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| | According to the Texas Department of Transportation (“TXDOT”) total annual funding available for transportation infrastructure, including state and federal funding, is estimated to be approximately $13.9 billion in fiscal year 2019 (which commenced September 1, 2018), increasing to $14.3 billion by fiscal year 2020. Further, the 2019 Unified Transportation Program (“UTP”) plans for $75 billion to fund transportation projects from 2019 through 2028, which is up from the 2018 UTP of $71 billion and more than double the previous UTP, Proposition 1 and Proposition 7 funding initiatives. The funding available in any given year is separate and distinct from lettings, or the process of providing notice, issuing proposals, receiving proposals, and awarding contracts. In January 2019, the TXDOT updated its fiscal year 2019 statewide lettings estimate to $7.4 billion from $6.4 billion as of October 2018 and $5.7 billion in fiscal 2018, which provides for more than 900 transportation projects. Longer-term, TXDOT has indicated a target of $8 billion per year in total state and local lettings.
| | ◦ | In February 2018, the federal government approved a two-year budget agreement. Included within this package was approximately $89 billion in relief funding related to a series of natural disasters, including Hurricane Harvey, which impacted our Houston market in the second half of calendar 2017. We believe that significant federal funding stemming from the $89 billion relief package may result in the construction of new water and transportation infrastructure includingin the Houston market over the next few years. Further, an omnibus appropriation was approved in March 2018. This bill provides approximately $2.0 billion in new funding for highway, bridge and tunnel obligations at the state andlevel. We believe that this federal funding is estimated tomay be approximately $10.3 billionutilized by state departments of transportation between March 2018 and September 2021 on the condition that the states provide some degree of matching funding, as set forth in fiscal year 2018 (commencing September 1, 2017), increasing to $14.3 billion by fiscal year 2020. Texas’ Unified Transportation Program plans for $70 billon to fund transportation projects from 2017 through 2026.the omnibus appropriation bill. |
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| ◦ | | In November 2014, Texas voters approved a ballot measure known as Proposition 1, which authorized a portion of the severance taxes on oil and natural gas to be redirected to the State Highway Fund each year. As of November 2017, TXDOT anticipates that funding from Proposition 1 for fiscal year 2018 will be in excess of $550 million, increasing to more than $800 million by fiscal year 2020.
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| | In November 2015, Texas voters approved the ballot measure known as Proposition 7, authorizing a constitutional amendment for transportation funding. The amendment dedicates a portion of the state’s general sales and use taxes and motor vehicle sales and rental taxes to the State Highway Fund for use on non-tolled projects. Beginning in September 2017 (fiscal year 2018), if general state sales and use tax revenue exceeds $28 billion in a fiscal year, the next $2.5 billion will be directed to the State Highway Fund. Additionally, beginning in September 2019 (fiscal year 2020), if state motor vehicle sales and rental tax revenue exceeds $5 billion in a fiscal year, 35% of the amount above $5 billion will be directed to the State Highway Fund. AsIn fiscal year 2018 sales tax revenue exceeded $30.5 billion, and as such, fiscal year 2019 will be the first year that the full Proposition 7 funding, $2.5 billion, is transferred to TXDOT. |
| | ◦ | In November 2014, Texas voters approved a ballot measure known as Proposition 1, which authorized a portion of November 2017,the severance taxes on oil and natural gas to be redirected to the State Highway Fund each year. In September 2018, TXDOT announced that it anticipated that funding from Proposition 71 for fiscal year 2019 would be approximately $2.9$1.37 billion, dollars, increasing to more than $4.7 billion byup from $734 million received in fiscal year 2020.2018. |
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| | Utah’s transportation investment fund has $2.3 billion programmed for 2017 through 2022. In early 2017, Utah’s governor signed into law a measure to allow the state to issue up to $1 billion in highway general obligation bonds to accelerate funding for a number of projects that the Utah Transportation Commission already approved.
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| | Kansas has a 10‑year $8.2 billion highway bill that was passed in May 2010. Kansas public spending in 2018 is expected to approximate 2017 levels, and may decrease below those levels in 2019 given austerity measures put into effect under the most recent gubernatorial administration.
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Utah’s transportation investment fund has $2.3 billion programmed for 2017 through 2022. In early 2017, Utah’s governor signed into law a measure to allow the state to issue up to $1 billion in highway general obligation bonds to accelerate funding for several projects that the Utah Transportation Commission already approved. Kansas has a 10‑year $8.2 billion highway bill that was passed in May 2010. Kansas’ fiscal year 2019 transportation budget is slightly above the fiscal year 2018 budget, which was below the fiscal year 2017 budget, given austerity measures put into effect under the most recent gubernatorial administration. In May 2018, a legislative task force was convened to evaluate the current transportation system’s condition and funding of the state’s transportation system. The task force released its formal report in January 2019, concluding that it is imperative that the State of Kansas provides consistent, stable funding in order to maintain a quality transportation system; highlighting the negative impacts of $2.1 billion in transfers out of the State Highway Fund since 2011; and recommending that the state legislature review | ·
| | Missouri’s Statewide Transportation Improved Program for 2017 through 2021 states that $4.0 billion is available for awards for highway and bridge construction.
| new potential sources of additional funding, including increasing registration fees, motor fuels taxes and fees for oversize vehicles and implementing new fees specific to alternative-fuel vehicles.Missouri’s 2019 Statewide Transportation Improvement Program (“STIP”) increased funding for highway and bridge construction to $4.5 billion through 2023 from $4.2 billion in the prior STIP.
The table below sets forth additional details regarding our four key states, including growth rates as compared to the U.S. as a whole: | | | | | | | | | | | | | | | | Projected Industry Growth by End Market | | | | | | Revenue by End Market(1) | | 2018 to 2020(2) | | | | Percentage of | | Residential and | | | | | | | | Our Total | | Nonresidential | | Residential | | Nonresidential | | State | | Revenue | | Construction | | Construction | | Construction | | Texas | | 21 | % | 59 | % | 4.0 | % | 6.7 | % | Utah | | 13 | % | 92 | % | 6.5 | % | 17.5 | % | Kansas | | 12 | % | 52 | % | 8.3 | % | 5.2 | % | Missouri | | 9 | % | 73 | % | 11.6 | % | 8.1 | % | Weighted average(3) | | | | | | 6.8 | % | 9.2 | % | United States(2) | | | | | | 9.1 | % | 5.5 | % |
| | | | | | | | | | | | | | | | | | | | Projected Industry Growth by End Market | | | | | Revenue by End Market(1) | | 2019 to 2021(2) | | | Percentage of | | Residential and | | | | | | | Our Total | | Nonresidential | | Residential | | Nonresidential | State | | Revenue | | Construction | | Construction | | Construction | Texas | | 23 | % | | 68 | % | | 0.7 | % | | 1.5 | % | Utah | | 13 | % | | 78 | % | | 0.3 | % | | 12.1 | % | Kansas | | 12 | % | | 52 | % | | 4.6 | % | | (6.1 | )% | Missouri | | 8 | % | | 71 | % | | 1.1 | % | | (1.9 | )% | Weighted average(3) | | | | | | 1.5 | % | | 1.9 | % | United States(2) | | | | | | 2.3 | % | | 2.3 | % |
______________________ | | (1) | | Percentages based on our revenue by state for the year ended December 30, 201729, 2018 and management’s estimates as to end markets. |
| | (3) | | Calculated using a weighted average based on each state’s percentage contribution to our total revenue. |
Use and consumption of our products fluctuate due to seasonality. Nearly all of the products used by us, and by our customers, in the private construction and public infrastructure industries are used outdoors. Our highway operations and production and distribution facilities are also located outdoors. Therefore, seasonal changes and other weather-related conditions, in particular extended rainy and cold weather in the spring and fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect our business and operations through a decline in both the use of our products and demand for our services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters.
Our acquisition strategy has historically required us to raise capital through equity issuances or debt financings. As of December 30, 2017 and December 31, 2016, our long-term borrowings, including the current portion, totaled $1.8 billion and $1.5 billion. In addition, our cash flows provided by operating activities was $292.2 million in the yearFinancial Highlights— Year ended December 30, 2017. Our senior secured revolving credit facility, which has maximum availability of $235.0 million, of which $218.9 million is currently available to us after deducting $16.1 million of outstanding letters of credit has been adequate to fund our seasonal working capital needs and certain acquisitions29, 2018. We had no outstanding borrowings on the revolving credit facility as of December 30, 2017.Financial Highlights—Year Ended December 30, 2017
The principal factors in evaluating our financial condition and operating results for the year ended December 30,29, 2018 are:
Net revenue increased $156.8 million in 2018 as compared to 2017, are: | ·
| | Net revenue increased $264.1 million in 2017, as a result of pricing and volume increases across our product lines, which includes contributions from our acquisitions.
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| | Our operating income increased $66.2 million in 2017, primarily due to increases in net revenue from acquisitions, and to a lesser extent, organic growth, partially offset by increases in the related costs of revenue. Our general and administrative expenses in 2017 are lower than the comparable periods in 2016. Our 2016 results included $37.3 million of stock-based compensation charges related to the modification of LP Units and stock options that had been granted prior to our IPO. Excluding those one time equity modification expenses, our general and administrative expenses are essentially flat as a percentage of net revenue.
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| | We paid $374.9 million in cash for 14 acquisitions, net of cash acquired.
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primarily resulting from contributions from our acquisitions, offset by the impact of less favorable weather conditions in 2018. | ·
| | In June 2017, we issued $300.0 million of 51/8% senior notes due June 1, 2025 (the “2025 Notes”), resulting in proceeds of $295.4 million, net of related fees and expenses.
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| | In January 2017, we raised $237.6 million, net of underwriting discounts, through the issuance of 10,000,000 shares of Class A common stock at a public offering price of $24.05 per share.
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| | For the year ended December 30, 2017, we recorded an income tax benefit of $284.0 million, primarily due to a $532.0 million reduction of our valuation allowance against our deferred tax assets during 2017, offset by a reduction in the carrying value of our deferred tax assets of $235.2 million in the fourth quarter of 2017 as a result of Tax Cuts and Jobs Act of 2017 (the “TCJA”).
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| | As those deferred tax assets referred to above were also subject to our TRA, we recorded TRA expense of $271.0 million of which $501.8 million was in the third quarter of 2017 when we released our valuation allowance, offset by a reduction in the fourth quarter of 2017 in our estimated TRA liability of $216.9 million primarily due to the reduced federal corporate tax rate.
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Acquisitions
In addition torevenue, as well as higher levels of depreciation and amortization in 2018 resulting from our organic growth, we continued to growacquisitions. Further, our business through acquisitions, completing a total of 14 acquisitionsgeneral and administrative expenses in 2018 were higher than in 2017 due to the acquisitions which occurred during late 2017 and 2018, as well as increased stock-based compensation charges in 2018.
We paid $246.0 million in cash for 12 acquisitions, net of which sixcash acquired. Five of these acquisitions were in the West segment and eightseven were in the East segment.
In September 2018, we sold a non-core business in the West segment, resulting in cash proceeds of $21.6 million and a total gain on the disposition of the business of $12.1 million.
Components of Operating Results We derive our revenue predominantly by selling construction materials and products and providing paving and related services. Construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related services that we provide are primarily asphalt paving services. Revenue derived from the sale of construction materials are recognized when risks associated with ownership have passed to unaffiliated customers. Typically this occurs when products are shipped. Product revenue generally includes sales of aggregates, cement and related downstream products and other materials to customers, net of discounts or allowances and taxes, if any. Revenue derived from paving and related services are recognized on the percentage-of-completion basis, measured by the cost incurred to date compared to estimated total cost of each project. This method is used because management considers cost incurred to be the best available measure of progress on these contracts. Due to the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change over the life of the contract. Operating Costs and Expenses The key components of our operating costs and expenses consist of the following: Cost of Revenue (excluding items shown separately) Cost of revenue consists of all production and delivery costs and primarily includes labor, repair and maintenance, utilities, raw materials, fuel, transportation, subcontractor costs, royalties and other direct costs incurred in the production and delivery of our products and services. Our cost of revenue is directly affected by fluctuations in commodity energy prices, primarily diesel fuel, liquid asphalt and other petroleum-based resources. As a result, our operating profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue. We attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when appropriate. In addition, we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs. These provisions are in place for most of our public infrastructure contracts, and we seek to include similar price adjustment provisions in our private contracts. General and Administrative Expenses General and administrative expenses consist primarily of salaries and personnel costs, including stock-based compensation charges, for our sales and marketing, administration, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, rental costs, property taxes and other corporate and overhead expenses. Depreciation, Depletion, Amortization and Accretion Our business is capital intensive. We carry property, plant and equipment on our balance sheet at cost, net of applicable depreciation, depletion and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset. The general range of depreciable lives by category, excluding mineral reserves, which are depleted based on the units of production method on a site-by-site basis, is as follows:
| | | | | | | | Buildings and improvements | | 10 - 30 | years | Plant, machinery and equipment | | 15 - 20 | years | Office equipment | | 3 - 7 | years | Truck and auto fleet | | 5 - 8 | years | Mobile equipment and barges | | 6 - 8 | years | Landfill airspace and improvements | | 10 - 30 | years | Other | | 4 - 20 | years |
Amortization expense is the periodic expense related to leasehold improvements and intangible assets. The intangible assets were recognized with certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. Accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method. Transaction costs consist primarily of third party accounting, legal, valuation and financial advisory fees incurred in connection with acquisitions. The following discussion of our results of operations is focused on the key financial measures we use to evaluate the performance of our business from both a consolidated and operating segment perspective. Operating income and margins are discussed in terms of changes in volume, pricing and mix of revenue source (i.e., type of product sales or service revenue). We focus on operating margin, which we define as operating income as a percentage of net revenue, as a key metric when assessing the performance of the business, as we believe that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining costs in isolation. Operating income (loss) reflects our profit from continuing operations after taking into consideration cost of revenue, general and administrative expenses, depreciation, depletion, amortization and accretion and transaction costs. Cost of revenue generally increases ratably with revenue, as labor, transportation costs and subcontractor costs are recorded in cost of revenue. As a result of our revenue growth occurring primarily through acquisitions, general and administrative expenses and depreciation, depletion, amortization and accretion have historically grown ratably with revenue. However, as organic volumes increase, we expect these costs, as a percentage of revenue, to decrease. General and administrative expenses as a percentage of revenue vary throughout the year due to the seasonality of our business. Our transaction costs fluctuate with the level acquisition activity each year. The table below includes revenue and operating income (loss) by segment for the periods indicated. Operating income (loss) by segment is computed as earnings before interest, taxes and other income / expense. | | | | | | | | | | | | | | | | | | | | | Year ended | | | December 30, 2017 | | December 31, 2016 | | January 2, 2016 | | | | | Operating | | | | Operating | | | | Operating | (in thousands) | | Revenue | | income (loss) | | Revenue | | income (loss) | | Revenue | | income (loss) | West | | $ | 998,843 | | $ | 130,334 | | $ | 813,682 | | $ | 100,659 | | $ | 804,503 | | $ | 96,498 | East | | | 629,919 | | | 67,739 | | | 531,294 | | | 65,424 | | | 432,310 | | | 49,445 | Cement | | | 303,813 | | | 89,360 | | | 281,087 | | | 82,521 | | | 195,484 | | | 64,950 | Corporate (1) | | | — | | | (66,556) | | | — | | | (93,942) | | | — | | | (75,869) | Total | | $ | 1,932,575 | | $ | 220,877 | | $ | 1,626,063 | | $ | 154,662 | | $ | 1,432,297 | | $ | 135,024 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended | | | December 29, 2018 | | December 30, 2017 | | December 31, 2016 | | | | | Operating | | | | Operating | | | | Operating | (in thousands) | | Revenue | | income (loss) | | Revenue | | income (loss) | | Revenue | | income (loss) | West | | $ | 1,117,066 |
| | $ | 92,068 |
| | $ | 998,843 |
| | $ | 130,334 |
| | $ | 813,682 |
| | $ | 100,659 |
| East | | 703,147 |
| | 59,554 |
| | 629,919 |
| | 67,739 |
| | 531,294 |
| | 65,424 |
| Cement | | 280,789 |
| | 75,843 |
| | 303,813 |
| | 89,360 |
| | 281,087 |
| | 82,521 |
| Corporate (1) | | — |
| | (64,999 | ) | | — |
| | (66,556 | ) | | — |
| | (93,942 | ) | Total | | $ | 2,101,002 |
| | $ | 162,466 |
| | $ | 1,932,575 |
| | $ | 220,877 |
| | $ | 1,626,063 |
| | $ | 154,662 |
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______________________ | | (1) | Corporate results primarily consist of compensation and office expenses for employees included in the Company's headquarters. |
Consolidated Results of Operations The table below sets forth our consolidated results of operations for the periods indicated: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | (in thousands) | | | | | | | | | | Net revenue | | $ | 1,752,409 | | $ | 1,488,274 | | $ | 1,289,966 | Delivery and subcontract revenue | | | 180,166 | | | 137,789 | | | 142,331 | Total revenue | | | 1,932,575 | | | 1,626,063 | | | 1,432,297 | Cost of revenue (excluding items shown separately below) | | | 1,281,777 | | | 1,071,792 | | | 990,262 | General and administrative expenses | | | 242,670 | | | 243,512 | | | 177,769 | Depreciation, depletion, amortization and accretion | | | 179,518 | | | 149,300 | | | 119,723 | Transaction costs | | | 7,733 | | | 6,797 | | | 9,519 | Operating income | | | 220,877 | | | 154,662 | | | 135,024 | Interest expense (1) | | | 108,549 | | | 97,536 | | | 84,629 | Loss on debt financings | | | 4,815 | | | — | | | 71,631 | Tax receivable agreement expense (1) | | | 271,016 | | | 14,938 | | | — | Other (income) expense, net | | | (5,303) | | | 1,361 | | | (2,042) | (Loss) income from operations before taxes (1) | | | (158,200) | | | 40,827 | | | (19,194) | Income tax benefit | | | (283,977) | | | (5,299) | | | (18,263) | Income (loss) from continuing operations | | | 125,777 | | | 46,126 | | | (931) | Income from discontinued operations | | | — | | | — | | | (2,415) | Net income (1) | | $ | 125,777 | | $ | 46,126 | | $ | 1,484 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | (in thousands) | | | | | | | Net revenue | | $ | 1,909,258 |
| | $ | 1,752,409 |
| | $ | 1,488,274 |
| Delivery and subcontract revenue | | 191,744 |
| | 180,166 |
| | 137,789 |
| Total revenue | | 2,101,002 |
| | 1,932,575 |
| | 1,626,063 |
| Cost of revenue (excluding items shown separately below) | | 1,475,779 |
| | 1,281,777 |
| | 1,071,792 |
| General and administrative expenses | | 253,609 |
| | 242,670 |
| | 243,512 |
| Depreciation, depletion, amortization and accretion | | 204,910 |
| | 179,518 |
| | 149,300 |
| Transaction costs | | 4,238 |
| | 7,733 |
| | 6,797 |
| Operating income | | 162,466 |
| | 220,877 |
| | 154,662 |
| Interest expense (1) | | 116,548 |
| | 108,549 |
| | 97,536 |
| Loss on debt financings | | 149 |
| | 4,815 |
| | — |
| Tax receivable agreement (benefit) expense (1) | | (22,684 | ) | | 271,016 |
| | 14,938 |
| Gain on sale of business | | (12,108 | ) | | — |
| | — |
| Other (income) loss, net | | (15,516 | ) | | (5,303 | ) | | 1,361 |
| Income (loss) from operations before taxes | | 96,077 |
| | (158,200 | ) | | 40,827 |
| Income tax expense (benefit) (1) | | 59,747 |
| | (283,977 | ) | | (5,299 | ) | Net income | | $ | 36,330 |
| | $ | 125,777 |
| | $ | 46,126 |
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______________________ | | (1) | | The statement of operations above is based on the financial results of Summit Inc. and its subsidiaries, which was $27.5 million, $8.3 million $16.0 million and $0.9$16.0 million less than Summit LLC and its subsidiaries in the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016, respectively, due to interest expense associated with a deferred consideration obligation,, TRA expense and income tax benefit are obligations of Summit Holdings and Summit Inc., respectively and are thus excluded from Summit LLC’s consolidated net income. |
Fiscal Year 20172018 Compared to 2016 | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | | Net revenue | | $ | 1,752,409 | | $ | 1,488,274 | | $ | 264,135 | | 17.7 | % | Operating income | | | 220,877 | | | 154,662 | | | 66,215 | | 42.8 | % | Operating margin percentage | | | 12.6 | % | | 10.4 | % | | | | | | Adjusted EBITDA (1) | | $ | 435,777 | | $ | 371,347 | | $ | 64,430 | | 17.4 | % |
2017
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Net revenue | | $ | 1,909,258 |
| | $ | 1,752,409 |
| | $ | 156,849 |
| | 9.0 | % | Operating income | | 162,466 |
| | 220,877 |
| | (58,411 | ) | | (26.4 | )% | Operating margin percentage | | 8.5 | % | | 12.6 | % | | | | | Adjusted EBITDA (1) | | $ | 406,261 |
| | $ | 435,777 |
| | $ | (29,516 | ) | | (6.8 | )% |
______________________ | | (1) | | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the definition of and the reconciliation below of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure. |
Net revenue increased $156.8 million for the year ended December 29, 2018, primarily resulting from our acquisition program, offset by the impact of less favorable weather conditions in 2018. Of the increase in net revenue, $37.3 million was from increased sales of materials, $112.9 million was from increased sales of products and $6.6 million was from increased service revenue. Additional discussion about the impact of acquisitions on each segment is presented in more detail below. For the year ended December 29, 2018, our net revenue growth was due to our 2018 and 2017 acquisitions. However, operating income decreased by $58.4 million in 2018 as compared to 2017 primarily as the increases in our costs of revenue as explained below, as well as increases in our general and administrative expenses and depreciation, depletion, amortization and accretion expense resulting from our acquisition program exceeded our pricing gains. Our depreciation, depletion, amortization and accretion increased $25.4 million largely due to acquisitions completed in 2018 and 2017. For the year ended December 29, 2018, our operating margin percentage declined from 12.6% to 8.5% as compared to the year ended December 30, 2017, due to the items noted above. Adjusted EBITDA, as defined below, decreased by $29.5 million in the year ended December 29, 2018 as compared to the year ended December 30, 2017. As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by line of business was as follows: | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Revenue by product*: | | |
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| Aggregates | | $ | 489,200 |
| | $ | 415,873 |
| | $ | 73,327 |
| | 17.6 | % | Cement | | 263,526 |
| | 286,360 |
| | (22,834 | ) | | (8.0 | )% | Ready-mix concrete | | 584,630 |
| | 493,089 |
| | 91,541 |
| | 18.6 | % | Asphalt | | 321,144 |
| | 307,654 |
| | 13,490 |
| | 4.4 | % | Paving and related services | | 616,892 |
| | 599,378 |
| | 17,514 |
| | 2.9 | % | Other | | (174,390 | ) | | (169,779 | ) | | (4,611 | ) | | (2.7 | )% | Total revenue | | $ | 2,101,002 |
| | $ | 1,932,575 |
| | $ | 168,427 |
| | 8.7 | % |
______________________ * Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue. Detail of our volumes and average selling prices by product for the years ended December 29, 2018 and December 30, 2017 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | | | | | | Volume(1) | | | | Volume(1) | | | | Percentage Change in | | | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | Aggregates | | 47,624 |
| | $ | 10.27 |
| | 41,712 |
| | $ | 9.97 |
| | 14.2 | % | | 3.0 | % | Cement | | 2,329 |
| | 113.14 |
| | 2,547 |
| | 112.42 |
| | (8.6 | )% | | 0.6 | % | Ready-mix concrete | | 5,433 |
| | 107.61 |
| | 4,680 |
| | 105.37 |
| | 16.1 | % | | 2.1 | % | Asphalt | | 5,404 |
| | 55.57 |
| | 5,263 |
| | 54.19 |
| | 2.7 | % | | 2.5 | % |
______________________ | | (1) | Volumes are shown in tons for aggregates, cement and asphalt and in cubic yards for ready-mix concrete. |
| | (2) | Pricing is shown on a per ton basis for aggregates, cement and asphalt and on a per cubic yard basis for ready-mix concrete. |
Revenue from aggregates increased $73.3 million for the year ended December 29, 2018 as compared to the year ended December 30, 2017, primarily due to increased volumes from acquisitions, offset by the impact of weather conditions in 2018 as noted above. The increase in aggregate volumes was primarily attributable to our acquisition program as organic volumes were essentially flat in both the West and East segments. Aggregate pricing of $10.27 per ton increased 3.0% as compared to 2017, primarily due to pricing gains in the Intermountain West states. Revenue from cement decreased $22.8 million in the year ended December 29, 2018 as compared to the year ended December 30, 2017, due primarily to volume declines as weather conditions in 2018 were less favorable than those experienced in 2017, as well as increased competitive conditions in 2018. Our cement volumes decreased 8.6% for the same reasons. During 2018, pricing for cement improved by 0.6% to $113.14 per ton as compared to the prior year, primarily resulting from price increases implemented in early 2018 which were subject to increased competition.
Revenue from ready-mix concrete increased $91.5 million for the year ended December 29, 2018 as compared to December 30, 2017, primarily from the acquisitions referred to above. Ready-mix concrete pricing of $107.61 per cubic yard in 2018 increased 2.1% as compared to 2017 levels. Revenue from asphalt increased $13.5 million for the year ended December 29, 2018 as compared to the prior year. Our organic asphalt volumes decreased slightly with the balance of the increased revenue coming from our acquisition program. Other Financial Information On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. Among other things, the TCJA, beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the TCJA prescribes the application of net operating loss carryforwards generated in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years. As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets in the fourth quarter of 2017 by $216.9 million to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. The TCJA contains many provisions which continue to be clarified through new regulations. As permitted by Staff Accounting Bulletin 118 ("SAB118") issued by the SEC on December 22, 2017, we completed our accounting of the impacts of the TCJA. We completed our analysis within 2018 consistent with the guidance of SAB 118 and any adjustments during the measurement period have been included in net earnings from continuing operations as an adjustment to income tax expense. The additional tax expense of $17.6 million resulting from the IRS interpretative guidance of TCJA and was recorded during the fourth quarter of 2018.
Tax Receivable Agreement (Benefit) Expense Our TRA benefit for the year ended December 29, 2018 was $22.7 million as compared to TRA expense of $271.0 million in the year ended December 30, 2017. When payments are made under the TRA, we expect the amount that is characterized as imputed interest will be limited under the proposed IRS regulations, and therefore we will not benefit from that deduction. Further, in 2018, we updated our estimate of the state income tax rate that will be in effect at the date the TRA payments are made. As a result of the updated state income tax rate, and the imputed interest limitation noted above, we have reduced our TRA liability by $22.7 million as of December 29, 2018. In the third quarter of 2017, based on a release of the
valuation allowance related to the TRA deferred tax assets discussed below, we determined payment of those benefits had become probable under our TRA agreement. As a result, in the third quarter of 2017, we recorded $501.8 million of TRA expense as our estimate of the realization of our deferred tax assets subject to the TRA had become more likely than not. In the fourth quarter of 2017, after the enactment of the TCJA and other exchanges and adjustments, our estimated liability under the TRA was reduced by $216.9 million primarily due to a decrease in the federal corporate tax rate. This reduction in our TRA liability was recorded as a reduction in our TRA expense during the fourth quarter 2017. Income Tax Expense (Benefit) Our income tax expense was $59.7 million for the year ended December 29, 2018 as compared to income tax benefit of $284.0 million for the year ended December 30, 2017. Our effective income tax rate in 2018 was impacted by the IRS interpretative guidance of TCJA, a change in state tax rates and a reduction in the amount of our TRA liability. We recorded an income tax benefit in fiscal 2017, primarily related to the release of the valuation allowance as discussed below, partially offset by charge related to the decrease in the federal statutory corporate tax rate. Our effective income tax rate in 2017 was higher as compared to 2016, primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change referred to below and depletion in excess of U.S. GAAP depletion recognized in 2017. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) changes in unrecognized tax benefits, (4) deductions related to our TRA, (5) tax depletion expense in excess of the expense recorded under U.S. GAAP, (6) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (7) various other items such as limitations on meals and entertainment, certain stock compensation and other costs. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that begin to expire in 2030. Due to our limited operating history as of December 31, 2016, during which we incurred only a small amount of pre-tax income over the previous three years, as well as our acquisitive business strategy, after considering both positive and negative evidence, we concluded that it was not more likely than not that we would fully realize those deferred tax assets, and therefore recorded a partial valuation allowance against those deferred tax assets as of December 31, 2016. However, the amount of cumulative income increased significantly during the year ended December 30, 2017. As a result of this significant positive evidence, we determined that the deferred tax assets had become more likely than not of becoming realizable and therefore released the majority of the valuation allowance in the third quarter of 2017. The Company updated the analysis as of December 30, 2018, and adjusted the valuation allowance for interest expense carryforwards limited under TCJA.
On December 22, 2017, the TCJA was enacted. Among other things, the TCJA, beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the TCJA prescribes the application of net operating loss carryforwards generated in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years. As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets in the fourth quarter of 2017 by $216.9 million to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. The TCJA contains many provisions which continue to be clarified through new regulations. As permitted by SAB 118 issued by the SEC on December 22, 2017, we completed our accounting of the impacts of the TCJA. We completed our analysis within 2018 consistent with the guidance of SAB 118 and any adjustments during the measurement period have been included in net earnings from continuing operations as an adjustment to income tax expense. We recorded additional tax expense of $17.6 million resulting from the IRS interpretative guidance of TCJA during the fourth quarter of 2018.
As mentioned above, we recorded an income tax benefit of $498.3 million in the third quarter of 2017, primarily related to the release of the valuation allowance against our deferred tax assets offset by the decreased federal corporate tax rate as enacted by the TCJA and other state effective rate changes. Our effective income tax rate was higher in 2018 as compared to 2017 primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change resulting from the TCJA and depletion in excess of U.S. GAAP depletion recognized for the year ended December 30, 2017. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) changes in unrecognized tax benefits, (4) deductions related to our TRA, (5) tax depletion expense in excess of the expense recorded under U.S. GAAP, (6) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (7) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.
As of December 29, 2018 and December 30, 2017, Summit Inc. had a valuation allowance of $19.4 million and $1.7 million against our deferred tax assets, respectively.
Segment Results of Operations West Segment | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Net revenue | | $ | 1,011,155 |
| | $ | 899,992 |
| | $ | 111,163 |
| | 12.4 | % | Operating income | | 92,068 |
| | 130,334 |
| | (38,266 | ) | | (29.4 | )% | Operating margin percentage | | 9.1 | % | | 14.5 | % | | | | | Adjusted EBITDA (1) | | $ | 188,999 |
| | $ | 203,590 |
| | $ | (14,591 | ) | | (7.2 | )% |
______________________ | | (1) | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure below. |
Net revenue in the West segment increased $111.2 million for the year ended December 29, 2018 as compared to December 30, 2017, primarily due to incremental revenue from acquisitions. Net revenue growth from acquisitions in 2018 increased $101.5 million as compared to the year ended December 30, 2017, with the balance attributable to organic operations. The West segment’s operating income decreased $38.3 million in 2018 as compared to 2017 as increases in labor costs and hydrocarbon costs included in cost of revenue and, increases in general and administrative expenses, exceeded our revenue gains, as well as higher levels of depreciation and amortization from acquisitions made in 2017 and 2018. Further, wetter weather conditions in our Texas markets had a negative effect on our operational efficiencies during 2018. Adjusted EBITDA decreased $14.6 million in 2018 as compared to 2017 due to increased costs of revenue noted above, coupled with tighter construction margins in our Texas, Utah and Vancouver markets, which were only partially offset by improved organic volume and organic average sales price increases for aggregates and ready-mix concrete. The operating margin percentage in the West segment decreased in 2018 to 9.1% as compared to 14.5% in 2017 due to increased labor costs, depreciation and amortization, as well as increases in general and administrative expenses resulting from acquisitions that occurred in 2017 and 2018. Gross revenue by product/ service was as follows: | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Revenue by product*: | | | | | | | | | Aggregates | | $ | 219,149 |
| | $ | 191,851 |
| | $ | 27,298 |
| | 14.2 | % | Ready-mix concrete | | 447,136 |
| | 362,042 |
| | 85,094 |
| | 23.5 | % | Asphalt | | 214,800 |
| | 214,561 |
| | 239 |
| | 0.1 | % | Paving and related services | | 381,323 |
| | 375,036 |
| | 6,287 |
| | 1.7 | % | Other | | (145,342 | ) | | (144,647 | ) | | (695 | ) | | (0.5 | )% | Total revenue | | $ | 1,117,066 |
| | $ | 998,843 |
| | $ | 118,223 |
| | 11.8 | % |
______________________ * Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
The West segment’s percent changes in sales volumes and pricing comparing 2018 to 2017 were as follows: | | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Aggregates | | 9.1 | % | | 4.7 | % | Ready-mix concrete | | 20.7 | % | | 2.3 | % | Asphalt | | 3.6 | % | | (1.2 | )% |
Gross revenue from aggregates in the West segment increased $27.3 million in 2018 over 2017, primarily due to an increase in volumes. Aggregates volume increased in 2018 mainly due to acquisitions in our Northern Texas markets and growth in our Vancouver markets. Aggregates pricing in 2018 increased 4.7% when compared to 2017.
