rate of 4.5%. This note is payable monthly for a term of two years ending December 2014.  

On July 23, 2013, we entered into a master leasing agreement with Capital One Equipment Finance Corporation ("Capital One") to provide up to $5.0 million in total lease commitments for mixer trucks. Prior to December 31, 2013, we had utilized all $5.0 million of available lease commitments from Capital One with fixed annual interest rates ranging from 4.31% to 4.54%. Payments are due monthly for a term of five years. The lease agreement includes a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a capital lease.


14
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


On December 19, 2013, we entered into a master leasing agreement with GE Capital Commercial, Inc. ("GE Capital") to provide up to $5.0 million in total lease commitments for mixer trucks. As of June 30, 2014, we have utilized $0.8 million of lease commitments with a fixed interest rate of 4.80% per annum, payable monthly for a term of five years. The lease terms include a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a capital lease.

The current portion of capital leases included in current maturities of long term debt is $1.1 million as of June 30, 2014 and December 31, 2013.

Between July 26, 2013 and December 31, 2013, we signed four promissory notes with Daimler Truck Financial ("Daimler") for the purchase of mixer trucks in the aggregate amount of $6.2 million with a fixed annual interest rate ranging from 3.02% to 3.23%. We signed an additional promissory note with Daimler in January 2014 for the purchase of mixer trucks in the amount of $0.6 million with a fixed annual interest rate of 3.18%. The Daimler promissory notes signed in 2013 and 2014 are payable monthly for a term of five years.

The weighted average interest rate of our capital leases and other financing was 3.79% and 3.83% as of June 30, 2014 and December 31, 2013, respectively. We made cash principal payments associated with our capital leases and other financing totaling $1.2 million and $0.5 million during the three months ended June 30, 2014 and 2013, respectively, and $2.2 million and $0.9 million during the six months ended June 30, 2014 and 2013, respectively.

9.
EXTINGUISHMENT OF DEBT

In connection with the Exchange Offer, described in Note 8 above, during the first quarter of 2013, we exchanged $48.5 million of Convertible Notes for $61.1 million of 2013 Notes.  As a result, we wrote-off $2.4 million of previously deferred financing costs, $26.6 million in derivative liabilities, and $7.3 million of unamortized discount. We recorded a net gain on extinguishment of debt associated with this transaction of $4.3 million on our condensed consolidated statements of operations.

In connection with the issuance of the 2018 Notes and the 2013 Loan Agreement, we have incurred $9.0 million of deferred financing costs. Deferred financing costs are classified as other assets on our condensed consolidated balance sheets. We amortize these deferred financing costs over the terms of the related agreements using the straight-line method, which approximates the effective interest method.

10.
WARRANTS

On August 31, 2010, we issued warrants to acquire common stock (the “Warrants”) in two tranches: Class A Warrants to purchase an aggregate of approximately 1.5 million shares of common stock and Class B Warrants to purchase an aggregate of approximately 1.5 million shares of common stock.  The Warrants were issued to holders of our predecessor common stock pro rata based on a holder’s stock ownership. The fair value of these Warrants have been included in derivative liabilities on the accompanying condensed consolidated balance sheets (see Note 11).

11.
DERIVATIVES

We are exposed to certain risks relating to our ongoing business operations.  However, derivative instruments are not used to hedge these risks.  We are required to account for derivative instruments as a result of the issuance of the Warrants and Convertible Notes on August 31, 2010.  None of our derivative contracts manage business risk or are executed for speculative purposes. Our Convertible Notes embedded derivative was written-off as of the Conversion Termination Date as discussed in Notes 8 and 9 above, as the remaining note holders no longer have conversion rights.

Our derivative instruments are summarized as follows (in thousands):

 
 
 
Fair Value 
Derivative instruments not designated as
hedging instruments under ASC 815
 
Balance Sheet Location
June 30, 2014
 
December 31, 2013
Warrants
 
Derivative liabilities
$
24,061

 
$
21,690



15
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following table presents the effect of derivative instruments on our condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013, respectively, excluding income tax effects (in thousands):

 
 
 
Three months ended
Derivative instruments not designated as hedging instruments under ASC 815
 
Location of Income/(Loss) Recognized
June 30, 2014
 
June 30, 2013
Warrants
 
Derivative loss
$
(1,748
)
 
$
(1,518
)
Convertible Notes embedded derivative
 
Derivative loss
—

 
(398
)
 
 
 
$
(1,748
)
 
$
(1,916
)




Six months ended
Derivative instruments not designated as hedging instruments under ASC 815

Location of Income/(Loss) Recognized
June 30, 2014
 
June 30, 2013
Warrants

Derivative loss
$
(2,371
)

$
(7,231
)
Convertible Notes embedded derivative

Derivative loss
—

 
(13,131
)



$
(2,371
)
 
$
(20,362
)

Warrant volume positions are presented in the number of shares underlying the instruments.  The table below presents our volume positions (in thousands) as of June 30, 2014 and December 31, 2013:

 
 
Number of Shares
Derivative instruments not designated as hedging instruments under ASC 815
 
June 30, 2014
 
December 31, 2013
Warrants
 
2,999

 
3,000


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

12.
FAIR VALUE DISCLOSURES

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

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

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

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

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


16
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following tables present our fair value hierarchy for liabilities measured at fair value on a recurring basis (in thousands):

 
June 30, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative – Warrants(1)
$
24,061

 
$
—

 
$
—

 
$
24,061

Other obligations – Bode Earn-out(2)
5,344

 
—

 
—

 
5,344

 
$
29,405

 
$
—

 
$
—

 
$
29,405


 
December 31, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative – Warrants(1)
$
21,690

 
$
—

 
$
—

 
$
21,690

Other obligations – Bode Earn-out(2)
7,000

 
—

 
—

 
7,000

 
$
28,690

 
$
—

 
$
—

 
$
28,690

 
(1)
Represents the fair value of the Warrants (see Note 10).
(2)
Represents the fair value of the Bode Earn-out (see Note 3). The fair value was determined based on expected payouts that will be due to the former owners based on the achievement of certain incremental sales volume milestones, using a contractual discount rate of 7.0%. These payments are capped at a fair value of $7.0 million.

The liability for the Warrants was valued utilizing a Black-Scholes-Merton model. Inputs into the model were based upon observable market data where possible.  Where observable market data did not exist, we modeled inputs based upon similar observable inputs. The key inputs in determining our derivative liabilities include our stock price, stock price volatility, risk free interest rates, and interest rates for conventional debt of similarly situated companies.

A reconciliation of the changes in Level 3 fair value measurements from December 31, 2013 to June 30, 2014 is provided below (in thousands):

 
Warrants
 
Bode Earn-out
Balance at December 31, 2013
$
21,690

 
7,000

Total losses included in earnings
2,375

 
—

Payment on Bode Earn-out
—

 
(1,656
)
Write-off of derivative on exercised Warrants(1)
(4
)
 
—

Balance at June 30, 2014
24,061

 
5,344

 
(1)
Represents the pro rata portion of the derivative liability associated with exercised Warrants measured at the date of share issuance, which is included in the loss on derivative in our condensed consolidated statements of operations.

Our other financial instruments consist of cash and cash equivalents, trade receivables, trade payables and long-term debt.  We consider the carrying values of cash and cash equivalents, trade receivables and trade payables to be representative of their respective fair values because of their short-term maturities or expected settlement dates.  The fair value of our 2018 Notes, estimated based on broker/dealer quoted market prices, was $217.0 million as of June 30, 2014. The carrying value of outstanding amounts under our 2013 Loan Agreement approximates fair value due to the floating interest rate. The fair value of our remaining Convertible Notes was approximately $0.1 million, and included no embedded derivative at June 30, 2014 or December 31, 2013.


17
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


13.
INCOME TAXES

In accordance with U.S. GAAP, the recognized value of deferred tax assets must be reduced to the amount that is more likely than not to be realized in future periods.  The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on the generation of sufficient taxable income during the periods in which those temporary differences become deductible.  We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.  Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and established valuation allowances as of June 30, 2014 and December 31, 2013 for other deferred tax assets because of uncertainty regarding their ultimate realization.  Our total net deferred tax liability was approximately $4.5 million as of June 30, 2014 and $4.3 million as of December 31, 2013. We made income tax payments of approximately $0.3 million during each of the three and six months ended June 30, 2014. We made income tax payments of approximately $0.3 million during each of the three and six months ended June 30, 2013.
 
