The following discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements as well as our Annual Report on Form 10-K for the year endedDecember 31, 2020 ("2020 10-K"). Our 2020 10-K includes additional information about our significant and critical accounting policies, as well as a detailed discussion of the most significant risks associated with our financial condition and operating results. Unless noted otherwise, the discussions that follow refer to the three months endedJune 30, 2021 as "the quarter" and the six months endedJune 30, 2021 as "the first six months" and compare the results to the three months and six months endedJune 30, 2020 , respectively.
Pending Acquisition by Vulcan Materials Company
OnJune 6, 2021 , Vulcan Materials Company ("Vulcan"),Grizzly Merger Sub I, Inc. , a wholly owned subsidiary of Vulcan ("Grizzly Merger Sub") and the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides that, subject to the terms and conditions set forth therein, Grizzly Merger Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger and becoming a wholly owned subsidiary of Vulcan. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of USCR Stock (other than such shares (i) owned by the Company, Vulcan or Grizzly Merger Sub or owned by any wholly owned subsidiary of Vulcan (other than Grizzly Merger Sub) or of the Company or (ii) exercising dissenters rights in accordance with Section 262 of the General Corporation Law of theState of Delaware ) will be converted into the right to receive$74.00 in cash, without interest. The transaction has been unanimously approved by the boards of directors of both companies and is expected to close in the second half of 2021, subject to the receipt of required regulatory approvals, approval by our stockholders, and other customary closing conditions. If the Merger is consummated, USCR Stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended.
The Merger Agreement provides each of the Company and Vulcan with certain
termination rights and, under certain circumstances, may require the Company or
Vulcan to pay a
General
We are a leading heavy building materials supplier of aggregates and ready-mixed concrete in select geographic markets inthe United States , theU.S. Virgin Islands andCanada . The geographic markets for our products are generally local, except for our Canadian aggregate products operation,Polaris Materials Corp. ("Polaris"), which primarily serves markets inCalifornia . 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. 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. We conduct our business primarily through two reportable segments: ready-mixed concrete and aggregate products. Ready-mixed concrete. Our ready-mixed concrete segment (which represented 84.1% of our revenue for the six months endedJune 30, 2021 ) engages principally in the formulation, preparation and delivery of ready-mixed concrete to our customers' job sites. We provide ready-mixed concrete from our operations inTexas ,Northern California ,New York City ,New Jersey ,Washington, D.C. ,Philadelphia ,Oklahoma and theU.S. Virgin Islands . Ready-mixed concrete is a highly versatile construction material that results from combining coarse and fine aggregates, such as gravel, crushed stone and sand, with water, various chemical admixtures and cement. We also provide services intended to reduce our customers' overall construction costs by lowering the installed, or "in-place," cost of concrete. These services include the formulation of mixtures for specific design uses, on-site and lab-based product quality control and customized delivery programs to meet our customers' needs. 18 -------------------------------------------------------------------------------- Aggregate products. Our aggregate products segment (which represented 11.2% of our revenue for the six months endedJune 30, 2021 , excluding$29.3 million of intersegment sales) produces crushed stone, sand and gravel from our aggregates facilities located inBritish Columbia, Canada ;Texas ;Oklahoma ;New Jersey ;New York ; and theU.S. Virgin Islands . We sell these aggregates for use in commercial, industrial, and public works projects, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 6.3 million tons of aggregates during the six months endedJune 30, 2021 , withCanada representing 35%,Texas /Oklahoma representing 37%,New Jersey /New York representing 26%, and theU.S. Virgin Islands representing 2% of the total production. We believe our aggregate reserves provide us with additional raw materials sourcing flexibility and supply availability.
Coronavirus Impact
The coronavirus ("COVID-19") pandemic began to impact our operations inMarch 2020 when residents throughout theU.S. began varying periods under "stay-at-home" or "shelter-in-place" orders and has continued to impact numerous aspects of our business since then. We continue to follow the enhanced safety and health protocols established in 2020, while following evolving state and local guidelines, and we have maintained our focus on cost containment efforts to help minimize the resulting impact to our operating results. In addition, we continue to monitor the impact of the pandemic on our customers and our pipeline. The long-term impact to our business remains unknown because we are unable to accurately predict the impact of COVID-19 due to various uncertainties, including the severity of the virus, the duration of the outbreak, the impact of variants of the virus, the availability and efficacy of vaccines, the speed at which such vaccines are administered, the likelihood of a resurgence of positive cases, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences. Accordingly, business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, impact demand for our products and our workforce availability and magnify risks associated with our business and operations.