Revenue from ready-mix concrete in the West segment increased $85.1 million in 2018 over 2017, primarily due to our acquisition program and to a lesser extent, organic growth. Revenue from asphalt in the West segment increased $0.2 million in 2018, primarily due to acquisition volumes offset by lower average sales prices primarily in our northeast Texas markets. Revenue for paving and related services in the West segment increased by $6.3 million in 2018 primarily due to acquisitions. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 29, 2018 was approximately $98.0 million and $14.6 million, respectively. Our Austin operation operates a liquid asphalt terminal in the Houston area which was damaged by Hurricane Harvey in 2017. The terminal commenced limited operations in the third quarter of 2018 and is now operational. We have settled our insurance claim for damaged property, plant and equipment, and are still negotiating our claim under our business interruption policy. For the year ended December 29, 2018, we received $4.4 million under our property and casualty claim related to damaged or destroyed equipment. Additionally, for the year ended December 29, 2018, we received $3.8 million related to our business interruption claims, based on claims from our Austin and Houston operations.
In addition to the financial impact of Hurricane Harvey, our operations in Austin continue to be pressured by aggressive competition, which has further impacted volumes and pricing. We expect the Austin market to continue to grow, and Texas Department of Transportation to invest in infrastructure projects in that area. The Austin reporting unit has approximately $18 million of goodwill as of December 29, 2018, which we continue to believe is realizable. The key assumptions around the realizability analysis are revenue growth, as well as the discount rate of 10%. Our discount rate came under pressure in the fourth quarter of 2018 due to decreases in the market price of our Class A common stock. We will continue to monitor whether an event indicates the carrying value of the Austin based reporting unit may be impaired. East Segment | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Net revenue | | $ | 617,314 |
| | $ | 548,604 |
| | $ | 68,710 |
| | 12.5 | % | Operating income | | 59,554 |
| | 67,739 |
| | (8,185 | ) | | (12.1 | )% | Operating margin percentage | | 9.6 | % | | 12.3 | % | | | | | Adjusted EBITDA (1) | | $ | 138,032 |
| | $ | 139,108 |
| | $ | (1,076 | ) | | (0.8 | )% |
______________________ | | (1) | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below. |
Net revenue in the East segment increased $68.7 million in 2018 over 2017, primarily due to acquisitions contributing $56.4 million and organic growth of $12.3 million. Operating income decreased $8.2 million and Adjusted EBITDA decreased $1.1 million in 2018 over 2017, due to increases in the cost of revenue as noted above. Operating margin percentage in 2018 decreased to 9.6% from 12.3% in 2017, as the increases in our costs of revenue outgrew our increased average sales prices.
Gross revenue by product/ service was as follows: | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Revenue by product*: | | | | | | | | | Aggregates | | $ | 270,051 |
| | $ | 224,022 |
| | $ | 46,029 |
| | 20.5 | % | Ready-mix concrete | | 137,494 |
| | 131,047 |
| | 6,447 |
| | 4.9 | % | Asphalt | | 106,344 |
| | 93,093 |
| | 13,251 |
| | 14.2 | % | Paving and related services | | 235,569 |
| | 224,342 |
| | 11,227 |
| | 5.0 | % | Other | | (46,311 | ) | | (42,585 | ) | | (3,726 | ) | | (8.7 | )% | Total revenue | | $ | 703,147 |
| | $ | 629,919 |
| | $ | 73,228 |
| | 11.6 | % |
______________________
* Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue. The East segment’s percent changes in sales volumes and pricing in 2018 as compared to 2017 were as follows: | | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Aggregates | | 19.1 | % | | 1.1 | % | Ready-mix concrete | | 3.2 | % | | 1.6 | % | Asphalt | | 0.7 | % | | 12.3 | % |
Gross revenue from aggregates in the East segment increased $46.0 million in 2018 over 2017, due primarily to acquisitions. Aggregate volumes in 2018 increased 19.1% over 2017, primarily as a result of those acquisitions. Aggregates pricing increased in 2018 due to the impact of our organic price growth initiatives. Revenue from ready-mix concrete in the East segment increased $6.4 million in 2018, primarily as a result of our increased volumes due to acquisitions, offset by an organic volumes decline of 6.6%. Revenue from asphalt increased $13.3 million in 2018, primarily due to an increase in asphalt average sales prices. The $11.2 million increase in paving and related service revenue in 2018 was primarily due to increases in paving activity, especially in our Virginia markets. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 29, 2018 was approximately $50.4 million and $15.3 million, respectively. Cement Segment | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Net revenue | | $ | 280,789 |
| | $ | 303,813 |
| | $ | (23,024 | ) | | (7.6 | )% | Operating income | | 75,843 |
| | 89,360 |
| | (13,517 | ) | | (15.1 | )% | Operating margin percentage | | 27.0 | % | | 29.4 | % | | | | | Adjusted EBITDA (1) | | $ | 111,394 |
| | $ | 127,547 |
| | $ | (16,153 | ) | | (12.7 | )% |
______________________ | | (1) | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below. |
Net revenue in the Cement segment decreased $23.0 million in 2018 over 2017, primarily due to organic volume declines attributable to increased competition and less favorable weather conditions in 2018 compared to 2017. The Cement segment’s operating income declined $13.5 million and Adjusted EBITDA declined $16.2 million in 2018. Operating margin percentage for the year ended December 29, 2018 decreased to 27.0% from 29.4% in the prior year. The decrease in operating income and decrease in operating margin in 2018 was primarily due to decreases in organic volumes caused primarily by the factors noted above.
Gross revenue by product was as follows: | | | | | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | Variance | Revenue by product*: | | | | | | | | | Cement | | $ | 263,526 |
| | $ | 286,360 |
| | $ | (22,834 | ) | | (8.0 | )% | Other | | 17,263 |
| | 17,453 |
| | (190 | ) | | (1.1 | )% | Total revenue | | $ | 280,789 |
| | $ | 303,813 |
| | $ | (23,024 | ) | | (7.6 | )% |
______________________ * Revenue from waste processing and the elimination of intracompany transactions are included in Other. The Cement segment’s percent changes in sales volumes and pricing in 2018 from 2017 were as follows:
| | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Cement | | (8.6 | )% | | 0.6 | % |
Revenue from cement decreased $22.8 million in 2018, due to the 8.6% decrease in organic cement volumes.
Fiscal Year 2017 Compared to 2016 | | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Net revenue | | $ | 1,752,409 |
| | $ | 1,488,274 |
| | $ | 264,135 |
| | 17.7 | % | Operating income | | 220,877 |
| | 154,662 |
| | 66,215 |
| | 42.8 | % | Operating margin percentage | | 12.6 | % | | 10.4 | % | | | | | Adjusted EBITDA | | $ | 435,777 |
| | $ | 371,347 |
| | $ | 64,430 |
| | 17.4 | % |
Net revenue increased $264.1 million for the year ended December 30, 2017, primarily resulting from our acquisition program. Of the increase in net revenue, $80.5 million was from increased sales of materials, $146.4 million was from increased sales of products and $37.2 million was from increased service revenue. We generated organic volume growth in our aggregates, cement and asphalt lines of business in 2017 over the prior year. Additional discussion about the impact of acquisitions on each segment is presented in more detail below. For the year ended December 30, 2017, our net revenue growth was $212.1 million and $52.0 million from acquisitions and organic revenue, respectively. Operating income increased by $66.2 million in 2017 as compared to 2016 as a result of a decrease in our general administrative expenses items referred to above, offset by an increase in our depreciation, depletion, amortization and accretion, and transaction costs. In 2017, we recognized $21.1 million of stock-based compensation compared to $49.9 million in 2016, of which $37.3 million were charges associated with certain LP Units exchanged and options granted at the time of the IPO for which the performance metrics were met or waived. Our depreciation, depletion, amortization and accretion increased $30.2 million largely due to acquisitions completed in 2017 and 2016.Our operating margin percentage improved from 10.4% to 12.6% for the year ended December 30, 2017, due to pricing on materials and cement volume growth. Adjusted EBITDA, as defined below, increased by $64.4 million in the year ended December 30, 2017 as compared to the year ended December 31, 2016. During 2017 and 2016, certain limited partners of Summit Holdings exchanged their LP Units for shares of Class A common stock of Summit Inc. The following table summarizes the changes in our ownership of Summit Holdings:
| | | | | | | | | | | | Summit Inc. Shares (Class A) | | LP Units | | Total | | Summit Inc. Ownership Percentage | | Balance — January 2, 2016 (1) | | 52,402,692 | | 50,275,825 | | 102,678,517 | | 51.0 | % | Issuance of Class A shares | | 1,038 | | - | | 1,038 | | | | Exchanges during period | | 45,124,528 | | (45,124,528) | | - | | | | Other equity transactions | | 26,020 | | - | | 26,020 | | | | Balance — December 31, 2016 (1) | | 97,554,278 | | 5,151,297 | | 102,705,575 | | 95.0 | % | January 2017 public offering | | 10,000,000 | | - | | 10,000,000 | | | | Exchanges during period | | 1,461,677 | | (1,461,677) | | - | | | | Other equity transactions | | 1,334,639 | | - | | 1,334,639 | | | | Balance — December 30, 2017 | | 110,350,594 | | 3,689,620 | | 114,040,214 | | 96.8 | % |
| (1)
| | The January 2, 2016 balance of Summit Inc. Class A Shares of 52,402,692 is shown to reflect the retroactive application of 1,135,692 and 1,521,056 shares of Class A common stock issued as a stock dividend on December 28, 2016 and December 22, 2017, respectively. The December 31, 2016 balance of Summit Inc. Class A Shares of
|
97,554,278 is shown to reflect the retroactive application of 1,521,056 shares of Class A common stock issued as a stock dividend on December 22, 2017.
|
During 2016, a significant number of LP Units were exchanged for shares of Class A common stock. As a result, the ownership percentage of the noncontrolling interest decreased from 49.0% as of January 2, 2016 to 5.0% as of December 31, 2016. Although LP Units continued to be exchanged for shares of Class A common stock during 2017, the change in the ownership percentage of the noncontrolling interest was from 5.0% at the beginning of 2017 to 3.2% as of December 30, 2017. As a result of this exchange activity in 2017 and 2016, although net income increased by $79.7 million for the year ended December 30, 2017, the amount of net income attributable to Summit Holdings decreased from $9.3 million in 2016 to $4.0 million in 2017.
As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by line of business was as follows: | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 415,873 | | $ | 355,617 | | $ | 60,256 | | 16.9 | % | Cement | | | 286,360 | | | 256,046 | | | 30,314 | | 11.8 | % | Ready-mix concrete | | | 493,089 | | | 396,597 | | | 96,492 | | 24.3 | % | Asphalt | | | 307,654 | | | 263,652 | | | 44,002 | | 16.7 | % | Paving and related services | | | 599,378 | | | 502,458 | | | 96,920 | | 19.3 | % | Other | | | (169,779) | | | (148,307) | | | (21,472) | | (14.5) | % | Total revenue | | $ | 1,932,575 | | $ | 1,626,063 | | $ | 306,512 | | 18.8 | % |
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | |
| | |
| | |
| | |
| Aggregates | | $ | 415,873 |
| | $ | 355,617 |
| | $ | 60,256 |
| | 16.9 | % | Cement | | 286,360 |
| | 256,046 |
| | 30,314 |
| | 11.8 | % | Ready-mix concrete | | 493,089 |
| | 396,597 |
| | 96,492 |
| | 24.3 | % | Asphalt | | 307,654 |
| | 263,652 |
| | 44,002 |
| | 16.7 | % | Paving and related services | | 599,378 |
| | 502,458 |
| | 96,920 |
| | 19.3 | % | Other | | (169,779 | ) | | (148,307 | ) | | (21,472 | ) | | (14.5 | )% | Total revenue | | $ | 1,932,575 |
| | $ | 1,626,063 |
| | $ | 306,512 |
| | 18.8 | % |
______________________ * Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue. Detail of our volumes and average selling prices by product for the years ended December 30, 2017 and December 31, 2016 were as follows: | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | | | | | | | Volume(1) | | | | Volume(1) | | | | Percentage Change in | | | | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | | Aggregates | | 41,712 | | $ | 9.97 | | 36,092 | | $ | 9.85 | | 15.6 | % | 1.2 | % | Cement | | 2,547 | | | 112.42 | | 2,357 | | | 108.63 | | 8.1 | % | 3.5 | % | Ready-mix concrete | | 4,680 | | | 105.37 | | 3,823 | | | 103.74 | | 22.4 | % | 1.6 | % | Asphalt | | 5,263 | | | 54.19 | | 4,359 | | | 54.74 | | 20.7 | % | (1.0) | % |
| | | | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | | | | | | Volume(1) | | | | Volume(1) | | | | Percentage Change in | | | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | Aggregates | | 41,712 |
| | $ | 9.97 |
| | 36,092 |
| | $ | 9.85 |
| | 15.6 | % | | 1.2 | % | Cement | | 2,547 |
| | 112.42 |
| | 2,357 |
| | 108.63 |
| | 8.1 | % | | 3.5 | % | Ready-mix concrete | | 4,680 |
| | 105.37 |
| | 3,823 |
| | 103.74 |
| | 22.4 | % | | 1.6 | % | Asphalt | | 5,263 |
| | 54.19 |
| | 4,359 |
| | 54.74 |
| | 20.7 | % | | (1.0 | )% |
______________________ | | (1) | | Volumes are shown in tons for aggregates, cement and asphalt and in cubic yards for ready-mix concrete. |
| | (2) | | Pricing is shown on a per ton basis for aggregates, cement and asphalt and on a per cubic yard basis for ready-mix concrete. |
Revenue from aggregates increased $60.3 million for the year ended December 30, 2017, primarily due to increased volumes. Aggregate volumes were positively affected by the acquisitions completed in late 2016 and 2017, together with broad based growth in most of our markets, partially offset by declines in our Missouri and Houston markets. Organic aggregate volumes increased 3.4% in 2017 as compared to the prior year primarily from Austin, northeast Texas and Utah, offset by a decline in Houston, Texas. In Houston, 2017 volumes were affected by temporary disruptions related to Hurricane Harvey. Aggregate pricing of $9.97 per ton slightly increased compared to 2016. Revenue from cement increased $30.3 million in the year ended December 30, 2017, due primarily to increased volume and improved average selling price. Our organic cement volumes increased 5.8% due to increased volumes to our existing customers. During 2017, pricing for cement improved by 3.5% to $112.42 per ton, primarily resulting from price increases implemented in early 2017. Revenue from ready-mix concrete increased $96.5 million for the year ended December 30, 2017, primarily from the acquisitions referred to above. Ready-mix concrete pricing of $105.37 per cubic yard ton in 2017 increased slightly as compared to 2016. Revenue from asphalt increased $44.0 million for the year ended December 30, 2017. Our organic asphalt volumes increased 10.9% with the balance of the increased volumes coming from acquisitions. Our revenue in Austin, Texas, was higher in 2017 as an aggressive competitor impacted our paving and related services revenue in 2016. In 2017, our marketing efforts were able to improve our market share over 2016 levels in the Austin market.
Other Financial Information On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. Among other things,
As noted above, the TCJA beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the application of net operating loss carryforwards generatedwas enacted in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years.late 2017. As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets by $216.9 million in the fourth quarter of 2017 to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. Further, we evaluated the realizability of our net operating loss carryforwards, and determined a valuation allowance of $1.7 million was still appropriate as of December 30, 2017. The TCJA contains many provisions which will be clarified through new regulations expected to be issued during 2018. As of December 30, 2017, we have not completed the accounting for the tax effects of the TCJA; however, we have made reasonable estimates on our existing deferred tax balances, as permitted by Staff Accounting Bulletin 118 issued by the SEC on December 22, 2017. In addition, we expect the states to consider new statutory provisions related to the enactment of the TCJA during 2018 as well. We will record the impact, if any, of any newly issued regulations, as well as clarifications of the TCJA, as a discrete adjustment to our income tax provision in 2018. Tax Receivable Agreement Expense Our TRA expense for the year ended December 30, 2017 was $271.0 million as compared to $14.9 million in the year ended December 31, 2016. In the third quarter of 2017, based on a release of the valuation allowance related to the TRA deferred tax assets discussed below, we further determined payment of those benefits has become probable under our TRA agreement. As a result, in the third quarter of 2017, we recorded $501.8 million of TRA expense as our estimate of the realization of our deferred tax assets subject to the TRA had become more likely than not. In the fourth quarter of 2017, after the enactment of the TCJA and other exchanges and adjustments, our estimated liability under the TRA was reduced by $216.9 million primarily due to a decrease in the federal corporate tax rate. This reduction in our TRA liability was recorded as a reduction in our TRA expense during the fourth quarter 2017. Our income tax benefit was $284.0 million for the year ended December 30, 2017 as compared to income tax benefit of $5.3 million for the year ended December 31, 2016. We recorded an income tax benefit of $498.3 million in the three months ended September 30, 2017 primarily relateddue to the release of the valuation allowance against our deferred tax assets as discussed below. In the fourth quarter of 2017, we recorded deferred income expense of $216.9 million related tobelow, offset by the reduction in carrying value of our deferred tax assets as a result of the decreased federal corporate tax rate as enacted by the TCJA and other state effective rate
changes. Our effective income tax rate was higher in 2017 as compared to 2016 primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change resulting from the TCJA and depletion in excess of U.S. GAAP depletion recognized for the year ended December 30, 2017. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) deductions related to TRA expense, (4) tax depletion expense in excess of the expense recorded under U.S. GAAP, (5) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (6) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that are scheduled to expire in the near future. Due to our limited
operating history as of December 31, 2016, during which we incurred only a small amount of pre-tax income over the previous three years, as well as our acquisitive business strategy, after considering both positive and negative evidence, we concluded that it was not more likely than not that we would fully realize those deferred tax assets, and therefore recorded a partial valuation allowance against those deferred tax assets as of December 31, 2016. However, the amount of cumulative income increased significantly during the year ended December 30, 2017 and we expect to generate additional income in 2018 and for the foreseeable future that will allow us to utilize the deferred tax assets. As a result of this significant positive evidence, we determined that the deferred tax assets had become more likely than not of becoming realizable and therefore released the majority of the valuation allowance in the third quarter of 2017. The Company updated the analysis as of December 30, 2017. Further, the remaining valuation allowance was adjusted for the impact of the TCJA on certain net operating loss deferred tax assets within the C corporation entities that the Company does not expect to be realized.
As of December 30, 2017 and December 31, 2016, Summit Inc. had a valuation allowance of $1.7 million and $502.8 million, respectively. respectively, against our deferred tax assets. Segment Results of Operations West Segment | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | | Net revenue | | $ | 899,992 | | $ | 736,573 | | $ | 163,419 | | 22.2 | % | Operating income | | | 130,334 | | | 100,659 | | | 29,675 | | 29.5 | % | Operating margin percentage | | | 14.5 | % | | 13.7 | % | | | | | | Adjusted EBITDA (1) | | $ | 203,590 | | $ | 167,434 | | $ | 36,156 | | 21.6 | % |
| (1)
| | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below.
|
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Net revenue | | $ | 899,992 |
| | $ | 736,573 |
| | $ | 163,419 |
| | 22.2 | % | Operating income | | 130,334 |
| | 100,659 |
| | 29,675 |
| | 29.5 | % | Operating margin percentage | | 14.5 | % | | 13.7 | % | | | | | Adjusted EBITDA | | $ | 203,590 |
| | $ | 167,434 |
| | $ | 36,156 |
| | 21.6 | % |
Net revenue in the West segment increased $163.4 million for the year ended December 30, 2017, primarily due to incremental revenue from acquisitions. Net revenue growth from acquisitions in 2017 increased $131.7 million, with the balance attributable to organic operations. The West segment’s operating income improved $29.7 million and Adjusted EBITDA improved $36.2 million in 2017. The improvement in West segment operating income and Adjusted EBITDA was primarily due to improved organic volume growth in aggregates and asphalt, as well as contributions from the acquisitions mentioned above. The operating margin percentage in the West segment increased slightly in 2017 to 14.5% as compared to 13.7% in 2016, despite the impact of Hurricane Harvey, due to the same factors mentioned above. Those same factors also contributed to similar improvements in net revenue, operating income and Adjusted EBITDA in the respective year ends. Gross revenue by product/ service was as follows: | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 191,851 | | $ | 159,824 | | $ | 32,027 | | 20.0 | % | Ready-mix concrete | | | 362,042 | | | 294,961 | | | 67,081 | | 22.7 | % | Asphalt | | | 214,561 | | | 182,739 | | | 31,822 | | 17.4 | % | Paving and related services | | | 375,036 | | | 314,079 | | | 60,957 | | 19.4 | % | Other | | | (144,647) | | | (137,921) | | | (6,726) | | (4.9) | % | Total revenue | | $ | 998,843 | | $ | 813,682 | | $ | 185,161 | | 22.8 | % |
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | Aggregates | | $ | 191,851 |
| | $ | 159,824 |
| | $ | 32,027 |
| | 20.0 | % | Ready-mix concrete | | 362,042 |
| | 294,961 |
| | 67,081 |
| | 22.7 | % | Asphalt | | 214,561 |
| | 182,739 |
| | 31,822 |
| | 17.4 | % | Paving and related services | | 375,036 |
| | 314,079 |
| | 60,957 |
| | 19.4 | % | Other | | (144,647 | ) | | (137,921 | ) | | (6,726 | ) | | (4.9 | )% | Total revenue | | $ | 998,843 |
| | $ | 813,682 |
| | $ | 185,161 |
| | 22.8 | % |
______________________ * Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue. The West segment’s percent changes in sales volumes and pricing in 2017 from 2016 were as follows: | | | | | | Percentage Change in | | | Volume | | Pricing | | Aggregates | 18.3 | % | 1.4 | % | Ready-mix concrete | 20.6 | % | 1.8 | % | Asphalt | 22.8 | % | (1.7) | % |
| | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Aggregates | | 18.3 | % | | 1.4 | % | Ready-mix concrete | | 20.6 | % | | 1.8 | % | Asphalt | | 22.8 | % | | (1.7 | )% |
Gross revenue from aggregates in the West segment increased $32.0 million in 2017, primarily due to an increase in volumes. Aggregates volume increased in 2017 mainly due acquisitions occurring in 2016, as well as organic growth in Austin, Texas and Vancouver, British Columbia, partially offset by a decrease in organic volumes in Houston resulting from the impact of Hurricane Harvey. Aggregates pricing in 2017 remained consistent with 2016.
Revenue from ready-mix concrete in the West segment increased $67.1 million in 2017, primarily as a result of acquisitions. Revenue from asphalt in the West segment increased $31.8 million in 2017, primarily due to higher volumes partially offset by slightly lower pricing. Organic asphalt volumes increased 10.0% due to improvement in our Austin, Texas market in 2017. In 2017, asphalt pricing decreased consistent with lower input prices. Revenue for paving and related services in the West segment increased by $61.0 million in 2017 due to organic growth and acquisitions. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 30, 2017 was approximately $126.3 million and $4.6 million, respectively. Our Houston operations were negatively impacted by Hurricane Harvey in the third and fourth quarters of 2017. After temporary interruptions, our operations have resumed. We expect our volumes in the Houston area to return to normal levels in the future. Our Austin business operates a liquid asphalt terminal in the Houston area which was also damaged by Hurricane Harvey. The terminal will bewas shut down until mid-2018late 2018 while undergoing significant repairs. We have received proceeds from claims for damaged property, plant and equipment, and are in the process of filing additional claims under our business interruption policy. Our reporting unit based in Austin, Texas, has seen new market entrants, one of which aggressively sought market share, which negatively impacted Adjusted EBITDA in the West segment in 2016. Our efforts to improve our profitability in that area are showing positive results in 2017, as organic volume growth occurred in 2017 as compared to the prior year.East Segment | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | | Net revenue | | $ | 548,604 | | $ | 470,614 | | $ | 77,990 | | 16.6 | % | Operating income | | | 67,739 | | | 65,424 | | | 2,315 | | 3.5 | % | Operating margin percentage | | | 12.3 | % | | 13.9 | % | | | | | | Adjusted EBITDA (1) | | $ | 139,108 | | $ | 126,007 | | $ | 13,101 | | 10.4 | % |
| (1)
| | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below.
|
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Net revenue | | $ | 548,604 |
| | $ | 470,614 |
| | $ | 77,990 |
| | 16.6 | % | Operating income | | 67,739 |
| | 65,424 |
| | 2,315 |
| | 3.5 | % | Operating margin percentage | | 12.3 | % | | 13.9 | % | | | | | Adjusted EBITDA | | $ | 139,108 |
| | $ | 126,007 |
| | $ | 13,101 |
| | 10.4 | % |
Net revenue in the East segment increased $78.0 million for the year ended December 30, 2017, primarily due to acquisitions contributing $74.0 million and organic growth of $4.0 million. Operating income increased $2.3 million and Adjusted EBITDA improved $13.1 million in 2017, due to increased pricing and acquisitions. Operating margin percentage for the year ended December 30, 2017 decreased to 12.3% from 13.9% in the prior year, as revenue from paving and related services, which generally have lower operating margins than materials and products, accounted for about a third of our gross revenue increase, as well as the other factors mentioned above. Gross revenue by product/ service was as follows: | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 224,022 | | $ | 195,793 | | $ | 28,229 | | 14.4 | % | Ready-mix concrete | | | 131,047 | | | 101,636 | | | 29,411 | | 28.9 | % | Asphalt | | | 93,093 | | | 80,913 | | | 12,180 | | 15.1 | % | Paving and related services | | | 224,342 | | | 188,379 | | | 35,963 | | 19.1 | % | Other | | | (42,585) | | | (35,427) | | | (7,158) | | (20.2) | % | Total revenue | | $ | 629,919 | | $ | 531,294 | | $ | 98,625 | | 18.6 | % |
| | | | | | | | | | | | | | | | | (in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | Aggregates | | $ | 224,022 |
| | $ | 195,793 |
| | $ | 28,229 |
| | 14.4 | % | Ready-mix concrete | | 131,047 |
| | 101,636 |
| | 29,411 |
| | 28.9 | % | Asphalt | | 93,093 |
| | 80,913 |
| | 12,180 |
| | 15.1 | % | Paving and related services | | 224,342 |
| | 188,379 |
| | 35,963 |
| | 19.1 | % | Other | | (42,585 | ) | | (35,427 | ) | | (7,158 | ) | | (20.2 | )% | Total revenue | | $ | 629,919 |
| | $ | 531,294 |
| | $ | 98,625 |
| | 18.6 | % |
______________________ * Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue. The East segment’s percent changes in sales volumes and pricing in 2017 from 2016 were as follows:
| | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Aggregates | | 13.0 | % | | 1.3 | % | Ready-mix concrete | | 27.9 | % | | 0.8 | % | Asphalt | | 16.4 | % | | 0.1 | % |
Gross revenue from aggregates in the East segment increased $28.2 million in 2017, due primarily to acquisitions. Aggregate volumes in 2017 increased 13.0%, primarily as a result of those acquisitions. Aggregates pricing increased in 2017 as a result of a shift in product mix. Revenue from ready-mix concrete in the East segment increased $29.4 million in 2017, primarily as a result of the acquisitions mentioned above. In 2017, ready-mix volumes increased due to acquisitions, offset by an organic volumes decline of 8.0%. Revenue from asphalt increased $12.2 million in 2017, due to an increase in asphalt volumes, offset by pricing decline, primarily in the Kentucky and Kansas markets. The $36.0 million increase in paving and related service revenue in 2017 was primarily a result of acquisitions in Kansas and Virginia. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 30, 2017 was approximately $66.4 million and $3.5 million, respectively. Cement Segment | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | | Net revenue | | $ | 303,813 | | $ | 281,087 | | $ | 22,726 | | 8.1 | % | Operating income | | | 89,360 | | | 82,521 | | | 6,839 | | 8.3 | % | Operating margin percentage | | | 29.4 | % | | 29.4 | % | | | | | | Adjusted EBITDA (1) | | $ | 127,547 | | $ | 112,991 | | $ | 14,556 | | 12.9 | % |
| (1)
| | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below.
|
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Net revenue | | $ | 303,813 |
| | $ | 281,087 |
| | $ | 22,726 |
| | 8.1 | % | Operating income | | 89,360 |
| | 82,521 |
| | 6,839 |
| | 8.3 | % | Operating margin percentage | | 29.4 | % | | 29.4 | % | | | | | Adjusted EBITDA | | $ | 127,547 |
| | $ | 112,991 |
| | $ | 14,556 |
| | 12.9 | % |
Net revenue in the Cement segment increased $22.7 million for the year ended December 30, 2017, primarily due to organic growth within existing operations and the acquisition of two cement terminal operations located in Port Allen and LaPlace, Louisiana, which contributed incremental net revenue of $6.4 million in 2017. The Cement segment’s operating income improved $6.8 million and Adjusted EBITDA improved $14.6 million in 2017. The increase in operating income and Adjusted EBITDA was primarily due to increased organic cement volumes and pricing. Continued production efficiencies and price improvement grew operating margins, but this improvement was offset by a higher cost basis on purchased cement needed to satisfy the higher demand, resulting in consistent operating margins for the year ended December 30, 2017 when compared to 2016.
Gross revenue by product was as follows: | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | | | | | Cement | | $ | 286,360 | | $ | 256,046 | | $ | 30,314 | | 11.8 | % | Other | | | 17,453 | | | 25,041 | | | (7,588) | | (30.3) | % | Total revenue | | $ | 303,813 | | $ | 281,087 | | $ | 22,726 | | 8.1 | % |
| | | | | | | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | Variance | Revenue by product*: | | | | | | | | | Cement | | $ | 286,360 |
| | $ | 256,046 |
| | $ | 30,314 |
| | 11.8 | % | Other | | 17,453 |
| | 25,041 |
| | (7,588 | ) | | (30.3 | )% | Total revenue | | $ | 303,813 |
| | $ | 281,087 |
| | $ | 22,726 |
| | 8.1 | % |
______________________ * Revenue from waste processing and the elimination of intracompany transactions are included in Other.
The Cement segment’s percent changes in sales volumes and pricing in 2017 from 2016 were as follows: | | | | | | | | | | Percentage Change in | | | Volume | | Pricing | Cement | | 8.1 | % | | 3.5 | % |
Revenue from cement increased $30.3 million in 2017, due primarily to increased organic cement volumes and pricing. In 2017, organic cement volumes and pricing increased 5.8% and 3.3%, respectively, with the remainder of the increase due to the acquisition of two cement terminal operations in 2016. Fiscal Year 2016 Compared to 2015
| | | | | | | | | | | | | ($ in thousands) | | 2016 | | 2015 | | Variance | | Net revenue | | $ | 1,488,274 | | $ | 1,289,966 | | $ | 198,308 | | 15.4 | % | Operating income | | | 154,662 | | | 135,024 | | | 19,638 | | 14.5 | % | Operating margin percentage | | | 10.4 | % | | 10.5 | % | | | | | | Adjusted EBITDA | | $ | 371,347 | | $ | 287,528 | | $ | 83,819 | | 29.2 | % |
Net revenue increased $198.3 million for the year ended December 31, 2016, of which $128.2 million was from increased sales of materials, $51.0 million was from increased sales of products and $19.1 million was from increased service revenue. We had volume growth in our aggregates, cement and ready-mix concrete lines of business, driven by our 2016 and 2015 acquisitions. Excluding the cement segment, for the year ended December 31, 2016, $182.3 million of the net revenue growth was from acquisitions, partially offset by a $69.6 million reduction in organic revenue. Organic revenue growth is defined as incremental revenue that was not derived from acquisitions. For the year ended December 31, 2016, approximately $85.6 million of the revenue growth was attributable to our cement operations. In July 2015, we acquired the Davenport Assets, which were immediately integrated with our existing cement operations such that it is impracticable to bifurcate growth in the segment between organic and acquisition growth.
As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by line of business was as follows:
| | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 355,617 | | $ | 296,960 | | $ | 58,657 | | 19.8 | % | Cement | | | 256,046 | | | 173,845 | | | 82,201 | | 47.3 | % | Ready-mix concrete | | | 396,597 | | | 350,554 | | | 46,043 | | 13.1 | % | Asphalt | | | 263,652 | | | 292,193 | | | (28,541) | | (9.8) | % | Paving and related services | | | 502,458 | | | 504,459 | | | (2,001) | | (0.4) | % | Other | | | (148,307) | | | (185,714) | | | 37,407 | | 20.1 | % | Total revenue | | $ | 1,626,063 | | $ | 1,432,297 | | $ | 193,766 | | 13.5 | % |
* Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
Gross revenue for paving and related services decreased $2.0 million for the year ended December 31, 2016. This decrease was primarily due to declines in the Austin, Texas market. The economy in Austin, Texas attracted a new aggressive entrant in 2016 who attracted a number of our employees, which has collectively resulted in a decrease in our paving and related services revenue as compared to 2015 levels.
Detail of our volumes and average selling prices by product for the years ended December 31, 2016 and January 2, 2016 were as follows:
| | | | | | | | | | | | | | | | | | 2016 | | 2015 | | | | | | | | Volume(1) | | | | Volume(1) | | | | Percentage Change in | | | | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | | Aggregates | | 36,092 | | $ | 9.85 | | 32,297 | | $ | 9.19 | | 11.8 | % | 7.2 | % | Cement | | 2,357 | | | 108.63 | | 1,720 | | | 101.05 | | 37.0 | % | 7.5 | % | Ready-mix concrete | | 3,823 | | | 103.74 | | 3,406 | | | 102.92 | | 12.2 | % | 0.8 | % | Asphalt | | 4,359 | | | 54.74 | | 4,359 | | | 57.67 | | — | % | (5.1) | % |
| (1)
| | Volumes are shown in tons for aggregates, cement and asphalt and in cubic yards for ready-mix concrete.
|
| (2)
| | Pricing is shown on a per ton basis for aggregates, cement and asphalt and on a per cubic yard basis for ready-mix concrete.
|
Aggregates volumes were positively affected by the 2016 and 2015 acquisitions as well as strength in the Kansas and South Carolina markets. This growth was partially offset by declines in the British Columbia and Austin and Houston, Texas markets. The decline in aggregate volumes in British Columbia was the result of a large sand river project that has been completed in 2015. Sand is a lower-priced, lower-margin product as compared to hard rocks. In Austin, Texas, a new aggressive competitor contributed to the decrease in our paving and related services revenue, in addition to the upstream aggregate and asphalt products. In Houston, Texas, volumes were affected by flooding during 2016. We had strong aggregates price increases across our markets, which would have been greater absent the effect from the U.S./Canadian exchange rate. The U.S. dollar was stronger as compared to the Canadian dollar for the year ended December 31, 2016. Absent the effect of foreign currency fluctuations, aggregates pricing would have increased 7.5% for the year ended December 31, 2016.