In accordance with U.S. GAAP, intra-period tax allocation provisions require allocation of a tax expense to continuing operations due to current income (loss) from discontinued operations. We recorded tax expense of $0.7 million and $0.8 million in income from continuing operations for the three and six months ended June 30, 2014, respectively, and a tax benefit of $3.1 million and $8.3 million in income from continuing operations for the three and six months ended June 30, 2013, respectively. We recorded a tax benefit of less than $0.1 million and tax expense of $0.2 million in discontinued operations for the three and six months ended June 30, 2014, respectively. We recorded a tax benefit of $0.1 million in discontinued operations for each of the three and six months ended June 30, 2013. The income tax amounts for continuing operations referred to above reflect the offsetting intra-period allocations. The intra-period tax allocation between the results from continuing operations and discontinued operations in the three and six months ended June 30, 2014 and 2013 was $0.
 
We underwent a change in ownership for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, as a result of the consummation of our plan of reorganization on August 31, 2010.  As a result, the amount of our pre-change net operating losses (“NOLs”) and other tax attributes that are available to offset future taxable income are subject to an annual limitation.  The annual limitation is based on the value of the corporation as of the effective date of the plan of reorganization.  The ownership change and the resulting annual limitation on the use of NOLs are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods.  However, the limitation on the amount of NOLs available to offset taxable income in a specific year may result in the payment of income taxes before all NOLs have been utilized.  Additionally, a subsequent ownership change may result in further limitation on our ability to utilize existing NOLs and other tax attributes.

14.
STOCKHOLDERS' EQUITY
 
Common Stock and Preferred Stock
 
The following table presents information regarding our common stock (in thousands):

 
June 30, 2014
 
December 31, 2013
Shares authorized
100,000

 
100,000

Shares outstanding at end of period
13,985

 
14,036

Shares held in treasury
646

 
414


Under our amended and restated certificate of incorporation, we are authorized to issue 100.0 million shares of common stock, par value $0.001 per share, and 10.0 million shares of preferred stock, par value $0.001 per share. Additionally, we are authorized to issue “blank check” preferred stock, which may be issued from time to time in one or more series upon authorization by the Board. The Board, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences and restrictions applicable to each series of the preferred stock.  The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of the common stock and, under certain circumstances, make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium or otherwise affect the market price of our common stock. There was no preferred stock issued or outstanding as of June 30, 2014 or December 31, 2013.


18
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Share Repurchase Program

In May 2014, our Board authorized a program to repurchase up to $50.0 million of our outstanding common stock (the "Share Repurchase Program") until the earlier of March 31, 2017, or a determination by the Board to discontinue the repurchase program.

Related Party Share Repurchase

During the second quarter of 2014, as part of the Share Repurchase Program, we paid $4.8 million in cash to Whippoorwill Associates, Inc. ("Whippoorwill") pursuant to a privately negotiated agreement to repurchase 200,000 shares of our common stock. We repurchased the shares for $24.12 per share, which was the closing price of our common stock on the NASDAQ stock market on the trading day prior to the repurchase. As of May 19, 2014, and prior to the transaction, Whippoorwill owned approximately 3.0 million shares, or approximately 21%, of our outstanding common stock and, as such, is a related party.

Treasury Stock

Employees may elect to satisfy their tax obligations on the vesting of their restricted stock by having the required tax payments withheld based on a number of vested shares having an aggregate value on the date of vesting equal to the tax obligation.  As a result of such employee elections, we withheld approximately 31,000 shares at a total value of $0.7 million during the three months ended June 30, 2014 and approximately 32,000 shares at a total value of $0.7 million during the six months ended June 30, 2014. We withheld approximately 58,000 shares at a total value of $0.9 million during the three months ended June 30, 2013, and approximately 154,000 shares at a total value of $2.1 million during the six months ended June 30, 2013. We accounted for the withholding of these shares as treasury stock.

15.
NET EARNINGS (LOSS) PER SHARE

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

The following is a reconciliation of the components of the basic and diluted earnings per share calculations for the three and six months ended June 30, 2014 and 2013, in thousands:

 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
8,120

 
$
7,671

 
$
6,494

 
$
(5,889
)
(Loss) income from discontinued operations, net of taxes
(259
)
 
(996
)
 
214

 
(1,800
)
Net income (loss)
7,861

 
6,675

 
6,708

 
(7,689
)
Add interest expense on Convertible Notes, net of tax effect
—

 
154

 
—

 
—

Numerator for diluted earnings per share
$
7,861

 
$
6,829

 
$
6,708

 
$
(7,689
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
13,557

 
12,550

 
13,562

 
12,455

Restricted stock and restricted stock units
207

 
459

 
231

 
—

Warrants
97


—

 
69

 
—

Convertible Notes
—

 
618

 
—

 
—

Stock options
11

 
7

 
12

 
—

Denominator for diluted earnings per share
13,872

 
13,634

 
13,874

 
12,455


19
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



For the three and six months ended June 30, 2014 and 2013, our potentially dilutive shares include the shares underlying our restricted stock, restricted stock units, stock options, and Warrants.  For the six months ended June 30, 2013, our potentially dilutive shares also included the shares underlying our Convertible Notes. The following table shows the type and number (in thousands) of potentially dilutive shares excluded from the diluted earnings (loss) per share calculations for the periods presented as their effect would have been anti-dilutive:
 
Three months ended June 30,
 
Six months ended June 30,
 
2014

2013
 
2014
 
2013
Potentially dilutive shares:
 
 
 
 
 
 
 
Convertible Notes
—

 
—

 
—

 
618

Unvested restricted stock and restricted stock units
60

 
—

 
60

 
961

Stock options
10

 
35

 
12

 
93

Warrants
1,500

 
3,000

 
1,500

 
3,000

Total potentially dilutive shares
1,570

 
3,035

 
1,572

 
4,672


16.
COMMITMENTS AND CONTINGENCIES
 
Legal Proceedings
 
From time to time, and currently, we are subject to various claims and litigation brought by employees, customers and other third parties for, among other matters, personal injuries, property damages, product defects and delay damages that have, or allegedly have, resulted from the conduct of our operations.  As a result of these types of claims and litigation, we must periodically evaluate the probability of damages being assessed against us and the range of possible outcomes.  In each reporting period, if we determine that the likelihood of damages being assessed against us is probable and, if we believe we can estimate a range of possible outcomes, then we will record a liability. The amount of the liability will be based upon a specific estimate, if we believe a specific estimate to be likely, or it will reflect the low end of our range. Currently, there are no material legal proceedings pending against us.
 
In the future, we may receive funding deficiency demands from multi-employer pension plans to which we contribute.  We are unable to estimate the amount of any potential future funding deficiency demands because the actions of each of the contributing employers in the plans has an effect on each of the other contributing employers, the development of a rehabilitation plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan assumptions.

As of August 7, 2014, there are no material product defect claims pending against us.  Accordingly, our existing accruals for claims against us do not reflect any material amounts relating to product defect claims.  While our management is not aware of any facts that would reasonably be expected to lead to material product defect claims against us that would have a material adverse effect on our business, financial condition or results of operations, it is possible that claims could be asserted against us in the future.  We do not maintain insurance that would cover all damages resulting from product defect claims.  In particular, we generally do not maintain insurance coverage for the cost of removing and rebuilding structures, or so-called “rip and tear” coverage.  In addition, our indemnification arrangements with contractors or others, when obtained, generally provide only limited protection against product defect claims.  Due to inherent uncertainties associated with estimating unasserted claims in our business, we cannot estimate the amount of any future loss that may be attributable to unasserted product defect claims related to ready-mixed concrete we have delivered prior to June 30, 2014.
 
We believe that the resolution of all litigation currently pending or threatened against us or any of our subsidiaries will not materially exceed our existing accruals for those matters.  However, because of the inherent uncertainty of litigation, there is a risk that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a party as more information becomes available or proceedings progress, and any such increase in accruals could have a material adverse effect on our consolidated financial condition or results of operations.  We expect in the future that we and our operating subsidiaries will from time to time be a party to litigation or administrative proceedings that arise in the normal course of our business.
 