Acquisitions and Business Combinations
OnFebruary 24, 2020 , we acquired all of the equity ofCoram Materials Corp. and certain of its affiliates, a sand and gravel products provider located onLong Island inNew York . OnNovember 7, 2020 , we acquired a ready-mixed concrete business in ourWest Region . OnMarch 12, 2021 , we acquired property and the underlying royalty agreement associated with the Orca Quarry onVancouver Island ,British Columbia, Canada for$28.7 million (the "Orca Acquisition"). We made this investment to eliminate future royalty payments, which had previously been recognized in cost of goods sold excluding depreciation, depletion and amortization in our condensed consolidated statements of operations. OnApril 20, 2021 , we purchased a rail terminal and bulk storage facility for cementitious materials inStockton, California for$8.2 million that is currently leased to and operated by a third party (the "Stockton Acquisition"). We made this investment to increase the control and stability over our raw material supply chain to support ourWest Region ready-mixed concrete business. 19 --------------------------------------------------------------------------------
Results of Operations
The discussions that follow reflect results for the three and six months endedJune 30, 2021 ("quarter" and "first six months of 2021", respectively) compared to the three and six months endedJune 30, 2020 , respectively, unless otherwise noted. Three Months Ended Six Months Ended June 30, % June 30, % ($ in millions except selling prices) 2021 2020 Change(1) 2021 2020 Change(1) Revenue$ 327.4 $ 322.7 1.5%$ 613.1 $ 657.1 (6.7)% Cost of goods sold excluding depreciation, depletion and amortization 259.4 250.1 3.7 492.5 524.0 (6.0) Selling, general and administrative expenses 48.3 31.7 52.4 77.6 65.4 18.7 Depreciation, depletion and amortization 25.7 25.2 2.0 50.1 48.6 3.1 Change in value of contingent consideration - (5.8) 100.0 (0.1) (5.5) 98.2 Gain on sale/disposal of assets and business, net (0.1) (0.1) - (1.6) (0.1) (1,500.0) Operating income (loss) (5.9) 21.6 (127.3) (5.4) 24.7 (121.9) Interest expense, net 10.3 11.4 (9.6) 20.7 22.8 (9.2) Loss on extinguishment of debt 5.5 - NM 5.5 - NM Other income, net (0.5) (0.6) (16.7) (0.9) (1.2) 25.0 Income (loss) before income taxes (21.2) 10.8 (296.3) (30.7) 3.1 (1,090.3) Income tax expense (benefit) (0.7) 4.3 (116.3) (5.4) (0.6) (800.0) Net income (loss) (20.5) 6.5 (415.4) (25.3) 3.7 (783.8) Amounts attributable to non-controlling interest (0.2) (0.1) (100.0) (0.2) 0.2 (200.0) Net income (loss) attributable to U.S. Concrete$ (20.3) $ 6.6 (407.6)%$ (25.1) $ 3.5 (817.1)% Ready-Mixed Concrete Data: Average selling price ("ASP") per cubic yard$ 138.18 $ 137.18 0.7%$ 139.72 $ 140.77 (0.7)% Sales volume in thousand cubic yards 1,968 1,982 (0.7)% 3,672 4,003 (8.3)% Aggregate Products Data: ASP per ton(2)$ 13.50 $ 12.83 5.2%$ 13.42 $ 12.56 6.8% Sales volume in thousand tons 3,034 3,188 (4.8)% 5,620 5,820 (3.4)% (1) "NM" is defined as "not meaningful." (2) Our calculation of ASP excludes freight and certain other ancillary revenue and may differ from other companies in the construction materials industry. Revenue. Revenue for the quarter increased 1.5%, or$4.7 million , resulting from an increase in sales of ready-mixed concrete and other products that was partially offset by lower revenue from aggregate products. Our results were impacted by regional differences in weather and levels of construction activity, lingering effects of COVID-19 pandemic-related delays in construction jobs, and demand for our products. OurEast Region realized an increase in sales volume for the quarter, in