Our cement volumes increased primarily as a result of the July 2015 acquisition of the Davenport Assets and prices increased consistent with the market.
The increase in ready-mix concrete volumes was primarily a result of the 2016 and 2015 acquisitions and pricing generally increased by mid-single digit percentages in the organic operations, but was affected by the geographic mix as ready-mix concrete producers acquired in 2015 were in lower-priced markets.
The flat asphalt volumes for the year ended December 31, 2016 from the year ended January 2, 2016 resulted from declines in the Austin, Texas, Wichita, Kansas and Kentucky markets, offset by increases from the 2016 and 2015 acquisitions. The decrease in Wichita, Kansas was primarily due to a shift in state work away from asphalt paving in that market. The decrease in Kentucky was primarily due to a decreased level of state contracts for the fiscal year. Asphalt pricing decreased primarily due to lower input prices. Prior to eliminations, the net increase from these volume and pricing changes on gross revenue for the year ended December 31, 2016 was approximately $138.4 million and $20.1 million, respectively.
Operating income increased $20.0 million for the year ended December 31, 2016, and Adjusted EBITDA improved $83.8 million. For the year ended December 31, 2016, operating margin remained flat at 10.4% compared to 10.4% in the year ended January 2, 2016, which was attributable to the following:
| | | | Operating margin—2015
| | 10.4
| %
| Gross margin(1)
| | 3.0
| %
| Gain on asset disposals(2)
| | (1.6)
| %
| IPO costs(3)
| | 2.2
| %
| Legacy equity modification charges(4)
| | (2.5)
| %
| Other
| | (1.2)
| %
| Operating margin—2016
| | 10.3
| %
|
| (1)
| | The gross margin improvement was primarily a result of improved pricing, particularly a 7.2% pricing increase in aggregates.
|
| (2)
| | In the year ended December 31, 2016, we recognized a net $6.8 million gain on asset disposals compared to a net $23.5 million gain in the year ended January 2, 2016. Included in the 2015 amount was a $16.6 million gain on the cement terminal and related assets in Bettendorf, Iowa, which were part of the purchase consideration paid to acquire the Davenport Assets.
|
| (3)
| | In the year ended December 31, 2016, we did not have any IPO related costs compared to $28.3 million in the year ended January 2, 2016.
|
| (4)
| | In the year ended December 31, 2016, we recognized $37.3 million of stock-based compensation charges associated with certain LP Units converted and options granted at the time of the IPO for which the performance metrics were met or waived in 2016. We did not recognize any charges in the year ended January 2, 2016.
|
Other Financial Information
Loss on Debt Financings
In the year ended January 2, 2016, we recognized $71.6 million of losses associated with the: (1) March 2015 amendment to the Credit Agreement; (2) April 2015 $288.2 million redemption of 10 ½% senior notes due 2020 (the “2020 Notes”); (3) August 2015 term loan refinancing, $350.0 million issuance of 2023 Notes and $183.0 million redemption of 2020 Notes; and (4) November 2015 $153.8 million redemption of 2020 Notes. The write-off of deferred financing fees and original issuance discounts and premiums and the incurrence of prepayment premiums, all associated with the redemption of the 2020 Notes, are including in the loss on debt financings.
Income Tax Benefit
The income tax benefit decreased $13.0 million for the year ended December 31, 2016, due to the tax benefit associated with the loss on debt financings that was recognized in our C corporation subsidiaries in the year ended January 2, 2016.
Segment Results of Operations
West Segment
| | | | | | | | | | | | | ($ in thousands) | | 2016 | | 2015 | | Variance | | Net revenue | | $ | 736,573 | | $ | 719,485 | | $ | 17,088 | | 2.4 | % | Operating income | | | 100,659 | | | 96,498 | | | 4,161 | | 4.3 | % | Operating margin percentage | | | 13.7 | % | | 13.4 | % | | | | | | Adjusted EBITDA | | $ | 167,434 | | $ | 150,764 | | $ | 16,670 | | 11.1 | % |
The West segment’s net revenue increased 2.4% due to 2016 and 2015 acquisitions. Incremental net revenue from acquisitions totaled $66.0 million and organic net revenue decreased $48.9 million, $36.8 million of which occurred in our Austin, Texas operations. Gross revenue by product/service was as follows:
| | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 159,824 | | $ | 156,873 | | $ | 2,951 | | 1.9 | % | Ready-mix concrete | | | 294,961 | | | 266,210 | | | 28,751 | | 10.8 | % | Asphalt | | | 182,739 | | | 194,155 | | | (11,416) | | (5.9) | % | Paving and related services | | | 314,079 | | | 315,573 | | | (1,494) | | (0.5) | % | Other | | | (137,921) | | | (128,308) | | | (9,613) | | (7.5) | % | Total revenue | | $ | 813,682 | | $ | 804,503 | | $ | 9,179 | | 1.1 | % |
* Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
Gross revenue for paving and related services decreased $1.5 million for the year ended December 31, 2016. This decrease primarily occurred in the Austin, Texas operations. The West segment’s percent changes in sales volumes and pricing in 2016 from 2015 were as follows:
| | | | | | | | Percentage Change in | | | | Volume | | Pricing | | Aggregates | | (4.2) | % | 6.4 | % | Ready-mix concrete | | 11.1 | % | (0.3) | % | Asphalt | | 1.2 | % | (4.0) | % |
The decline in aggregates volumes was primarily in the British Columbia and Austin and Houston, Texas markets, which was partially offset by volume increases from the 2016 and 2015 acquisitions. Aggregates pricing improved across our markets and would have been greater, absent the effect from the U.S./Canadian exchange rate. The U.S. dollar was stronger as compared to the Canadian dollar for the year ended December 31, 2016 compared to the year ended January 2, 2016. Absent the effect of foreign currency fluctuations, aggregates pricing would have increased 7.1% for the year ended December 31, 2016.
The increase in ready-mix concrete volumes was primarily a result of the 2016 and 2015 acquisitions and pricing generally increased by mid-single digit percentages in the organic operations, but was affected by the geographic mix as ready-mix concrete producers acquired in 2015 were in lower-priced markets.
Asphalt pricing decreased consistent with lower input prices. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 31, 2016 was approximately $18.7 million and $1.6 million, respectively.
The West segment’s operating income increased $4.3 million in 2016 and Adjusted EBITDA improved $16.7 million. The improvement was driven by acquisitions, partially offset by a decline in the British Columbia and Austin and Houston, Texas operations. Operating margin for the year ended December 31, 2016 was relatively flat from 13.4% to 13.7% for the year ended January 2, 2016.
East Segment
| | | | | | | | | | | | | ($ in thousands) | | 2016 | | 2015 | | Variance | | Net revenue | | $ | 470,614 | | $ | 374,997 | | $ | 95,617 | | 25.5 | % | Operating income | | | 65,424 | | | 49,445 | | | 15,979 | | 32.3 | % | Operating margin percentage | | | 13.9 | % | | 13.2 | % | | | | | | Adjusted EBITDA | | $ | 126,007 | | $ | 92,303 | | $ | 33,704 | | 36.5 | % |
The East segment’s net revenue increased 25.5% in 2016 due to acquisitions. Incremental net revenue from acquisitions totaled $116.3 million and organic net revenue decreased $20.7 million. Gross revenue by product/service was as follows:
| | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | Variance | Revenue by product*: | | | | | | | | | | | | | Aggregates | | $ | 195,793 | | $ | 140,087 | | $ | 55,706 | | 39.8 | % | Ready-mix concrete | | | 101,636 | | | 84,344 | | | 17,292 | | 20.5 | % | Asphalt | | | 80,913 | | | 98,038 | | | (17,125) | | (17.5) | % | Paving and related services | | | 188,379 | | | 188,886 | | | (507) | | (0.3) | % | Other | | | (35,427) | | | (79,045) | | | 43,618 | | 55.2 | % | Total revenue | | $ | 531,294 | | $ | 432,310 | | $ | 98,984 | | 22.9 | % |
* Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
The East segment’s percent changes in sales volumes and pricing in 2016 from 2015 were as follows:
| | | | | | | | Percentage Change in | | | | Volume | | Pricing | | Aggregates | | 32.5 | % | 5.5 | % | Ready-mix concrete | | 15.7 | % | 4.1 | % | Asphalt | | (2.4) | % | (8.0) | % |
Aggregates volumes in 2016 increased 32.5% as a result of the 2016 acquisitions in Kansas, Virginia, and the Carolinas. Aggregates pricing increased as a result of an improved market and shift in product mix. Ready-mix concrete volumes improved in Kansas and Missouri and pricing increased across the East segment’s markets. Asphalt volumes decreased in Kentucky and Wichita, Kansas, as discussed above. Asphalt pricing decreased due to lower input costs. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in 2016 was approximately $51.2 million and $4.6 million, respectively.
The East segment’s operating income increased $16.0 million in 2016 and Adjusted EBITDA improved $33.7 million. Operating margin for the year ended December 31, 2016 was 13.9% and was relatively consistent with 13.2% for the year ended January 2, 2016.
Cement Segment
| | | | | | | | | | | | | ($ in thousands) | | 2016 | | 2015 | | Variance | | Net revenue | | $ | 281,087 | | $ | 195,484 | | $ | 85,603 | | 43.8 | % | Operating income | | | 82,521 | | | 64,950 | | | 17,571 | | 27.1 | % | Operating margin percentage | | | 29.4 | % | | 33.2 | % | | | | | | Adjusted EBITDA | | $ | 112,991 | | $ | 74,845 | | $ | 38,146 | | 51.0 | % |
Net revenue in the Cement segment increased $85.6 million in 2016 primarily as a result of the acquisition of the Davenport Assets in July 2015. Gross revenue by product/service was as follows:
| | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | Variance | Revenue by product*: | | | | | | | | | | | | | Cement | | $ | 256,046 | | $ | 173,845 | | $ | 82,201 | | 47.3 | % | Other | | | 25,041 | | | 21,639 | | | 3,402 | | 15.7 | % | Total revenue | | $ | 281,087 | | $ | 195,484 | | $ | 85,603 | | 43.8 | % |
* Revenue from waste processing and the elimination of intracompany transactions are included in Other.
The Cement segment’s percent changes in sales volumes and pricing in 2016 from 2015 were as follows:
| | | | | | | | Percentage Change in | | | | Volume | | Pricing | | Cement | | 37.0 | % | 7.5 | % |
In 2016, cement volumes and pricing increased primarily as a result of the acquisition of the Davenport Assets. With the acquisition of the Davenport Assets, we expanded our markets from Minnesota to Louisiana, which included higher-priced markets than St. Louis and Hannibal, Missouri. Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in 2016 was approximately $68.4 million and $13.9 million, respectively.
The Cement segment’s operating income increased $17.3 million in 2016 and Adjusted EBITDA improved $38.1 million. Operating margin for the year ended December 31, 2016 decreased from 33.0% for the year ended January 2, 2016 to 29.1%, which was attributable to the following:
| | | | Operating margin—2015
| | 33.0
| %
| Gain on disposal of Bettendorf assets(1)
| | (8.5)
| %
| Price improvements(2)
| | 4.9
| %
| Other
| | (0.3)
| %
| Operating margin—2016
| | 29.1
| %
|
| (1)
| | In the year ended January 2, 2016, we recognized a net $16.6 million gain on the cement terminal and related assets in Bettendorf, Iowa, which were part of the purchase consideration paid to acquire the Davenport Assets.
|
| (2)
| | Cement prices increased 7.5% in 2016, resulting in $13.9 million of additional revenue for the year ended December 31, 2016.
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Liquidity and Capital Resources Our primary sources of liquidity include cash on-hand, cash provided by our operations and amounts available for borrowing under our credit facilities and capital-raising activities in the debt capital markets. In addition to our current sources of liquidity, we have access to liquidity through public offerings of shares of our Class A common stock. To facilitate such offerings, in January 2017, we filed a shelf registration statement with the SEC that is effective for a term of three years and will expire in January 2020. The amount of Class A common stock to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific limit on the amount we may issue. The specifics of any future offerings, along with the use of the proceeds thereof, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. As of December 30, 2017,29, 2018, we had $383.6$128.5 million in cash and working capital of $533.6$330.9 million as compared to cash and working capital of $143.4$383.6 million and $244.4$533.6 million, respectively, at December 31, 2016.30, 2017. Working capital is calculated as current assets less current liabilities. There were no restricted cash balances as of December 30, 201729, 2018 or December 31, 2016.30, 2017. Our remaining borrowing capacity on our $235$235.0 million senior secured revolving credit facility as of December 30, 201729, 2018 was $218.9$219.6 million, which is net of $16.1$15.4 million of outstanding letters of credit, and is fully available to us within the terms and covenant requirements of our credit agreement. Given the seasonality of our business, we typically experience significant fluctuations in working capital needs and balances throughout the year. Our working capital requirements generally increase during the first half of the year as we build up inventory and focus on repair and maintenance and other set-up costs for the upcoming season. Working capital levels then decrease as the construction season winds down and we enter the winter months, which is when we see significant inflows of cash from the collection of receivables. We believe we have access to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures and debt service obligations, for at least the next twelve months. Our growth strategy contemplates future acquisitions for which we believe we have sufficient access to capital. As market conditions warrant we may, from time to time, seek to purchase our outstanding debt securities or loans, including Senior Notes and borrowings under our senior secured credit facilities. Such transactions could be privately negotiated, open market transactions, tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series. Please refer to the notes to the consolidated financial statements found elsewhere in this report for detailed information regarding our long-term debt and senior secured revolving credit facility, scheduled maturities of long-term debt and affirmative and negative covenants. Among other things, we are required to maintain a Consolidated First Lien Net Leverage Ratio that is no greater than 4.75 to 1.00. Our first lien net leverage ratio, for purposes of this maintenance requirement, is calculated following each quarter based on information for the most recently ended four fiscal quarters for which internal financial information is available by dividing our Consolidated First Lien Net Debt as of the end of such period by our Consolidated EBITDA for such period. Consolidated EBITDA for purposes of our senior secured credit facility is calculated in accordance with our presentation of Further Adjusted EBITDA below. We define Further Adjusted EBITDA as Adjusted EBITDA plus the EBITDA contribution of certain recent acquisitions. For the years ended December 30, 201729, 2018 and December 31, 2016,30, 2017, our Consolidated First Lien Net Leverage Ratio was 0.641.35 to 1.00 and 1.400.64 to 1.00, respectively, based on consolidated first lien net debt of $287.5$551.2 million and $536.9$287.5 million as of December 30, 201729, 2018 and December 31, 2016,30, 2017, respectively, divided by Further Adjusted EBITDA of $452.7$408.4 million and $382.4$452.7 million for the years ended December 30, 201729, 2018 and December 31, 2016,30, 2017, respectively. As of December 30, 201729, 2018 and December 31, 2016,30, 2017, we were in compliance with all debt covenants.
The following table sets forth a reconciliation of net income to Adjusted EBITDA and Further Adjusted EBITDA for the periods indicated. Adjusted EBITDA and Further Adjusted EBITDA are not U.S. GAAP measures and should not be considered in isolation, or as a substitute for our results as reported under U.S. GAAP. | | | | | | | | | | | ($ in thousands) | | 2017 | | 2016 | | 2015 | | Net income | | $ | 125,777 | | $ | 46,126 | | $ | 1,484 | | Interest expense | | | 108,549 | | | 97,536 | | | 84,629 | | Income tax benefit | | | (283,977) | | | (5,299) | | | (18,263) | | Depreciation, depletion, and amortization | | | 177,643 | | | 147,736 | | | 118,321 | | EBITDA | | $ | 127,992 | | $ | 286,099 | | $ | 186,171 | | Accretion | | | 1,875 | | | 1,564 | | | 1,402 | | IPO/Legacy equity modification costs(a) | | | — | | | 37,257 | | | 28,296 | | Loss on debt financings | | | 4,815 | | | — | | | 71,631 | | Tax receivable agreement expense | | | 271,016 | | | 14,938 | | | — | | Income from discontinued operations(b) | | | — | | | — | | | (2,415) | | Transaction costs(c) | | | 7,733 | | | 6,797 | | | 9,519 | | Management fees and expenses(d) | | | — | | | (1,379) | | | 1,046 | | Non-cash compensation(e) | | | 21,140 | | | 12,683 | | | 5,448 | | Other(f) | | | 1,206 | | | 13,388 | | | (13,570) | | Adjusted EBITDA | | $ | 435,777 | | $ | 371,347 | | $ | 287,528 | | EBITDA for certain acquisitions(g) | | | 16,919 | | | 11,074 | | | 20,450 | | Further Adjusted EBITDA | | $ | 452,696 | | $ | 382,421 | | $ | 307,978 | |
| | | | | | | | | | | | | | ($ in thousands) | | 2018 | | 2017 | | 2016 | Net income | | $ | 36,330 |
| | $ | 125,777 |
| | $ | 46,126 |
| Interest expense | | 116,548 |
| | 108,549 |
| | 97,536 |
| Income tax expense (benefit) | | 59,747 |
| | (283,977 | ) | | (5,299 | ) | Depreciation, depletion, and amortization | | 203,305 |
| | 177,643 |
| | 147,736 |
| EBITDA | | $ | 415,930 |
| | $ | 127,992 |
| | $ | 286,099 |
| Accretion | | 1,605 |
| | 1,875 |
| | 1,564 |
| IPO/Legacy equity modification costs | | — |
| | — |
| | 37,257 |
| Loss on debt financings | | 149 |
| | 4,815 |
| | — |
| Tax receivable agreement (benefit) expense | | (22,684 | ) | | 271,016 |
| | 14,938 |
| Gain on sale of business | | (12,108 | ) | | — |
| | — |
| Transaction costs(a) | | 4,238 |
| | 7,733 |
| | 6,797 |
| Management fees and expenses(b) | | — |
| | — |
| | (1,379 | ) | Non-cash compensation(c) | | 25,378 |
| | 21,140 |
| | 12,683 |
| Other(d) | | (6,247 | ) | | 1,206 |
| | 13,388 |
| Adjusted EBITDA | | $ | 406,261 |
| | $ | 435,777 |
| | $ | 371,347 |
| EBITDA for certain acquisitions(e) | | 2,119 |
| | 16,919 |
| | 11,074 |
| Further Adjusted EBITDA | | $ | 408,380 |
| | $ | 452,696 |
| | $ | 382,421 |
|
______________________ | | (a) | | The 2016 results included $49.9 million of stock-based compensation charges in general and administrative expenses. Prior to the IPO, certain investors had equity in the company that vested only if performance objectives of either a 1.75 or 3.00 times return on the initial investment by investment funds associated with or designated by The Blackstone Group L.P. and its affiliates (“Blackstone”) were met. At the IPO Date, this equity converted to LP Units and stock options. Prior to 2016, we did not recognize any expense associated with these awards as achievement of the multiples was not deemed probable. The 1.75 times return threshold was met following completion of Blackstone’s secondary offering of shares of our Class A common stock on July 19, 2016 and, in
|
August 2016, our board of directors waived the 3.00 times return threshold. As a result, in 2016, we recognized $37.3 million of cumulative catch up expense from the IPO date through September 2016. We will continue to recognize expense on the options over the remaining 4-year vesting period. The 2015 results included $28.3 million of costs associated with Summit Inc.’s IPO.
|
| (b)
| | Represents certain paving operations and railroad construction and repair operations we have exited.
|
| (c)
| | Represents the transaction expenses associated with closed and probable acquisitions, consisting primarily of accounting, legal, valuation and financial advisory fees for the acquisitions. |
| (d)
| (b) | | Represents certain fees paid and expenses reimbursed to affiliates of our former private equity sponsors. |
| (e)
| (c) | | Represents non-cash equity-based compensation granted to employees. |
| (f)
| (d) | | Represents the net (gain) loss recognized on assets identified for disposal. Includes non-recurring or one time income and expense items that were incurred outside normal operating activities such as integration costs, unrealized currency gains and losses and interest, tax, depreciation on unconsolidated joint ventures and fair value adjustments to contingent consideration obligations that originated with various acquisitions. |
| (g)
| (e) | | Under the terms of our credit facilities, we include EBITDA from our acquisitions, net of dispositions, in each fiscal year for periods prior to acquisition. We believe this provides our lenders with a more meaningful view of our EBITDA across all periods by making the information more comparable. |
At both December 29, 2018 and December 30, 2017, and December 31, 2016, $1.8 billion and $1.5 billion, respectively, of total debt werewas outstanding under our respective debt agreements. Summit LLC’s senior secured credit facilities provide for term loans in an aggregate amount of $650.0 million and revolving credit commitments in an aggregate amount of $235.0 million (the “Senior Secured Credit Facilities”). Summit LLC’s domestic wholly-owned subsidiary companies are named as guarantors of the Senior Notes and the Senior Secured Credit Facilities. Certain other partially-owned subsidiaries, and the wholly-owned Canadian subsidiary, Mainland, do not guarantee the Senior Notes or Senior Secured Credit Facilities. Summit LLC has pledged substantially all of its assets as collateral for the Senior Secured Credit Facilities. On January 19, 2017, Summit LLC entered into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement, which, among other things, reduced the applicable margin in respect of the $640.3 million outstanding principal amount of term loans thereunder. All other material terms and provisions remain substantially identical to the terms and provisions in place immediately prior to the effectiveness of Amendment No. 1. On November 21, 2017, Summit LLC entered into Amendment No. 2 to the Amended and Restated Credit Agreement, which, among other things, extended the maturity date from 2022 to 2024 and reduced the applicable margin in respect of the $635.4 million outstanding principal amount of term loans thereunder.On June 1, 2017, the Issuers issued $300.0 million in aggregate principal amount of 51/8% senior notes due June 1, 2025. The 2025 Notes were issued at par value, resulting in proceeds of $295.4 million, net of related fees and expenses. Interest on the 2025 Notes is payable semi-annually on June 1 and December 1 of each year commencing on December 1, 2017.
On March 8, 2016, the Issuers issued $250.0 million in aggregate principal amount of 2022 Notes. The 2022 Notes were issued at par and interestinterest on the 2022 Notes is payable semi-annually in arrears on April 15 and October 15 of each year commencing on October 15, 2016. The net proceeds of the 2022 Notes were used to fund the acquisition of Boxley Materials Company, replenish cash used for the acquisition of American Materials Company and pay expenses incurred therewith.In 2015, the Issuers issued $650.0 million aggregate principal amount of 2023 Notes due July 15, 2023 under an indenture dated July 8, 2015 –2015: $350.0 million on July 8, 2015 and $300.0 million on November 19, 2015. The July 2015 issuance of the 2023 notes was issued at par and the November 2015 add-on was issued at a discount. Interest on the 2023 notes is payable semi-annually in arrears on January 15 and July 15 of each year commencing on January 15, 2016. In 2015, $625.0 million aggregate principal amount of outstanding 2020 Notes due January 31, 2020, were redeemed –redeemed: $288.2 million in April 2015 using proceeds from the IPO, $183.0 million in August 2015 and $153.8 million in December 2015. On July 17, 2015, we refinanced our term loan under the Senior Secured Credit Facilities (the “Refinancing”). The Refinancing, among other things: (i) reduced the applicable margins used to calculate interest rates for term loans under our Senior Secured Credit Facilities to 3.25% for LIBOR rate loans and 2.25% for base rate loans, subject to a LIBOR floor of 1.00% (and one 25 basis point step down upon Summit LLC achieving a certain first lien net leverage ratio); (ii) increased term loans borrowed under our term loan facility from $422.0 million to $650.0 million; and (iii) created additional flexibility under the financial maintenance covenants, which are tested quarterly, by increasing the applicable maximum Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement). We used the net proceeds from the 2023 Notes and the Refinancing to finance the initial $370.0 million cash to purchase the Davenport Assets, to refinance our existing senior secured term loan facility, to redeem $183.0 million aggregate principal amount of our then outstanding 2020 Notes and to pay related fees and expenses. The following table summarizes our net cash provided by and used for operating, investing and financing activities and our capital expenditures for the periods indicated: | | | | | | | | | | | | | | | | | | | | | Summit Inc. | | Summit LLC | (in thousands) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | Net cash provided by (used for): | | | | | | | | | | | | | | | | | | | Operating activities | | $ | 292,183 | | $ | 244,863 | | $ | 98,203 | | $ | 295,132 | | $ | 244,877 | | $ | 98,203 | Investing activities | | | (552,475) | | | (470,652) | | | (584,347) | | | (552,475) | | | (470,652) | | | (584,347) | Financing activities | | | 499,755 | | | 182,707 | | | 660,337 | | | 497,526 | | | 182,990 | | | 659,320 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Summit Inc. | | Summit LLC | (in thousands) | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | Net cash provided by (used in): | | | | | | | | | | | | | Operating activities | | $ | 209,368 |
| | $ | 292,183 |
| | $ | 244,863 |
| | $ | 209,368 |
| | $ | 295,132 |
| | $ | 244,877 |
| Investing activities | | (419,699 | ) | | (552,475 | ) | | (470,652 | ) | | (419,699 | ) | | (552,475 | ) | | (470,652 | ) | Financing activities | | (43,993 | ) | | 499,755 |
| | 182,707 |
| | (43,993 | ) | | 497,526 |
| | 182,990 |
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During the year ended December 29, 2018, cash provided by operating activities was $209.4 million primarily as a result of: Net income of $36.3 million, adjusted for $263.6 million of non-cash expenses, including $208.8 million of depreciation, depletion, amortization and accretion, $25.4 million of share-based compensation and $57.5 million of change in deferred tax asset, net.
Billed and unbilled accounts receivable increased by $14.5 million in fiscal 2018 as a result of increased revenue from our acquisitions as compared to fiscal 2017.
The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business whereby we build-up inventory levels and incur repairs and maintenance costs to ready the business for increased sales volumes in the summer and fall. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $103.3 million of interest payments in 2018.
During the year ended December 30, 2017, cash provided by operating activities was $292.2 million primarily as a result of: | ·
| | Net income of $125.8 million, adjusted for $81.1 million of non-cash expenses, including $193.1 million of depreciation, depletion, amortization and accretion, $21.1 million of share-based compensation and $289.2 million of change in deferred tax asset, net.
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| ·
| | Billed and unbilled accounts receivable increased by $5.5 million in fiscal 2017 as a result of increased revenue from our acquisitions as compared to fiscal 2016.
|
| ·
| | Tax receivable agreement liability increased $273.2 million as noted above.
|
| ·
| | The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business whereby we build-up inventory levels and incur repairs and maintenance costs to ready the business for increased sales volumes in the summer and fall. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $96.3 million of interest payments in 2017.
| Net income of $125.8 million, adjusted for $81.1 million of non-cash expenses, including $193.1 million of depreciation, depletion, amortization and accretion, $21.1 million of share-based compensation and $289.2 million of change in deferred tax asset, net.
Billed and unbilled accounts receivable increased by $5.5 million in fiscal 2017 as a result of increased revenue from our acquisitions as compared to fiscal 2016.
Tax receivable agreement liability increased $273.2 million as noted above.
The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business whereby we build-up inventory levels and incur repairs and maintenance costs to ready the business for increased sales volumes in the summer and fall. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $96.3 million of interest payments in 2017.
During the year ended December 31, 2016, cash provided by operating activities was $244.9 million primarily as a result of: | ·
| | Net income of $46.1 million, adjusted for $201.9 million of non-cash expenses, including $160.6 million of depreciation, depletion, amortization and accretion and $49.9 million of share-based compensation.
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Net income of $46.1 million, adjusted for $201.9 million of non-cash expenses, including $160.6 million of depreciation, depletion, amortization and accretion and $49.9 million of share-based compensation.During the year ended January 2, 2016,December 29, 2018, cash provided by operatingused for investing activities was $98.2 million-primarily as$419.7 million, of which $246.0 million related to the 12 acquisitions completed in the period and $220.7 million was invested in capital expenditures, which was partially offset by $21.6 million of proceeds from asset sales. Additionally, in September 2018 we received $21.6 million of proceeds from the sale of a result of:non-core business in the West segment. | ·
| | Net income of $1.5 million, adjusted for $90.5 million of non-cash expenses, including $125.0 million of depreciation, depletion, amortization and accretion and $19.9 million of share-based compensation expense, partially offset by $23.1 million of net gain on asset disposals.
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| ·
| | $10.5 million of proceeds from improved collections of accounts receivable (billed and unbilled).
|
| ·
| | Approximately $18.6 million as a use of cash associated with the timing of accounts payable and accrued expense payments, including a $12.9 million decrease in interest payable as the 2015 year-end interest payment was made in fiscal 2015. We made $89.1 million of interest payments in 2015, including $56.4 million of prepayment premiums on the 2020 Notes, which were redeemed in 2015.
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Investing Activities
During the year ended December 30, 2017, cash used for investing activities was $552.5 million, of which $374.9 million related to the 14 acquisitions completed in the period and $194.1 million was invested in capital expenditures, which was partially offset by $17.1 million of proceeds from asset sales. During the year ended December 31, 2016, cash used for investing activities was $470.7 million, of which $337.0 million related to the nine acquisitions completed in the period andacquisitions. In addition, we invested $153.5 million was invested in capital expenditures, which was partially offset by $16.9 million of proceeds from asset sales. Financing Activities During the year ended January 2, 2016,December 29, 2018, cash used for investingprovided by financing activities was $584.3 million, of which $510.0 million related to the 2015 acquisitions. In addition, we invested $89.0 million in capital expenditures, partially offset by $13.1$44.0 million. We received $15.6 million of proceeds from asset sales.Financing Activities
stock option exercises and $64.5 million from proceeds of debt issuance, which was offset by $36.5 million of payments on acquisition related liabilities, and $85.0 million in debt payments. During the year ended December 30, 2017, cash provided by financing activities was $499.8 million, which was primarily composed of $237.6 million of net proceeds from the January 2017 issuance of 10,000,000 shares of Class A common stock and $295.4 million of proceeds from the 2025 Notes, net of related fees and expenses. We made $34.7 million of payments on acquisition related liabilities, and $16.4 million in debt payments. During the year ended December 31, 2016, cash provided by financing activities was $182.7 million, which was primarily composed of $246.3 million of proceeds from the 2022 Notes, net of fees. We made $32.0 million of payments on acquisition related liabilities, and $5.8 million in debt issuance costs. During the year ended January 2, 2016, cash provided by financing activities was $660.3 million, which was primarily composed of the following:
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| | $1,037.4 million of proceeds from Summit Inc.’s IPO and the August 2015 follow-on offering of shares of its Class A Common Stock;
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| | less $61.6 million of equity issuance fees;
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| | plus $648.1 million of proceeds from issuance of the 2023 Notes;
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| | plus $231.1 million of net proceeds from refinancing of our term loan under the senior secured credit facilities;
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| | less $35.0 million to purchase the noncontrolling interest of Continental Cement;
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| | less $462.8 million to purchase an aggregate 18,675,000 LP Units from certain of our pre-IPO owners;
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| | less $625.0 million to redeem the outstanding 2020 notes;
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| | less $14.2 million of debt issuance costs;
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| | less $18.1 million of payments on acquisition related liabilities; and
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| | less $28.7 million of distributions to pre-IPO owners.
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Cash Paid for Capital Expenditures We expended approximately $194.1$220.7 million in capital expenditures for the year ended December 30, 201729, 2018 compared to $153.5$194.1 million and $89.0$153.5 million in the years ended December 30, 2017 and December 31, 2016, and January 2, 2016, respectively. We estimate that we will invest between $210.0$160.0 million and $225.0$175.0 million in capital expenditures in 2018,2019, which we expect to fund through cash on hand, cash from operations, outside financing arrangements and available borrowings under our revolving credit facility. We expect to invest $32 million on the completion
Exchanges of LP Units for shares of Class A common stock are expected to result in increases in the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Summit Inc. would otherwise be required to pay in the future. In connection with the IPO, we entered into a TRA with the holders of LP Units that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. is deemed to realize as a result of these increases in tax basis and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. The increases in tax basis as a result of an exchange of LP Units for shares of Class A common stock, as well as the amount and timing of any payments under the TRA, are difficult to accurately estimate as they will vary depending upon a number of factors, including: | ·
| | the timing of exchanges—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable or amortizable assets of Summit Holdings at the time of each exchange;
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| | the price of shares of our Class A common stock at the time of the exchange—the increase in any tax deductions, as well as the tax basis increase in other assets, of Summit Holdings, is directly proportional to the price of shares of our Class A common stock at the time of the exchange;
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| | the extent to which such exchanges are taxable—if an exchange is not taxable for any reason, increased deductions will not be available;
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the timing of exchanges—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable or amortizable assets of Summit Holdings at the time of each exchange; | ·
| | the amount and timing of our income—Summit Inc. is required to pay 85% of the cash tax savings as and when realized, if any. If Summit Inc. does not have taxable income, Summit Inc. is not required (absent a change of control or circumstances requiring an early termination payment) to make payments under the TRA for that taxable year because no cash tax savings will have been realized. However, any tax attributes that do not result in realized benefits in a given tax year will likely generate tax attributes that may be utilized to generate benefits in previous or future tax years. The utilization of such tax attributes will result in cash tax savings that will result in payments under the tax receivable agreement; and
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| | the effective tax rate the price of shares of our Class A common stock at the time of the exchange—the increase in any tax deductions, as well as the tax basis increase in other assets, of Summit Holdings, is directly proportional to the price of shares of our Class A common stock at the time of the exchange;– The benefit that Summit Inc. realizes is dependent on the tax rate in effect at the time taxable income is generated. For example, at the end of 2017, the TCJA was enacted into law. Among other things, the federal corporate tax rate was reduced from 35% to 21%. As a result, the value of the additional benefits generated from the exchanges was reduced, and therefore, the TRA liability recorded by Summit Inc. was also reduced.