We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and

20
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting that we may be in violation of environmental laws and regulations. Based on experience and the information currently available, our management does not believe that these claims will materially exceed our related accruals.  Despite compliance and experience, it is possible that we could be held liable for future charges, which might be material, but are not currently known to us or cannot be estimated by us.  In addition, changes in federal or state laws, regulations or requirements, or discovery of currently unknown conditions, could require additional expenditures.
 
As permitted under Delaware law, we have agreements that provide indemnification of officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is not limited; however, we have a director and officer insurance policy that potentially limits our exposure and enables us to recover a portion of future amounts that may be paid.  As a result of the insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of June 30, 2014.

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

Insurance Programs

We maintain third-party insurance coverage against certain risks in amounts we believe are reasonable.  Under certain components of our insurance program, we share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations.  Generally, our deductible retentions per occurrence for auto, workers’ compensation and general liability insurance programs are $1.0 million, although certain of our operations are self-insured for workers’ compensation.  We fund these deductibles and record an expense for expected losses under the programs.  We determine the expected losses using a combination of our historical loss experience and subjective assessments of our future loss exposure. The estimated losses are subject to uncertainty from various sources, including changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation and economic conditions.  Although we believe the estimated losses we have recorded are reasonable, significant differences related to the items we have noted above could materially affect our insurance obligations and future expense. The amount accrued for estimated losses was $9.4 million as of June 30, 2014, compared to $8.6 million as of December 31, 2013, which are classified in accrued liabilities in our condensed consolidated balance sheets.

Performance Bonds
 
In the normal course of business, we are contingently liable for performance under $10.3 million in performance bonds that various contractors, states and municipalities have required as of June 30, 2014. The bonds principally relate to construction contracts, reclamation obligations and licensing and permitting.  We have indemnified the underwriting insurance company against any exposure under the performance bonds. No material claims have been made against these bonds as of June 30, 2014.

17.
SEGMENT INFORMATION

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

Our ready-mixed concrete segment produces and sells ready-mixed concrete. This segment serves the following principal markets: north and west Texas, northern California, New Jersey, New York, Washington, D.C. and Oklahoma. Our aggregate products segment includes crushed stone, sand and gravel products and serves the north and west Texas, New Jersey, and New York markets in which our ready-mixed concrete segment operates. Other products not associated with a reportable segment include our building materials stores, hauling operations, lime slurry, Aridus® rapid-drying concrete technology, brokered product sales, and a recycled aggregates operation.

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

Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) from continuing operations excluding interest, income taxes, depreciation, depletion and amortization, derivative gain (loss), and gain or loss on extinguishment of debt. Additionally, we adjust Adjusted EBITDA

21
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


for items similar to certain of those used in calculating the Company’s compliance with debt covenants. The additional items that are adjusted to determine our Adjusted EBITDA are:

•
non-cash stock compensation expense;
•
corporate officer severance expense; and
•
expenses associated with the relocation of our corporate headquarters.

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 (i) internally measure our operating performance and (ii) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements.

Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on U.S. GAAP, and is not necessarily a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

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

In January 2014, our Board approved of the sale of our one remaining precast operation in Pennsylvania. Historical segment results have been recast to conform to this change.


22
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


Three months ended June 30,

Six months ended June 30,
 

2014

2013

2014

2013
Revenue:

 

 




Ready-mixed concrete








Sales to external customers

$
164,175


$
143,299


$
298,101


$
258,501

Aggregate products








Sales to external customers

7,327


5,497


11,944


8,698

Intersegment sales

5,797


4,639


9,425


7,958

Total aggregate products
 
13,124

 
10,136

 
21,369

 
16,656

Total reportable segment revenue

177,299


153,435


319,470


275,157

Other products and eliminations

3,059


3,955


7,145


7,658

Total revenue

$
180,358


$
157,390


$
326,615


$
282,815










Reportable Segment Adjusted EBITDA:

 

 

 

 
Ready-mixed concrete

$
23,269


$
18,033


$
37,001


$
27,206

Aggregate products

3,266


2,127


3,345


1,545

Total reportable segment Adjusted EBITDA

$
26,535


$
20,160


$
40,346


$
28,751










Reconciliation of reportable segment Adjusted EBITDA to income (loss) from continuing operations before income taxes:










Total reportable segment Adjusted EBITDA

$
26,535


$
20,160


$
40,346


$
28,751

Other products and eliminations income from operations

783


1,017


1,328


1,723

Corporate overhead

(7,123
)

(8,560
)

(13,442
)

(15,798
)
Depreciation, depletion and amortization for reportable segments

(4,668
)

(3,739
)

(8,775
)

(7,793
)
Interest expense, net

(5,055
)

(2,588
)

(10,065
)

(5,360
)
Corporate (loss) gain on early extinguishment of debt

—


(6
)

—


4,304

Corporate derivative loss

(1,748
)

(1,916
)

(2,371
)

(20,362
)
Corporate and other products and eliminations other income, net

126


234


225


380

Income (loss) from continuing operations before income taxes

$
8,850


$
4,602


$
7,246


$
(14,155
)





 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
 
Ready-mixed concrete
 
$
6,738

 
$
3,859

 
$
12,957

 
$
4,819

Aggregate products
 
2,162

 
1,504

 
6,090

 
2,150

Other products and corporate
 
829

 
905

 
847

 
1,147

Total capital expenditures
 
$
9,729

 
$
6,268

 
$
19,894

 
$
8,116

 
 
 
 
 
 
 
 
 
Revenue by Product:
 
 
 
 
 
 
 
 
Ready-mixed concrete
 
$
164,175

 
$
143,299

 
$
298,101

 
$
258,501

Aggregate products
 
7,327

 
5,497

 
11,944

 
8,698

Building materials
 
4,454

 
3,714

 
7,693

 
6,615

Lime
 
2,348

 
1,773

 
5,109

 
4,171

Hauling
 
1,023

 
1,676

 
1,930

 
2,577

Other
 
1,031

 
1,431

 
1,838

 
2,253

Total revenue
 
$
180,358

 
$
157,390

 
$
326,615

 
$
282,815


23
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
Identifiable Property, Plant and Equipment Assets:
 
As of
June 30, 2014
 
As of
December 31, 2013
Ready-mixed concrete
 
$
101,142

 
$
91,776

Aggregate products
 
40,694

 
36,819

Other products and corporate
 
6,716

 
9,965

Total identifiable assets
 
$
148,552

 
$
138,560




24

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10-Q 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,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “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 operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections.

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

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

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013.
  
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.


25

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
For a discussion of our commitments not discussed below and our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Form 10-K").
 
Our Business

U.S. Concrete, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” “U.S. Concrete” or the “Company”) are a leading producer of ready-mixed concrete in select geographic markets in the United States. We operate our business through two primary segments: (i) ready-mixed concrete and (ii) aggregate products. The results of operations for our two California precast operations and our Phoenix, Arizona precast operation, all of which were sold during 2012, as well as our Pennsylvania precast operation that is classified as held for sale at June 30, 2014, have been included in discontinued operations for the periods presented.

Ready-Mixed Concrete.  Our ready-mixed concrete segment (which represented 91.3% of our revenue for the six months ended June 30, 2014) engages principally in the formulation and production of ready-mixed concrete en route to our customers’ job sites. We provide our ready-mixed concrete from our operations in north Texas, west Texas, northern California, New Jersey, New York, Washington, D.C. and Oklahoma. 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 3.7% of our revenue for the six months ended June 30, 2014, excluding $9.4 million of intersegment sales) produces crushed stone, sand and gravel from eight aggregates facilities located in New Jersey and Texas. We sell these aggregates for use in commercial, industrial and public works projects in the markets they serve, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 1.9 million tons of aggregates during the six months ended June 30, 2014, with Texas representing 62% and New Jersey representing 38% of the total production. We consumed 51% of our aggregate production internally and sold 49% to third party customers in the first half of 2014. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability. In addition, we own sand pit operations in Michigan and one quarry in west Texas which we lease to third parties and receive a royalty based on the volumes produced and sold during the terms of the leases.