both ready-mixed concrete and aggregate products. OurCentral Region was impacted by inclement weather and cement supply allocations, with a decline in ready-mixed concrete volumes, but a slight increase in sales of aggregate products. OurWest Region experienced declines in sales volumes of both ready-mixed concrete and aggregate products, with expectations for construction activity to increase in the second half of 2021. Our overall ready-mixed concrete ASP increased 0.7% during the quarter due to product and geographic mix. While sales volume of aggregate products for the quarter declined 4.8%, higher ASP helped mitigate the impact on revenue for the aggregate products segment. Higher sales volumes of aggregate products in ourEast Region in the quarter were more than offset by sales declines in other markets, particularly ourWest Region , which was impacted by lower demand from construction activity. 20 -------------------------------------------------------------------------------- Revenue for the first six months of 2021 decreased 6.7%. Impacted by both the regional effects of inclement weather and the lingering effect of COVID-19 pandemic-related delays on construction jobs, ready-mixed concrete volumes were down in all regions. In addition, our average ready-mixed concrete ASP was lower due to product and geographic mix. Power disruptions associated with Winter Storm Uri forced us to suspend operations inTexas temporarily inFebruary 2021 . Higher rain levels inTexas also negatively impacted construction activity in the first six months of 2021. Increases in our aggregate products segment ASP helped to mitigate the decline in sales volume of aggregates; however, pass through freight was lower in the first six months of 2021 due to the lower sales volume. Cost of goods sold excluding depreciation, depletion and amortization ("DD&A"). Cost of goods sold excluding DD&A increased for the quarter, with the majority resulting from higher variable costs (particularly plant costs and delivery costs, which include higher fuel costs) as well as higher fixed costs. Cost of goods sold excluding DD&A decreased for the first six months of 2021, but as a percentage of sales were not fully leveraged with the decline in revenue due to higher plant costs, particularly repair and maintenance costs, and fuel costs. Selling, general and administrative expenses. Selling, general and administrative expenses increased$16.6 million , or 52.4%, for the quarter, primarily due to a$12.2 million increase in stock-compensation expense and an increase in professional fees associated with the Merger, partially offset by lower personnel expenses. The increase in stock-based compensation expense was due to the increase in our stock price from the time the 2021 annual equity award was approved by our Board of Directors as ofMarch 1, 2021 to when our stockholders approved the equity plan amendment to add shares to the equity plan (and the award was deemed granted for accounting purposes) at our annual stockholders' meeting onMay 13, 2021 , including certain performance thresholds being met, and the award level. Selling, general and administrative expenses were higher in the first six months of 2021 due primarily to an$11.4 million increase in stock-based compensation expense and$4.4 million of incremental professional expenses, partially offset by lower expenses resulting from our cost saving initiatives. Change in value of contingent consideration. The non-cash gain on the revaluation of contingent consideration recorded during the second quarter and first six months of 2020 resulted from changes in management's expectations in 2020 EBITDA.