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the extent to which such exchanges are taxable—if an exchange is not taxable for any reason, increased deductions will not be available;
the amount and timing of our income—Summit Inc. is required to pay 85% of the cash tax savings as and when realized, if any. If Summit Inc. does not have taxable income, Summit Inc. is not required (absent a change of control or circumstances requiring an early termination payment) to make payments under the TRA for that taxable year because no cash tax savings will have been realized. However, any tax attributes that do not result in realized benefits in a given tax year will likely generate tax attributes that may be utilized to generate benefits in previous or future tax years. The utilization of such tax attributes will result in cash tax savings that will result in payments under the tax receivable agreement; and
the effective tax rate – The benefit that Summit Inc. realizes is dependent on the tax rate in effect at the time taxable income is generated.
We anticipate funding payments under the TRA from cash flows from operations, available cash and available borrowings under our Senior Secured Revolving Credit Facilities. As of December 30, 2017,29, 2018, we had accrued $331.9 $310.4 million as TRA liability. Other than $0.6$0.7 million which waswill be paid in January 2018,February 2019, the TRA liability is a long term liability as no additional payments are expected in the next twelve months. In addition, the TRA provides that upon certain changes of control, Summit Inc.’s (or its successor’s) obligations would be based on certain assumptions, including that Summit Inc. would have sufficient taxable income to fully utilize the deductions arising from tax basis and other tax attributes subject to the TRA. With respect to our obligations under the TRA relating to previously exchanged or acquired LP Units and certain net operating losses, we would be required to make a payment equal to the present value (at a discount rate equal to one year LIBOR plus 100 basis points) of the anticipated future tax benefits determined using assumptions (ii) through (v) of the following paragraph. Furthermore, Summit Inc. may elect to terminate the TRA early by making an immediate payment equal to the present value of the anticipated future cash tax savings. In determining such anticipated future cash tax savings, the TRA includes several assumptions, including that (i) any LP Units that have not been exchanged are deemed exchanged for the market value of the shares of Class A common stock at the time of termination, (ii) Summit Inc. will have sufficient taxable income in each future taxable year to fully realize all potential tax savings, (iii) Summit Inc. will have sufficient taxable income to fully utilize any remaining net operating losses subject to the TRA on a straight line basis over the shorter of the statutory expiration period for such net operating losses or the five-year period after the early termination or change of control, (iv) the tax rates for future years will be those specified in the law as in effect at the time of termination and (v) certain non-amortizable assets are deemed disposed of within specified time periods. In addition, the present value of such anticipated future cash tax savings are discounted at a rate equal to LIBOR plus 100 basis points. As a result of the change in control provisions and the early termination right, Summit Inc. could be required to make payments under the TRA that are greater than or less than the specified percentage of the actual cash tax savings that Summit
Inc. realizes in respect of the tax attributes subject to the TRA (although any such overpayment would be taken into account in calculating future payments, if any, under the TRA) or that are prior to the actual realization, if any, of such future tax benefits. Also, the obligations of Summit Inc. would be automatically accelerated and be immediately due and payable in the event that Summit Inc. breaches any of its material obligations under the agreement and in certain events of bankruptcy or liquidation. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity. Under the terms of the TRA, we can terminate the TRA at any time, which would trigger a cash payment to the pre-IPO owners. Based upon a $31.44$12.40 per share price of our Class A common stock, the closing price of our stock on December 30, 201729, 2018 and a contractually defined discount rate of 3.11%4.01%, we estimate that if we were to exercise our right to terminate the TRA, the aggregate amount required to settle the TRA would be approximately $282$259 million. The following table presents, as of December 30, 2017,29, 2018, our obligations and commitments to make future payments under contracts and contingent commitments (in thousands). | | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | (in thousands) | | | | | | | | | | | | | | | | | | | | | | Short term borrowings and long-term debt, including current portion | | $ | 1,835,375 | | $ | 4,765 | | $ | 6,354 | | $ | 7,942 | | $ | 6,354 | | $ | 256,354 | | $ | 1,553,606 | Capital lease obligations | | | 39,369 | | | 20,506 | | | 7,608 | | | 5,936 | | | 1,394 | | | 596 | | | 3,329 | Operating lease obligations | | | 32,754 | | | 8,627 | | | 7,077 | | | 5,826 | | | 4,650 | | | 2,475 | | | 4,099 | Interest payments (1) | | | 613,957 | | | 99,007 | | | 96,681 | | | 106,613 | | | 100,209 | | | 89,273 | | | 122,174 | Acquisition-related liabilities | | | 86,205 | | | 14,354 | | | 42,905 | | | 12,423 | | | 7,958 | | | 1,803 | | | 6,762 | Royalty payments | | | 107,231 | | | 6,450 | | | 6,017 | | | 5,833 | | | 5,550 | | | 5,431 | | | 77,950 | Defined benefit plans (2) | | | 9,148 | | | 1,402 | | | 1,020 | | | 109 | | | 1,696 | | | 1,259 | | | 3,662 | Asset retirement obligation payments | | | 67,873 | | | 4,626 | | | 2,858 | | | 2,560 | | | 1,199 | | | 1,949 | | | 54,681 | Purchase commitments (3) | | | 25,501 | | | 17,090 | | | 2,910 | | | 3,120 | | | 2,381 | | | — | | | — | Payments pursuant to tax receivable agreement (4) | | | 331,926 | | | 587 | | | — | | | — | | | — | | | — | | | 331,339 | Other | | | 9,532 | | | 5,008 | | | 2,433 | | | 1,832 | | | 173 | | | 86 | | | — | Total contractual obligations | | $ | 3,158,871 | | $ | 182,422 | | $ | 175,863 | | $ | 152,194 | | $ | 131,564 | | $ | 359,226 | | $ | 2,157,602 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | (in thousands) | | | | | | | | | | | | | | | Short term borrowings and long-term debt, including current portion | | $ | 1,830,611 |
| | $ | 6,354 |
| | $ | 7,942 |
| | $ | 6,354 |
| | $ | 256,354 |
| | $ | 656,354 |
| | $ | 897,253 |
| Capital lease obligations | | 54,857 |
| | 17,924 |
| | 13,876 |
| | 15,306 |
| | 3,023 |
| | 1,025 |
| | 3,703 |
| Operating lease obligations | | 46,380 |
| | 9,479 |
| | 8,101 |
| | 6,701 |
| | 4,279 |
| | 3,411 |
| | 14,409 |
| Interest payments (1) | | 540,480 |
| | 104,570 |
| | 107,466 |
| | 104,587 |
| | 93,594 |
| | 82,679 |
| | 47,584 |
| Acquisition-related liabilities | | 101,865 |
| | 34,355 |
| | 35,973 |
| | 9,705 |
| | 3,522 |
| | 2,774 |
| | 15,536 |
| Royalty payments | | 114,793 |
| | 7,124 |
| | 6,929 |
| | 6,665 |
| | 6,742 |
| | 6,656 |
| | 80,677 |
| Defined benefit plans (2) | | 16,875 |
| | 1,005 |
| | 1,108 |
| | 1,747 |
| | 1,277 |
| | 951 |
| | 10,787 |
| Asset retirement obligation payments | | 92,456 |
| | 4,032 |
| | 3,147 |
| | 1,814 |
| | 1,977 |
| | 2,385 |
| | 79,101 |
| Purchase commitments (3) | | 49,053 |
| | 43,621 |
| | 5,432 |
| | — |
| | — |
| | — |
| | — |
| Payments pursuant to tax receivable agreement (4) | | 310,369 |
| | 695 |
| | — |
| | 9,813 |
| | 19,408 |
| | 22,262 |
| | 258,191 |
| Other | | 23,278 |
| | 6,038 |
| | 10,756 |
| | 2,477 |
| | 2,205 |
| | 1,802 |
| | — |
| Total contractual obligations | | $ | 3,181,017 |
| | $ | 235,197 |
| | $ | 200,730 |
| | $ | 165,169 |
| | $ | 392,381 |
| | $ | 780,299 |
| | $ | 1,407,241 |
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______________________ | | (1) | | Future interest payments were calculated using the applicable fixed and floating rates charged by our lenders in effect as of December 30, 201729, 2018 and may differ from actual results. |
| | (2) | | Future payments to fund our defined benefit plans are estimated based on multiple assumptions which are enumerated in Note 14 to the consolidated financial statements included elsewhere in this report. |
| | (3) | | Amounts represent purchase commitments entered into in the normal course of business, primarily for fuel purchases, the terms of which are generally one year. |
| | (4) | | The total amount payable under our TRA is estimated at $331.9$310.4 million as of December 30, 2017.29, 2018. Under the terms of the TRA, payment of amounts benefittingbenefiting us is due to the pre-IPO owners within four months of the tax returns being submitted to the respective regulatory agencies when the benefits are realized. We currently are not estimating any benefits being realized through 2022.2020. The estimated timing of TRA payments is subject to a number of factors, primarily around the timing of the generation of future taxable income in future years, which will be impacted by business activity in those periods. |
Commitments and Contingencies We are party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current pending or threatened claims and litigation will not have a material effect on our consolidated financial position, results of operations financial position or liquidity. We record legal fees as incurred. Litigation
In March 2018, we were notified of an investigation by the CCB into pricing practices by certain asphalt paving contractors in British Columbia, including Winvan. We believe the investigation is focused on time periods prior to our April 2017 acquisition of Winvan and Claims—Wewe are obligated under an indemnification agreement entered intocooperating with the sellers of Harper Contracting, Inc., Harper Sand and Gravel, Inc., Harper Excavating, Inc., Harper Ready Mix Company, Inc. and Harper Investments, Inc. for the sellers’ ownership interests in a joint venture agreement. We have the rights to any benefits under the joint venture as well as the assumption of any obligations, butCCB. Although we currently do not own equity interests inbelieve this matter will have a
material adverse effect on our business, financial condition or results of operations, we are not able to predict the joint venture. The joint venture has incurred significant losses on a highway project in Utah, which have resulted in requests for funding fromultimate outcome or cost of the joint venture partners and ultimately from us. Through December 30, 2017, we have funded $12.3 million. In the third quarter of 2017, we settled our remaining obligations under the indemnification agreement for $3.5 million, which was $0.8 million less than amounts previously accrued.investigation at this time. Environmental Remediation and Site Restoration—Our operations are subject to and affected by federal, state, provincial and local laws and regulations relating to the environment, health and safety and other regulatory matters. These operations require environmental operating permits, which are subject to modification, renewal and revocation. We regularly monitor and review its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation of our business, as it is with other companies engaged in similar businesses and there can be no assurance that environmental liabilities and noncompliance will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity. Other—We are obligated under various firm purchase commitments for certain raw materials and services that are in the ordinary course of business. Management does not expect any significant changes in the market value of these goods and services during the commitment period that would have a material adverse effect on the financial condition, results of operations and cash flows of the Company. The terms of the purchase commitments generally approximate one year. Off-Balance Sheet Arrangements As of December 30, 2017,29, 2018, we had no material off-balance sheet arrangements.
Non-GAAP Performance Measures We evaluate our operating performance using metrics that we refer to as “Adjusted EBITDA,” “Adjusted Cash Gross Profit” and “Adjusted Cash Gross Margin” which are not defined by U.S. GAAP and should not be considered as an alternative to earnings measures defined by U.S. GAAP. We define Adjusted EBITDA as EBITDA, adjusted to exclude accretion, loss on debt financings, loss from discontinued operations and certain non-cash and non-operating items. We define Adjusted Cash Gross Profit as operating income before general and administrative expenses, depreciation, depletion, amortization and accretion and transaction costs and Adjusted Cash Gross Margin as Adjusted Cash Gross Profit as a percentage of net revenue. We present Adjusted EBITDA, Adjusted Cash Gross Profit and Adjusted Cash Gross Margin for the convenience of investment professionals who use such metrics in their analyses. The investment community often uses these metrics to assess the operating performance of a company’s business and to provide a consistent comparison of performance from period to period. We use these metrics, among others, to assess the operating performance of our individual segments and the consolidated company. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies’ non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements in their entirety and not rely on any single financial measure. The tables below reconcile our net income (loss) to EBITDA and Adjusted EBITDA and present Adjusted EBITDA by segment and reconcile operating income to Adjusted Cash Gross Profit for the periods indicated: | | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended December 30, 2017 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | | | | | | Net income (loss) (1) | | $ | 121,390 | | $ | 68,361 | | $ | 92,956 | | $ | (156,930) | | $ | 125,777 | Interest expense (income) (1) | | | 6,924 | | | 3,082 | | | (3,760) | | | 102,303 | | | 108,549 | Income tax expense (benefit) | | | 1,910 | | | (864) | | | — | | | (285,023) | | | (283,977) | Depreciation, depletion and amortization | | | 70,499 | | | 66,436 | | | 38,107 | | | 2,601 | | | 177,643 | EBITDA | | $ | 200,723 | | $ | 137,015 | | $ | 127,303 | | $ | (337,049) | | $ | 127,992 | Accretion | | | 815 | | | 816 | | | 244 | | | — | | | 1,875 | Loss on debt financings | | | — | | | — | | | — | | | 4,815 | | | 4,815 | Tax receivable agreement expense (1) | | | — | | | — | | | — | | | 271,016 | | | 271,016 | Transaction costs | | | (76) | | | — | | | — | | | 7,809 | | | 7,733 | Non-cash compensation | | | — | | | — | | | — | | | 21,140 | | | 21,140 | Other | | | 2,128 | | | 1,277 | | | — | | | (2,199) | | | 1,206 | Adjusted EBITDA (1) | | $ | 203,590 | | $ | 139,108 | | $ | 127,547 | | $ | (34,468) | | $ | 435,777 |
| | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended December 31, 2016 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | | | | | | Net income (loss) (1) | | $ | 86,040 | | $ | 66,661 | | $ | 79,280 | | $ | (185,855) | | $ | 46,126 | Interest expense (1) | | | 9,195 | | | 4,930 | | | 2,741 | | | 80,670 | | | 97,536 | Income tax expense (benefit) | | | 269 | | | (2,156) | | | — | | | (3,412) | | | (5,299) | Depreciation, depletion and amortization | | | 64,558 | | | 50,866 | | | 29,903 | | | 2,409 | | | 147,736 | EBITDA | | $ | 160,062 | | $ | 120,301 | | $ | 111,924 | | $ | (106,188) | | $ | 286,099 | Accretion | | | 787 | | | 674 | | | 103 | | | — | | | 1,564 | IPO/ Legacy equity modification costs | | | — | | | — | | | — | | | 37,257 | | | 37,257 | Tax receivable agreement expense (1) | | | — | | | — | | | — | | | 14,938 | | | 14,938 | Transaction costs | | | 382 | | | 25 | | | — | | | 6,390 | | | 6,797 | Management fees and expenses | | | — | | | — | | | — | | | (1,379) | | | (1,379) | Non-cash compensation | | | — | | | — | | | — | | | 12,683 | | | 12,683 | Other | | | 6,203 | | | 5,007 | | | 964 | | | 1,214 | | | 13,388 | Adjusted EBITDA (1) | | $ | 167,434 | | $ | 126,007 | | $ | 112,991 | | $ | (35,085) | | $ | 371,347 |
| | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended January 2, 2016 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | | | | | | Net income (loss) (1) | | $ | 69,282 | | $ | 29,565 | | $ | 48,673 | | $ | (146,036) | | $ | 1,484 | Interest expense (income) (1) | | | 22,806 | | | 21,213 | | | 15,965 | | | 24,645 | | | 84,629 | Income tax expense (benefit) | | | 558 | | | 10 | | | — | | | (18,831) | | | (18,263) | Depreciation, depletion and amortization | | | 53,118 | | | 38,242 | | | 24,646 | | | 2,315 | | | 118,321 | EBITDA | | $ | 145,764 | | $ | 89,030 | | $ | 89,284 | | $ | (137,907) | | $ | 186,171 | Accretion | | | 609 | | | 681 | | | 112 | | | — | | | 1,402 | IPO/ Legacy equity modification costs | | | — | | | — | | | 241 | | | 28,055 | | | 28,296 | Loss on debt financings | | | 3,238 | | | 4,035 | | | — | | | 64,358 | | | 71,631 | Income from discontinued operations | | | — | | | (2,415) | | | — | | | — | | | (2,415) | Transaction costs | | | 360 | | | — | | | — | | | 9,159 | | | 9,519 | Management fees and expenses | | | — | | | — | | | — | | | 1,046 | | | 1,046 | Non-cash compensation | | | — | | | — | | | 16 | | | 5,432 | | | 5,448 | Other | | | 793 | | | 972 | | | (14,808) | | | (527) | | | (13,570) | Adjusted EBITDA (1) | | $ | 150,764 | | $ | 92,303 | | $ | 74,845 | | $ | (30,384) | | $ | 287,528 |
| | | | | | | | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended December 29, 2018 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | Net income (loss) (1) | | $ | 109,363 |
| | $ | 58,579 |
| | $ | 83,148 |
| | $ | (214,760 | ) | | $ | 36,330 |
| Interest expense (income) (1) | | 5,064 |
| | 3,491 |
| | (6,815 | ) | | 114,808 |
| | 116,548 |
| Income tax expense | | 535 |
| | 32 |
| | — |
| | 59,180 |
| | 59,747 |
| Depreciation, depletion and amortization | | 91,224 |
| | 74,463 |
| | 34,996 |
| | 2,622 |
| | 203,305 |
| EBITDA | | $ | 206,186 |
| | $ | 136,565 |
| | $ | 111,329 |
| | $ | (38,150 | ) | | $ | 415,930 |
| Accretion | | 570 |
| | 970 |
| | 65 |
| | — |
| | 1,605 |
| Loss on debt financings | | — |
| | — |
| | — |
| | 149 |
| | 149 |
| Tax receivable agreement benefit (1) | | — |
| | — |
| | — |
| | (22,684 | ) | | (22,684 | ) | Gain on sale of business | | (12,108 | ) | | — |
| | — |
| | — |
| | (12,108 | ) | Transaction costs | | (3 | ) | | — |
| | — |
| | 4,241 |
| | 4,238 |
| Non-cash compensation | | — |
| | — |
| | — |
| | 25,378 |
| | 25,378 |
| Other (2) | | (5,646 | ) | | 497 |
| | — |
| | (1,098 | ) | | (6,247 | ) | Adjusted EBITDA (1) | | $ | 188,999 |
| | $ | 138,032 |
| | $ | 111,394 |
| | $ | (32,164 | ) | | $ | 406,261 |
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| | | | | | | | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended December 30, 2017 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | Net income (loss) (1) | | $ | 121,390 |
| | $ | 68,361 |
| | $ | 92,956 |
| | $ | (156,930 | ) | | $ | 125,777 |
| Interest expense (income) (1) | | 6,924 |
| | 3,082 |
| | (3,760 | ) | | 102,303 |
| | 108,549 |
| Income tax expense (benefit) | | 1,910 |
| | (864 | ) | | — |
| | (285,023 | ) | | (283,977 | ) | Depreciation, depletion and amortization | | 70,499 |
| | 66,436 |
| | 38,107 |
| | 2,601 |
| | 177,643 |
| EBITDA | | $ | 200,723 |
| | $ | 137,015 |
| | $ | 127,303 |
| | $ | (337,049 | ) | | $ | 127,992 |
| Accretion | | 815 |
| | 816 |
| | 244 |
| | — |
| | 1,875 |
| Loss on debt financings | | — |
| | — |
| | — |
| | 4,815 |
| | 4,815 |
| Tax receivable agreement expense | | — |
| | — |
| | — |
| | 271,016 |
| | 271,016 |
| Transaction costs | | (76 | ) | | — |
| | — |
| | 7,809 |
| | 7,733 |
| Non-cash compensation | | — |
| | — |
| | — |
| | 21,140 |
| | 21,140 |
| Other | | 2,128 |
| | 1,277 |
| | — |
| | (2,199 | ) | | 1,206 |
| Adjusted EBITDA (1) | | $ | 203,590 |
| | $ | 139,108 |
| | $ | 127,547 |
| | $ | (34,468 | ) | | $ | 435,777 |
|
| | | | | | | | | | | | | | | | | | | | | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Year ended December 31, 2016 | by Segment | | West | | East | | Cement | | Corporate | | Consolidated | ($ in thousands) | | | | | | | | | | | Net income (loss) (1) | | $ | 86,040 |
| | $ | 66,661 |
| | $ | 79,280 |
| | $ | (185,855 | ) | | $ | 46,126 |
| Interest expense (1) | | 9,195 |
| | 4,930 |
| | 2,741 |
| | 80,670 |
| | 97,536 |
| Income tax expense (benefit) | | 269 |
| | (2,156 | ) | | — |
| | (3,412 | ) | | (5,299 | ) | Depreciation, depletion and amortization | | 64,558 |
| | 50,866 |
| | 29,903 |
| | 2,409 |
| | 147,736 |
| EBITDA | | $ | 160,062 |
| | $ | 120,301 |
| | $ | 111,924 |
| | $ | (106,188 | ) | | $ | 286,099 |
| Accretion | | 787 |
| | 674 |
| | 103 |
| | — |
| | 1,564 |
| IPO/ Legacy equity modification costs | | — |
| | — |
| | — |
| | 37,257 |
| | 37,257 |
| Tax receivable agreement expense (1) | | — |
| | — |
| | — |
| | 14,938 |
| | 14,938 |
| Transaction costs | | 382 |
| | 25 |
| | — |
| | 6,390 |
| | 6,797 |
| Management fees and expenses | | — |
| | — |
| | — |
| | (1,379 | ) | | (1,379 | ) | Non-cash compensation | | — |
| | — |
| | — |
| | 12,683 |
| | 12,683 |
| Other | | 6,203 |
| | 5,007 |
| | 964 |
| | 1,214 |
| | 13,388 |
| Adjusted EBITDA (1) | | $ | 167,434 |
| | $ | 126,007 |
| | $ | 112,991 |
| | $ | (35,085 | ) | | $ | 371,347 |
|
______________________ | | (1) | | The reconciliation of net income (loss) to Adjusted EBITDA is based on the financial results of Summit Inc. and its subsidiaries, which was $27.5 million, $8.3 million $16.0 million and $0.9$16.0 million less than Summit LLC and its subsidiaries in the years ended December 29, 2018, December 30, 2017 and December 31, 2016, and January 2, 2016, respectively, due to interest expense associated with a deferred consideration obligation, TRA expense and income tax benefit are obligations of Summit Holdings and Summit Inc., respectively, and are thus excluded from Summit LLC’s consolidated net income. |
| | | | | | | Reconciliation of Working Capital | | 2017 | | 2016 | ($ in thousands) | | | | | | | Total current assets | | $ | 783,601 | | $ | 483,698 | Less total current liabilities | | | (249,975) | | | (239,288) | Working capital | | $ | 533,626 | | $ | 244,410 |
| | | | | | | | | | Reconciliation of Operating Income to Adjusted Cash Gross Profit | 2017 | | 2016 | | 2015 | | ($ in thousands) | | | | | | | | | | Operating income | $ | 220,877 | | $ | 154,662 | | $ | 135,024 | | General and administrative expenses | | 242,670 | | | 243,512 | | | 177,769 | | Depreciation, depletion, amortization and accretion | | 179,518 | | | 149,300 | | | 119,723 | | Transaction costs | | 7,733 | | | 6,797 | | | 9,519 | | Adjusted Cash Gross Profit (exclusive of items shown separately) | $ | 650,798 | | $ | 554,271 | | $ | 442,035 | | Adjusted Cash Gross Profit Margin (exclusive of items shown separately) (1) | | 37.1 | % | | 37.2 | % | | 34.3 | % |
| (1)
| (2) | For the year ended December 29, 2018, we negotiated a $6.9 million reduction in the amount of a contingent liability from one of our acquisitions. As we had passed the period to revise the opening balance sheet for this acquisition, the adjustment was recorded as other income. |
| | | | | | | | | | Reconciliation of Working Capital | | 2018 | | 2017 | ($ in thousands) | | | | | Total current assets | | $ | 591,540 |
| | $ | 783,601 |
| Less total current liabilities | | (260,657 | ) | | (249,975 | ) | Working capital | | $ | 330,883 |
| | $ | 533,626 |
|
| | | | | | | | | | | | | | Reconciliation of Operating Income to Adjusted Cash Gross Profit | | 2018 | | 2017 | | 2016 | ($ in thousands) | | | | | | | Operating income | | $ | 162,466 |
| | $ | 220,877 |
| | $ | 154,662 |
| General and administrative expenses | | 253,609 |
| | 242,670 |
| | 243,512 |
| Depreciation, depletion, amortization and accretion | | 204,910 |
| | 179,518 |
| | 149,300 |
| Transaction costs | | 4,238 |
| | 7,733 |
| | 6,797 |
| Adjusted Cash Gross Profit (exclusive of items shown separately) | | $ | 625,223 |
| | $ | 650,798 |
| | $ | 554,271 |
| Adjusted Cash Gross Profit Margin (exclusive of items shown separately) (1) | | 32.7 | % | | 37.1 | % | | 37.2 | % |
_____________________ | | (1) | Adjusted Cash Gross Margin, is defined as Adjusted Cash Gross Profit as a percentage of net revenue. |
Critical Accounting Policies Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period.
On an ongoing basis, management evaluates its estimates, including those related to the valuation of accounts receivable, inventories, goodwill, intangibles and other long-lived assets, pension and other postretirement obligations and asset retirement obligations. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Acquisitions—Purchase Price Allocation We regularly review strategic long-term plans, including potential investments in value-added acquisitions of related or similar businesses, which would increase our market share and/or are related to our existing markets. When an acquisition is completed, our consolidated statement of operations includes the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained. The purchase price is determined based on the fair value of assets given to and liabilities assumed from the seller as of the date of acquisition. We allocate the purchase price to the fair values of the tangible and intangible assets acquired and liabilities assumed as valued at the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. The estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions and the amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can significantly affect the results of operations in the period of and periods subsequent to a business combination. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. We assign the highest level of fair value available to assets acquired and liabilities assumed based on the following options: | ·
| | Level 1—Quoted prices in active markets for identical assets and liabilities.
|
| ·
| | Level 2—Observable inputs, other than quoted prices, for similar assets or liabilities in active markets.
| Level 1—Quoted prices in active markets for identical assets and liabilities. | ·
| | Level 3—Unobservable inputs, which includes the use of valuation models.
|
Level 2—Observable inputs, other than quoted prices, for similar assets or liabilities in active markets.
Level 3—Unobservable inputs, which includes the use of valuation models.
Level 2 inputs are typically used to estimate the fair value of acquired machinery, equipment and land and assumed liabilities for asset retirement obligations, environmental remediation and compliance obligations and contingencies. Level 3 inputs are used to estimate the fair value of acquired mineral reserves, mineral interests and separately-identifiable intangible assets. There is a measurement period after the acquisition date during which we may adjust the amounts recognized for a business combination. Any such adjustments are based on us obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement period adjustments are generally recorded as increases or decreases to the goodwill recognized in the transaction. The measurement period ends once we have obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of acquisition. Any adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded in earnings. We paid cash of $374.9$246.0 million and $337.0$374.9 million, net of cash acquired, in business combinations and allocated this amount to assets acquired and liabilities assumed during the years ended December 29, 2018 and December 30, 2017, and December 31, 2016, respectively. Goodwill is tested annually for impairment and in interim periods if events occur indicating that the carrying amounts may be impaired. The evaluation involves the use of significant estimates and assumptions and considerable management judgment. Our judgments regarding the existence of impairment indicators and future cash flows are based on operational performance of our businesses, market conditions and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use, including estimates of future cash flows, volumes, market penetration and discount rates, are consistent with our internal planning. The estimated future cash flows are derived from internal operating budgets and forecasts for long-term demand and pricing in our industry and markets. If these estimates or their related
assumptions change in the future, we may be required to record an impairment charge on all or a portion of our goodwill. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor the affect such events might have on our reported values. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses are impaired. Any resulting impairment loss could have an adverse effect on our financial condition and results of operations. The annual goodwill test is performed by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If, as a result of the qualitative assessment, it is determined that an impairment is more likely than not, we are then required to perform the two-step quantitative impairment test, otherwise further analysis is not required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether we choose to perform the qualitative assessment or proceed directly to the two-step quantitative impairment test. Under the two-step quantitative impairment test, step one of the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. We use a discounted cash flow (“DCF”) model to estimate the current fair value of our reporting units when testing for impairment, as management believes forecasted cash flows are the best indicator of fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including macroeconomic trends in the reporting unit’s geographic area impacting private construction and public infrastructure industries, the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future sales and the appropriate interest rate used to discount the projected cash flows. We also perform a market assessment of our enterprise value. We believe the estimates and assumptions used in the valuations are reasonable. In conjunction with our annual review of goodwill on the first day of the fourth quarter, we performed the qualitative assessment for twelve reporting units. As a result of this analysis, we determined that it is more likely than not that the fair value of the five reporting units was greater than its carrying value. We performed Step 1 of the impairment test for the remaining seven reporting units, for which all had estimated fair values exceeding carrying values by at least 10%. As of December 30, 2017,29, 2018, we determined that no events or circumstances from October 2, 20171, 2018 through December 30, 201729, 2018 indicated that a further assessment was necessary. Revenue Recognition We earn revenue from predominately from the sale of construction materials, products and providing paving and related services. Construction materials consist primarily of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related service revenue is generated primarily from the asphalt paving services that we provide. To a lesser degree, we also generate revenue from landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants, and underground storage space rental.
Products
We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products and plastics components, and from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants and underground storage space rental.
Products
We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products, net of discounts or allowances, if any, and freight and delivery charges billed to customers. Freight and delivery charges associated with cement sales are recorded on a net basis together with freight costs within cost of sales. Revenue for product sales is recognized when evidence of an arrangement exists the fee is fixed or determinable, titleand when control passes, which generally is generally when the product is shipped, and collection is reasonably assured.shipped.
Aggregates and cement products are sold point-of-sale through purchase orders. When the product is sold on account, collectability typically occurs 30-6030 to 60 days after the sale. Revenue is recognized when cash is received from the customer at the point of sale or when the products are delivered or collected on site. There are no other timing implications that will create a contract asset or liability, and contract modifications are unlikely given the timing and nature of the transaction. Material sales are likely to have multiple performance obligations if the product is sold with delivery. In these instances, delivery most often occurs on the same day as the control of the product transfers to the customer. As a result, even in the case of multiple performance obligations, the performance obligations are satisfied concurrently and revenue is recognized simultaneously. Services
We earn revenue from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants, and underground
storage space rental. Revenue from the receipt of waste fuels is recognized when the waste is accepted and a corresponding liability is recognized for the costs to process the waste into fuel for the manufacturing of cement or to ship the waste offsite for disposal in accordance with applicable regulations.
Collectability of service contracts is due reasonably after certain milestones in the contract are performed. Milestones vary by project, but are typically calculated using monthly progress based on the percentage of completion or a customer’s engineeredengineer review of progress. The majority of the time, collection occurs within 90 days of billing and cash is received within the same fiscal year as services performed. On most projects, the customer will withhold a portion of the invoice for retainage, which may last longer than a year depending on the job.
Revenue derived from paving and related services areis recognized using the percentage-of-completionpercentage of completion method, of accounting.which approximates progress towards completion. Under the percentage-of-completionpercentage of completion method, we recognize paving and related services revenue as services are rendered. The majority of our construction service contracts are completed within one year, but may occasionally extend beyond this time frame. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on input measures. We generally measure progress toward completion on long-term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion. We include revisions of estimated profits on contracts in earnings under the cumulative catch-up method, under which the effect of revisions in estimates is recognized immediately. If a revised estimate of contract profitability reveals an anticipated loss on the contract, we recognize the loss in the period it is identified.
The percentage-of-completionpercentage of completion method of accounting involves the use of various estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications or other disputes. Contract estimates involve various assumptions and projections relative to the outcome of future events over multiple periods, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the effect of delayed performance, and the availability and timing of funding from the customer. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts. We review our contract estimates regularly to assess revisions in contract values and estimated costs at completion. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. No material adjustments to a contract were recognized between 2016 andin the year ended December 29, 2018.
We recognize revenue arising from litigation and claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim.
When the contract includes variable consideration, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. The amount of estimated variable consideration included in the transaction price is the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Types of variable consideration include, but are not limited to, liquidated damages and other performance penalties and production and placement bonuses.
The majority of contract modifications relate to the original contract and are often an extension of the original performance obligation. Predominately, modifications are not distinct from thosethe terms in the original contract; therefore, they are considered part of a single performance obligation. Summit accountsWe account for the modification using a cumulative catch-up adjustment. However, there are instances where goods or services in a modification are distinct from those transferred prior to the modification. In these situations, Summit accountswe account for the modifications as either a separate contract or prospectively depending on the facts and circumstances of the modification.
Generally, construction contracts contain mobilization costs which are categorized as costs to fulfill a contract. These costs are excluded from any measure of progress toward contract fulfillment. These costs do not result in the transfer of control of a good or service to the customer and are amortized over the life of the contract.
Costs and estimated earnings in excess of billings are composed principally of revenue recognized on contracts on the percentage of completion method for which billings had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, the unbilled receivables at the balance sheet date are expected to be billed in following periods. Billings in excess of costs and estimated earnings represent billings in excess of revenue recognized. Contract assets and liabilities are netted on a contract-by-contract basis.