Overview

The geographic markets for our products are generally local, and 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 these 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.

From 2007 through 2011, construction slowed significantly, which resulted in a decline in the demand for ready-mixed concrete.  However, construction and related demand for ready-mixed concrete has improved since 2011. For the six months ended June 30, 2014, our ready-mix concrete sales volume increased 8.6% to 2.7 million cubic yards from 2.5 million cubic yards during the first half of 2013. Sales volume in the 2014 first half was up in all of our major markets as compared to the 2013 first half, primarily due to increased construction activity. We experienced a 6.3% increase in consolidated average ready-mixed concrete sales prices for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013, resulting in the 13th consecutive fiscal quarter we have seen increased average selling prices. As a result of the increased ready-mixed concrete sales volume and higher sales prices, our revenue increased period-over-period. Additionally, the higher volumes have allowed us to spread our fixed costs over more cubic yards. However, we also experienced higher cement and aggregate costs during the first half of 2014 when compared to the prior year period, which have partially offset these improvements. We continue to closely monitor our operating costs and capital expenditures.

26



Liquidity and Capital Resources
 
Our primary liquidity needs over the next 12 months consist of (i) financing seasonal working capital requirements; (ii) servicing our indebtedness; (iii) purchasing property and equipment; and (iv) payments related to any strategic acquisitions. Our portfolio strategy may, from time to time, include strategic acquisitions and divestitures in various regions and markets, and we may seek arrangements to finance any such acquisitions, which financing arrangements may include additional debt or equity capital.

Our working capital needs are typically at their lowest level in the first quarter, increase in the second and third quarters to fund increases in accounts receivable and inventories during those periods, and then decrease in the fourth quarter. Availability under the 2013 Loan Agreement (as defined below) is governed by a borrowing base primarily determined by our eligible accounts receivable, inventory and mixer trucks. While our working capital needs are typically at their lowest level in the first quarter, our borrowing base typically also declines during the first quarter due to lower accounts receivable balances as a result of normal seasonality of our business caused by weather.

At June 30, 2014, our availability under the 2013 Loan Agreement increased to $110.4 million from $88.3 million at December 31, 2013, due to increases in eligible accounts receivable balances and higher rolling stock values. We had no borrowings outstanding under the Revolving Facility (as defined below) as of June 30, 2014.

The projection of our cash needs is based upon many factors, including without limitation, our forecasted volume, pricing, cost of materials and capital expenditures. Based on our projected cash needs, we believe that the Revolving Facility, proceeds from our 2018 Notes offering (as defined below), and cash generated from operations will provide us with sufficient liquidity in the ordinary course. The Revolving Facility and the 2018 Notes are scheduled to mature in October 2018 and December 2018, respectively. If, however, the Revolving Facility, the 2018 Notes proceeds, and our operating cash flows are not adequate to fund our operations, we would need to obtain an amendment to the 2013 Loan Agreement, seek other equity or debt financing to provide additional liquidity, or sell assets.

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

•
deterioration of revenue, due to lower volume and/or pricing, because of weakness in the markets in which we operate;
•
declines in gross margins due to shifts in our product mix or increases in the cost of our raw materials and fuel;
•
any deterioration in our ability to collect our accounts receivable from customers as a result of weakening in construction demand or as a result of payment difficulties experienced by our customers; and
•
inclement weather beyond normal patterns that could affect our sales volumes.
The following key financial measurements reflect our financial position and capital resources as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 
June 30, 2014
 
December 31, 2013
Cash and cash equivalents
$
86,873

 
$
112,667

Working capital
124,303

 
135,078

Total debt
213,254

 
214,144


Our cash and cash equivalents consist of highly liquid investments in deposits we hold at major financial institutions.

We and certain of our subsidiaries have entered into a Loan and Security Agreement (as subsequently amended, the “2013 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 2013 Loan Agreement provides for a $125.0 million asset-based revolving credit facility (the “Revolving Facility”) and has an uncommitted accordion feature that may allow for an increase in the total commitments under the facility to as much as $175.0 million. Our actual maximum credit availability under the 2013 Loan Agreement varies from time to time and is determined by calculating a borrowing base, which is based on the the value of our eligible accounts receivable, inventory and mixer trucks, which serve as priority

27

collateral on the facility, minus reserves imposed by the Lenders and other adjustments, all as specified in the 2013 Loan Agreement. The 2013 Loan Agreement provides for swingline loans, up to a $10.0 million sublimit, and letters of credit, up to a $30.0 million sublimit. Advances under the 2013 Loan Agreement are in the form of either base rate loans or “LIBOR Loans” denominated in U.S. dollars. The 2013 Loan Agreement contains usual and customary negative covenants and customary events of default for transactions of this type and requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months, as determined in accordance with the 2013 Loan Agreement. As of June 30, 2014, we were in compliance with all covenants, and for the trailing twelve month period ended June 30, 2014, our fixed charge coverage ratio was 1.74 to 1.0. As of June 30, 2014, we had no outstanding borrowings and $11.3 million of undrawn standby letters of credit, leaving $110.4 million of unused borrowing capacity under the 2013 Loan Agreement. The expiration date of the 2013 Loan Agreement is October 2, 2018.
On May 15, 2014, we amended the 2013 Loan Agreement to permit us to redeem our stock in an amount up to $50.0 million, provided that no default or event of default under the terms of the 2013 Loan Agreement exists and is continuing or would result from the stock redemption. We must pay for any stock redemptions with cash on hand, and we must not have any outstanding Revolver Loans (as defined in the 2013 Loan Agreement) at the time of any stock redemption.

As of June 30, 2014, we had $200.0 million of our 8.5% senior secured notes due 2018 (the "2018 Notes") outstanding. We are obligated to pay interest on the 2018 Notes on June 1 and December 1 of each year, which commenced on June 1, 2014. The 2018 Notes mature on December 1, 2018, and are redeemable at our option prior to maturity at prices specified in the indenture governing the 2018 Notes (the “Indenture”). The Indenture contains negative covenants that restrict the ability of us and our restricted subsidiaries to engage in certain transactions and also contains customary events of default. The 2018 Notes are issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional basis by each of its direct and indirect wholly owned subsidiaries. The guarantees are joint and several, and there are no non-guarantor subsidiaries. The 2018 Notes and the guarantees thereof rank equally in right of payment with all of our existing and future senior indebtedness. The 2018 Notes and the guarantees thereof are secured by certain property and assets of the Company and the guarantors.
In July 2013, we entered into a master leasing agreement with Capital One Equipment Finance Corporation ("Capital One") to provide up to $5.0 million in total lease commitments for mixer trucks. We fully utilized these lease commitments during 2013. Interest on these lease commitments accrues at fixed annual interest rates ranging from 4.31% to 4.54%, and payments are due monthly for a term of five years. The lease terms include a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a capital lease. During the second half of 2013, we signed a series of promissory notes with Daimler Truck Financial ("Daimler") for the purchase of mixer trucks totaling $6.2 million aggregate principal with fixed annual interest rates ranging from 3.02% to 3.23%, payable monthly for a term of five years. In December 2013, we entered into a master leasing agreement with GE Capital Commercial Inc. to provide up to $5.0 million in total lease commitments for mixer trucks. As of June 30, 2014, we had utilized $0.8 million of this financing. Interest on the $0.8 million of financing accrues at a fixed annual interest rate of 4.8% and payments are due monthly for a term of five years. The lease includes a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a capital lease. In January 2014, we signed a promissory note with Daimler for the purchase of mixer trucks in the amount of $0.6 million aggregate principal with a fixed annual interest rate of 3.18%, payable monthly for a term of five years.

For additional information regarding our arrangements relating to outstanding indebtedness, the information set forth in Note 8, “Debt,” to our condensed consolidated financial statements included in Part I of this report is incorporated by reference into this Item 2.

Cash Flows
 
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.  Net cash provided by operating activities was $6.3 million for the six months ended June 30, 2014, compared to $9.4 million for the six months ended June 30, 2013. This generally reflects our increase in net income for the first six months of 2014, lower non-cash adjustments to net income, and increased use of cash to fund working capital during the period as compared to the first six months of 2013.