Gain on sale/disposal of assets and business, net. The first six months of 2021
included gains from sales of a non-core piece of real estate in
Income taxes. We recorded an income tax benefit of$0.7 million and$5.4 million for the three and six months endedJune 30, 2021 , respectively, using the discrete method. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to "ordinary" income or loss for the reporting period. However, for the three and six-month periods endedJune 30, 2021 , we determined that since minor changes in estimated "ordinary" income would result in significant changes in the estimated annual effective tax rate, our historical method would not provide a reliable estimate of income tax benefit. Our effective tax rate utilizing the discrete method differed substantially from the statutory tax rate primarily due to (1) significant Section 162(m) limitations on executive compensation and (2) our estimated interest expense limitation in accordance with the Tax Cuts and Jobs Act for which a full valuation allowance is anticipated. These differences reduced the income tax benefit recorded for the three and six months endedJune 30, 2021 , which was partially offset by excess tax benefits recognized for stock-based compensation. We recorded an income tax expense of$4.3 million and an income tax benefit of$0.6 million for the three and six months endedJune 30, 2020 , respectively. For the six months endedJune 30, 2020 , our effective tax rate differed substantially from the federal statutory rate primarily due to additional tax benefits recognized related to the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") enacted onMarch 27, 2020 . The CARES Act, among other things, modified the business interest deduction limitation for tax years beginning in 2019 and 2020 from 30% of adjusted taxable income ("ATI") to 50% of ATI. As a result, we recorded an additional tax benefit of$3.2 million in the six months endedJune 30, 2020 to reflect the CARES Act change to our estimated interest limitation for the year endedDecember 31, 2019 . This tax benefit was partially offset by a net tax shortfall for stock-based compensation. Other receivables, net, on our condensed consolidated balance sheets included federal and state income tax receivables of$18.7 million as ofJune 30, 2021 and$5.8 million as ofDecember 31, 2020 . 21 --------------------------------------------------------------------------------
Segment Operating Results
Our chief operating decision maker reviews operating results based on our two reportable segments, which are ready-mixed concrete and aggregate products, and evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our net income, excluding the impact of income taxes, depreciation, depletion and amortization, net interest expense and certain other non-cash, non-recurring and/or unusual, non-operating items including, but not limited to: non-cash stock compensation expense, non-cash change in value of contingent consideration, acquisition-related costs, officer transition expenses, purchase accounting adjustments for inventory and realignment initiative costs. Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions. Acquisition-related costs do not include fees or expenses associated with post-closing integration of strategic acquisitions. Many of the impacts excluded to derive Adjusted EBITDA are similar to those excluded in calculating our compliance with our debt covenants. We consider Adjusted EBITDA to be an indicator of the operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements. Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted inthe United States of America ("U.S. GAAP"), and is not a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies and may not be comparable to similarly titled measures used in agreements that govern our debt. See the prior discussion of revenue within this Item 2 as well as Note 10, "Segment Information" to our condensed consolidated financial statements in this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to net income.Ready-Mixed Concrete Three Months Ended Increase/ Six Months Ended Increase/ June 30, (Decrease) June 30, (Decrease) ($ in millions except selling prices) 2021 2020 % 2021 2020
%
Ready-Mixed Concrete Segment: Revenue$ 274.3 $ 272.4 0.7%$ 515.8 $ 564.6
(8.6)%
Segment revenue as a percentage of total revenue 83.8 % 84.4 % 84.1 % 85.9 % Adjusted EBITDA$ 30.9 $ 38.1 (18.9)%$ 55.8 $ 69.8 (20.1)% Adjusted EBITDA as a percentage of segment revenue 11.3 % 14.0 % 10.8 % 12.4 % Ready-Mixed Concrete Data: ASP per cubic yard(1)$ 138.18 $ 137.18 0.7%$ 139.72 $ 140.77 (0.7)% Sales volume in thousand cubic yards 1,968 1,982 (0.7)% 3,672 4,003 (8.3)%
(1) Calculation excludes certain ancillary revenue that is reported within the segment.