Summit Inc. is a corporation subject to income taxes in the United States. Certain subsidiaries, including Summit Holdings, or subsidiary groups of the Company are taxable separate from Summit Inc. The provisions for income taxes, or Summit Inc.’s proportional share of the provision, are included in the Company’s consolidated financial statements. The Company’s deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies to determine whether we may seek to utilize any net operating loss carryforwards scheduled to expire in the near future. The computed deferred balances are based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines it would be able to realize its deferred tax assets for which a valuation allowance had been recorded, then an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company evaluates the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit. Tax Receivable Agreement— When Summit Inc. purchases LP Units for cash or LP Units are exchanged for shares of Class A common stock, this results in increases in Summit Inc.’s share of the tax basis of the tangible and intangible assets of Summit Holdings, which increases the tax depreciation and amortization deductions that otherwise would not have been available to Summit Inc. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. In connection with our IPO, we entered into a TRA with the holders of the LP Units and the pre-IPO owners that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. actually realizes (or, under certain circumstances such as an early termination of the TRA is deemed to realize) as a result of (i) these increases in tax basis and (ii) our utilization of certain net operating losses of the pre-IPO owners and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. The increases in tax basis as a result of an exchange of LP Units for shares of Class A common stock, as well as the amount and timing of any payments under the TRA, are difficult to accurately estimate, as they will vary depending on a number of factors, including the timing of the exchanges, the price of our Class A common stock at the time of the exchange, the extent to which the exchanges are taxable, the amount of net operating losses, and the amount and timing of our income. We periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common stock. Our evaluation considers all sources of taxable income; all evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of the deferred tax assets. If the deferred tax assets are determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability of 85% of such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets subject to the TRA. Should we determine a deferred tax asset with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies. The measurement of the TRA is accounted for as a contingent liability. Therefore, once we determine that a payment to a pre-IPO owner has become probable and can be estimated, the estimate of payment is accrued. New Accounting Pronouncements Not Yet Adopted In May 2014,August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”("ASU") No. 2014-09, Revenue from Contracts with Customers,2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which prescribesreduces the accounting
complexity for implementing a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP.cloud computing arrangement. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAPaligns with the capitalization of implementation costs among hosting arrangements and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. In applying these ASUs, an entity is permitted to use either the full retrospective or cumulative effect transition approach. We plan to adopt these ASU’s using the modified retrospective approach. We have evaluated the impact of adoption of these standards on our consolidated financial statements, which was not material.In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business. This ASU provides a screen to determine whether a group of assets constitutes a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (2) removes the evaluation of whether a market participant could replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. The ASU is effective for public companies for annual periods beginning after December 15, 2017. The adoption of this ASU will not have a material impact on the consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, allowing more financial and nonfinancial hedging strategies to be eligible for hedge accounting.develop internal-use software. The ASU is effective for fiscal years beginning after December 15, 2018,2019 and interim periods within those fiscal years. TheEarly adoption is permitted. We are compiling a list of contracts and are beginning to assess the impact of adopting this ASU is not expected to have a material impact on the consolidated financial statements.
ASU.
In February 2016,August 2018, the FASB issued ASU No. 2016-02, Leases,2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework Changes to The Disclosure Requirements for Defined Benefits Plans, which will result in lessees recognizing most leases onmodifies the balance sheet. Lessees are required to disclose more quantitativedisclosure requirements of employer-sponsored defined benefit and qualitative information about their leases than current U.S. GAAP requires.other postretirement benefits plans. The ASU is effective for public entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, beginning after December 15, 2018.years. Early adoption is permitted. We are evaluating the newadditional disclosure requirements but have not yet determinedand beginning to assess the impact on our consolidated financial statements.of adopting this ASU.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. Our operations are highly dependent upon the interest rate‑sensitive construction industry as well as the general economic environment. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs. Management has considered the current economic environment and its potential effect to our business. Demand for materials‑based products, particularly in the residential and nonresidential construction markets, could decline if companies and consumers are unable to obtain financing for construction projects or if an economic recession causes delays or cancellations to capital projects. Additionally, in preceding years, declining tax revenue, state budget deficits and unpredictable or inconsistent federal funding have negatively affected states’ abilities to finance infrastructure construction projects. Commodity and Energy Price Risk
We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates, cement, ready‑mix concrete and asphalt paving mix production, natural gas for hot mix asphalt production and diesel fuel for distribution vehicles and production related mobile equipment. Liquid asphalt escalators in most of our public infrastructure contracts limit our exposure to price fluctuations in this commodity, and we seek to obtain escalators on private and commercial contracts. Similarly, in periods of decreasing oil prices, a portion of the cost savings will be recouped by our end customers. Changes in oil prices also could affect demand in certain of our markets, particularly in Midland/Odessa, Texas and indirectly in Houston, Texas, which collectively represented approximately 11.5% of our consolidated revenue in 2017. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials. For the year ended December 30, 2017,29, 2018, our costs associated with liquid asphalt and energy amounted to approximately $198.5$239.6 million. Accordingly, a 10% increase or decrease in the total cost of liquid asphalt and energy would have decreased or increased, respectively, our operating results for the year by approximately $19.9$24.0 million. However, this does not take into consideration liquid asphalt escalators in certain contracts or forward purchase commitments put into place before December 30, 2017.29, 2018. Inflation rates in recent years have not been a significant factor in our revenue or earnings due to relatively low inflation and our ability to recover increasing costs by obtaining higher prices for our products, including sale price escalators in place for most public infrastructure sector contracts. Inflation risk varies with the level of activity in the construction industry, the number, size and strength of competitors and the availability of products to supply a local market. In 2014, we expanded our operations into Canada with the acquisition of Mainland. With this expansion, we became subject to foreign currency risk related to changes in the U.S. dollar/Canadian dollar exchange rates. A 10% adverse change in foreign currency rates from December 20172018 levels would not have had a material effect on our financial condition, results of operations or liquidity. As of December 30, 2017,29, 2018, we had $635$630.6 million in term loans outstanding which bear interest at a variable rate. As of December 30, 2017,29, 2018, the rate in effect was the one‑month LIBOR of 1.57%2.52%. Therefore, a 100 basis point increase in the interest
rate at December 30, 201729, 2018 would only have increased the rate from 1.57%2.52% to 2.57%3.52%, the effect of which would have been an increase of $6.4$6.3 million on annual interest expense. On January 19, 2017, we amended the Credit Agreement and, as a result, the floor decreased from 1.00% to 0.75% . and the applicable margin was reduced. On November 21, 2017, Summit LLC entered into Amendment No. 2 to the Amended and Restated Credit Agreement, which, among other things, extended the maturity date from 2022 to 2024 and reduced the applicable margin in respect of the $635.4 million outstanding principal amount of term loans thereunder. On May 22, 2018, Summit LLC entered into Amendment No. 3 to the Amended and Restated Credit Agreement, which further reduced the applicable margin in respect of the $633.8 million outstanding principal amount of term loans thereunder.The Company has entered into interest rate derivatives on $200.0 million of its term loan borrowings to add stability to interest expense and to manage its exposure to interest rate movements. The derivative is set to expire in September 2019. At our cement plants, we sponsored two non‑contributory defined benefit pension plans for certain hourly and salaried employees and onetwo healthcare and life insurance benefits planplans for certain eligible retired employees. As of January 2014, the two pension plans had been frozen to new participants and future benefit accruals and the healthcare and life insurance benefit plan has been amended to eliminate all future retiree health and life coverage for current employees. As a result of the acquisition of the Davenport Assets in 2015, the hourly defined benefit pension plan was amended to permit a new group of participants into the plan to accrue benefits in accordance with the terms of the collective bargaining agreement covering such Davenport employees. As a result of the collective bargaining unit negotiations in 2017, the hourly defined benefit pension plan was amended to stop future benefit accruals for the Davenport employees effective December 31, 2017. In addition, the company adopted one new retiree healthcare plan to provide benefits prior to Medicare eligibility for certain hourly Davenport employees. Our results of operations are affected by our net periodic benefit cost from these plans, which was $1.0 million in 2017. Assumptions that affect this expense include the discount rate and, for the pension plans only, the expected long‑term rate of return on assets. Therefore, we have interest rate risk associated with these factors. The healthcare and life insurance benefit plans are exposed to changes in the cost of healthcare services. A one percentage‑point increase or decrease in assumed health care cost trend rates would have affected the accumulated postretirement benefit obligation by approximately $0.9$0.8 million or $(0.8)$(0.7) million, respectively, at December 30, 2017.29, 2018.
ITEM 8.FINANCIAL8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Registered Public Accounting Firm To the stockholdersStockholders and boardBoard of directors
Directors
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Summit Materials, Inc. and subsidiaries (the “Company”)Company) as of December 30, 201729, 2018 and December 31, 2016,30, 2017, the related consolidated statements of operations, comprehensive loss, changes in redeemable noncontrolling interest and stockholders’ equity, and cash flows for each of the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 201729, 2018 and December 31, 2016,30, 2017, and the results of its operations and its cash flows for each of the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of December 30, 2017,29, 2018, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 14, 20186, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2012. SUMMIT MATERIALS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 29, 2018 and December 30, 2017 and December 31, 2016 (In thousands, except share and per share amounts) | | | | | | | | | | 2017 | | 2016 | | Assets | | | | | | | | Current assets: | | | | | | | | Cash and cash equivalents | | $ | 383,556 | | $ | 143,392 | | Accounts receivable, net | | | 198,330 | | | 162,377 | | Costs and estimated earnings in excess of billings | | | 9,512 | | | 7,450 | | Inventories | | | 184,439 | | | 157,679 | | Other current assets | | | 7,764 | | | 12,800 | | Total current assets | | | 783,601 | | | 483,698 | | Property, plant and equipment | | | 1,615,424 | | | 1,446,452 | | Goodwill | | | 1,036,320 | | | 782,212 | | Intangible assets | | | 16,833 | | | 17,989 | | Deferred tax assets | | | 284,092 | | | 4,326 | | Other assets | | | 51,063 | | | 46,789 | | Total assets | | $ | 3,787,333 | | $ | 2,781,466 | | Liabilities and Stockholders’ Equity | | | | | | | | Current liabilities: | | | | | | | | Current portion of debt | | $ | 4,765 | | $ | 6,500 | | Current portion of acquisition-related liabilities | | | 14,087 | | | 24,162 | | Accounts payable | | | 98,744 | | | 81,565 | | Accrued expenses | | | 116,629 | | | 111,605 | | Billings in excess of costs and estimated earnings | | | 15,750 | | | 15,456 | | Total current liabilities | | | 249,975 | | | 239,288 | | Long-term debt | | | 1,810,833 | | | 1,514,456 | | Acquisition-related liabilities | | | 58,135 | | | 32,664 | | Tax receivable agreement liability | | | 331,340 | | | 58,145 | | Other noncurrent liabilities | | | 65,329 | | | 76,874 | | Total liabilities | | | 2,515,612 | | | 1,921,427 | | Commitments and contingencies (see note 16) | | | | | | | | Stockholders’ equity: | | | | | | | | Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 110,350,594 and 96,033,222 shares issued and outstanding as of December 30, 2017 and December 31, 2016, respectively | | | 1,104 | | | 961 | | Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 100 shares issued and outstanding as of December 30, 2017 and December 31, 2016 | | | — | | | — | | Additional paid-in capital | | | 1,154,220 | | | 824,304 | | Accumulated earnings | | | 95,833 | | | 19,028 | | Accumulated other comprehensive income (loss) | | | 7,386 | | | (2,249) | | Stockholders’ equity | | | 1,258,543 | | | 842,044 | | Noncontrolling interest in consolidated subsidiaries | | | — | | | 1,378 | | Noncontrolling interest in Summit Holdings | | | 13,178 | | | 16,617 | | Total stockholders’ equity | | | 1,271,721 | | | 860,039 | | Total liabilities and stockholders’ equity | | $ | 3,787,333 | | $ | 2,781,466 | |
| | | | | | | | | | | | 2018 | | 2017 | Assets | | |
| | |
| Current assets: | | |
| | |
| Cash and cash equivalents | | $ | 128,508 |
| | $ | 383,556 |
| Accounts receivable, net | | 214,518 |
| | 198,330 |
| Costs and estimated earnings in excess of billings | | 18,602 |
| | 9,512 |
| Inventories | | 213,851 |
| | 184,439 |
| Other current assets | | 16,061 |
| | 7,764 |
| Total current assets | | 591,540 |
| | 783,601 |
| Property, plant and equipment | | 1,780,132 |
| | 1,615,424 |
| Goodwill | | 1,192,028 |
| | 1,036,320 |
| Intangible assets | | 18,460 |
| | 16,833 |
| Deferred tax assets | | 225,397 |
| | 284,092 |
| Other assets | | 50,084 |
| | 51,063 |
| Total assets | | $ | 3,857,641 |
| | $ | 3,787,333 |
| Liabilities and Stockholders’ Equity | | |
| | |
| Current liabilities: | | |
| | |
| Current portion of debt | | $ | 6,354 |
| | $ | 4,765 |
| Current portion of acquisition-related liabilities | | 34,270 |
| | 14,087 |
| Accounts payable | | 107,702 |
| | 98,744 |
| Accrued expenses | | 100,491 |
| | 116,629 |
| Billings in excess of costs and estimated earnings | | 11,840 |
| | 15,750 |
| Total current liabilities | | 260,657 |
| | 249,975 |
| Long-term debt | | 1,807,502 |
| | 1,810,833 |
| Acquisition-related liabilities | | 49,468 |
| | 58,135 |
| Tax receivable agreement liability | | 309,674 |
| | 331,340 |
| Other noncurrent liabilities | | 88,195 |
| | 65,329 |
| Total liabilities | | 2,515,496 |
| | 2,515,612 |
| Commitments and contingencies (see note 16) | |
|
| |
|
| Stockholders’ equity: | | |
| | |
| Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 111,658,927 and 110,350,594 shares issued and outstanding as of December 29, 2018 and December 30, 2017, respectively | | $ | 1,117 |
| | $ | 1,104 |
| Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 99 and 100 shares issued and outstanding as of December 29, 2018 and December 30, 2017, respectively | | — |
| | — |
| Additional paid-in capital | | 1,194,204 |
| | 1,154,220 |
| Accumulated earnings | | 129,739 |
| | 95,833 |
| Accumulated other comprehensive income | | 2,681 |
| | 7,386 |
| Stockholders’ equity | | 1,327,741 |
| | 1,258,543 |
| Noncontrolling interest in Summit Holdings | | 14,404 |
| | 13,178 |
| Total stockholders’ equity | | 1,342,145 |
| | 1,271,721 |
| Total liabilities and stockholders’ equity | | $ | 3,857,641 |
| | $ | 3,787,333 |
|
See accompanying notes to consolidated financial statements. SUMMIT MATERIALS, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 (In thousands, except share and per share amounts) | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Revenue: | | | | | | | | | | Product | | $ | 1,449,936 | | $ | 1,223,008 | | $ | 1,043,843 | Service | | | 302,473 | | | 265,266 | | | 246,123 | Net revenue | | | 1,752,409 | | | 1,488,274 | | | 1,289,966 | Delivery and subcontract revenue | | | 180,166 | | | 137,789 | | | 142,331 | Total revenue | | | 1,932,575 | | | 1,626,063 | | | 1,432,297 | Cost of revenue (excluding items shown separately below): | | | | | | | | | | Product | | | 898,281 | | | 751,419 | | | 676,074 | Service | | | 203,330 | | | 182,584 | | | 171,857 | Net cost of revenue | | | 1,101,611 | | | 934,003 | | | 847,931 | Delivery and subcontract cost | | | 180,166 | | | 137,789 | | | 142,331 | Total cost of revenue | | | 1,281,777 | | | 1,071,792 | | | 990,262 | General and administrative expenses | | | 242,670 | | | 243,512 | | | 177,769 | Depreciation, depletion, amortization and accretion | | | 179,518 | | | 149,300 | | | 119,723 | Transaction costs | | | 7,733 | | | 6,797 | | | 9,519 | Operating income | | | 220,877 | | | 154,662 | | | 135,024 | Interest expense | | | 108,549 | | | 97,536 | | | 84,629 | Loss on debt financings | | | 4,815 | | | — | | | 71,631 | Tax receivable agreement expense | | | 271,016 | | | 14,938 | | | — | Other (income) expense, net | | | (5,303) | | | 1,361 | | | (2,042) | (Loss) income from operations before taxes | | | (158,200) | | | 40,827 | | | (19,194) | Income tax benefit | | | (283,977) | | | (5,299) | | | (18,263) | Income (loss) from continuing operations | | | 125,777 | | | 46,126 | | | (931) | Income from discontinued operations | | | — | | | — | | | (2,415) | Net income | | | 125,777 | | | 46,126 | | | 1,484 | Net income (loss) attributable to noncontrolling interest in subsidiaries | | | (27) | | | 16 | | | (1,826) | Net income (loss) attributable to Summit Holdings | | | 3,974 | | | 9,327 | | | (24,408) | Net income attributable to Summit Inc. | | $ | 121,830 | | $ | 36,783 | | $ | 27,718 | Income per share of Class A common stock: | | | | | | | | | | Basic | | $ | 1.12 | | $ | 0.52 | | $ | 0.68 | Diluted | | $ | 1.11 | | $ | 0.52 | | $ | 0.50 | Weighted average shares of Class A common stock: | | | | | | | | | | Basic | | | 108,696,438 | | | 70,355,042 | | | 40,888,437 | Diluted | | | 109,490,898 | | | 70,838,508 | | | 90,993,322 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Revenue: | | | | | | | Product | | $ | 1,600,159 |
| | $ | 1,449,936 |
| | $ | 1,223,008 |
| Service | | 309,099 |
| | 302,473 |
| | 265,266 |
| Net revenue | | 1,909,258 |
| | 1,752,409 |
| | 1,488,274 |
| Delivery and subcontract revenue | | 191,744 |
| | 180,166 |
| | 137,789 |
| Total revenue | | 2,101,002 |
| | 1,932,575 |
| | 1,626,063 |
| Cost of revenue (excluding items shown separately below): | | | | | | | Product | | 1,058,544 |
| | 898,281 |
| | 751,419 |
| Service | | 225,491 |
| | 203,330 |
| | 182,584 |
| Net cost of revenue | | 1,284,035 |
| | 1,101,611 |
| | 934,003 |
| Delivery and subcontract cost | | 191,744 |
| | 180,166 |
| | 137,789 |
| Total cost of revenue | | 1,475,779 |
| | 1,281,777 |
| | 1,071,792 |
| General and administrative expenses | | 253,609 |
| | 242,670 |
| | 243,512 |
| Depreciation, depletion, amortization and accretion | | 204,910 |
| | 179,518 |
| | 149,300 |
| Transaction costs | | 4,238 |
| | 7,733 |
| | 6,797 |
| Operating income | | 162,466 |
| | 220,877 |
| | 154,662 |
| Interest expense | | 116,548 |
| | 108,549 |
| | 97,536 |
| Loss on debt financings | | 149 |
| | 4,815 |
| | — |
| Tax receivable agreement (benefit) expense | | (22,684 | ) | | 271,016 |
| | 14,938 |
| Gain on sale of business | | (12,108 | ) | | — |
| | — |
| Other (income) loss, net | | (15,516 | ) | | (5,303 | ) | | 1,361 |
| Income (loss) from operations before taxes | | 96,077 |
| | (158,200 | ) | | 40,827 |
| Income tax expense (benefit) | | 59,747 |
| | (283,977 | ) | | (5,299 | ) | Net income | | 36,330 |
| | 125,777 |
| | 46,126 |
| Net (loss) income attributable to noncontrolling interest in subsidiaries | | — |
| | (27 | ) | | 16 |
| Net income attributable to Summit Holdings | | 2,424 |
| | 3,974 |
| | 9,327 |
| Net income attributable to Summit Inc. | | $ | 33,906 |
| | $ | 121,830 |
| | $ | 36,783 |
| Income per share of Class A common stock: | | | | | | | Basic | | $ | 0.30 |
| | $ | 1.12 |
| | $ | 0.52 |
| Diluted | | $ | 0.30 |
| | $ | 1.11 |
| | $ | 0.52 |
| Weighted average shares of Class A common stock: | | | | | | | Basic | | 111,380,175 |
| | 108,696,438 |
| | 70,355,042 |
| Diluted | | 112,316,646 |
| | 109,490,898 |
| | 70,838,508 |
|
See accompanying notes to consolidated financial statements. SUMMIT MATERIALS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Loss Years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Net income | | $ | 125,777 | | $ | 46,126 | | $ | 1,484 | Other comprehensive income (loss): | | | | | | | | | | Postretirement curtailment adjustment | | | 429 | | | — | | | — | Postretirement liability adjustment | | | 699 | | | 426 | | | 2,123 | Foreign currency translation adjustment | | | 7,768 | | | 2,125 | | | (14,099) | Income (loss) on cash flow hedges | | | 1,413 | | | (1,529) | | | (944) | Less tax effect of other comprehensive income (loss) items | | | (288) | | | — | | | — | Other comprehensive income (loss): | | | 10,021 | | | 1,022 | | | (12,920) | Comprehensive income (loss) | | | 135,798 | | | 47,148 | | | (11,436) | Less comprehensive (loss) income attributable to the noncontrolling interest in consolidated subsidiaries | | | (27) | | | 16 | | | (1,826) | Less comprehensive income (loss) attributable to Summit Holdings | | | 4,360 | | | 9,803 | | | (34,533) | Comprehensive income attributable to Summit Inc. | | $ | 131,465 | | $ | 37,329 | | $ | 24,923 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net income | | $ | 36,330 |
| | $ | 125,777 |
| | $ | 46,126 |
| Other comprehensive income (loss): | | | | | | | Postretirement curtailment adjustment | | — |
| | 429 |
| | — |
| Postretirement liability adjustment | | 1,661 |
| | 699 |
| | 426 |
| Foreign currency translation adjustment | | (9,348 | ) | | 7,768 |
| | 2,125 |
| Income (loss) on cash flow hedges | | 1,206 |
| | 1,413 |
| | (1,529 | ) | Less tax effect of other comprehensive income (loss) items | | 1,578 |
| | (288 | ) | | — |
| Other comprehensive (loss) income: | | (4,903 | ) | | 10,021 |
| | 1,022 |
| Comprehensive income | | 31,427 |
| | 135,798 |
| | 47,148 |
| Less comprehensive (loss) income attributable to the noncontrolling interest in consolidated subsidiaries | | — |
| | (27 | ) | | 16 |
| Less comprehensive income attributable to Summit Holdings | | 2,226 |
| | 4,360 |
| | 9,803 |
| Comprehensive income attributable to Summit Inc. | | $ | 29,201 |
| | $ | 131,465 |
| | $ | 37,329 |
|
See accompanying notes to consolidated financial statements. SUMMIT MATERIALS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Cash flow from operating activities: | | | | | | | | | | Net income | | $ | 125,777 | | $ | 46,126 | | $ | 1,484 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | Depreciation, depletion, amortization and accretion | | | 193,107 | | | 160,633 | | | 125,019 | Share-based compensation expense | | | 21,140 | | | 49,940 | | | 19,899 | Net gain on asset disposals | | | (7,638) | | | (3,102) | | | (23,087) | Non-cash loss on debt financings | | | 3,856 | | | — | | | (9,877) | Change in deferred tax asset, net | | | (289,219) | | | (4,263) | | | (19,838) | Other | | | (2,359) | | | (1,282) | | | (1,629) | (Increase) decrease in operating assets, net of acquisitions: | | | | | | | | | | Accounts receivable, net | | | (3,720) | | | 2,511 | | | 3,852 | Inventories | | | (18,609) | | | (10,297) | | | 4,275 | Costs and estimated earnings in excess of billings | | | (1,825) | | | (2,684) | | | 6,604 | Other current assets | | | 8,703 | | | (5,518) | | | 11,438 | Other assets | | | (3,103) | | | (2,350) | | | (1,369) | Increase (decrease) in operating liabilities, net of acquisitions: | | | | | | | | | | Accounts payable | | | 6,192 | | | (5,751) | | | (4,241) | Accrued expenses | | | (7,006) | | | 13,196 | | | (14,354) | Billings in excess of costs and estimated earnings | | | 109 | | | 700 | | | 1,313 | Tax receivable agreement liability | | | 273,194 | | | 58,145 | | | — | Other liabilities | | | (6,416) | | | (51,141) | | | (1,286) | Net cash provided by operating activities | | | 292,183 | | | 244,863 | | | 98,203 | Cash flow from investing activities: | | | | | | | | | | Acquisitions, net of cash acquired | | | (374,930) | | | (336,958) | | | (510,017) | Purchases of property, plant and equipment | | | (194,146) | | | (153,483) | | | (88,950) | Proceeds from the sale of property, plant and equipment | | | 17,072 | | | 16,868 | | | 13,110 | Other | | | (471) | | | 2,921 | | | 1,510 | Net cash used for investing activities | | | (552,475) | | | (470,652) | | | (584,347) | Cash flow from financing activities: | | | | | | | | | | Proceeds from equity offerings | | | 237,600 | | | — | | | 1,037,444 | Capital issuance costs | | | (627) | | | (136) | | | (61,609) | Proceeds from debt issuances | | | 302,000 | | | 354,000 | | | 1,748,875 | Debt issuance costs | | | (6,416) | | | (5,801) | | | (14,246) | Payments on debt | | | (16,438) | | | (120,702) | | | (1,505,486) | Purchase of noncontrolling interests | | | (532) | | | — | | | (497,848) | Payments on acquisition-related liabilities | | | (34,650) | | | (32,040) | | | (18,056) | Distributions from partnership | | | (1,974) | | | (13,034) | | | (28,736) | Proceeds from stock option exercises | | | 21,661 | | | 440 | | | — | Other | | | (869) | | | (20) | | | (1) | Net cash provided by financing activities | | | 499,755 | | | 182,707 | | | 660,337 | Impact of foreign currency on cash | | | 701 | | | 69 | | | (1,003) | Net increase (decrease) in cash | | | 240,164 | | | (43,013) | | | 173,190 | Cash and cash equivalents—beginning of period | | | 143,392 | | | 186,405 | | | 13,215 | Cash and cash equivalents—end of period | | $ | 383,556 | | $ | 143,392 | | $ | 186,405 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Cash flow from operating activities: | | | | | | | Net income | | $ | 36,330 |
| | $ | 125,777 |
| | $ | 46,126 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | Depreciation, depletion, amortization and accretion | | 208,772 |
| | 193,107 |
| | 160,633 |
| Share-based compensation expense | | 25,378 |
| | 21,140 |
| | 49,940 |
| Net gain on asset disposals | | (30,093 | ) | | (7,638 | ) | | (3,102 | ) | Non-cash loss on debt financings | | — |
| | 3,856 |
| | — |
| Change in deferred tax asset, net | | 57,490 |
| | (289,219 | ) | | (4,263 | ) | Other | | 2,018 |
| | (2,359 | ) | | (1,282 | ) | (Increase) decrease in operating assets, net of acquisitions and dispositions: | | | | | | | Accounts receivable, net | | (5,796 | ) | | (3,720 | ) | | 2,511 |
| Inventories | | (11,598 | ) | | (18,609 | ) | | (10,297 | ) | Costs and estimated earnings in excess of billings | | (8,702 | ) | | (1,825 | ) | | (2,684 | ) | Other current assets | | (7,159 | ) | | 8,703 |
| | (5,518 | ) | Other assets | | (106 | ) | | (3,103 | ) | | (2,350 | ) | (Decrease) increase in operating liabilities, net of acquisitions and dispositions: | | | | | | | Accounts payable | | (13,403 | ) | | 6,192 |
| | (5,751 | ) | Accrued expenses | | (16,544 | ) | | (7,006 | ) | | 13,196 |
| Billings in excess of costs and estimated earnings | | (5,052 | ) | | 109 |
| | 700 |
| Tax receivable agreement liability | | (21,666 | ) | | 273,194 |
| | 58,145 |
| Other liabilities | | (501 | ) | | (6,416 | ) | | (51,141 | ) | Net cash provided by operating activities | | 209,368 |
| | 292,183 |
| | 244,863 |
| Cash flow from investing activities: | | | | | | | Acquisitions, net of cash acquired | | (246,017 | ) | | (374,930 | ) | | (336,958 | ) | Purchases of property, plant and equipment | | (220,685 | ) | | (194,146 | ) | | (153,483 | ) | Proceeds from the sale of property, plant and equipment | | 21,635 |
| | 17,072 |
| | 16,868 |
| Proceeds from sale of business | | 21,564 |
| | — |
| | — |
| Other | | 3,804 |
| | (471 | ) | | 2,921 |
| Net cash used for investing activities | | (419,699 | ) | | (552,475 | ) | | (470,652 | ) | Cash flow from financing activities: | | | | | | | Proceeds from equity offerings | | — |
| | 237,600 |
| | — |
| Capital issuance costs | | — |
| | (627 | ) | | (136 | ) | Proceeds from debt issuances | | 64,500 |
| | 302,000 |
| | 354,000 |
| Debt issuance costs | | (550 | ) | | (6,416 | ) | | (5,801 | ) | Payments on debt | | (85,042 | ) | | (16,438 | ) | | (120,702 | ) | Purchase of noncontrolling interests | | — |
| | (532 | ) | | — |
| Payments on acquisition-related liabilities | | (36,504 | ) | | (34,650 | ) | | (32,040 | ) | Distributions from partnership | | (69 | ) | | (1,974 | ) | | (13,034 | ) | Proceeds from stock option exercises | | 15,615 |
| | 21,661 |
| | 440 |
| Other | | (1,943 | ) | | (869 | ) | | (20 | ) | Net cash (used in) provided by financing activities | | (43,993 | ) | | 499,755 |
| | 182,707 |
| Impact of foreign currency on cash | | (724 | ) | | 701 |
| | 69 |
| Net (decrease) increase in cash | | (255,048 | ) | | 240,164 |
| | (43,013 | ) | Cash and cash equivalents—beginning of period | | 383,556 |
| | 143,392 |
| | 186,405 |
| Cash and cash equivalents—end of period | | $ | 128,508 |
| | $ | 383,556 |
| | $ | 143,392 |
|
See accompanying notes to consolidated financial statements. SUMMIT MATERIALS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Redeemable Noncontrolling Interest and Stockholders’ Equity Years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 (In thousands, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summit Materials, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | Redeemable | | | | | Noncontrolling | | | | Other | | Class A | | Class B | | Additional | | Noncontrolling | | Total | | | Noncontrolling | | Partners’ | | Interest in | | Accumulated | | Comprehensive | | Common Stock | | Common Stock | | Paid-in | | Interest in | | Stockholders’ | | | Interest | | Interest | | Subsidiaries | | Earnings | | (Loss) Income | | Shares | | Dollars | | Shares | | Dollars | | Capital | | Summit Holdings | | Equity | Balance — December 27, 2014 | | $ | 33,740 | | $ | 285,685 | | $ | 1,298 | | $ | — | | $ | — | | | — | | $ | — | | | — | | $ | — | | $ | — | | $ | — | | $ | 286,983 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accretion/ redemption value adjustment | | | 32,252 | | | (32,252) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (32,252) | Net loss | | | (1,890) | | | (41,338) | | | (77) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (41,415) | Other comprehensive loss | | | — | | | (5,249) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,249) | Share-based compensation | | | — | | | 424 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 424 | Balance — March 11, 2015 | | $ | 64,102 | | $ | 207,270 | | $ | 1,221 | | $ | — | | $ | — | | | — | | $ | — | | | — | | $ | — | | $ | — | | $ | — | | $ | 208,491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recording of noncontrolling interest upon reorganization | | | — | | | (207,270) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 207,270 | | | — | Net income | | | — | | | — | | | 141 | | | 27,718 | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,930 | | | 44,789 | Issuance of Class A Shares | | | — | | | — | | | — | | | — | | | — | | | 47,981,653 | | | 480 | | | — | | | — | | | 975,355 | | | — | | | 975,835 | Issuance of Class B Shares | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 69,007,397 | | | 690 | | | (690) | | | — | | | — | Other comprehensive loss | | | — | | | — | | | — | | | — | | | (2,795) | | | — | | | — | | | — | | | — | | | — | | | (4,876) | | | (7,671) | Share repurchase | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (100) | | | — | | | — | | | — | | | — | Purchase of redeemable noncontrolling interest | | | (64,102) | | | — | | | — | | | — | | | — | | | 1,029,183 | | | 10 | | | — | | | — | | | 18,515 | | | — | | | 18,525 | Purchase of LP Units | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (411,532) | | | (51,315) | | | (462,847) | Share-based compensation | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19,475 | | | — | | | 19,475 | Dividend (0.015/share) | | | — | | | — | | | — | | | (16,848) | | | — | | | 735,108 | | | 7 | | | — | | | — | | | 17,880 | | | (1,040) | | | (1) | Distributions from partnership | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (28,736) | | | (28,736) | Balance — January 2, 2016 | | $ | — | | $ | — | | $ | 1,362 | | $ | 10,870 | | $ | (2,795) | | | 49,745,944 | | $ | 497 | | | 69,007,297 | | $ | 690 | | | 619,003 | | $ | 138,233 | | $ | 767,860 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | — | | | 16 | | | 36,783 | | | — | | | — | | | — | | | — | | | — | | | — | | | 9,327 | | | 46,126 | LP Unit exchanges | | | — | | | — | | | — | | | — | | | — | | | 45,124,528 | | | 451 | | | — | | | — | | | 117,813 | | | (118,264) | | | — | Other comprehensive income | | | — | | | — | | | — | | | — | | | 546 | | | — | | | — | | | — | | | — | | | — | | | 476 | | | 1,022 | Stock option exercises | | | — | | | — | | | — | | | — | | | — | | | 24,354 | | | 2 | | | — | | | — | | | 438 | | | — | | | 440 | Class B share cancellation | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (69,007,197) | | | (690) | | | 690 | | | — | | | — | Share-based compensation | | | — | | | — | | | — | | | (1,684) | | | — | | | — | | | — | | | — | | | — | | | 51,624 | | | — | | | 49,940 | Dividend (0.012/share) | | | — | | | — | | | — | | | (26,941) | | | — | | | 1,135,692 | | | 11 | | | — | | | — | | | 27,047 | | | (121) | | | (4) | Distributions from partnership | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,034) | | | (13,034) | Other | | | — | | | — | | | — | | | — | | | — | | | 2,704 | | | — | | | — | | | — | | | 7,689 | | | — | | | 7,689 | Balance — December 31, 2016 | | $ | — | | $ | — | | $ | 1,378 | | $ | 19,028 | | $ | (2,249) | | | 96,033,222 | | $ | 961 | | | 100 | | $ | — | | $ | 824,304 | | $ | 16,617 | | $ | 860,039 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net (loss) income | | | — | | | — | | | (27) | | | 121,830 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,974 | | | 125,777 | Issuance of Class A Shares | | | — | | | — | | | — | | | — | | | — | | | 10,000,000 | | | 100 | | | — | | | — | | | 238,367 | | | (1,496) | | | 236,971 | LP Unit exchanges | | | — | | | — | | | — | | | — | | | — | | | 1,461,677 | | | 15 | | | — | | | — | | | 4,159 | | | (4,174) | | | — | Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | 9,635 | | | — | | | — | | | — | | | — | | | — | | | 386 | | | 10,021 | Stock option exercises | | | — | | | — | | | — | | | — | | | — | | | 1,203,121 | | | 12 | | | — | | | — | | | 21,649 | | | — | | | 21,661 | Share-based compensation | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 21,140 | | | — | | | 21,140 | Dividend (0.014/share) | | | — | | | — | | | — | | | (45,025) | | | — | | | 1,521,056 | | | 15 | | | — | | | — | | | 45,163 | | | (155) | | | (2) | Distributions from partnership | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,974) | | | (1,974) | Purchase of noncontrolling interest | | | — | | | — | | | (1,148) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,148) | Other | | | — | | | — | | | (203) | | | — | | | — | | | 131,518 | | | 1 | | | — | | | — | | | (562) | | | — | | | (764) | Balance — December 30, 2017 | | $ | — | | $ | — | | $ | — | | $ | 95,833 | | $ | 7,386 | | | 110,350,594 | | $ | 1,104 | | | 100 | | $ | — | | $ | 1,154,220 | | $ | 13,178 | | $ | 1,271,721 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summit Materials, Inc. | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | Noncontrolling | | | | Other | | Class A | | Class B | | Additional | | Noncontrolling | | Total | | | Interest in | | Accumulated | | Comprehensive | | Common Stock | | Common Stock | | Paid-in | | Interest in | | Stockholders’ | | | Subsidiaries | | Earnings | | Income (Loss) | | Shares | | Dollars | | Shares | | Dollars | | Capital | | Summit Holdings | | Equity | Balance — January 2, 2016 | | $ | 1,362 |
| | $ | 10,870 |
| | $ | (2,795 | ) | | 49,745,944 |
| | $ | 497 |
| | 69,007,297 |
| | $ | 690 |
| | $ | 619,003 |
| | $ | 138,233 |
| | $ | 767,860 |
| | | | | | | | | | | | | | | | | | | | | | Net income | | 16 |
| | 36,783 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,327 |
| | 46,126 |
| LP Unit exchanges | | — |
| | — |
| | — |
| | 45,124,528 |
| | 451 |
| | — |
| | — |
| | 117,813 |
| | (118,264 | ) | | — |
| Other comprehensive income | | — |
| | — |
| | 546 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 476 |
| | 1,022 |
| Stock option exercises | | — |
| | — |
| | — |
| | 24,354 |
| | 2 |
| | — |
| | — |
| | 438 |
| | — |
| | 440 |
| Class B share cancellation | | — |
| | — |
| | — |
| | — |
| | — |
| | (69,007,197 | ) | | (690 | ) | | 690 |
| | — |