We used $21.8 million to fund investing activities during the six months ended June 30, 2014 compared to $9.8 million for the six months ended June 30, 2013. This change primarily reflects an $11.8 million increase in capital spending over the prior year period, as we acquired additional mixer trucks, plant and other equipment to service our business. We paid $4.4 million for acquisitions completed during the first half of 2014. Proceeds from asset disposals increased by $2.3 million during the six months ended June 30, 2014, as compared to the 2013 first six months, as we disposed of our remaining land and building assets related to our California precast operations, as well as other excess plant and equipment. During the first half of 2013, we paid $1.9

28

million to Oldcastle Precast Inc. related to the re-acquisition of certain assets and settlement of certain liabilities associated with the disposal of our California precast operations in 2012.
 
Our net cash used in financing activities was $10.3 million for the first six months of 2014 compared to $2.8 million provided by financing activities for the comparable period of 2013. During the 2014 first six months, we paid $4.8 million to repurchase 0.2 million shares of our common stock under our stock repurchase program, made the first earn-out payment to the former owners of the Bode Companies for $2.3 million, made payments of $2.2 million related to our capital leases and other financing, and incurred $0.7 million of debt issuance costs. During the 2013 first six months, our net borrowings on our credit facility needed to operate our business totaled $7.7 million, we incurred $2.0 million of debt issuance costs associated with our 9.5% senior secured notes due 2015 that were issued in 2013 (the "2013 Notes"), and we paid $2.1 million for the purchase of treasury shares related to our restricted stock grants.

Cement and Other Raw Materials

We obtain most of the materials necessary to manufacture ready-mixed concrete on a daily basis. These materials include cement, other cementitious materials (fly ash and blast furnace slag) and aggregates (stone, gravel and sand), in addition to certain chemical admixtures.  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. Our inventory levels do not decline significantly or comparatively with declines in revenue during seasonally low periods. We generally maintain inventory at specified levels to maximize purchasing efficiencies and to be able to respond quickly to customer demand.

Typically, cement, other cementitious materials and aggregates represent the highest-cost materials used in manufacturing a cubic yard of ready-mixed concrete.  We purchase cement from a few suppliers in each of our major geographic markets.  Chemical admixtures are generally purchased from suppliers under national purchasing agreements.
 
Overall, prices for cement and aggregates increased in the first six months of 2014, compared to the same period in 2013, in most of our major geographic markets. Generally, we negotiate with suppliers on a company-wide basis and at the local market level to obtain the most competitive pricing available for cement and aggregates.  We believe the demand for cement is increasing and will warrant scrutiny as construction activity increases.  Today, in most of our markets, we believe there is an adequate supply of cement and aggregates.

Acquisitions and Divestitures

Our portfolio strategy may, from time to time, include strategic acquisitions and divestitures in various regions and markets, and we may seek arrangements to finance any such acquisitions, which financing arrangements may include additional debt or equity capital.

For a description of our recent acquisitions and divestitures, see the information set forth in Note 3, “Acquisitions and Dispositions,” to our condensed consolidated financial statements included in Part I of this report.

Critical Accounting Policies
 
We have outlined our critical accounting policies in Item 7 of Part II of the 2013 Form 10-K.  Our critical accounting policies involve the use of estimates in the recording of goodwill and any related impairment, accruals for self-insurance, accruals for income taxes, assessing impairment of long-lived assets, and accounting for derivative instruments. See Note 1 to our consolidated financial statements included in Item 8 of Part II of the 2013 Form 10-K for a discussion of our critical and significant accounting policies.


29

Results of Operations
 
The following table sets forth selected historical statement of operations information for each of the periods indicated.
 
 
(amounts in thousands, except selling prices and percentages)
 
Three months ended June 30,
 
Increase/ (Decrease)
 
Six months ended June 30,
 
Increase/ (Decrease)
 
2014
 
2013
 
%
 
2014
 
2013
 
%
 
(unaudited)
 
 
 
(unaudited)
 
 
Revenue
$
180,358

 
$
157,390

 
14.6%
 
$
326,615

 
$
282,815

 
15.5%
Cost of goods sold before depreciation, depletion and amortization
145,324

 
128,065

 
13.5
 
269,849

 
236,657

 
14.0
Selling, general and administrative expenses
14,388

 
16,188

 
(11.1)
 
28,031

 
30,533

 
(8.2)
Depreciation, depletion and amortization
5,484

 
4,540

 
20.8
 
10,382

 
9,365

 
10.9
Loss (gain) on sale of assets
46

 
(31
)
 
(248.4)
 
(303
)
 
(26
)
 
NM
Income from operations
15,116

 
8,628

 
75.2
 
18,656

 
6,286

 
196.8
Interest expense, net
5,055

 
2,588

 
95.3
 
10,065

 
5,360

 
87.8
Derivative loss
(1,748
)
 
(1,916
)
 
(8.8)
 
(2,371
)
 
(20,362
)
 
(88.4)
(Loss) gain on extinguishment of debt
—

 
(6
)
 
100.0
 
—

 
4,304

 
(100.0)
Other income, net
537

 
484

 
11.0
 
1,026

 
977

 
5.0
Income (loss) from continuing operations before income taxes
8,850

 
4,602

 
92.3
 
7,246

 
(14,155
)
 
151.2
Income tax expense (benefit)
730

 
(3,069
)
 
NM
 
752

 
(8,266
)
 
NM
Income (loss) from continuing operations
8,120

 
7,671

 
5.9
 
6,494

 
(5,889
)
 
210.3
(Loss) income from discontinued operations, net of taxes
(259
)
 
(996
)
 
74.0
 
214

 
(1,800
)
 
111.9
Net income (loss)
$
7,861

 
$
6,675

 
17.8%
 
$
6,708

 
$
(7,689
)
 
187.2%
 
 
 
 

 
 
 
 
 
 

 
 
Ready-mixed Concrete Data:
 

 


 
 
 
 

 
 
 
 
Average selling price per cubic yard
$110.27
 
$102.71
 
7.4
%
 
$108.56
 
$102.12
 
6.3
%
Sales volume in cubic yards
1,486

 
1,390

 
6.9
%
 
2,740

 
2,523

 
8.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Aggregates Data:
 
 
 
 
 
 
 
 
 
 
 
Average selling price per ton
$9.63
 
$8.97
 
7.3
%
 
$9.29
 
$8.70
 
6.8
%
Sales volume in tons
1,151

 
952

 
20.9
%
 
1,958

 
1,647

 
18.9
%

Revenue. Revenue for the three months ended June 30, 2014 grew 14.6%, or $23.0 million, to $180.4 million from $157.4 million in the comparable 2013 quarter, primarily due to higher sales of ready-mixed concrete. Ready-mixed sales contributed 90.9%, or $20.9 million, of our revenue growth, driven by increases in both average selling price and sales volume. Our higher ready-mixed concrete sales volume was primarily attributable to increased construction activity in our north and west Texas markets. Aggregates sales in the second quarter of 2014 grew $3.0 million, or 29.5%, to $13.1 million from $10.1 million in the 2013 second quarter, resulting from an increase in both average selling price and sales volume. Other product revenues and eliminations, which includes our building materials, lime slurry, hauling business, and eliminations of our intersegment sales, declined $0.9 million in the 2014 quarter to $3.1 million from $4.0 million in the 2013 second quarter.

Revenue for the six months ended June 30, 2014 rose to $326.6 million from $282.8 million in the 2013 first six months, an increase of $43.8 million, or 15.5%, primarily due to higher ready-mixed concrete sales. Ready-mixed concrete sales contributed 90.4%, or $39.6 million, of our revenue growth, resulting from increases in both average selling price and sales volume. Increased construction activity in our north and west Texas markets primarily drove the increase in our ready-mixed sales volume. For the first six months of 2014, aggregates sales grew to $21.4 million from $16.7 million in the 2013 first six months, an increase of

30

$4.7 million, or 28.3%, as a result of higher average selling price and increased sales volume. Other product revenues and eliminations, as described above, were $7.1 million in the 2014 first six months versus $7.7 million in the 2013 first six months, a decline of $0.6 million.