Adjusted EBITDA. Despite slightly higher revenue in the quarter, increases in plant costs and delivery costs, including fuel costs, resulted in a year-over-year contraction of segment Adjusted EBITDA. While overall costs for the first six months of 2021 were lower than the same period last year, plant and delivery costs as a percent of sales did not decrease at the same rate as revenue, resulting in lower Adjusted EBITDA as a percent of segment revenue year over year. 22 -------------------------------------------------------------------------------- Aggregate Products Three Months Ended Increase/ Six Months Ended Increase/ June 30, (Decrease) June 30, (Decrease) ($ in millions except selling prices) 2021 2020 % 2021 2020 % Aggregate Products Segment: Sales to external customers$ 25.2 $ 26.1 $ 47.8 $ 47.2 Freight revenue on sales to external customers 11.2 12.1$ 20.6 $ 22.1 Intersegment sales(1) 16.8 16.3$ 29.3 $ 28.8 Total aggregate products revenue$ 53.2 $ 54.5 (2.4)%$ 97.7 $ 98.1 (0.4)% Segment revenue, excluding intersegment sales, as a percentage of total revenue 11.1 % 11.8 % 11.2 % 10.5 % Adjusted EBITDA$ 20.1 $ 21.6 (6.9)%$ 32.6 $ 32.9 (0.9)% Adjusted EBITDA as a percentage of total aggregate products revenue 37.8 % 39.6 % 33.4 % 33.5 % Aggregate Products Data: ASP per ton(2)$ 13.50 $ 12.83 5.2%$ 13.42 $ 12.56 6.8% Sales volume in thousand tons 3,034 3,188 (4.8)% 5,620 5,820 (3.4)% (1) We sell aggregate products to our ready-mixed concrete segment at market price. (2) Our calculation excludes freight and certain other ancillary revenue. Our definition and calculation of ASP may differ from other companies in the construction materials industry. Adjusted EBITDA. For the quarter, segment Adjusted EBITDA as a percent of segment revenue declined 180 basis points, while revenue declined 2.4%. The impact of lower revenue on Adjusted EBITDA was mitigated by the build-up of inventory to provide product for future construction activity. For the first six months of 2021, Adjusted EBITDA as a percent of revenue declined 10 basis points while revenue declined 40 basis points. An increase in average ASP for the first six months of 2021 mitigated the impact on revenue from lower sales volumes, and delivery costs were lower, as fewer ships were needed in ourWest Region to meet the lower customer demand.
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents, and access to our asset-based revolving credit facility, which provides for borrowings of up to$300.0 million , subject to a borrowing base. As ofJune 30, 2021 , we had$20.9 million of cash and cash equivalents and$214.7 million of available borrowing capacity under the Revolving Facility (as defined below), providing total available liquidity of$235.6 million . The following key financial measurements reflect certain aspects of our financial condition: ($ in millions) June 30, 2021 December 31, 2020 Cash and cash equivalents $ 20.9 $ 11.1 Working capital$ 100.4 $ 56.3 Total debt$ 789.1 $ 702.4 Our primary liquidity needs over the next 12 months consist of (1) working capital requirements; (2) debt service obligations; (3) capital expenditures; and (4) payments related to strategic activity. Our primary portfolio strategy includes acquisitions in various regions and markets. 23 -------------------------------------------------------------------------------- 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 Revolving Facility is governed by a borrowing base primarily determined by our eligible accounts receivable, inventory, mixer trucks and machinery. Our borrowing base also typically declines during the first quarter due to lower accounts receivable balances as a result of normal seasonality of our business caused by winter weather. The projection of our cash needs is based upon many factors, including without limitation, our expected volume, pricing, cost of materials and capital expenditures. Based on our projected cash needs, we believe that cash on hand, availability under the Revolving Facility, and cash generated from operations will provide us with sufficient liquidity in the ordinary course of business, not including potential acquisitions. To help mitigate the impact of the COVID-19 pandemic on our cash needs, we initiated business contingency planning and will continue to adjust those plans as needed. If, however, availability under the Revolving Facility, cash on hand and our operating cash flows are not adequate to fund our operations, we would need to obtain other equity or debt financing or sell assets to provide additional liquidity. The principal factors that could adversely affect the amount of our internally generated funds include: •deterioration of revenue, due to lower volume and/or pricing, because of weakness in the markets in which we operate or due to COVID-19 operating restrictions; •declines in gross margins due to shifts in our product mix, increases in fixed or variable costs or the impact of COVID-19; •any deterioration in our ability to collect our accounts receivable from customers as a result of weakening in construction demand or payment difficulties experienced by our customers, including from COVID-19; •any further COVID-19 impacts to our business; and •inclement weather beyond normal patterns that could reduce our sales volumes. Cash Flows Six Months Ended June 30, ($ in millions) 2021 2020 Net cash provided by (used in): Operating activities$ 4.4 $ 84.1 Investing activities (43.2) (154.1) Financing activities 48.7 46.9 Effect of exchange rates on cash and cash equivalents (0.1) - Net increase (decrease) in cash and cash equivalents$ 9.8 $ (23.1) Our net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss, including non-controlling interest. Overall, the decline in cash generated from operations was driven primarily by the timing impacts of certain vendor payments, inclement weather and COVID-19 on our operations, and higher payments of incentive compensation. In addition to purchases of machinery, equipment, mixer trucks and vehicles to service our business in both periods, investing activities in the six months endedJune 30, 2021 included the$28.7 million Orca Acquisition and the$8.2 million Stockton Acquisition. Investing activities in the six months endedJune 30, 2020 included$140.2 million for the acquisition of a sand and gravel products producer onLong Island inNew York .