| | — |
| Share-based compensation | | — |
| | (1,684 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 51,624 |
| | — |
| | 49,940 |
| Dividend (0.012/share) | | — |
| | (26,941 | ) | | — |
| | 1,135,692 |
| | 11 |
| | — |
| | — |
| | 27,047 |
| | (121 | ) | | (4 | ) | Distributions from partnership | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13,034 | ) | | (13,034 | ) | Other | | — |
| | — |
| | — |
| | 2,704 |
| | — |
| | — |
| | — |
| | 7,689 |
| | — |
| | 7,689 |
| Balance — December 31, 2016 | | $ | 1,378 |
| | $ | 19,028 |
| | $ | (2,249 | ) | | 96,033,222 |
| | $ | 961 |
| | 100 |
| | $ | — |
| | $ | 824,304 |
| | $ | 16,617 |
| | $ | 860,039 |
| | | | | | | | | | | | | | | | | | | | | | Net (loss) income | | (27 | ) | | 121,830 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,974 |
| | 125,777 |
| Issuance of Class A Shares | | — |
| | — |
| | — |
| | 10,000,000 |
| | 100 |
| | — |
| | — |
| | 238,367 |
| | (1,496 | ) | | 236,971 |
| LP Unit exchanges | | — |
| | — |
| | — |
| | 1,461,677 |
| | 15 |
| | — |
| | — |
| | 4,159 |
| | (4,174 | ) | | — |
| Other comprehensive income, net of tax | | — |
| | — |
| | 9,635 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 386 |
| | 10,021 |
| Stock option exercises | | — |
| | — |
| | — |
| | 1,203,121 |
| | 12 |
| | — |
| | — |
| | 21,649 |
| | — |
| | 21,661 |
| Share-based compensation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 21,140 |
| | — |
| | 21,140 |
| Dividend (0.014/share) | | — |
| | (45,025 | ) | | — |
| | 1,521,056 |
| | 15 |
| | — |
| | — |
| | 45,163 |
| | (155 | ) | | (2 | ) | Distributions from partnership | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1974 | ) | | (1,974 | ) | Purchase of noncontrolling interest | | (1,148 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,148 | ) | Shares redeemed to settle taxes and other | | (203 | ) | | — |
| | — |
| | 131,518 |
| | 1 |
| | — |
| | — |
| | (562 | ) | | — |
| | (764 | ) | Balance — December 30, 2017 | | $ | — |
| | $ | 95,833 |
| | $ | 7,386 |
| | 110,350,594 |
| | $ | 1,104 |
| | 100 |
| | $ | — |
| | $ | 1,154,220 |
| | $ | 13,178 |
| | $ | 1,271,721 |
| | | | | | | | | | | | | | | | | | | | | | Net income | | — |
| | 33,906 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,424 |
| | 36,330 |
| LP Unit exchanges | | — |
| | — |
| | — |
| | 254,102 |
| | 2 |
| | — |
| | — |
| | 929 |
| | (931 | ) | | — |
| Other comprehensive loss, net of tax | | — |
| | — |
| | (4,705 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (198 | ) | | (4,903 | ) | Stock option exercises | | — |
| | — |
| | — |
| | 863,898 |
| | 9 |
| | — |
| | — |
| | 15,607 |
| | — |
| | 15,616 |
| Share-based compensation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,378 |
| | — |
| | 25,378 |
| Distributions from partnership | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (69 | ) | | (69 | ) | Shares redeemed to settle taxes and other | | — |
| | — |
| | — |
| | 190,333 |
| | 2 |
| | (1 | ) | | — |
| | (1,930 | ) | | — |
| | (1,928 | ) | Balance — December 29, 2018 | | $ | — |
| | $ | 129,739 |
| | $ | 2,681 |
| | 111,658,927 |
| | $ | 1,117 |
| | 99 |
| | $ | — |
| | $ | 1,194,204 |
| | $ | 14,404 |
| | $ | 1,342,145 |
|
See accompanying notes to consolidated financial statements. SUMMIT MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in tables in thousands, unless otherwise noted)
(1) Summary of Organization and Significant Accounting Policies Summit Materials, Inc. (“Summit Inc.” and, together with its subsidiaries, the “Company”) is a vertically-integrated construction materials company. The Company is engaged in the production and sale of aggregates, cement, ready-mix concrete, asphalt paving mix and concrete products and owns and operates quarries, sand and gravel pits, two cement plants, cement distribution terminals, ready-mix concrete plants, asphalt plants and landfill sites. It is also engaged in paving and related services. The Company’s three operating and reporting segments are the West, East and Cement segments. Substantially all of the Company’s products and services are produced, consumed and performed outdoors, primarily in the spring, summer and fall. Seasonal changes and other weather-related conditions can affect the production and sales volumes of its products and delivery of services. Therefore, the financial results for any interim period are typically not indicative of the results expected for the full year. Furthermore, the Company’s sales and earnings are sensitive to national, regional and local economic conditions and to cyclical changes in construction spending, among other factors. On September 23, 2014, Summit Inc. was formed as a Delaware corporation to be a holding company. Its sole material asset is a controlling equity interest in Summit Materials Holdings L.P. (“Summit Holdings”). Pursuant to a reorganization into a holding company structure (the “Reorganization”) consummated in connection with Summit Inc.’s March 2015 initial public offering, Summit Inc. became a holding corporation operating and controlling all of the business and affairs of Summit Holdings and its subsidiaries. Summit Inc. owns the majority of the partnership interests of Summit Holdings (see note 11, Stockholders’ Equity). Summit Materials, LLC (“Summit LLC”) an indirect wholly owned subsidiary of Summit Holdings, conducts the majority of our operations. Continental Cement Company, L.L.C. (“Continental Cement”) is also a wholly owned subsidiary of Summit LLC. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of Summit LLC, has jointly issued our Senior Notes as described below. Principles of Consolidation—The consolidated financial statements include the accounts of Summit Inc. and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated. As a result of the Reorganization, Summit Holdings became a variable interest entity over which Summit Inc. has 100% voting power and control and for which Summit Inc. has the obligation to absorb losses and the right to receive benefits. The Company’s fiscal year is based on a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday. The 53-week year occurs approximately once every seven years and last occurred in 2015. The additional week in the 53-week year was included in the fourth quarter of 2015.For a summary of the changes in Summit Inc.’s ownership of Summit Holdings, see Note 11, Stockholders’ Equity. The Company attributes consolidated stockholders’ equity and net income separately to the controlling and noncontrolling interests. The Company accounts for investments in entities for which it has an ownership of 20% to 50% using the equity method of accounting. Use of Estimates—Preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, valuation of deferred tax assets, goodwill, intangibles and other long-lived assets, the tax receivable agreement (“TRA”) liability, pension and other postretirement obligations, and asset retirement obligations. Estimates also include revenue earned on contracts and costs to complete contracts. Most of the Company’s paving and related services are performed under fixed unit-price contracts with state and local governmental entities. Management regularly evaluates its estimates and assumptions based on historical experience and other factors, including the current economic environment. As future events and their effects cannot be determined with precision, actual results can differ significantly from estimates made. Changes in estimates, including those resulting from continuing changes in the economic environment, are reflected in the Company’s consolidated financial statements when the change in estimate occurs. Business and Credit Concentrations—The Company’s operations are conducted primarily across 23 U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, Utah, Kansas and Missouri. The Company’s
accounts receivable consist primarily of amounts due from customers within these areas. Therefore, collection of these accounts is dependent on the economic conditions in the aforementioned states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been granted to many customers and management does not believe that a significant concentration of credit exists with respect to any individual customer or group of customers. No single customer accounted for more than 10% of the Company’s total revenue in 2018, 2017 2016 or 2015.2016. Accounts Receivable—Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the collectability of individual accounts. In establishing the allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, the current receivables aging and current payment terms. Balances that remain outstanding after reasonable collection efforts are exercised are written off through a charge to the valuation allowance. The balances billed but not paid by customers, pursuant to retainage provisions included in contracts, are generally due upon completion of the contracts. Revenue Recognition—We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products and plastics components, and from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants and underground storage space rental.Revenue for product sales is recognized when evidence
Products
We earn revenue from the sale of an arrangement exists, the fee is fixed or determinable, title passes,products, which is generally when the product is shipped, and collection is reasonably assured. Product revenue generally includes sales ofprimarily include aggregates, cement, ready-mix concrete and other materials to customers,asphalt, but also include concrete products, net of discounts or allowances, or taxes, if any, and freight and delivery charges billed to customers. Freight and delivery charges associated with cement sales are recorded on a net basis together with freight costs within cost of sales. Revenue for product sales is recognized when evidence of an arrangement exists and when control passes, which generally is when the product is shipped.
Aggregates and cement products are sold point-of-sale through purchase orders. When the product is sold on account, collectability typically occurs 30 to 60 days after the sale. Revenue is recognized when cash is received from the customer at the point of sale or when the products are delivered or collected on site. There are no other timing implications that will create a contract asset or liability, and contract modifications are unlikely given the timing and nature of the transaction. Material sales are likely to have multiple performance obligations if the product is sold with delivery. In these instances, delivery most often occurs on the same day as the control of the product transfers to the customer. As a result, even in the case of multiple performance obligations, the performance obligations are satisfied concurrently and revenue is recognized simultaneously.
Services
We earn revenue from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants, and underground storage space rental. Revenue from the receipt of waste fuels is recognized when the waste is accepted and a corresponding liability is recognized for the costs to process the waste into fuel for the manufacturing of cement or to ship the waste offsite for disposal in accordance with applicable regulations. We account
Collectability of service contracts is due reasonably after certain milestones in the contract are performed. Milestones vary by project, but are typically calculated using monthly progress based on the percentage of completion or a customer’s engineer review of progress. The majority of the time, collection occurs within 90 days of billing and cash is received within the same fiscal year as services performed. On most projects, the customer will withhold a portion of the invoice for revenue and earningsretainage, which may last longer than a year depending on our long-termthe job.
Revenue derived from paving and related services contracts as service revenueis recognized using the percentage-of-completionpercentage of completion method, of accounting.which approximates progress towards completion. Under the percentage-of-completionpercentage of completion method, we recognize paving and related services revenue as services are rendered. The majority of our construction service contracts are completed within one year, but may occasionally extend beyond this time frame. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on input measures. We generally measure progress toward completion on long-term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion. We include revisions of estimated profits on contracts in earnings under the cumulative catch-up method, under which the effect of revisions in estimates is recognized immediately. If a
revised estimate of contract profitability reveals an anticipated loss on the contract, we recognize the loss in the period it is identified.
The percentage-of-completionpercentage of completion method of accounting involves the use of various estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications or other disputes. Contract estimates involve various assumptions and projections relative to the outcome of future events over multiple periods, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the effect of delayed performance, and the availability and timing of funding from the customer. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts. We review our contract estimates regularly to assess revisions in contract values and estimated costs at completion. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. No material adjustments to a contract were recognized in the year ended December 29, 2018.
We recognize revenue arising from claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim.
When the contract includes variable consideration, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. The amount of estimated variable consideration included in the transaction price is the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Types of variable consideration include, but are not limited to, liquidated damages and other performance penalties and production and placement bonuses.
The majority of contract modifications relate to the original contract and are often an extension of the original performance obligation. Predominately, modifications are not distinct from the terms in the original contract; therefore, they are considered part of a single performance obligation. We account for the modification using a cumulative catch-up adjustment. However, there are instances where goods or services in a modification are distinct from those transferred prior to the modification. In these situations, we account for the modifications as either a separate contract or prospectively depending on the facts and circumstances of the modification.
Generally, construction contracts contain mobilization costs which are categorized as costs to fulfill a contract. These costs are excluded from any measure of progress toward contract fulfillment. These costs do not result in the transfer of control of a good or service to the customer and are amortized over the life of the contract.
Costs and estimated earnings in excess of billings are composed principally of revenue recognized on contracts on the percentage of completion method for which billings had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, the unbilled receivables at the balance sheet date are expected to be billed in following periods. Billings in excess of costs and estimated earnings represent billings in excess of revenue recognized. Contract assets and liabilities are netted on a contract-by-contract basis. Inventories—Inventories consist of stone that has been removed from quarries and processed for future sale, cement, raw materials and finished concrete blocks. Inventories are valued at the lower of cost or market and are accounted for on a first-in first-out basis or an average cost basis. If items become obsolete or otherwise unusable or if quantities exceed what is projected to be sold within a reasonable period of time, they will be charged to costs of production in the period that the items are designated as obsolete or excess inventory. Stripping costs are costs of removing overburden and waste material to access aggregate materials and are expensed as incurred. Property, Plant and Equipment, net—Property, plant and equipment are recorded at cost, less accumulated depreciation, depletion and amortization. Expenditures for additions and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Repair and maintenance costs that do not substantially expand productive capacity or extend the life of property, plant and equipment are expensed as incurred. Landfill airspace is included in property, plant and equipment at cost and is amortized based on the portion of the airspace used during the period compared to the gross estimated value of available airspace, which is updated periodically as circumstances dictate. Management reassesses the landfill airspace capacity with any changes in value recorded in cost of revenue. Capitalized landfill costs include expenditures for the acquisition of land and related airspace, engineering and permitting costs, cell construction costs and direct site improvement costs.
Upon disposal of an asset, the cost and related accumulated depreciation are removed from the Company’s accounts and any gain or loss is included in general and administrative expenses. The Company reviews the carrying value of property, plant and equipment for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Such indicators may include, among others, deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows or a trend of negative or declining cash flows over multiple periods. Property, plant and equipment is tested for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, the property, plant and equipment impairment test is at a significantly lower level than the level at which goodwill is tested for impairment. In markets where the Company does not produce downstream products, such as ready-mix concrete, asphalt paving mix and paving and related services, the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market or the cement operations. Conversely, in vertically-integrated markets, the cash flows of the downstream and upstream businesses are not largely independently identifiable and the vertically-integrated operations are considered the lowest level of largely independent identifiable cash flows. Accrued Mining and Landfill Reclamation—The mining reclamation reserve and financial commitments for landfill closure and post-closure activities are based on management’s estimate of future cost requirements to reclaim property at both currently operating and closed sites. Estimates of these obligations have been developed based on management’s interpretation of current requirements and proposed regulatory changes and are intended to approximate fair value. Costs are estimated in current dollars, inflated until the expected time of payment, and then discounted back to present value using a credit-adjusted, risk-free rate on obligations of similar maturity, adjusted to reflect the Company’s credit rating. Changes in the credit-adjusted, risk-free rate do not change recorded liabilities. However, subsequent increases in the recognized obligations are measured using a current credit-adjusted, risk-free rate. Decreases in the recognized obligations are measured at the initial credit-adjusted, risk-free rate. Significant changes in inflation rates or the amount or timing of future cost estimates typically result in both (1) a current adjustment to the recorded liability (and corresponding adjustment to the asset) and (2) a change in accretion of the liability and depreciation of the asset to be recorded prospectively over the remaining capacity of the unmined quarry or landfill. Goodwill—Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill recorded in connection with the Company’s acquisitions is primarily attributable to the expected profitability, assembled workforces of the acquired businesses and the synergies expected to arise after the Company’s acquisition of those businesses. Goodwill is not amortized, but is tested annually for impairment as of the first day of the fourth quarter and at any time that events or circumstances indicate that goodwill may be impaired. A qualitative approach may first be applied to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If, as a result of the qualitative assessment, it is determined that an impairment is more likely than not, the two-step quantitative impairment test is then performed, otherwise further analysis is not required. The two-step impairment test first identifies potential goodwill impairment for each reporting unit and then, if necessary, measures the amount of the impairment loss. Income Taxes—Summit Inc. is a corporation subject to income taxes in the United States. Certain subsidiaries, including Summit Holdings, or subsidiary groups of the Company are taxable separate from Summit Inc. The provisions, or Summit Inc.’s proportional share of the provision, are included in the Company’s consolidated financial statements. The Company’s deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future. The computed deferred balances are based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines it would be able to realize its deferred tax assets for which a valuation allowance had been recorded then an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company evaluates the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit. Tax Receivable Agreement— When Summit Inc. purchases LP Units for cash or LP Units are exchanged for shares of Class A common stock, this results in increases in Summit Inc.’s share of the tax basis of the tangible and intangible assets, which increases the tax depreciation and amortization deductions that otherwise would not have been available to Summit Inc. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. Prior to our IPO, we entered into a TRA with the pre-IPO owners that require us to pay the pre-IPO owners 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize as a result of these exchanges. These benefits include (1) increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, (2) tax benefits attributable to payments under the TRA, or (3) under certain circumstances such as an early termination of the TRA, we are deemed to realize, as a result of the increases in tax basis in connection with exchanges by the pre-IPO owners described above and certain other tax benefits attributable to payments under the TRA. As noted above, we periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common stock. If the deferred tax assets are determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability equal to 85% of such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets subject to the TRA. Should we determine a deferred tax asset with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies. The measurement of the TRA liability is accounted for as a contingent liability. Therefore, once we determine that a payment to a pre-IPO owner has become probable and can be estimated, the estimate of payment will be accrued. Earnings per Share—The Company computes basic earnings per share attributable to stockholders by dividing income attributable to Summit Inc. by the weighted-average shares of Class A common stock outstanding. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in the Company’s earnings. Since the Class B common stock has no economic value, those shares are not included in the weighted-average common share amount for basic or diluted earnings per share. In addition, as the shares of Class A common stock are issued by Summit Inc., the earnings and equity interests of noncontrolling interests are not included in basic earnings per share. New Accounting Standards —In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAP and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. In applying these ASUs, an entity is permitted to use either the full retrospective or cumulative effect transition approach. We plan to adopt these ASU’sadopted this new standard in January 2018 using the modified retrospective approach. We have evaluated the impact ofThe adoption of these standardsthis new ASU did not have a material impact on our consolidated financial statements,results.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which was not material.will result in lessees recognizing most leases on the balance sheet. Lessees are required to disclose more quantitative and qualitative information about the leases than current U.S. GAAP requires. The ASU and subsequent amendments issued in 2018, are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We have compiled our leases, and currently estimate that we will record additional right of use assets and liabilities of approximately $30 to $40 million beginning in 2019. We plan to adopt this ASU, as amended, using the modified retrospective approach.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business. This ASU provides a screen to determine whether a group of assets constitutes a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (2) removes the evaluation of whether a market participant could replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. TheWe adopted this ASU is effective for public companies for annual periods beginning after December 15, 2017.in 2018. The adoption of this ASU willdid not have a material impact on the consolidated financial statements. In MarchAugust 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost2017-12, Derivatives and Net Periodic Postretirement Benefit Cost, which requires that the service cost componentHedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, allowing more financial and nonfinancial hedging strategies to be reported in the same line item as employer compensation costs and that the other components of periodic pension costs be reported outside of operating income. The ASU also restricts capitalization of costs to the service cost component.eligible for hedge accounting. The ASU is effective for public companies for annual periods beginning after December 15, 2017. The Company early adopted this ASU as of the beginning of fiscal year 2017 on a retrospective basis; accordingly, the Company reclassified $278,000 and $383,000 from product cost of revenue to other income for the year ended December 31, 2016 and January 2, 2016, respectively, and $350,000 from general and administrative expenses to other income for the year ended December 31, 2016, to conform to the current year presentation.In January 2017, the FASB issued a new ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment. The ASU eliminates the two step goodwill impairment test and replaces it with a single step test. The single step test compares the carrying amount of a reporting unit to its fair value; if the carrying amount is greater than the fair value the difference is the amount of the goodwill impairment. Step zero is left unchanged. Therefore, entities that wish do a qualitative assessment are still permitted to do so. The ASU is effective for Securities and Exchange Commission (“SEC”) filers for fiscal years beginning after December 15, 2020. The Company early adopted this ASU as of the beginning of fiscal year 2017 which adoption did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued a new accounting standard with targeted amendments to the accounting for employee share-based payments. ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, requires that the income tax effect of share-based awards be recognized in the income statement and allows entities to elect an accounting method to recognize forfeitures as they occur or to estimate forfeitures, as is currently required. The ASU is effective for public entities for fiscal years,2018 and interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, increasing the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU is effective for fiscal years beginning after December 15, 2016. However, the Company early adopted2018, and interim periods within those fiscal years. The adoption of this ASU as ofis not expected to have a material impact on the beginning of fiscal year 2016 and made an election to recognize forfeitures as they occur. The ASU adoption was applied using a modified retrospective method by means of a $1.7 million cumulative-effect adjustment to accumulated earnings as of the beginning of the fiscal year.consolidated financial statements.
The Company has completed numerous acquisitions since its formation, which have been financed through a combination of debt and equity funding. The operations of each acquisition have been included in the Company’s consolidated results of operations since the respective closing dates of the acquisitions. The Company measures all assets acquired and liabilities assumed at their acquisition-date fair value. The following table summarizes the Company’s acquisitions by region and year: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | West | | | 6 | | | 3 | | | 3 | East | | | 8 | | | 5 | | | — | Cement | | | — | | | 1 | | | 1 |
| | | | | | | | | | | | | 2018 | | 2017 | | 2016 | West | | 5 |
| | 6 |
| | 3 |
| East (1) | | 7 |
| | 8 |
| | 5 |
| Cement | | — |
| | — |
| | 1 |
|
______________________ | | (1) | In addition, the Company acquired certain assets of a small ready-mix concrete operation in the second quarter of 2018. |
The purchase price allocation for the 2017certain 2018 acquisitions has not yet been finalized due to the recent timing of the acquisitions and status of the valuation of property, plant and equipment.equipment, among other items. The table below summarizes aggregated information regarding the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates. Information related to the 20172018 acquisitions is shown on an aggregated basis as the acquisitions were not material individually, or collectively. | | | | | | | | | 2017 | | 2016 | Financial assets (1) | | $ | 31,615 | | $ | 22,204 | Inventories | | | 8,300 | | | 17,215 | Property, plant and equipment | | | 160,975 | | | 180,321 | Intangible assets | | | 161 | | | 5,531 | Other assets | | | 4,200 | | | 6,757 | Financial liabilities (1) | | | (15,501) | | | (20,248) | Other long-term liabilities | | | (17,610) | | | (36,074) | Net assets acquired | | | 172,140 | | | 175,706 | Goodwill | | | 247,536 | | | 176,319 | Purchase price | | | 419,676 | | | 352,025 | Acquisition-related liabilities | | | (43,452) | | | (17,034) | Other | | | (1,294) | | | 1,967 | Net cash paid for acquisitions | | $ | 374,930 | | $ | 336,958 |
| (1)
| | In the first quarter of 2017, we reclassified $1.2 million of accounts payable overdrafts from financial assets to financial liabilities for the year ended December 31, 2016.
|
| | | | | | | | | | | | 2018 | | 2017 | Financial assets | | $ | 14,769 |
| | $ | 31,615 |
| Inventories | | 18,313 |
| | 8,300 |
| Property, plant and equipment | | 124,957 |
| | 160,975 |
| Intangible assets | | 3,175 |
| | 161 |
| Other assets | | 1,539 |
| | 4,200 |
| Financial liabilities | | (13,529 | ) | | (15,501 | ) | Other long-term liabilities | | (8,125 | ) | | (17,610 | ) | Net assets acquired | | 141,099 |
| | 172,140 |
| Goodwill | | 154,120 |
| | 247,536 |
| Purchase price | | 295,219 |
| | 419,676 |
| Acquisition-related liabilities | | (49,202 | ) | | (43,452 | ) | Other | | — |
| | (1,294 | ) | Net cash paid for acquisitions | | $ | 246,017 |
| | $ | 374,930 |
|
Acquisition-Related Liabilities—A number of acquisition-related liabilities have been recorded subject to terms in the relevant purchase agreements, including deferred consideration and noncompete payments. Noncompete payments have been accrued where certain former owners of newly acquired companies have entered into standard noncompete arrangements. Subject to terms and conditions stated in these noncompete agreements, payments are generally made over a five-year period. Deferred consideration is purchase price consideration paid in the future as agreed to in the purchase agreement and is not contingent on future events. Deferred consideration is generally scheduled to be paid in years ranging from five to 20 years in annual installments. The remaining payments due under these noncompete and deferred consideration agreements are as follows: | | | | | 2018 | | $ | 13,760 | | 2019 | | | 9,187 | | 2020 | | | 7,973 | | 2021 | | | 7,958 | | 2022 | | | 1,803 | | Thereafter | | | 6,763 | | Total scheduled payments | | | 47,444 | | Present value adjustments | | | (10,117) | | Total noncompete obligations and deferred consideration | | $ | 37,327 | |
| | | | | | | 2019 | $ | 32,960 |
| 2020 | 31,745 |
| 2021 | 9,705 |
| 2022 | 3,411 |
| 2023 | 2,657 |
| Thereafter | 9,640 |
| Total scheduled payments | 90,118 |
| Present value adjustments | (12,949 | ) | Total noncompete obligations and deferred consideration | $ | 77,169 |
|
Accretion on the deferred consideration and noncompete obligations is recorded in interest expense.
As of December 30, 2017,29, 2018, the Company had 12 reporting units with goodwill for which the annual goodwill impairment test was completed. We perform the annual impairment test on the first day of the fourth quarter each year. We initially perform a qualitative analysis. As a result of this analysis, it was determined that it is more likely than not that the fair value of fivefour reporting units were greater than its carrying value. For the remaining reporting units we perform a two-step quantitative analysis. Step 1 of that analysis compares the estimated the fair value of the reporting units using an income approach (i.e., a discounted cash flow technique) and a market approach to the carrying value of the reporting unit. If the estimated fair value exceeds its carrying value, the goodwill of the reporting unit is not considered impaired. If the carrying value of the reporting unit exceeds its fair value, we proceed to the second step to measure the amount of potential impairment loss. Based on this analysis, it was determined that the reporting units’ fair values were greater than their carrying values and no impairment charges were recognized in 2017.2018. The accumulated impairment charges recognized in periods prior to 20152016 totaled $68.2 million. These estimates of a reporting unit’s fair value involve significant management estimates and assumptions, including but not limited to sales prices of similar assets, assumptions related to future profitability, cash flows, and discount rates. These estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential. Developing discounted future cash flow estimates in applying the income approach required management to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates about revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows required the selection of risk premiums, which can materially affect the present value of estimated future cash flows.
In addition to the financial impact of Hurricane Harvey, our operations in Austin continue to be pressured by aggressive competition, which has further impacted volumes and pricing. We expect the Austin market to continue to grow, and the Texas Department of Transportation to invest in infrastructure projects in that area. The Austin reporting unit has approximately $18 million of goodwill as of December 29, 2018, which we continue to believe is realizable. The key assumptions around the realizability analysis are revenue growth, as well as the discount rate of 10%. Our discount rate came under pressure in the fourth quarter of 2018 due to decreases in the market price of our Class A common stock. We will continue to monitor whether an event indicates the carrying value of the Austin based reporting unit may be impaired. The following table presents goodwill by reportable segments and in total: | | | | | | | | | | | | | | | West | | East | | Cement | | Total | Balance, January 2, 2016 | | $ | 303,926 | | $ | 98,308 | | $ | 194,163 | | $ | 596,397 | Acquisitions | | | 29,006 | | | 145,109 | | | 10,375 | | | 184,490 | Foreign currency translation adjustments | | | 1,325 | | | — | | | — | | | 1,325 | Balance, December 31, 2016 | | $ | 334,257 | | $ | 243,417 | | $ | 204,538 | | $ | 782,212 | Acquisitions (1) | | | 187,883 | | | 61,957 | | | 118 | | | 249,958 | Foreign currency translation adjustments | | | 4,150 | | | — | | | — | | | 4,150 | Balance, December 30, 2017 | | $ | 526,290 | | $ | 305,374 | | $ | 204,656 | | $ | 1,036,320 |
| | | | | | | | | | | | | | | | | | | | West | | East | | Cement | | Total | Balance, December 31, 2016 | | $ | 334,257 |
| | $ | 243,417 |
| | $ | 204,538 |
| | $ | 782,212 |
| Acquisitions | | 187,883 |
| | 61,957 |
| | 118 |
| | 249,958 |
| Foreign currency translation adjustments | | 4,150 |
| | — |
| | — |
| | 4,150 |
| Balance, December 30, 2017 | | $ | 526,290 |
| | $ | 305,374 |
| | $ | 204,656 |
| | $ | 1,036,320 |
| Acquisitions (1) | | 59,148 |
| | 101,431 |
| | — |
| | 160,579 |
| Foreign currency translation adjustments | | (4,871 | ) | | — |
| | — |
| | (4,871 | ) | Balance, December 29, 2018 | | $ | 580,567 |
| | $ | 406,805 |
| | $ | 204,656 |
| | $ | 1,192,028 |
|
______________________ | | (1) | | Reflects goodwill from 20172018 acquisitions and working capital adjustments from prior year acquisitions. |
We derive our revenue predominantly by selling construction materials, products and providing paving and related services. Construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related service revenue is generated primarily from the asphalt paving services that we provide.
Revenue by product for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 consisted of the following:
(4) Revenue Recognition
Revenue for product sales are recognized when evidence of an arrangement exists, the fee is fixed or determinable, title passes, which is generally when the product is shipped, and collection is reasonably assured. Product revenue includes sales of aggregates, cement and other materials to customers, net of discounts, allowances or taxes, as applicable.
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Revenue by product*: | | | | | | | Aggregates | | $ | 373,824 |
| | $ | 313,383 |
| | $ | 264,609 |
| Cement | | 258,876 |
| | 282,041 |
| | 250,349 |
| Ready-mix concrete | | 584,114 |
| | 492,302 |
| | 395,917 |
| Asphalt | | 301,247 |
| | 285,653 |
| | 239,419 |
| Paving and related services | | 379,540 |
| | 371,763 |
| | 304,041 |
| Other | | 203,401 |
| | 187,433 |
| | 171,728 |
| Total revenue | | $ | 2,101,002 |
| | $ | 1,932,575 |
| | $ | 1,626,063 |
|
______________________ * Revenue from construction contracts are included in service revenue and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are estimable. General and administrative costs are charged to expense as incurred.
Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. An amount equal to contract costs incurred that are attributable to claimsliquid asphalt terminals is included in revenue when realization is probableasphalt revenue.