Cost of goods sold before depreciation, depletion and amortization. Cost of goods sold before depreciation, depletion and amortization ("DD&A") increased by $17.3 million, or 13.5%, to $145.3 million in the second quarter of 2014 from $128.1 million in the comparable 2013 quarter. Our costs increased primarily due to volume growth in our ready-mixed concrete segment, as described above, resulting in higher material costs, delivery costs, and plant variable costs, which includes primarily labor and benefits, utilities, and repairs and maintenance. Our material costs in the 2014 second quarter also increased over the comparable prior year quarter due to higher prices for cement and aggregates, however, we have generally been able to pass these increases on to our customers. Our fixed costs, which primarily consists of leased equipment costs, property taxes, dispatch costs, quality control, and plant management, increased over the prior year period primarily due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year.

For the first six months of 2014, cost of goods sold before DD&A increased to $269.8 million from $236.7 million in the 2013 first half, an increase of $33.2 million, or 14.0%. Our costs increased primarily as a result of volume growth in our ready-mixed concrete segment, as described above, resulting in higher material costs, delivery costs, and plant variable costs. Our material costs also increased as a result of higher cement and aggregate prices, as described above. Our fixed costs increased over the prior year first half primarily due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year.

Selling, general and administrative expenses. Selling, general and administrative ("SG&A") expenses declined $1.8 million, or 11.1%, to $14.4 million for the quarter ended June 30, 2014 from $16.2 million in the corresponding 2013 quarter primarily due to lower non-cash stock compensation expense. Non-cash stock compensation expense in the 2013 second quarter included the impact resulting from achievement of the performance goal associated with delivery of a Conversion Event Notice (as defined in the indenture governing the Convertible Notes), which occurred on June 18, 2013, which triggered the conversion of certain previously vested incentive restricted stock units to common shares, and for which no compensation expense had previously been recognized for these grants, as achievement of the performance goal was not considered probable. Additional non-cash compensation expense was recorded in the 2013 first half associated with certain restricted stock units that were contingent upon shareholder approval of the plan under which they were granted. Such approval was obtained in May 2013. As a percentage of total revenue, SG&A expenses declined to 8.0% in the 2014 second quarter from 10.3% in the 2013 second quarter.

For the 2014 first six months, SG&A expenses decreased by $2.5 million, or 8.2%, to $28.0 million, from $30.5 million for the corresponding period in 2013. The decrease in SG&A expenses for the first half of 2014 primarily reflects a $2.0 million decrease in non-cash stock compensation expense, due to the 2013 items described above. The 2013 first half also included $0.5 million of corporate relocation expenses; no such expenses were incurred in 2014. As a percentage of total revenue, SG&A expenses declined to 8.6% in the 2014 first half from 10.8% in the 2013 first half.

 Depreciation, depletion and amortization. DD&A expense increased $0.9 million, or 20.8%, to $5.5 million for the three months ended June 30, 2014 from $4.5 million in the corresponding quarter of 2013, primarily reflecting depreciation on additional plants, equipment and mixer trucks purchased to service demand.

For the six months ended June 30, 2014, DD&A expense rose $1.0 million, or 10.9%, to $10.4 million from $9.4 million in the corresponding period of 2013, primarily reflecting depreciation on additional plants, equipment and mixer trucks purchased to service demand.

Income from operations. Income from operations improved to $15.1 million in the second quarter of 2014 from $8.6 million in the corresponding quarter of 2013, an increase of $6.5 million. Increased ready-mixed concrete revenue driven by both higher volume and pricing resulted in efficiencies that lead to increased income from operations as a percentage of revenue (“operating margins”). Operating margins improved to 8.4% for the June 2014 quarter compared to 5.5% in the June 2013 quarter.

For the first six months of 2014, income from operations increased to $18.7 million from $6.3 million in the 2013 first six months, an increase of $12.4 million. Operating margins improved in the 2014 first half to 5.7% from 2.2% in the 2013 first half, due to increased ready-mixed concrete revenue driven by both higher volume and average selling price.

Interest expense, net.  Net interest expense increased by $2.5 million to $5.1 million for the three months ended June 30, 2014 from $2.6 million for the comparable 2013 quarter. For the six months ended June 30, 2014, net interest expense increased by $4.7 million to $10.1 million from $5.4 million in the comparable 2013 period. The increase in each of the quarter and year-to-date periods of 2014 primarily reflects the impact of the issuance of our 2018 Notes during the fourth quarter of 2013.


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Derivative loss.  For the quarter ended June 30, 2014, we recorded a non-cash loss on derivative of $1.7 million related to fair value changes in our warrants that were issued on August 31, 2010 (the "Warrants"). This was a decrease of $0.2 million from the comparable 2013 period, when we recorded a non-cash loss on derivatives of $1.9 million.  Each quarter, we determine the fair value of our derivative liabilities, and changes result in income or loss. The key inputs in determining the fair value of our derivative liabilities of $24.1 million at June 30, 2014 include our stock price, stock price volatility, risk free interest rates and interest rates for conventional debt of similarly situated companies. Changes in these inputs impact the valuation of our derivatives and result in income or loss each quarterly period. The non-cash loss from fair value changes in the Warrants for the 2014 second quarter was primarily due to an increase in the price of our common stock. This compares to the quarter ended June 30, 2013, during which we recorded a non-cash loss from fair value changes in our Warrants of $1.5 million and $0.4 million of non-cash loss from the embedded derivative associated with our 9.5% Convertible Notes due 2015 (the "Convertible Notes"). Both charges included in the 2013 second quarter non-cash loss were primarily due to an increase in the price of our common stock and changes in our stock price volatility.

For the six months ended June 30, 2014, we recorded a non-cash loss on derivatives of $2.4 million related to fair value changes in our Warrants. This compares to the six months ended June 30, 2013, during which we recorded a non-cash loss from fair value changes in our Convertible Notes embedded derivative of approximately $13.1 million and $7.2 million related to fair value changes in our Warrants. These non-cash losses were primarily due to an increase in the price of our common stock and changes in our stock price volatility. As of August 3, 2013, the conversion feature of our Convertible Notes terminated, thus the remaining Convertible Notes no longer contain an embedded derivative.

(Loss) gain on extinguishment of debt.  On March 22, 2013, we completed our offer to exchange (the "Exchange Offer") up to $69.3 million aggregate principal amount of 2013 Notes, for all $55.0 million of outstanding Convertible Notes. At the time of settlement, we issued $61.1 million aggregate principal amount of 2013 Notes in exchange for $48.5 million of Convertible Notes. As such, during the six months ended June 30, 2013, we recorded a $4.3 million non-cash gain associated with the exchange of the tendered Convertible Notes for the 2013 Notes, including the write-off of the pro rata portions of the following items related to the Convertible Notes: the unamortized discount, the unamortized deferred financing costs, and the derivative liability.

Other income, net.  Other income was $0.5 million for each of the three months ended June 30, 2014 and 2013.  Other income was $1.0 million for each of the six months ended June 30, 2014 and 2013.

Income taxes.  We recorded income tax expense allocated to continuing operations of $0.7 million and $0.8 million for the three and six months ended June 30, 2014, respectively, and an income tax benefit allocated to continuing operations of $3.1 million and $8.3 million for the three and six months ended June 30, 2013, respectively. Our effective tax rate differs substantially from the federal statutory rate primarily due to the application of a valuation allowance that reduced the recognized benefit of our deferred tax assets.  In addition, certain state income taxes are calculated on bases different than pre-tax income (loss).  This resulted in recording income tax expense in certain states that experience a pre-tax loss.
 
In accordance with U.S. GAAP, intra-period tax allocation provisions require allocation of a tax expense to continuing operations due to current income (loss) from discontinued operations. We recorded a tax benefit of less than $0.1 million and tax expense of $0.2 million in discontinued operations for the three and six months ended June 30, 2014, respectively. We recorded a tax benefit of $0.1 million in discontinued operations for each of the three and six months ended June 30, 2013. The income tax amounts for continuing operations referred to above reflect the offsetting intra-period allocations. The intra-period tax allocation between the results from continuing operations and discontinued operations in the three and six months ended June 30, 2014 and 2013 was $0.
 