For the year ending
24 -------------------------------------------------------------------------------- Financing activities during the six months endedJune 30, 2021 included$296.2 million of net proceeds from our Term Loans issuance, redemption of$200.0 million of our 2024 Notes including a$3.2 million redemption premium (see discussion below),$3.0 million of net repayments under our Revolving Facility (as defined below) to operate our business and fund acquisitions and investments in property, plant and equipment. During the six months endedJune 30, 2021 , we made payments of$17.6 million primarily related to our finance leases and promissory notes and paid$8.2 million for contingent and deferred consideration obligations. Financing activities during the first six months of 2020 included$56.5 million of net borrowings under our Revolving Facility and$14.5 million of financing proceeds primarily for ourTexas greenfield aggregates operation. In addition, during the first six months of 2020, we made payments of$10.8 million primarily related to our finance leases and promissory notes and paid$9.9 million for contingent and deferred consideration obligations. Cash provided by financing activities in the first six months of 2020 benefited from the deferral of$8.4 million of promissory note and finance lease payments that were deferred to mitigate the cash flow impact from the COVID-19 pandemic.
The discussion that follows provides a description of our arrangements relating to our outstanding indebtedness.
Asset Based Revolving Credit Facility ("Revolving Facility")
We have a Revolving Facility with certain financial institutions named therein as lenders andBank of America, N.A ., as agent for the lenders that provides for up to$300.0 million of revolving borrowings. The Revolving Facility also permits the incurrence of other secured indebtedness not to exceed certain amounts. The Revolving Facility provides for swingline loans up to a$15.0 million sublimit and letters of credit up to a$50.0 million sublimit. Loans under the Revolving Facility are in the form of either base rate loans or the London Interbank Offered Rate ("LIBOR") loans denominated inU.S. dollars. OnJune 25, 2021 , we and certain of our subsidiaries, as co-borrowers and as guarantors, entered into the Fourth Amended and Restated Loan Security Agreement (the "Fourth Loan Agreement"), which amended and restated the Third Amended and Restated Loan and Security Agreement, dated as ofAugust 31, 2017 (the "Third Loan Agreement"). Among other things, the Fourth Loan Agreement extended the maturity date toJune 25, 2026 and amended certain terms of the Third Loan Agreement, including, without limitation, permitting the incurrence of the loans under the Term Loan Agreement (as defined below). In connection with entering into the Fourth Loan Agreement, we incurred$1.5 million of debt issuance costs. The obligations under the Fourth Loan Agreement are secured by first priority security interests in accounts receivable, inventory and certain other personal property of the Company and its subsidiaries (the "ABL Collateral") and second priority liens on and security interests in certain real property of the Company's subsidiaries and certain personal property of the Company and its subsidiary guarantors that is not ABL Collateral (the "Term Loan Collateral"). Our actual maximum credit availability under the Revolving Facility varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves imposed by the Lenders and other adjustments, as specified in the Fourth Loan Agreement. Our availability under the Revolving Facility atJune 30, 2021 was$214.7 million . The Fourth Loan Agreement contains usual and customary covenants including, but not limited to, restrictions on our, our co-borrower subsidiaries', and our guarantor subsidiaries' ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise transfer any of our assets; create or incur indebtedness; create liens; pay dividends or make other distributions; make loans; prepay certain indebtedness; and make investments or acquisitions. The covenants are subject to certain exceptions as specified in the Fourth Loan Agreement. The Fourth 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 ofJune 30, 2021 , we were in compliance with all covenants under the Fourth Loan Agreement. 25 --------------------------------------------------------------------------------
Term Loans
OnJune 25, 2021 , we entered into a secured term loan agreement (the "Term Loan Agreement") with certain subsidiaries, as guarantors,JPMorgan Chase Bank, N.A ., as administrative agent and collateral agent, and the lenders and other named parties. The Term Loan Agreement provides for$300.0 million in aggregate principal amount of term loans (the "Term Loans"), which will mature onJune 25, 2028 . In connection with entering into the Term Loan Agreement, we incurred$4.6 million of debt issuance costs. Proceeds of the Term Loans will be used for general corporate purposes, including repayment of certain borrowings under the Fourth Loan Agreement and redemption of the Company's 6.375% senior unsecured notes due 2024 (the "2024 Notes"), as further discussed below. The Term Loans bear interest at the Company's option of either: (1) the LIBOR (subject to a floor of 0.50%) plus a margin of 2.75% or (2) a base rate (which is equal to the greatest of prime rate, theFederal Reserve Bank of New York effective rate plus 0.50% and LIBOR plus 1.00%, and is subject to a floor of 1.50%) plus a margin of 1.75%. Additionally, the Term Loans were issued at a price of 99.75%. The Term Loans are secured by a first priority lien on and security interest in the Term Loan Collateral and a second priority security interest in the ABL Collateral. The Term Loan Agreement contains customary representations, warranties, covenants and events of default, but does not contain any financial maintenance covenants.