The following table outlines the significant changes in contract assets and the amount can be reliably estimated.Costs and estimated earnings in excess of billings are composed principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presentedcontract liability balances from December 30, 2017 to customers because the amount were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, the unbilled receivables at the balance sheet date will be billedDecember 29, 2018. Also included in the subsequent year. Billingstable is the net change in excessthe estimate as a percentage of costs and estimated earnings represent billings in excess ofaggregate revenue recognized.
Revenue from the receipt of waste fuels is classified as service revenue and is based on fees charged for the waste disposal, which is recognized when the waste is accepted.
such contracts:
| | | | | | | | | | Costs and estimated | | Billings in excess | | earnings in | | of costs and | | excess of billings | | estimated earnings | Balance—December 30, 2017 | $ | 9,512 |
| | $ | 15,750 |
| Changes in revenue billed, contract price or cost estimates | 8,702 |
| | (5,052 | ) | Acquisitions | 483 |
| | 1,179 |
| Other | (95 | ) | | (37 | ) | Balance—December 29, 2018 | $ | 18,602 |
| | $ | 11,840 |
|
Accounts receivable, net consisted of the following as of December 30, 201729, 2018 and December 31, 2016:30, 2017: | | | | | | | | | 2017 | | 2016 | Trade accounts receivable | | $ | 187,528 | | $ | 152,845 | Retention receivables | | | 14,973 | | | 12,117 | Receivables from related parties | | | 468 | | | 721 | Accounts receivable | | | 202,969 | | | 165,683 | Less: Allowance for doubtful accounts | | | (4,639) | | | (3,306) | Accounts receivable, net | | $ | 198,330 | | $ | 162,377 |
| | | | | | | | | | | | 2018 | | 2017 | Trade accounts receivable | | $ | 157,601 |
| | $ | 137,696 |
| Construction contract receivables | | 47,994 |
| | 49,832 |
| Retention receivables | | 15,010 |
| | 14,973 |
| Receivables from related parties | | 629 |
| | 468 |
| Accounts receivable | | 221,234 |
| | 202,969 |
| Less: Allowance for doubtful accounts | | (6,716 | ) | | (4,639 | ) | Accounts receivable, net | | $ | 214,518 |
| | $ | 198,330 |
|
Retention receivables are amounts earned by the Company but held by customers until paving and related service contracts and projects are near completion or fully completed. Amounts are generally billed and collected within one year. Inventories consisted of the following as of December 30, 201729, 2018 and December 31, 2016: | | | | | | | | | 2017 | | 2016 | Aggregate stockpiles | | $ | 126,791 | | $ | 103,073 | Finished goods | | | 34,667 | | | 35,071 | Work in process | | | 7,729 | | | 6,440 | Raw materials | | | 15,252 | | | 13,095 | Total | | $ | 184,439 | | $ | 157,679 |
30, 2017:
| | | | | | | | | | | | 2018 | | 2017 | Aggregate stockpiles | | $ | 151,300 |
| | $ | 126,791 |
| Finished goods | | 34,993 |
| | 34,667 |
| Work in process | | 7,478 |
| | 7,729 |
| Raw materials | | 20,080 |
| | 15,252 |
| Total | | $ | 213,851 |
| | $ | 184,439 |
|
(6) Property, Plant and Equipment, net and Intangibles, net Property, plant and equipment, net consisted of the following as of December 30, 201729, 2018 and December 31, 2016:30, 2017: | | | | | | | | | | 2017 | | 2016 | | Land (mineral bearing) and asset retirement costs | | $ | 274,083 | | $ | 227,558 | | Land (non-mineral bearing) | | | 168,501 | | | 146,099 | | Buildings and improvements | | | 170,615 | | | 160,638 | | Plants, machinery and equipment | | | 1,068,007 | | | 965,522 | | Mobile equipment and barges | | | 391,256 | | | 307,885 | | Truck and auto fleet | | | 47,270 | | | 32,236 | | Landfill airspace and improvements | | | 49,480 | | | 48,513 | | Office equipment | | | 33,314 | | | 26,096 | | Construction in progress | | | 44,739 | | | 16,459 | | Property, plant and equipment | | | 2,247,265 | | | 1,931,006 | | Less accumulated depreciation, depletion and amortization | | | (631,841) | | | (484,554) | | Property, plant and equipment, net | | $ | 1,615,424 | | $ | 1,446,452 | |
| | | | | | | | | | | | 2018 | | 2017 | Land (mineral bearing) and asset retirement costs | | $ | 323,553 |
| | $ | 274,083 |
| Land (non-mineral bearing) | | 184,029 |
| | 168,501 |
| Buildings and improvements | | 173,559 |
| | 170,615 |
| Plants, machinery and equipment | | 1,239,793 |
| | 1,068,007 |
| Mobile equipment and barges | | 468,313 |
| | 391,256 |
| Truck and auto fleet | | 51,938 |
| | 47,270 |
| Landfill airspace and improvements | | 49,754 |
| | 49,480 |
| Office equipment | | 39,794 |
| | 33,314 |
| Construction in progress | | 43,650 |
| | 44,739 |
| Property, plant and equipment | | 2,574,383 |
| | 2,247,265 |
| Less accumulated depreciation, depletion and amortization | | (794,251 | ) | | (631,841 | ) | Property, plant and equipment, net | | $ | 1,780,132 |
| | $ | 1,615,424 |
|
Depreciation on property, plant and equipment, including assets subject to capital leases, is generally computed on a straight-line basis. Depletion of mineral reserves is computed based on the portion of the reserves used during the period compared to the gross estimated value of proven and probable reserves, which is updated periodically as circumstances dictate. Leasehold improvements are amortized on a straight-line basis over the lesser of the asset’s useful life or the remaining lease term. The estimated useful lives are generally as follows: | | | | | | | | | | | | Buildings and improvements | | 10 - 30 | years | Plant, machinery and equipment | | 15 - 20 | years | Office equipment | | 3 - 7 | years | Truck and auto fleet | | 5 - 8 | years | Mobile equipment and barges | | 6 - 8 | years | Landfill airspace and improvements | | 10 - 30 | years | Other | | 4 - 20 | years |
Depreciation, depletion and amortization expense of property, plant and equipment was $199.6 million, $174.4 million $144.2 million and $111.6$144.2 million in the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.Property, plant and equipment at29, 2018, December 30, 2017 and December 31, 2016, respectively.
Property, plant and equipment at December 29, 2018 and December 30, 2017 included $51.2$67.7 million and $49.8$51.2 million, respectively, of capital leases for certain equipment and a building with accumulated amortization of $18.5$19.3 million and $10.6$18.5 million, respectively. The equipment leases generally have terms of less than five years and the building lease had an original term of 30 years. Approximately $19.3$15.6 million and $11.8$19.3 million of the future obligations associated with the capital leases are included in accrued expenses as of December 30, 201729, 2018 and December 31, 2016,30, 2017, respectively, and the present value of the remaining capital lease payments, $16.4$33.6 million and $27.5$16.4 million, respectively, is included in other noncurrent liabilities on the consolidated balance sheets. Future minimum rental commitments under long-term capital leases are $20.5$17.9 million, $7.6$13.9 million, $5.9$15.3 million, $1.4$3.0 million, and $0.6$1.0 million for the years ended 2018, 2019, 2020, 2021, 2022 and 2022,2023, respectively. Assets are assessed for impairment charges when identified for disposition. Projected losses from disposition are recognized in the period in which they become estimable, which may be in advance of the actual disposition. The net gain from asset dispositions recognized in general and administrative expenses in fiscal years 2018, 2017 and 2016 and 2015 was $12.6 million, $7.5 million $6.8 million and $23.5$6.8 million, respectively. No material impairment charges have been recognized on assets held for use in fiscal 2018, 2017 2016 or 2015.2016. The losses are commonly a result of the cash flows expected from selling the asset being less than the expected cash flows that could be generated from holding the asset for use. Intangible Assets—The Company’s intangible assets are primarily composed of lease agreements and reserve rights. The assets related to lease agreements reflect the submarket royalty rates paid under agreements, primarily, for extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates to contract-royalty rates. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but do
not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases. The following table shows intangible assets by type and in total: | | | | | | | | | | | | | | | | | | | | | December 30, 2017 | | December 31, 2016 | | | Gross | | | | | Net | | Gross | | | | | Net | | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | Leases | | $ | 15,888 | | $ | (4,178) | | $ | 11,710 | | $ | 15,888 | | $ | (3,382) | | $ | 12,506 | Reserve rights | | | 6,234 | | | (1,625) | | | 4,609 | | | 8,706 | | | (3,710) | | | 4,996 | Trade names | | | 1,000 | | | (758) | | | 242 | | | 1,000 | | | (658) | | | 342 | Other | | | 409 | | | (137) | | | 272 | | | 249 | | | (104) | | | 145 | Total intangible assets | | $ | 23,531 | | $ | (6,698) | | $ | 16,833 | | $ | 25,843 | | $ | (7,854) | | $ | 17,989 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | December 29, 2018 | | December 30, 2017 | | | Gross | | | | Net | | Gross | | | | Net | | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | Leases | | $ | 19,064 |
| | $ | (5,259 | ) | | $ | 13,805 |
| | $ | 15,888 |
| | $ | (4,178 | ) | | $ | 11,710 |
| Reserve rights | | 6,234 |
| | (1,940 | ) | | 4,294 |
| | 6,234 |
| | (1,625 | ) | | 4,609 |
| Trade names | | 1,000 |
| | (858 | ) | | 142 |
| | 1,000 |
| | (758 | ) | | 242 |
| Other | | 409 |
| | (190 | ) | | 219 |
| | 409 |
| | (137 | ) | | 272 |
| Total intangible assets | | $ | 26,707 |
| | $ | (8,247 | ) | | $ | 18,460 |
| | $ | 23,531 |
| | $ | (6,698 | ) | | $ | 16,833 |
|
Amortization expense in fiscal 2018, 2017 and 2016 and 2015 was $1.5 million, $1.3 million $2.6 million and $2.2$2.6 million, respectively. The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows: | | | | 2018 | | $ | 1,281 | 2019 | | | 1,268 | 2020 | | | 1,185 | 2021 | | | 1,142 | 2022 | | | 1,113 | Thereafter | | | 10,844 | Total | | $ | 16,833 |
| | | | | | | 2019 | $ | 1,588 |
| 2020 | 1,510 |
| 2021 | 1,475 |
| 2022 | 1,482 |
| 2023 | 1,349 |
| Thereafter | 11,056 |
| Total | $ | 18,460 |
|
Accrued expenses consisted of the following as of December 30, 201729, 2018 and December 31, 2016: | | | | | | | | | 2017 | | 2016 | Interest | | $ | 24,095 | | $ | 22,991 | Payroll and benefits | | | 33,915 | | | 30,546 | Capital lease obligations | | | 19,276 | | | 11,766 | Insurance | | | 11,455 | | | 11,966 | Non-income taxes | | | 7,236 | | | 5,491 | Professional fees | | | 1,717 | | | 2,459 | Other (1) | | | 18,935 | | | 26,386 | Total | | $ | 116,629 | | $ | 111,605 |
30, 2017: | | | | | | | | | | | | 2018 | | 2017 | Interest | | $ | 26,223 |
| | $ | 24,095 |
| Payroll and benefits | | 15,952 |
| | 33,915 |
| Capital lease obligations | | 15,557 |
| | 19,276 |
| Insurance | | 13,625 |
| | 11,455 |
| Non-income taxes | | 7,442 |
| | 7,236 |
| Professional fees | | 1,408 |
| | 1,717 |
| Other (1) | | 20,284 |
| | 18,935 |
| Total | | $ | 100,491 |
| | $ | 116,629 |
|
______________________ | | (1) | | Consists primarily of subcontractor and working capital settlement accruals and deferred revenue. |
Debt consisted of the following as of December 30, 201729, 2018 and December 31, 2016:30, 2017: | | | | | | | | | 2017 | | 2016 | Term Loan, due 2024: | | | | | | | $635.4 million and $640.3 million, net of $1.6 million and $2.6 million discount at December 30, 2017 and December 31, 2016, respectively | | $ | 633,805 | | $ | 637,658 | 81⁄2% Senior Notes, due 2022 | | | 250,000 | | | 250,000 | 61⁄8% Senior Notes, due 2023: | | | | | | | $650.0 million, net of $1.4 million and $1.6 million discount at December 30, 2017 and December 31, 2016, respectively | | | 648,650 | | | 648,407 | 51⁄8% Senior Notes, due 2025 | | | 300,000 | | | — | Total | | | 1,832,455 | | | 1,536,065 | Current portion of long-term debt | | | 4,765 | | | 6,500 | Long-term debt | | $ | 1,827,690 | | $ | 1,529,565 |
| | | | | | | | | | | | 2018 | | 2017 | Term Loan, due 2024: | | | | | $630.6 million and $635.4 million, net of $1.3 million and $1.6 million discount at December 29, 2018 and December 30, 2017, respectively | | $ | 629,268 |
| | $ | 633,805 |
| 8 1/2% Senior Notes, due 2022 | | 250,000 |
| | 250,000 |
| 6 1/8% Senior Notes, due 2023: | | | | | $650.0 million, net of $1.1 million and $1.4 million discount at December 29, 2018 and December 30, 2017, respectively | | 648,891 |
| | 648,650 |
| 5 1/8% Senior Notes, due 2025 | | 300,000 |
| | 300,000 |
| Total | | 1,828,159 |
| | 1,832,455 |
| Current portion of long-term debt | | 6,354 |
| | 4,765 |
| Long-term debt | | $ | 1,821,805 |
| | $ | 1,827,690 |
|
The contractual payments of long-term debt, including current maturities, for the five years subsequent to December 30, 2017,29, 2018, are as follows: | | | | 2018 | | $ | 4,765 | 2019 | | | 6,354 | 2020 | | | 7,942 | 2021 | | | 6,354 | 2022 | | | 256,354 | Thereafter | | | 1,553,606 | Total | | | 1,835,375 | Less: Original issue net discount | | | (2,920) | Less: Capitalized loan costs | | | (16,857) | Total debt | | $ | 1,815,598 |
| | | | | | | 2019 | $ | 6,354 |
| 2020 | 7,942 |
| 2021 | 6,354 |
| 2022 | 256,354 |
| 2023 | 656,354 |
| Thereafter | 897,253 |
| Total | 1,830,611 |
| Less: Original issue net discount | (2,452 | ) | Less: Capitalized loan costs | (14,303 | ) | Total debt | $ | 1,813,856 |
|
Senior Notes— On June 1, 2017, Summit LLC and Summit Finance (together, the “Issuers”) issued $300.0$300 million of 51⁄8% 1⁄8% senior notes due June 1, 2025 (the “2025 Notes”). The 2025 Notes were issued at 100.0%100% of their par value with proceeds of $295.4 million, net of related fees and expenses. The 2025 Notes were issued under an indenture dated June 1, 2017 (as amended and supplemented, the “2017 Indenture”). The 2017 Indenture contains covenants limiting, among other things, Summit LLC and its restricted subsidiaries’ ability to incur additional indebtedness or issue certain preferred shares, pay dividends, redeem stock or make other distributions, make certain investments, sell or transfer certain assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter inter certain transactions with affiliates, and designate subsidiaries as unrestricted subsidiaries. The 2017 Indenture also contains customary events of default. Interest on the 2025 Notes is payable semi-annually on June 1 and December 1 of each year commencing on December 1, 2017. In 2016, the Issuers issued $250.0 million of 8.500%8.5% senior notes due April 15, 2022 (the “2022 Notes”). The 2022 Notes were issued at 100.0%100% of their par value with proceeds of $246.3 million, net of related fees and expenses. The proceeds from the sale of the 2022 Notes were used to fund the acquisition of Boxley Materials Company, replenish cash used for the acquisition of American Materials Company and pay expenses incurred in connection with these acquisitions. The 2022 Notes were issued under an indenture dated March 8, 2016, the terms of which are generally consistent with the 2017 Indenture. Interest on the 2022 Notes is payable semi-annually in arrears on April 15 and October 15 of each year. In 2015, the Issuers issued $650.0$650 million of 6.125% senior notes due July 2023 (the “2023 Notes” and collectively with the 2022 Notes and the 2025 Notes, the “Senior Notes”). Of the aggregate $650.0 million of 2023 Notes, $350.0 million were issued at par and $300.0 million were issued at 99.375% of par. The 2023 Notes were issued under an indenture dated July 8, 2015, the terms of which are generally consistent with the 2017 Indenture. Interest on the 2023 Notes is payable semi-annually in arrears on January 15 and July 15 of each year. In April, August and November 2015, $288.2 million, $183.0 million and $153.8 million, respectively, in aggregate principal amount of the then outstanding 10 1/2% 1/2% senior notes due January 31, 2020 (the “2020 Notes”) were redeemed at a price equal to par plus an applicable premium and the indenture under which the 2020 Notes were issued was satisfied and discharged. As a result of the redemptions, net charges of $56.5 million were recognized for the year ended January 2,December 31, 2016. The fees included $66.6 million for the applicable prepayment premium and $11.9 million for the write-off of deferred financing fees, partially offset by $22.0 million of net benefit from the write-off of the original issuance net premium.As of December 30, 201729, 2018 and December 31, 2016,30, 2017, the Company was in compliance with all financial covenants under the applicable indentures. Senior Secured Credit Facilities— Summit LLC has credit facilities that provide for term loans in an aggregate amount of $650.0 million and revolving credit commitments in an aggregate amount of $235.0 million (the “Senior Secured Credit Facilities”). Under the Senior Secured Credit Facilities, required principal repayments of 0.25% of the refinanced aggregate amount of term debt are due on the last business day of each March, June, September and December, commencing with the March 2018 payment. The unpaid principal balance is due in full on the maturity date, which is November 21, 2024. On January 19, 2017, Summit LLC entered into Amendment No. 1 (“Amendment No. 1”) to the credit agreement governing the Senior Secured Credit Facilities (the “Credit Agreement”), which, among other things, reduced the applicable margin in respect of then outstanding $640.3 million principal amount of term loans thereunder. All other material terms and provisions remain substantially identical to the terms and provisions in place immediately prior to the effectiveness of Amendment No. 1. On November 21, 2017, Summit LLC entered into Amendment No. 2 to the Credit Agreement, which, among other things, extended the maturity date from 2022 to 2024 and reduced the applicable margin in respect of the $635.4 million outstanding principal amount of term loans thereunder. On May 22, 2018, Summit LLC entered into Amendment No. 3 to the Credit Agreement, which, among other things, reduced the applicable margin in respect of the $633.8 million outstanding principal amount of term loans thereunder. The revolving credit facility bears interest per annum equal to, at Summit LLC’s option, either (i) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) LIBOR plus 1.00%, plus an applicable margin of 2.25% for base rate loans or (ii) a LIBOR rate determined by reference to Reuters prior to the interest period relevant to such borrowing adjusted for certain additional costs plus an applicable margin of 3.25% for LIBOR rate loans. There were no outstanding borrowings under the revolving credit facility as of December 30, 201729, 2018 or December 31, 2016.30, 2017. As of December 30, 201729, 2018, we had remaining borrowing capacity of $218.9$219.6 million under the revolving credit facility, which is net of $16.1$15.4 million of outstanding letters of credit. The outstanding letters of credit are renewed annually and support required bonding on construction projects and the Company’s insurance liabilities. Summit LLC’s Consolidated First Lien Net Leverage Ratio, as such term is defined in the Credit Agreement, should be no greater than 4.75:1.0 as of each quarter-end. As of December 30, 201729, 2018 and December 31, 2016,30, 2017, Summit LLC was in compliance with all financial covenants under the Credit Agreement. Summit LLC’s wholly-owned domestic subsidiary companies, subject to certain exclusions and exceptions, are named as subsidiary guarantors of the Senior Notes and the Senior Secured Credit Facilities. In addition, Summit LLC has pledged substantially all of its assets as collateral, subject to certain exclusions and exceptions, for the Senior Secured Credit Facilities. The following table presents the activity for the deferred financing fees for the years ended December 30, 201729, 2018 and December 31, 2016: 30, 2017: | | | | | | Deferred financing fees | Balance—January 2, 2016 | | $ | 15,892 | Loan origination fees | | | 5,801 | Amortization | | | (3,403) | Balance—December 31, 2016 | | $ | 18,290 | Loan origination fees | | | 6,416 | Amortization | | | (3,990) | Write off of deferred financing fees | | | (1,683) | Balance—December 30, 2017 | | $ | 19,033 |
| | | | | | | | Deferred financing fees | Balance—December 31, 2016 | $ | 18,290 |
| Loan origination fees | 6,416 |
| Amortization | (3,990 | ) | Write off of deferred financing fees | (1,683 | ) | Balance—December 30, 2017 | $ | 19,033 |
| Loan origination fees | 550 |
| Amortization | (4,108 | ) | Balance—December 29, 2018 | $ | 15,475 |
|
Other—On January 15, 2015, the Company’s wholly-owned subsidiary in British Columbia, Canada entered into an agreement with HSBC for a (i) $6.0 million Canadian dollar (“CAD”) revolving credit commitment to be used for operating activities that bears interest per annum equal to the bank’s prime rate plus 0.20%, (ii) $0.5 million CAD revolving credit commitment to be used for capital equipment that bears interest per annum at the bank’s prime rate plus 0.90% and (iii) $0.4 million CAD revolving credit commitment to provide guarantees on behalf of that subsidiary. There were no amounts outstanding under this agreement as of December 30, 201729, 2018 or December 31, 2016.30, 2017. Summit Inc.’s tax provision includes its proportional share of Summit Holdings’ tax attributes. Summit Holdings’ subsidiaries are primarily limited liability companies, but do include certain entities organized as C corporations and a Canadian subsidiary. The tax attributes related to the limited liability companies are passed on to Summit Holdings and then to its partners, including Summit Inc. The tax attributes associated with the C corporation and Canadian subsidiaries are fully reflected in the Company’s consolidated financial statements. For the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016, income taxes consisted of the following: | | | | | | | | | | | | | 2017 | | | 2016 | | | 2015 | | Provision for income taxes: | | | | | | | | | | | Current | | $ | 2,530 | | $ | 2,835 | | $ | 1,605 | | Deferred | | | (286,507) | | | (8,134) | | | (19,868) | | Income tax benefit | | $ | (283,977) | | $ | (5,299) | | $ | (18,263) | |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Provision for income taxes: | | | | | | | Current | | $ | 463 |
| | $ | 2,530 |
| | $ | 2,835 |
| Deferred | | 59,284 |
| | (286,507 | ) | | (8,134 | ) | Income tax expense (benefit) | | $ | 59,747 |
| | $ | (283,977 | ) | | $ | (5,299 | ) |
The effective tax rate on pre-tax income differs from the U.S. statutory rate of 21%, 35% , and 35% for 2018, 2017 and 2016, respectively, due to the following: | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Income tax expense (benefit) at federal statutory tax rate | | $ | (55,365) | | $ | 14,290 | | $ | (6,718) | | Less: Income tax benefit at federal statutory tax rate for LLC entities | | | (2,123) | | | (10,608) | | | (22,649) | | State and local income taxes | | | (5,209) | | | 2,490 | | | (2,389) | | Permanent differences | | | (4,410) | | | (5,902) | | | 2,147 | | Effective tax rate change | | | 216,904 | | | (1,432) | | | 10 | | Tax receivable agreement expense | | | 104,804 | | | 5,228 | | | — | | Change in valuation allowance | | | (500,162) | | | 239,008 | | | 261,302 | | Impact of LP Unit ownership change | | | (31,790) | | | (252,456) | | | (249,400) | | Other | | | (6,626) | | | 4,083 | | | (566) | | Income tax benefit | | $ | (283,977) | | $ | (5,299) | | $ | (18,263) | |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Income tax expense (benefit) at federal statutory tax rate | | $ | 20,177 |
| | $ | (55,365 | ) | | $ | 14,290 |
| Less: Income tax benefit at federal statutory tax rate for LLC entities | | (561 | ) | | (2,123 | ) | | (10,608 | ) | State and local income taxes | | 4,894 |
| | (5,209 | ) | | 2,490 |
| Permanent differences | | (5,537 | ) | | (4,410 | ) | | (5,902 | ) | Effective tax rate change | | 4,034 |
| | 216,904 |
| | (1,432 | ) | Unrecognized tax benefits | | 22,663 |
| | — |
| | — |
| Tax receivable agreement (benefit) expense | | (8,282 | ) | | 104,804 |
| | 5,228 |
| Change in valuation allowance | | 17,592 |
| | (500,162 | ) | | 239,008 |
| Impact of LP Unit ownership change | | — |
| | (31,790 | ) | | (252,456 | ) | Other | | 4,767 |
| | (6,626 | ) | | 4,083 |
| Income tax expense (benefit) | | $ | 59,747 |
| | $ | (283,977 | ) | | $ | (5,299 | ) |
The following table summarizes the components of the net deferred income tax asset (liability) as December 30, 201729, 2018 and December 31, 2016: 30, 2017: | | | | | | | | | 2017 | | 2016 | Deferred tax (liabilities) assets: | | | | | | | Net intangible assets | | $ | 316,950 | | $ | 591,464 | Accelerated depreciation | | | (147,943) | | | (184,794) | Net operating loss | | | 94,751 | | | 71,379 | Investment in limited partnership | | | (14,467) | | | (13,633) | Mining reclamation reserve | | | 1,239 | | | 1,220 | Working capital (e.g., accrued compensation, prepaid assets) | | | 35,237 | | | 41,529 | Less valuation allowance | | | (1,675) | | | (502,839) | Deferred tax assets | | | 284,092 | | | 4,326 | Less foreign deferred tax liability (included in other noncurrent liabilities) | | | (3,992) | | | — | Net deferred tax asset | | $ | 280,100 | | $ | 4,326 |
| | | | | | | | | | | | 2018 | | 2017 | Deferred tax assets (liabilities): | | | | | Net intangible assets | | $ | 275,412 |
| | $ | 316,950 |
| Accelerated depreciation | | (185,020 | ) | | (147,943 | ) | Net operating loss | | 143,234 |
| | 94,751 |
| Investment in limited partnership | | (29,981 | ) | | (14,467 | ) | Mining reclamation reserve | | 1,600 |
| | 1,239 |
| Inventory purchase accounting adjustments | | — |
| | — |
| Working capital (e.g., accrued compensation, prepaid assets) | | 36,932 |
| | 35,237 |
| Interest expense limitation carryforward | | 2,586 |
| | — |
| Less valuation allowance | | (19,366 | ) | | (1,675 | ) | Deferred tax assets | | 225,397 |
| | 284,092 |
| Less foreign deferred tax liability (included in other noncurrent liabilities) | | (5,133 | ) | | (3,992 | ) | Net deferred tax asset | | $ | 220,264 |
| | $ | 280,100 |
|
As of December 30, 2017, $39029, 2018, $379.4 million of our deferred tax assets were subject to our TRA and after amortization and netting other deferred tax liabilities related toare included in the net intangible assets are carried at aand the net book value of $317 million in the above table.operating loss line items above. Our income tax benefitexpense (benefit) was $284.0$59.7 million, $5.3$(284.0) million and $18.3$(5.3) million in the fiscal years ended 2018, 2017 and 2016, respectively. Our effective income tax rate in 2018 was impacted by the IRS interpretative guidance of TCJA, a change in state tax rates and 2015, respectively.a reduction in the amount of our TRA liability. We recorded an income tax benefit in fiscal 2017, primarily related to the release of the valuation allowance as discussed below, partially offset by charge related to the decrease in the federal statutory corporate tax rate. Our effective income tax rate in 2017 was higher in 2017 as compared to 2016, primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change referred to below and depletion in excess of U.S. GAAP depletion recognized in 2017. During the year ended 2016, our income tax benefit was $5.3 million. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) deductions related to our TRA, (4) tax depletion expense in excess of the expense recorded under U.S. GAAP, (5) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (6) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that are scheduledbegin to expire in the near future.2030. Due to our limited operating history as of December 31, 2016, during which we incurred only a small amount of pre-tax income over the previous three years, as well as our acquisitive business strategy, after considering both positive and negative evidence, we concluded that it was not more likely than not that we would fully realize those deferred tax assets, and therefore recorded a partial valuation allowance against those deferred tax assets as of December 31, 2016. However, the amount of cumulative income increased significantly during the year ended December 30, 2017, and we expect to generate additional income in 2018 and for the foreseeable future that will allow us to utilize the deferred tax assets.2017. As a result of this significant positive evidence, we determined that the deferred tax assets had become more likely than not of becoming realizable and therefore released the majority of the valuation allowance in the third quarter of 2017. The Company updated the analysis as of December 30, 2017,2018, and adjusted the remaining valuation allowance for certain net operating loss deferred tax assets within the C corporation entities that the Company does not expect to be realized. interest expense carryforwards limited under TCJA. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. Among other things, the TCJA, beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the TCJA prescribes the application of net operating loss carryforwards generated in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years. As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets in the fourth quarter of 2017 by $216.9 million to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. Further, we evaluated the realizability of our net operating loss carryforwards, and determined a valuation allowance of $1.7 million was appropriate as of December 30, 2017. The TCJA contains many provisions which willcontinue to be clarified through new regulations expected to be issued during 2018.regulations. As of December 30, 2017, we have not completed the accounting for the tax effects of the TCJA; however, we have made reasonable estimates on our existing deferred tax balances, as permitted by Staff Accounting Bulletin 118 issued by the SEC on December 22, 2017. In addition,2017, we expectcompleted our accounting of the statesimpacts of the TCJA. We completed our analysis within 2018 consistent with the guidance of SAB 118 and any adjustments during the measurement period have been included in which we operatenet earnings from continuing operations as an adjustment to consider new statutory provisionsincome tax expense. We recorded additional tax expense of $17.6 million resulting from the IRS interpretative guidance of TCJA during the fourth quarter of 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | Unrealized Tax Benefits | Balance—December 30, 2017 | | $ | — |
| Additions based on tax position in 2018 | | 22,663 |
| Balance—December 29, 2018 | | $ | 22,663 |
|
At December 29, 2018, there was $22.7 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. We did not recognize interest or penalties related to this amount as it is offset by other attributes. There were no uncertain tax positions for the enactment of the TCJA during 2018 as well. We will record the impact, if any, of any newly issued regulations, as well as clarifications of the TCJA, as a discrete adjustment to our income tax provision in 2018. years ended December 30, 2017 and December 31, 2016. Our net operating loss carryforward deferred tax assets begin to expire in 2030 and are expected to reverse before expiration. Therefore, we have not given consideration to any potential tax planning strategies as a source of future taxable income to monetize those net operating loss carryforwards. The Company will continue to monitor facts and circumstances, including our analysis of other sources of taxable income, in the reassessment of the likelihood that the tax benefit of our deferred tax assets will be realized.As of December 30, 2017 and December 31, 2016, after the release of the valuation allowance referred to above, Summit Inc. had a valuation allowance of $1.7 million and $502.8 million, respectively, which relates to certain deferred tax assets in taxable entities where realization is not more likely than not. The remaining valuation allowance as of December 30, 2017 relates to certain net operating loss deferred tax assets in a subsidiary that is not expected to generate future taxable income for the foreseeable future.As of December 30, 2017,29, 2018, Summit Inc. had federal net operating loss carryforwards of $374.5$664 million, which expire between 2030 and 2037. As of December 30, 2017, $25029, 2018, $322.5 million of our federal net operating losses were under the terms of our TRA. In addition, Summit Inc. has alternative minimum tax credits of $0.2 million as of December 30, 2017,29, 2018, which do not expire. As of December 30, 201729, 2018 and December 31, 2016,30, 2017, Summit Inc. had a valuation allowance on net deferred tax assets of $19.4 million and $1.7 million, respectively, where realization of our interest tax attributes and $502.8 million, respectively. The deferred tax assets primarily relate to tax basis in intangible assets that exceeds book basis. The intangible asset tax basis was largely recognized as a result of the LP Unit exchanges in 2017 and 2016. net operating losses are not more likely than not. | | | | | | | | | | 2017 | | 2016 | | Valuation Allowance: | | | | | | | | Beginning balance | | $ | (502,839) | | $ | (263,825) | | Additional basis from exchanged LP Units | | | (31,790) | | | (252,456) | | Change in valuation allowance | | | 531,952 | | | 13,448 | | Other | | | 1,002 | | | (6) | | Ending balance | | $ | (1,675) | | $ | (502,839) | |
We have reclassified $4.3 million of deferred tax assets from other assets to deferred tax assets in the December 31, 2016 consolidated balance sheet to conform to the current year presentation.
| | | | | | | | | | | | 2018 | | 2017 | Valuation Allowance: | | | | | Beginning balance | | $ | (1,675 | ) | | $ | (502,839 | ) | Additional basis from exchanged LP Units | | (99 | ) | | (31,790 | ) | Current year increases from operations | | (17,592 | ) | | — |
| Release of valuation allowance and other | | — |
| | 532,954 |
| Ending balance | | $ | (19,366 | ) | | $ | (1,675 | ) |
Tax Receivable Agreement— During 2015, the Company entered into a TRA with the holders of LP Units and certain other pre-initial public offering owners (“Investor Entities”) that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. actually realizes (or, under certain circumstances such as an early termination of the TRA, is deemed to realize) as a result of increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. When LP Units are exchanged for an equal number of newly-issued shares of Summit Inc.’s Class A common stock, these exchanges result in new deferred tax assets. Using tax rates in effect as of each year end, $2.0 million, $12.4 million, $422.5 million and $216.3$422.5 million of deferred tax assets were created during the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016, respectively, when LP Units were exchanged for shares of Class A common stock.
As noted above, when payments are made under the TRA, we expect the amount that is characterized as imputed interest will be limited under the proposed IRS regulations, and therefore the Company will not benefit from that deduction. Further, in 2018, we updated our estimate of the state income tax rate that will be in effect at the date the TRA payments are made. As a result of the updated state income tax rate, and the imputed interest limitation noted above, we have reduced our TRA liability by $22.7 million as of December 29, 2018.