In accordance with U.S. GAAP, the recognized value of deferred tax assets must be reduced to the amount that is more likely than not to be realized in future periods.  The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on the generation of sufficient taxable income during the periods in which those temporary differences become deductible.  We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.  Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and established a valuation allowance as of June 30, 2014 and December 31, 2013 for other deferred tax assets because of uncertainty regarding their ultimate realization.  Our total net deferred tax liability was $4.5 million and $4.3 million as of June 30, 2014 and December 31, 2013, respectively.

Discontinued operations.  The results of operations for our sold precast units located in California and Arizona, as well as our held for sale precast operation in Pennsylvania, have been included in discontinued operations for the periods presented.


32

Segment information

Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as income (loss) from continuing operations excluding interest, income taxes, depreciation, depletion and amortization, derivative gain (loss), and gain or loss on extinguishment of debt. Additionally, we adjust Adjusted EBITDA for items similar to certain of those used in calculating the Company’s compliance with debt covenants including: non-cash stock compensation expense, corporate officer severance expense, and expenses associated with the relocation of our corporate headquarters.

Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on U.S. GAAP, and is not necessarily a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

See Note 17 to our condensed consolidated financial statements in this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to income (loss) from continuing operations before income taxes.

Ready-mixed Concrete

The following table sets forth key financial information for our ready-mixed concrete segment for the periods indicated:
 
 
(amounts in thousands, except selling prices and percentages)
 
 
Three months ended June 30,
 
Increase/ (Decrease)
 
Six months ended June 30,
 
Increase/ (Decrease)
 
 
2014
 
2013
 
%
 
2014
 
2013
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Segment:
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
164,175

 
$
143,299

 
14.6%
 
$
298,101

 
$
258,501

 
15.3%
Segment revenue as a percentage of total revenue
 
91.0%
 
91.0%
 
 
 
91.3%
 
91.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
23,269

 
$
18,033

 
29.0%
 
$
37,001

 
$
27,206

 
36.0%
Adjusted EBITDA as a percentage of segment revenue
 
14.2%
 
12.6%
 
 
 
12.4%
 
10.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 
 

 
 

 
 
 
 

 
 

 
 
Average selling price per cubic yard
 
$
110.27

 
$
102.71

 
7.4%
 
$
108.56

 
$
102.12

 
6.3%
Sales volume in thousands of cubic yards
 
1,486

 
1,390

 
6.9%
 
2,740

 
2,523

 
8.6%

Revenue. Our ready-mixed concrete sales provided 91.0% of our total revenue in each of the second quarters of 2014 and 2013. Segment revenue for the 2014 second quarter grew $20.9 million, or 14.6%, over the 2013 second quarter. This increase was driven by increases in both sales volume and average selling price. An increase of 6.9% in sales volume, or 0.1 million cubic yards, provided $9.8 million, or approximately 46.9%, of our ready-mixed concrete revenue growth for the 2014 second quarter. An increase of 7.4% in our ready-mixed concrete average selling price per cubic yard contributed $11.2 million, or 53.6%, of our segment revenue growth in the second quarter of 2014. Our sales volume was higher in all of our major markets, except for the California market, due to increased construction activity. Volume in our California market was down modestly during the 2014 second quarter as compared to the 2013 second quarter, however regional revenue rose due to increased average selling price. Our average selling price increased in all of our major markets.

For the first six months of 2014, our ready-mixed concrete sales provided 91.3% of our total revenue, compared to 91.4% in the first six months of 2013. Segment revenue for the 2014 first six months grew $39.6 million, or 15.3%, over the 2013 first six months. This increase was primarily driven by an 8.6% rise in sales volume, or 0.2 million cubic yards, as well as a 6.3% increase in average selling price. Higher volume provided $22.1 million, or approximately 55.8%, of our ready-mixed concrete revenue growth. Increased selling price contributed $17.6 million, or 44.4%, of our segment revenue growth in the first six months of 2014. Our sales volume was higher in all of our major markets, due to increased construction activity. Our average selling price rose in all of our major markets.


33

Adjusted EBITDA.  Adjusted EBITDA for our ready-mixed concrete segment rose to $23.3 million in the 2014 second quarter from $18.0 million in the 2013 second quarter, an increase of $5.2 million, or 29.0%. This increase was driven by a 6.9% rise in sales volume and a 7.4% increase in our average selling price, which grew total segment revenue by $20.9 million. Partially offsetting the higher revenue was the increased cost of goods sold associated with the higher volume of sales. Our variable costs, which include primarily material costs, labor and benefits costs, utilities, and delivery costs, were all higher due primarily to the increased volume. During the second quarter of 2014, we also saw increased raw materials prices from our vendors, which increased our cost of goods sold for the quarter. However, we were generally able to pass these price increases along to our customers. Our fixed costs, which consist primarily of equipment rental, plant management, property taxes, quality control, and dispatch costs, increased in the 2014 second quarter compared to the prior year second quarter, due to higher personnel and equipment costs needed to operate our facilities, as well as overall fixed costs to operate more locations and trucks than in the previous year. Segment Adjusted EBITDA as a percentage of segment revenue grew to 14.2% in the 2014 second quarter from 12.6% in the 2013 second quarter, reflecting primarily the higher revenue and improved efficiencies.

For the first six months of 2014, our ready-mixed concrete segment Adjusted EBITDA rose $9.8 million, or 36.0%, to $37.0 million from $27.2 million in the 2013 first six months. Sales volume, which rose by 8.6%, and average selling price, which increased by 6.3%, drove total segment revenue growth of $39.6 million. Partially offsetting the higher revenue was the increased cost of goods sold associated with the higher volume of sales. Our variable costs, as described above, were all higher due primarily to the increased volume. During the first six months of 2014, we also saw increased raw materials prices from our vendors, which increased our cost of goods sold for the period. However, we were generally able to pass these price increases along to our customers. Our fixed costs, as described above, increased in the 2014 first six months compared to the 2013 first months, due to higher personnel and equipment costs needed to operate our facilities, as well as overall fixed costs to operate more locations and trucks than in the previous year. Segment Adjusted EBITDA as a percentage of segment revenue rose to 12.4% in the 2014 first six months from 10.5% in the 2013 first six months, reflecting primarily the higher revenue and improved efficiencies.

Aggregate Products

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

 
 
(amounts in thousands, except selling prices and percentages)
 
 
Three months ended June 30,
 
Increase/ (Decrease)
 
Six months ended June 30,
 
Increase/ (Decrease)
 
 
2014
 
2013
 
%
 
2014
 
2013
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate Products Segment:
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
13,124

 
$
10,136

 
29.5%
 
$
21,369

 
$
16,656

 
28.3%
Segment revenue, excluding intersegment sales, as a percentage of total revenue
 
4.1%
 
3.5%
 
 
 
3.7%
 
3.1%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
3,266

 
$
2,127

 
53.5%
 
$
3,345

 
$
1,545

 
116.5%
Adjusted EBITDA as a percentage of segment revenue
 
24.9%
 
21.0%
 
 
 
15.7%
 
9.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aggregates Data:
 
 

 
 

 
 
 
 

 
 

 
 
       Average selling price per ton
 
$
9.63

 
$
8.97

 
7.3%
 
$
9.29

 
$
8.70

 
6.8%
       Sales volume in thousands of tons
 
1,151

 
952

 
20.9%
 
1,958

 
1,647

 
18.9%

Revenue.  Sales for our aggregate products segment, excluding intersegment sales of $5.8 million, provided 4.1% of our total revenue for the second quarter of 2014, compared to 3.5%, excluding intersegment sales of $4.6 million, in the comparable 2013 quarter. Segment revenue rose $3.0 million, or 29.5%, over prior year levels. We sell our aggregates to external customers and also sell them internally to our ready-mixed concrete segment at a market price. Approximately 44.2% of our second quarter 2014 aggregates sales were to our ready-mixed concrete segment, versus 45.8% in the 2013 second quarter. Our overall aggregates revenue growth was driven by an increase in our aggregates sales volume of 20.9% in the second quarter of 2014 as compared to the second quarter of 2013, contributing $1.8 million, or 60.0%, of our segment revenue growth for the quarter. Our average selling price, which rose 7.3% in the 2014 second quarter versus the 2013 second quarter, contributed $0.8 million, or 26.7%, of our aggregates revenue increase. In addition, freight charges to deliver the aggregates to the external customer, which are included in revenue, grew $0.4 million during the second quarter of 2014.