Termination of Delayed Draw Term Loan Facility
OnJune 25, 2021 , in connection with entering into the Term Loan Agreement, we terminated the Credit and Guaranty Agreement, dated as ofApril 1, 2020 , among the Company, certain subsidiaries as guarantors,Bank of America, N.A ., as administrative agent and collateral agent, the lenders and other parties named therein (the "Delayed Draw Term Loan Agreement"). There were no outstanding borrowings under the Delayed Draw Term Loan at the time of termination. The Delayed Draw Term Loan was secured by a first priority lien on and security interest in the Term Loan Collateral. During the three months endedJune 30, 2021 , we incurred a$2.3 million pre-tax loss on the Delayed Draw Term Loan termination due to write-off of unamortized debt issuance costs.
Redemption of 2024 Notes
OnJune 26, 2021 , we redeemed all of the$200.0 million outstanding 2024 Notes, at a price of 101.594% of the principal amount plus accrued, unpaid interest. During the three months endedJune 30, 2021 , we incurred a$3.1 million pre-tax loss on this redemption, which included the redemption premium of$3.2 million and a$1.4 million write-off of unamortized debt issuance costs, net of$1.5 million of unamortized issuance premium.
Senior Unsecured Notes
At
The 2029 Notes are governed by the Indenture dated as ofSeptember 23, 2020 , amongU.S. Concrete, Inc. (the "Issuer"), the subsidiary guarantors party thereto andU.S. Bank National Association , as trustee (the "2029 Indenture"). The 2029 Indenture contains customary covenants, including negative covenants that restrict our ability and our restricted subsidiaries ability to engage in certain transactions. The 2029 Notes accrue interest at a rate of 5.125% per annum, which is payable onMarch 1 andSeptember 1 of each year. The 2029 Notes mature onMarch 1, 2029 and are redeemable at our option prior to maturity at prices specified in the 2029 Indenture. The 2029 Notes are guaranteed on a full and unconditional senior unsecured basis by each of the Issuer's restricted subsidiaries (each, a "Guarantor Subsidiary," and collectively, the "Guarantor Subsidiaries") that guarantee any obligations under the Revolving Facility and certain of the Issuer's other indebtedness or certain indebtedness of the Issuer's restricted subsidiaries (other than a foreign subsidiary or domestic subsidiary thereof that guarantees only indebtedness incurred by a foreign subsidiary or a domestic subsidiary thereof). Each Guarantor Subsidiary is directly or indirectly 100% owned by the Issuer. The guarantees are joint and several. The Issuer does not have any independent assets or operations. There are no significant restrictions in the 2029 Indenture on the ability of the Guarantor Subsidiaries to make distributions to the Issuer. The 2029 Notes are not guaranteed by any of the Issuer's direct or indirect foreign subsidiaries (or any domestic subsidiaries of any such foreign subsidiaries),U.S. Virgin Islands subsidiaries or domestic subsidiaries that are not wholly owned (collectively, the "Non-Guarantor Subsidiaries"). 26 -------------------------------------------------------------------------------- The 2029 Notes and the guarantees thereof are effectively subordinated to all of the Issuer's and the Guarantor Subsidiaries' existing and future secured obligations, including obligations under the Revolving Facility, the Term Loans, our finance leases and our promissory notes, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and the Guarantor Subsidiaries' future subordinated indebtedness; pari passu in right of payment with any of our and the Guarantor Subsidiaries' existing and future senior indebtedness, including the Issuer's and the Guarantor Subsidiaries' obligations under the Revolving Facility, the Term Loans and our finance leases; and structurally subordinated to all existing and future indebtedness and other claims and liabilities, including trade payables and preferred stock, of any Non-Guarantor Subsidiaries.
Other Debt
We have financing agreements with various lenders primarily for the purchase of mixer trucks and other machinery and equipment with$95.8 million of remaining principal as ofJune 30, 2021 .
For additional information regarding our arrangements relating to outstanding indebtedness, see the information set forth in Note 5, "Debt" to our condensed consolidated financial statements included in this report.
Inflation
We experienced minimal increases in operating costs during the second quarter of 2021 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 generally been able to mitigate the cost increases with price increases we obtain for selling our products. Cement supply inTexas has been disrupted by temporary closures of certain cement producers' plants. As a result, our cement supply has been constrained, and cement prices began to rise inMarch 2021 . We implemented price increases inApril 2021 and will continue to do so as needed to help mitigate the impact of these increases.
Critical Accounting Policies
We prepared the preceding discussion based on the accompanying interim unaudited condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP. Such preparation of financial statements requires the use of estimates and assumptions by management 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. Estimates are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates. We described our critical accounting policies in Item 7 of Part II of our 2020 10-K. Our critical accounting policies involve the use of estimates in the recording of business combinations, goodwill and intangible assets and any related impairment, accruals for self-insurance, accruals for income taxes, and assessing impairment of long-lived assets. See Note 1, "Organization and Summary of Significant Accounting Policies" to our condensed consolidated financial statements included in Item 8 of Part II of the 2020 10-K for a discussion of our critical and significant accounting policies. 27 -------------------------------------------------------------------------------- CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Certain statements and information in this report 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," "intend," "should," "expect," "plan," "target," "anticipate," "believe," "estimate," "outlook," "predict," "potential," or "continue," the negative of such terms or other comparable terminology. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All discussions 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:
•the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement; •the inability to obtain the requisite shareholder approval for the proposed Merger or the failure to satisfy other conditions to completion of the proposed Merger, including the receipt of regulatory approvals; •risks that the proposed Merger disrupts our current plans and operations; •the amount of the costs, fees, and expenses and charges related to the Merger; •the results of litigation related to the Merger; •the expected timing and anticipated closing of the Merger, •general economic and business conditions, which will, among other things, affect demand for commercial and residential construction; •our ability to successfully implement our operating strategy; •our ability to successfully identify, manage, and integrate acquisitions; •governmental requirements and initiatives, including those related to mortgage lending, financing or deductions, funding for public or infrastructure construction, land usage, and environmental, health, and safety matters; •seasonal and inclement weather conditions, which impede the placement of ready-mixed concrete; •the cyclical nature of, and changes in, the real estate and construction markets, including pricing changes by our competitors; •our ability to maintain favorable relationships with third parties who supply us with equipment and essential supplies; •our ability to retain key personnel and maintain satisfactory labor relations; •disruptions, uncertainties or volatility in the credit markets that may limit our, our suppliers' and our customers' access to capital; •product liability, property damage, results of litigation and other claims and insurance coverage issues; •our substantial indebtedness and the restrictions imposed on us by the terms of our indebtedness; •the effects of currency fluctuations on our results of operations and financial condition; •the length and severity of the COVID-19 pandemic; •the pace of recovery following the COVID-19 pandemic; •our ability to implement cost containment strategies; and •the adverse effects of the COVID-19 pandemic on our business, the economy and the markets we serve. 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 2020 10-K and "Risk Factors" in Item 1A of Part II of our subsequent quarterly reports on Form 10-Q. 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. 28
--------------------------------------------------------------------------------
© Edgar Online, source