34


For the first six months of 2014, sales of our aggregate products, excluding intersegment sales of $9.4 million, provided 3.7% of our total revenue, compared to 3.1%, excluding intersegment sales of $8.0 million, in the 2013 first six months. Segment revenue grew $4.7 million, or 28.3%, over prior year levels. Of our first six months of 2014 aggregates sales, approximately 44.1% were to our ready-mixed segment, versus 47.8% in the 2013 first six months. An increase in our aggregates sales volume of 18.9% in the first six months of 2014 as compared to the first six months of 2013, contributed $2.7 million, or 57.4%, of our segment revenue growth for the 2014 first six months. An increase in our average selling price of 6.8% in the 2014 first six months, contributed $1.2 million, or 25.5%, of our aggregates revenue growth over the 2013 first six months. In addition, freight charges to deliver the aggregates to the external customer, rose $0.8 million during the first six months of 2014.

Adjusted EBITDA.  Adjusted EBITDA for our aggregates segment improved by $1.1 million to $3.3 million in the 2014 second quarter from $2.1 million in the 2013 second quarter, primarily as a result of higher revenue, partially offset by the related higher cost of goods sold. Our variable costs associated with cost of goods sold, including quarry labor and benefits, utilities, repairs and maintenance, and pit costs to prepare the stone and gravel for use, all increased primarily due to increased sales volume during the 2014 quarter. Our quarry fixed costs, which include primarily equipment rental, property taxes, and plant management costs, were modestly higher compared to the prior year quarter, primarily due to operating costs associated with an additional quarry that commenced production during the first quarter of 2014. Overall, our segment Adjusted EBITDA as a percentage of segment revenue rose to 24.9% in the 2014 second quarter from 21.0% in the 2013 second quarter, primarily due to the increase in revenue and improved efficiencies.

For the first six months of 2014, our aggregates segment Adjusted EBITDA grew to $3.3 million from $1.5 million in the 2013 first six months, an improvement of $1.8 million, primarily as a result of higher revenue, partially offset by the related higher cost of goods sold. Our variable costs associated with cost of goods sold, as described above, increased primarily due to increased sales volume during the 2014 first six months. Our quarry fixed costs, as described above, were modestly higher compared to the prior year first six months, primarily due to operating costs associated with an additional quarry that commenced production during the first quarter of 2014. Overall, our segment Adjusted EBITDA as a percentage of segment revenue rose to 15.7% in the 2014 first six months from 9.3% in the 2013 first six months, primarily due to higher revenues and improved efficiencies.

Off-Balance Sheet Arrangements
 
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. From time to time, we enter into noncancelable operating leases that are not reflected on our balance sheet.  At June 30, 2014, we had $11.3 million of undrawn letters of credit outstanding.  We are also contingently liable for performance under $10.3 million in performance bonds relating to our operations.

Inflation

We experienced minimal increases in operating costs during the first six months of 2014 related to inflation. However, in non-recessionary conditions, cement prices and certain other raw material prices, including aggregates, have generally risen faster than regional inflationary rates.  When these price increases have occurred, we have been able to partially mitigate our cost increases with price increases we obtained for our products.


35

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative instruments to hedge risks relating to our ongoing business operations or for speculative purposes.  However, we are required to account for our Warrants and the conversion feature of our Convertible Notes as derivative instruments.  As of August 3, 2013, the conversion feature of our Convertible Notes terminated. As a result, the Convertible Notes no longer contain an embedded derivative.

All derivatives are required to be recorded on the balance sheet at their fair values.  Each quarter, we determine the fair value of our derivative liabilities, and changes result in a gain or loss. The key inputs in determining fair value of our derivative liabilities of $24.1 million and $21.7 million at June 30, 2014 and December 31, 2013, respectively, include our stock price, stock price volatility, risk free interest rates and interest rates for conventional debt of similarly situated companies. Changes in these inputs will impact the valuation of our derivatives and result in gain or loss each quarterly period. A 5% increase in the stock price, volatility and risk free interest rates would increase the value of our warrant derivative liability by approximately $3.7 million, resulting in a loss in the same amount. A 5% decrease would result in a decrease in the warrant derivative liability of approximately $3.5 million, and a gain of the same amount. During the six months ended June 30, 2014, we recorded a non-cash loss from fair value changes in our warrants of approximately $2.4 million, due primarily to an increase in the price of our common stock.

Borrowings under our Revolving Facility expose us to certain market risks.  Interest on amounts drawn varies based on the floating rates under the 2013 Loan Agreement. As we had no outstanding borrowings under this facility as of June 30, 2014, a one percent change in the applicable rate would not change our annual interest expense.

Our operations are subject to factors affecting the overall strength of the U.S. economy and economic conditions impacting financial institutions, including the level of interest rates, availability of funds for construction and level of general construction activity.  A significant decrease in the level of general construction activity in any of our market areas has had and may continue to have a material adverse effect on our consolidated revenues and earnings.

Item 4.
Controls and Procedures

Disclosure Controls and Procedures

As of June 30, 2014, our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2014.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


36

PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
The information set forth under the heading “Legal Proceedings” in Note 16, “Commitments and Contingencies,” to our condensed consolidated financial statements included in Part I of this report is incorporated by reference into this Item 1.
 
Item 1A.
Risk Factors

There have been no material changes in our risk factors as previously disclosed in “Risk Factors” in Item 1A of Part I of the 2013 Form 10-K. Readers should carefully consider the factors discussed in “Risk Factors” in Item 1A of Part I of the 2013 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in the 2013 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information with respect to purchases by the Company of shares of our common stock during the three month period ended June 30, 2014:

Calendar Month
Total Number of
Shares
Acquired(1)
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(2)
 
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under Plans or
Programs(2)
April 1 - April 30, 2014
30,415

 
$
23.30

 
—

 
$
—

May 1 - May 31, 2014
200,000

 
24.12

 
200,000

 
45,176,000

June 1 - June 30, 2014
—

 
—

 
—

 
45,176,000

Total
230,415

 
$
24.01

 
200,000

 
$
45,176,000


(1)
The total number of shares purchased includes: (i) shares purchased pursuant to the share repurchase program described in footnote 2 below, and (ii) shares of our common stock acquired from employees who elected for us to make their required tax payments upon vesting of certain restricted shares by withholding a number of those vested shares having a value on the date of vesting equal to their tax obligations, totaling 30,415 shares for the month of April 2014 and no shares for the months of May and June 2014.
(2)
Our share repurchase program was approved by our Board on May 15, 2014 and allows us to repurchase up to $50.0 million of our common stock until the earlier of March 31, 2017 or a determination by the Board to discontinue the repurchase program. The repurchase program does not obligate us to acquire any specific number of shares.

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 Quarterly Report on Form 10-Q.


37

Item 6.
Exhibits
 
3.1*
—Amended and Restated Certificate of Incorporation of U.S. Concrete, Inc. (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
3.2*
—Third Amended and Restated By-Laws of U.S. Concrete, Inc. (incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
10.1*
—First Amendment to First Amended and Restated Loan Security Agreement, dated as of May 15, 2014 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 16, 2014).

31.1
—Certification of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2
—Certification of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1
—Certification pursuant to 18 U.S.C. Section 1350.
32.2
—Certification pursuant to 18 U.S.C. Section 1350.
95.1
—Mine Safety Disclosures.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
* Incorporated by reference to the filing indicated.



38

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
U.S. CONCRETE, INC.
 
 
 
 
 
 
 
Date:  August 8, 2014
By:
/s/ William M. Brown
 
 
 
 
William M. Brown
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer and Duly Authorized Officer)


39

INDEX TO EXHIBITS

3.1*
—Amended and Restated Certificate of Incorporation of U.S. Concrete, Inc. (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
3.2*
—Third Amended and Restated By-Laws of U.S. Concrete, Inc. (incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
10.1*
—First Amendment to First Amended and Restated Loan Security Agreement, dated as of May 15, 2014 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 16, 2014).
31.1
—Certification of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2
—Certification of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1
—Certification pursuant to 18 U.S.C. Section 1350.
32.2
—Certification pursuant to 18 U.S.C. Section 1350.
95.1
—Mine Safety Disclosures.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
* Incorporated by reference to the filing indicated.




40