In the third quarter of 2017, as a result of the analysis of the realizability of our deferred tax assets as indicated above, in the third quarter of 2017, we reduced the valuation allowance against our deferred tax assets, including those deferred tax assets subject to the TRA. Further, we determined the TRA liability to be probable of being payable and, as such, we recorded 85% of the deferred tax assets subject to the TRA, or $501.8 million, as TRA liability. We recordedOur TRA liability as of December 29, 2018 and December 30, 2017 was $310.4 million and $331.9 million, and $59.3 million of TRA liabilityrespectively, of which $0.6$0.7 million and $1.1$0.6 million was classified as accrued expenses, asrespectively.
Tax Distributions – The holders of Summit Holdings’ LP Units, including Summit Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of Summit Holdings. The limited partnership agreement of Summit Holdings provides for pro rata cash distributions (“tax distributions”) to the holders of the LP Units in an amount generally calculated to provide each holder of LP Units with sufficient cash to cover its tax liability in respect of the LP Units. In general, these tax distributions are computed based on Summit Holdings’ estimated taxable income allocated to each holder of LP UnitsSummit Inc. multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate applicable to an individual ora corporate resident in New York, New York (or a corporate resident in certain circumstances). York.
For the years ended December 30, 201729, 2018 and December 31, 2016,30, 2017, Summit Holdings paid tax distributions totaling $1.8$0.1 million and $13.0$1.8 million, respectively, to holders of its LP Units, other than Summit Inc. C Corporation Subsidiaries— The effective income tax rate for the C corporations differ from the statutory federal rate primarily due to (1) tax depletion expense (benefit) in excess of the expense recorded under U.S. GAAP, (2) state income taxes and the effect of graduated tax rates, and (3) various other items such as limitations on meals and entertainment and other costs.costs and (4) unrecognized tax benefits. The effective income tax rate for the Canadian subsidiary is not significantly different from its historical effective tax rate.As of December 30, 2017, and December 31, 2016, Summit Inc. and its subsidiaries had not recognized any liabilities for uncertain tax positions.
No material interest or penalties were recognized in income tax expense during the years ended December 29, 2018, December 30, 2017 or December 31, 2016 or January 2, 2016. Tax years from 20132014 to 20172018 remain open and subject to audit by federal, Canadian, and state tax authorities.
Basic earnings per share is computed by dividing net earnings by the weighted average common shares outstanding and diluted net earnings is computed by dividing net earnings, adjusted for changes in the earnings allocated to Summit Inc. as a result of the assumed conversion of LP Units, by the weighted-average common shares outstanding assuming dilution. The following table shows the calculation of basic income per share: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Net income attributable to Summit Inc. | | $ | 121,830 | | $ | 36,783 | | $ | 27,718 | Weighted average shares of Class A stock outstanding | | | 108,696,438 | | | 70,355,042 | | | 40,888,437 | Basic income per share | | $ | 1.12 | | $ | 0.52 | | $ | 0.68 | | | | | | | | | | | Net income attributable to Summit Inc. | | $ | 121,830 | | $ | 36,783 | | $ | 27,718 | Add: Noncontrolling interest impact of LP Unit conversion | | | — | | | — | | | 17,803 | Diluted net income attributable to Summit Inc. | | | 121,830 | | | 36,783 | | | 45,521 | | | | | | | | | | | Weighted average shares of Class A stock outstanding | | | 108,696,438 | | | 70,355,042 | | | 40,888,437 | Add: weighted average of LP Units | | | — | | | — | | | 50,059,648 | Add: stock options | | | 308,355 | | | 140,142 | | | — | Add: warrants | | | 42,035 | | | 16,123 | | | 37,714 | Add: restricted stock units | | | 308,221 | | | 240,633 | | | 7,523 | Add: performance stock units | | | 135,849 | | | 86,568 | | | | Weighted average dilutive shares outstanding | | | 109,490,898 | | | 70,838,508 | | | 90,993,322 | Diluted earnings per share | | $ | 1.11 | | $ | 0.52 | | $ | 0.50 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net income attributable to Summit Inc. | | $ | 33,906 |
| | $ | 121,830 |
| | $ | 36,783 |
| Weighted average shares of Class A stock outstanding | | 111,380,175 |
| | 108,696,438 |
| | 70,355,042 |
| Basic income per share | | $ | 0.30 |
| | $ | 1.12 |
| | $ | 0.52 |
| | | | | | | | Net income (loss) attributable to Summit Inc. | | $ | 33,906 |
| | $ | 121,830 |
| | $ | 36,783 |
| | | | | | | | Weighted average shares of Class A stock outstanding | | 111,380,175 |
| | 108,696,438 |
| | 70,355,042 |
| Add: weighted average of LP Units | | — |
| | — |
| | — |
| Add: stock options | | 282,329 |
| | 308,355 |
| | 140,142 |
| Add: warrants | | 25,049 |
| | 42,035 |
| | 16,123 |
| Add: restricted stock units | | 459,280 |
| | 308,221 |
| | 240,633 |
| Add: performance stock units | | 169,813 |
| | 135,849 |
| | 86,568 |
| Weighted average dilutive shares outstanding | | 112,316,646 |
| | 109,490,898 |
| | 70,838,508 |
| Diluted earnings per share | | $ | 0.30 |
| | $ | 1.11 |
| | $ | 0.52 |
|
Excluded from the above calculations were the shares noted below as they were antidilutive: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Antidilutive shares: | | | | | | | | | | LP Units | | | 4,371,705 | | | 32,327,907 | | | — | Time-vesting stock options | | | — | | | — | | | 2,265,584 | Warrants | | | — | | | — | | | — | Time-vesting restricted stock units | | | — | | | — | | | — | Market-based restricted stock units | | | — | | | — | | | |
| | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Antidilutive shares: | | | | | | | LP Units | | 3,512,669 |
| | 4,371,705 |
| | 32,327,907 |
|
(11) Stockholders’ Equity (11) Stockholders’ Equity
Equity Offerings—Summit Inc. commenced operations on March 11, 2015 upon the pricingOur capital stock consists of the initial public offering1.0 billion shares of its$0.01 par value Class A common stock (“IPO”). Summit Inc. raised $433.0authorized, of which 110,350,594 shares were issued and outstanding as of December 29, 2018. We also have authorized 250 million net of underwriting discounts, through the issuance of 25,555,555 shares of Class A common stock at a public offering price of $18.00 per share. Summit Inc. used the offering proceeds to purchase a number of newly-issued Class A Units (“LP Units”) from Summit Holdings equal to the number of shares of Class A common stock issued to the public. Summit Inc. caused Summit Holdings to use these proceeds: (i) to redeem $288.2 million in aggregate principal amount of outstanding 10 1/2% 2020 Notes; (ii) to purchase 71,428,571 Class B Units of Continental Cement; (iii) to pay a one-time termination fee of $13.8 million in connection with the termination of a transaction and management fee agreement with Blackstone Capital Partners V L.P.; and (iv) for general corporate purposes. The $288.2 million redemption of 2020 Notes was completed at a redemption price equal to$0.01 par plus an applicable premium of $38.2 million plus $5.2 million of accrued and unpaid interest.In connection with the IPO, Summit Inc. issued 69,007,297 shares of itsvalue Class B common stock, to an entity owned by certain pre-IPO ownersof which 99 shares were issued and the former holdersoutstanding as of Class B Units of Continental Cement. The Class B common stock entitled that entity, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of LP Units held by all limited partners of Summit Holdings (excluding Summit Inc.). During 2016, all but 100 shares of Class B common stock were cancelled.December 29, 2018. The Class B common stock entitles holders thereof, who are also holders of LP Units, with a number of votes that is equal to the number of LP Units they hold. The Class B common stock does not participate in dividends and does not have any liquidation rights.
On August 11, 2015, Summit Inc. raised $555.8 million, net of underwriting discounts, through the issuance of 22,425,000 shares of Class A common stock at a public offering price of $25.75 per share ("the August 2015 follow-on offering"). Summit Inc. used these proceeds to purchase 3,750,000 newly-issued LP Units from Summit Holdings and 18,675,000 LP Units from certain pre-IPO owners, at a purchase price per LP Unit equal to the public offering price per share of Class A common stock, less underwriting discounts and commissions. Summit Holdings used the proceeds from the 3,750,000 newly-issued LP Units to pay the deferred purchase price of $80.0 million related to the July 17, 2015 acquisition of a cement plant and quarry in Davenport, Iowa, and seven cement terminals along the Mississippi River and for general corporate purposes.
Equity Offerings—On January 10, 2017, Summit Inc. raised $237.6 million, net of underwriting discounts, through the issuance of 10,000,000 shares of Class A common stock at a public offering price of $24.05 per share. Summit Inc. used these proceeds to purchase an equal number of LP Units.During 2016 and 2017, certain
From time to time, limited partners of Summit Holdings exchangedexchange their LP Units for shares of Class A common stock of Summit Inc. The following table summarizes the changes in our ownership of Summit Holdings: | | | | | | | | | | | | Summit Inc. Shares (Class A) | | LP Units | | Total | | Summit Inc. Ownership Percentage | | Balance — January 2, 2016 (1) | | 52,402,692 | | 50,275,825 | | 102,678,517 | | 51.0 | % | Issuance of Class A shares | | 1,038 | | - | | 1,038 | | | | Exchanges during period | | 45,124,528 | | (45,124,528) | | - | | | | Other equity transactions | | 26,020 | | - | | 26,020 | | | | Balance — December 31, 2016 (1) | | 97,554,278 | | 5,151,297 | | 102,705,575 | | 95.0 | % | January 2017 public offering | | 10,000,000 | | - | | 10,000,000 | | | | Exchanges during period | | 1,461,677 | | (1,461,677) | | - | | | | Other equity transactions | | 1,334,639 | | - | | 1,334,639 | | | | Balance — December 30, 2017 | | 110,350,594 | | 3,689,620 | | 114,040,214 | | 96.8 | % |
| (1)
| | The January 2, 2016 balance of Summit Inc. Class A Shares of 52,402,692 is shown to reflect the retroactive application of 1,135,692 and 1,521,056 of Class A common stock issued as a stock dividend on December 28, 2016 and December 22, 2017, respectively. The December 31, 2016 balance of Summit Inc. Class A Shares of 97,554,278 is shown to reflect the retroactive application of 1,521,056 of Class A common stock issued as a stock dividend on December 22, 2017.
|
| | | | | | | | | | | | | | | | Summit Inc. Shares (Class A) | | LP Units | | Total | | Summit Inc. Ownership Percentage | Balance — December 31, 2016 | | 97,554,278 |
| | 5,151,297 |
| | 102,705,575 |
| | 95.0 | % | January 2017 public offering | | 10,000,000 |
| | — |
| | 10,000,000 |
| | | Exchanges during period | | 1,461,677 |
| | (1,461,677 | ) | | — |
| | | Other equity transactions | | 1,334,639 |
| | — |
| | 1,334,639 |
| | | Balance — December 30, 2017 | | 110,350,594 |
| | 3,689,620 |
| | 114,040,214 |
| | 96.8 | % | Exchanges during period | | 254,102 |
| | (254,102 | ) | | — |
| | | Other equity transactions | | 1,054,231 |
| | — |
| | 1,054,231 |
| | | Balance — December 29, 2018 | | 111,658,927 |
| | 3,435,518 |
| | 115,094,445 |
| | 97.0 | % |
As a result of reorganization into a holding company structure (the “Reorganization”) consummated in connection with Summit Inc.’s March 2015 initial public offering, Summit Inc. is Summit Holdings’ primary beneficiary and thus consolidates Summit Holdings in its consolidated financial statements with a corresponding noncontrolling interest elimination, which was 3.2% and 5.0% as of December 30, 2017 and December 31, 2016, respectively.
On March 17, 2015, upon the consummation of the IPO and the transactions contemplated by a contribution and purchase agreement entered into with the holders of all of the outstanding Class B Units of Continental Cement, Continental Cement became a wholly-owned indirect subsidiary of Summit Inc. The noncontrolling interests of Continental Cement were acquired for aggregate consideration of $64.1 million, consisting of $35.0 million of cash, 1,029,183 shares of Summit Inc.’s Class A common stock and $15.0 million aggregate principal amount of non-interest bearing notes payable in six annual installments of $2.5 million, beginning on March 17, 2016.
Prior to the March 17, 2015 purchase of the noncontrolling interest, the Company owned 100 Class A Units of Continental Cement, which represented an approximately 70% economic interest and had a preference in liquidation to the Class B Units. Continental Cement issued 100,000,000 Class B Units in May 2010, which remained outstanding until March 17, 2015 and represented an approximately 30% economic interest.
Accumulated other comprehensive income (loss) - The changes in each component of accumulated other comprehensive income (loss) consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | Foreign currency | | | | | other | | | Change in | | translation | | Cash flow hedge | | comprehensive | | | retirement plans | | adjustments | | adjustments | | income (loss) | Balance — January 2, 2016 | | $ | 1,049 | | $ | (3,379) | | $ | (465) | | $ | (2,795) | Postretirement liability adjustment | | | 401 | | | — | | | — | | | 401 | Foreign currency translation adjustment | | | — | | | 273 | | | — | | | 273 | Loss on cash flow hedges | | | — | | | — | | | (128) | | | (128) | Balance — December 31, 2016 | | $ | 1,450 | | $ | (3,106) | | $ | (593) | | $ | (2,249) | Postretirement curtailment adjustment, net of tax | | | 309 | | | — | | | — | | | 309 | Postretirement liability adjustment, net of tax | | | 605 | | | — | | | — | | | 605 | Foreign currency translation adjustment, net of tax | | | — | | | 7,743 | | | — | | | 7,743 | Income on cash flow hedges, net of tax | | | — | | | — | | | 978 | | | 978 | Balance — December 30, 2017 | | $ | 2,364 | | $ | 4,637 | | $ | 385 | | $ | 7,386 |
| | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | Foreign currency | | | | other | | | Change in | | translation | | Cash flow hedge | | comprehensive | | | retirement plans | | adjustments | | adjustments | | income (loss) | Balance — December 31, 2016 | | $ | 1,450 |
| | $ | (3,106 | ) | | $ | (593 | ) | | $ | (2,249 | ) | Postretirement curtailment adjustment, net of tax | | 309 |
| | — |
| | — |
| | 309 |
| Postretirement liability adjustment, net of tax | | 605 |
| | — |
| | — |
| | 605 |
| Foreign currency translation adjustment, net of tax | | — |
| | 7,743 |
| | — |
| | 7,743 |
| Income on cash flow hedges, net of tax | | — |
| | — |
| | 978 |
| | 978 |
| Balance — December 30, 2017 | | $ | 2,364 |
| | $ | 4,637 |
| | $ | 385 |
| | $ | 7,386 |
| Postretirement liability adjustment, net of tax | | 1,209 |
| | — |
| | — |
| | 1,209 |
| Foreign currency translation adjustment, net of tax | | — |
| | (6,784 | ) | | — |
| | (6,784 | ) | Income on cash flow hedges, net of tax | | — |
| | — |
| | 870 |
| | 870 |
| Balance — December 29, 2018 | | $ | 3,573 |
| | $ | (2,147 | ) | | $ | 1,255 |
| | $ | 2,681 |
|
(12) Supplemental Cash Flow Information Supplemental cash flow information for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 was as follows: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Cash payments: | | | | | | | | | | Interest | | $ | 96,320 | | $ | 82,540 | | $ | 89,102 | Income taxes | | | 1,711 | | | 2,645 | | | 1,685 | Non cash financing activities: | | | | | | | | | | Purchase of noncontrolling interest | | $ | (716) | | $ | — | | $ | (29,102) | Stock Dividend | | | (45,023) | | | (26,939) | | | (16,847) | Exchange of LP Units to shares of Class A common stock | | | 41,126 | | | 953,752 | | | — |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Cash payments: | | | | | | | Interest | | $ | 103,250 |
| | $ | 96,320 |
| | $ | 82,540 |
| Income taxes | | 3,340 |
| | 1,711 |
| | 2,645 |
| Non cash financing activities: | | | | | | | Purchase of noncontrolling interest | | $ | — |
| | $ | (716 | ) | | $ | — |
| Stock Dividend | | — |
| | (45,023 | ) | | (26,939 | ) | Exchange of LP Units to shares of Class A common stock | | 7,499 |
| | 41,126 |
| | 953,752 |
|
(13) Stock-Based Compensation Prior to the IPO and related Reorganization, the capital structure of Summit Holdings consisted of six different classes of limited partnership units, each of which was subject to unique distribution rights. In connection with the IPO and the related Reorganization, the limited partnership agreement of Summit Holdings was amended and restated to, among other things, modify its capital structure by creating LP Units (“the Reclassification”). Immediately after the Reclassification, 69.0 million LP Units were outstanding, of which 575,256 time vesting interests had not yet vested, and 2.4 million of performance vesting interests had not yet vested. AsIn the first quarter of December 30, 2017, approximately 40,0002018, the Board of Directors vested the time-vesting units remained outstanding and unvested. we recognized the remaining $1.0 million of stock based compensation related to these LP units. Further in 2015, warrants to purchase 160,333 shares of Class A common stock were issued to holders of Class C interests, and options to purchase 4.4 million shares of Class A common stock were issued to holders of Class D interests as leverage restoration options. The exercise price of the warrants and the leverage restoration options is $18.00 per share. In connection with the Reclassification of the equity-based awards, we recognized $14.5 million modification charge in general and administrative expenses in the year ended January 2, 2016. The leverage restoration options were granted under
In 2015, the Board of Directors approved the Summit Materials, Inc. 2015 Omnibus Incentive Plan (the “Plan”"Plan") , and would vest when both the applicable return multiple is achieved and a four year time-vesting condition is satisfied. Subsequently, in. In August 2016, the Board of Directors determined that it was in the best interest of the Company to waive the 3.0 times threshold on the remaining unvestedcertain vesting criteria related to options to purchase 4.4 million shares of Class A common stock and certain performance-based LP Units and leverage restoration options.Units. This waiver was accounted for as a modification of both interests. The fair value of the LP Units was based on the closing stock price of Summit Inc.’s shares of Class A common stock on the modification date and the fair value of the leverage restoration options was determined using the Black-Scholes, Merton model. The Company recognized $37.7 million in general and administrative expenses in the year ended December 31, 2016 related to the vesting of these performance-based awards. In addition, as of December 30, 2017, we have $2.3 million of unamortized deferred compensation related to the LP Units and unvested leverage restoration options, which will be amortized through March 2019.In connection with the IPO, we granted 240,000 options to purchase Class A common stock under the Plan to certain employees. These options vest subject to continuous employment over a four year service period, and are exercisable at $18.00 per share.
In 2015, our Board of Directors and stockholders adopted a long-term incentive plan in connection with our IPO under the Plan, which allows for grants of equity-based awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units, performance units, and other stock-based awards. The Plan authorizes the issuance of up to 13,500,000 shares of Class A common stock in the form of restricted stock units and stock options, of which 8.66.6 million shares were available for future grants as of December 30, 2017.29, 2018. Restricted Stock with Service-Based Vesting—Under the Plan, the Compensation Committee of the Board of Directors (“the Compensation Committee”) has granted restricted stock to members of the Board of Directors, executive officers and other key employees. These awards contain service conditions associated with continued employment or service. The terms of the restricted stock provide voting and regular dividend rights to holders of the awards. Upon vesting, the restrictions on the restricted stock lapse and the shares are considered issued and outstanding for accounting purposes. In each of 2018, 2017 and 2016, the Compensation Committee granted restricted stock to executives and key employees under the Plan as part of our annual equity award program, which vest over a three year period, subject to continued employment or service. From time to time, the Compensation Committee grants restricted stock to newly hired or promoted employees or other employees or consultants who have achieved extraordinary personal performance objectives. In
Further, in each of 2018, 2017 and 2016, the Compensation Committee granted 38,232, 34,928 and 28,140 shares, respectively, to non-employee members of the Board of Directors for their annual service as directors. These restricted stock grants vest over a one year period.
In measuring compensation expense associated with the grant of restricted stock, we use the fair value of the award, determined as the closing stock price for our common stock on the date of grant. Compensation expense is recorded monthly over the vesting period of the award. Restricted stock with Service- and Market-Condition-Based Vesting—In each of 2018, 2017 and 2016, the Compensation Committee granted restricted stock to certain members of our executive team as part of their annual compensation package. The restricted stock vestvests at the end of a three year performance period, based on our total stock return (“TSR”) ranking relative to companies in the S&P Building & Construction Select Industry Index, subject to continued employment. In measuring compensation expense associated with these grants, we use the fair value of the award at the date of grant, determined using a Monte Carlo simulation model.
Compensation expense is recorded monthly over the vesting period of the awards. The following table summarizes information for the equity awards granted in 2017:2018: | | | | | | | | | | | | | | | | | | | | | | | Options | | Restricted Stock Units | | Performance Stock Units | | Warrants | | | | | Weighted | | | | Weighted | | | | Weighted | | | | Weighted | | | | | average grant- | | Number of | | average grant- | | Number of | | average grant- | | Number of | | average grant- | | | Number of | | date fair value | | restricted | | date fair value | | performance | | date fair value | | performance | | date fair value | | | options | | per unit | | stock units | | per unit | | stock units | | per unit | | stock units | | per unit | Beginning balance—December 31, 2016 | | 4,990,443 | | $ | 8.95 | | 352,602 | | $ | 17.77 | | 130,691 | | $ | 18.71 | | 160,333 | | $ | 18.00 | Granted | | 377,630 | | | 12.13 | | 307,905 | | | 24.01 | | 85,530 | | | 31.58 | | — | | | — | Forfeited | | (11,339) | | | 10.91 | | (6,109) | | | 20.37 | | (4,766) | | | 18.71 | | — | | | — | Exercised | | (1,203,121) | | | 8.90 | | — | | | — | | — | | | — | | (57,555) | | | 18.00 | Vested | | — | | | — | | (145,812) | | | 17.68 | | — | | | — | | — | | | — | Balance—December 30, 2017 | | 4,153,613 | | $ | 9.13 | | 508,586 | | $ | 20.14 | | 211,455 | | $ | 23.69 | | 102,778 | | $ | 18.00 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Options | | Restricted Stock Units | | Performance Stock Units | | Warrants | | |
| | Weighted | |
| | Weighted | |
| | Weighted | |
| | Weighted | | |
| | average grant- | | Number of | | average grant- | | Number of | | average grant- | |
| | average grant- | | | Number of | | date fair value | | restricted | | date fair value | | performance | | date fair value | | Number of | | date fair value | | | options | | per unit | | stock units | | per unit | | stock units | | per unit | | warrants | | per unit | Beginning balance—December 30, 2017 | | 4,153,613 |
| | $ | 9.13 |
| | 508,586 |
| | $ | 20.14 |
| | 211,455 |
| | $ | 23.69 |
| | 102,778 |
| | $ | 18.00 |
| Granted | | — |
| | — |
| | 689,386 |
| | 28.68 |
| | 102,842 |
| | 40.83 |
| | — |
| | — |
| Forfeited | | (22,566 | ) | | 10.91 |
| | (21,551 | ) | | 28.11 |
| | (19,045 | ) | | 26.26 |
| | — |
| | — |
| Exercised | | (863,898 | ) | | 8.88 |
| | — |
| | — |
| | — |
| | — |
| | (2,741 | ) | | 18.00 |
| Vested | | — |
| | — |
| | (252,113 | ) | | 21.95 |
| | — |
| | — |
| | — |
| | — |
| Balance—December 29, 2018 | | 3,267,149 |
| | $ | 9.09 |
| | 924,308 |
| | $ | 24.57 |
| | 295,252 |
| | $ | 29.12 |
| | 100,037 |
| | $ | 18.00 |
|
The fair value of the time-vesting options granted in 2017, 2016 and 2015 was estimated as of the grant date using the Black-Scholes-Merton model, which requires the input of subjective assumptions, including the expected volatility and the expected term. The fair value of the performance stock units granted in 2017 and 2016 was estimated as of the grant date using Monte Carlo simulations, which requires the input of subjective assumptions, including the expected volatility and the expected term. The following table presents the weighted average assumptions used to estimate the fair value of grants in 2018, 2017 2016 and 2015:2016: | | | | | | | | | | | | | | | | | | | | | | | | Options | | Performance Stock Units | | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | Risk-free interest rate | | 2.06% - 2.31% | | 1.75% - 1.97% | | 1.68% - 1.92% | | 1.45% | | 0.88% | Dividend yield | | None | | None | | None | | None | | None | Volatility | | 47% | | 48% | | 50% | | 39% | | 37% | Expected term | | 7 Years | | 10 Years | | 7 - 10 years | | 3 Years | | 3 Years |
| | | | | | | | | | | | | | Options | | Performance Stock Units | | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | Risk-free interest rate | | 2.06% - 2.31% | | 1.75% - 1.97% | | 2.38% | | 1.45% | | 0.88% | Dividend yield | | N/A | | N/A | | N/A | | N/A | | N/A | Volatility | | 47% | | 48% | | 38% | | 39% | | 37% | Expected term | | 7 years | | 10 years | | 3 years | | 3 years | | 3 years |
The risk-free rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the expected term. As Summit Holdings has not historically and does not plan to issue regular dividends, a dividend yield of zero was used. The volatility assumption is based on reported data of a peer group of publicallypublicly traded companies for which historical information was available adjusted for the Company’s capital structure. The expected term is based on expectations about future exercises and represents the period of time that the units granted are expected to be outstanding. Compensation expense for time-vesting interests granted is based on the grant date fair value. The Company recognizes compensation costs on a straight-line basis over the service period, which is generally the vesting period of the award. Forfeitures are recognized as they occur. Share-based compensation expense, which is recognized in general and administrative expenses, totaled $21.1$25.4 million, $49.9 million and $19.9 million in the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016, respectively. As of December 30, 2017,29, 2018, unrecognized compensation cost totaled $23.7$23.3 million. The weighted average remaining contractual term over which the unrecognized compensation cost is to be recognized is 1.61.8 years as of year-end 2017.2018.
As of December 30, 2017,29, 2018, the intrinsic value of outstanding options, restricted stock units and performance stock units was $53.9 million, $16.0zero, $11.4 million and $6.6$3.6 million, respectively, and the remaining contractual term was 7.5 years, 8.8 years6.2 years,1.0 year and 8.61.1 years, respectively. The weighted average strike price of stock options outstanding as of December 30, 201729, 2018 was $18.46$18.54 per share. The intrinsic value of 1.21.9 million exercisable stock options as of December 30, 201729, 2018 was $16.8$11.5 million with a weighted average strike price of $17.92$18.26 and a weighted average remaining vesting period of 7.35.9 years.
(14) Employee Benefit Plans Defined Contribution Plan—The Company sponsors employee 401(k) savings plans for its employees, including certain union employees. The plans provide for various required and discretionary Company matches of employees’ eligible compensation contributed to the plans. The expense for the defined contribution plans was $11.2 million, $9.3 million $8.6 million and $7.1$8.6 million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, and January 2, 2016, respectively. Defined Benefit and Other Postretirement Benefits Plans—The Company’s subsidiary, Continental Cement, sponsors two noncontributory defined benefit pension plans for hourly and salaried employees. The salaried plan isplans are closed to new participants and benefits are frozen. The hourly plan is also frozen except that new hourly participants from the Davenport, Iowa location accrue new benefits in the hourly plan. As a result of the collective bargaining unit negotiations in 2017, the hourly defined benefit pension plan was amended to stop future benefit accruals for the Davenport employees effective December 31, 2017. Pension benefits for eligible hourly employees are based on a monthly pension factor for each year of credited service. Pension benefits for eligible salaried employees are generally based on years of service and average eligible compensation. Continental Cement also sponsors two unfunded healthcare and life insurance benefits plans for certain eligible retired employees. Effective January 1, 2014, the plan covering employees of the Hannibal, Missouri location was amended to eliminate all future retiree health and life coverage for current employees. During 2015, Continental Cement adopted one new unfunded healthcare plan to provide benefits prior to Medicare eligibility for certain hourly employees of the Davenport, Iowa location. The funded status of the pension and other postretirement benefit plans is recognized in the consolidated balance sheets as the difference between the fair value of plan assets and the benefit obligations. For defined benefit pension plans, the benefit obligation is the projected benefit obligation (“PBO”) and for the healthcare and life insurance benefits plans, the benefit obligation is the accumulated postretirement benefit obligation (“APBO”). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. However, since the plans’ participants are not subject to future compensation increases, the plans’ PBO equals the accumulated benefit obligation (“ABO”). The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets represents the current market value of assets held by an irrevocable trust fund for the sole benefit of participants. The measurement of the benefit obligations areis based on the Company’s estimates and actuarial valuations. These valuations reflect the terms of the plan and use participant-specific information, such as compensation, age and years of service, as well as certain assumptions that require significant judgment, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest-crediting rates and mortality rates. The Company uses December 31 as the measurement date for its defined benefit pension and other postretirement benefit plans. Obligations and Funded Status—The following information is as of December 31, 201729, 2018 and December 31, 201630, 2017 and for the years ended December 31,29, 2018, December 30, 2017 December 31, 2016 and December 31, 2015:2016: | | | | | | | | | | | | | | | | 2017 | | 2016 | | | | Pension | | Healthcare | | Pension | | Healthcare | | | | benefits | | & Life Ins. | | benefits | | & Life Ins. | | Change in benefit obligations: | | | | | | | | | | | | | | Beginning of period | | $ | 27,608 | | $ | 12,770 | | $ | 27,914 | | $ | 13,458 | | Service cost | | | 285 | | | 184 | | | 279 | | | 230 | | Interest cost | | | 998 | | | 365 | | | 1,049 | | | 470 | | Actuarial loss (gain) | | | 1,182 | | | (338) | | | 22 | | | (682) | | Curtailments | | | (430) | | | | | | | | | | | Change in plan provision | | | — | | | (2,325) | | | — | | | 65 | | Benefits paid | | | (1,659) | | | (863) | | | (1,656) | | | (771) | | End of period | | $ | 27,984 | | $ | 9,793 | | $ | 27,608 | | $ | 12,770 | | | | | | | | | | | | | | | | Change in fair value of plan assets: | | | | | | | | | | | | | | Beginning of period | | $ | 18,395 | | $ | — | | $ | 18,336 | | $ | — | | Actual return on plan assets | | | 1,415 | | | | | | 719 | | | | | Employer contributions | | | 861 | | | 863 | | | 996 | | | 771 | | Benefits paid | | | (1,659) | | | (863) | | | (1,656) | | | (771) | | End of period | | $ | 19,012 | | $ | — | | $ | 18,395 | | $ | — | | | | | | | | | | | | | | | | Funded status of plans | | $ | (8,972) | | $ | (9,793) | | $ | (9,213) | | $ | (12,770) | | Current liabilities | | $ | — | | $ | (702) | | $ | — | | $ | (844) | | Noncurrent liabilities | | | (8,972) | | | (9,091) | | | (9,213) | | | (11,926) | | Liability recognized | | $ | (8,972) | | $ | (9,793) | | $ | (9,213) | | $ | (12,770) | | | | | | | | | | | | | | | | Amounts recognized in accumulated other comprehensive income: | | | | | | | | | | | | | | Net actuarial loss | | $ | 9,341 | | $ | 2,285 | | $ | 9,248 | | $ | 3,060 | | Prior service cost | | | — | | | (2,413) | | | — | | | (1,968) | | Total amount recognized | | $ | 9,341 | | $ | (128) | | $ | 9,248 | | $ | 1,092 | |
| | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | | Pension | | Healthcare | | Pension | | Healthcare | | | benefits | | & Life Ins. | | benefits | | & Life Ins. | Change in benefit obligations: | | | | | | | | | Beginning of period | | $ | 27,984 |
| | $ | 9,793 |
| | $ | 27,608 |
| | $ | 12,770 |
| Service cost | | 67 |
| | 170 |
| | 285 |
| | 184 |
| Interest cost | | 898 |
| | 317 |
| | 998 |
| | 365 |
| Actuarial (gain) loss | | (3,136 | ) | | (173 | ) | | 1,182 |
| | (338 | ) | Curtailments | | — |
| | — |
| | (430 | ) | | — |
| Change in plan provision | | — |
| | — |
| | — |
| | (2,325 | ) | Benefits paid | | (1,610 | ) | | (904 | ) | | (1,659 | ) | | (863 | ) | End of period | | $ | 24,203 |
| | $ | 9,203 |
| | $ | 27,984 |
| | $ | 9,793 |
| Change in fair value of plan assets: | | | | | | | | | Beginning of period | | $ | 19,012 |
| | $ | — |
| | $ | 18,395 |
| | $ | — |
| Actual return on plan assets | | (551 | ) | | — |
| | 1,415 |
| | — |
| Employer contributions | | 598 |
| | 904 |
| | 861 |
| | 863 |
| Benefits paid | | (1,610 | ) | | (904 | ) | | (1,659 | ) | | (863 | ) | End of period | | $ | 17,449 |
| | $ | — |
| | $ | 19,012 |
| | $ | — |
| | | | | | | | | | Funded status of plans | | $ | (6,754 | ) | | $ | (9,203 | ) | | $ | (8,972 | ) | | $ | (9,793 | ) | Current liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (702 | ) | Noncurrent liabilities | | (6,754 | ) | | (9,203 | ) | | (8,972 | ) | | (9,091 | ) | Liability recognized | | $ | (6,754 | ) | | $ | (9,203 | ) | | $ | (8,972 | ) | | $ | (9,793 | ) | | | | | | | | | | Amounts recognized in accumulated other comprehensive income: | | | | | | | | | Net actuarial (gain) loss | | $ | (1,300 | ) | | $ | 1,995 |
| | $ | 9,341 |
| | $ | 2,285 |
| Prior service cost | | (312 | ) | | (2,172 | ) | | — |
| | (2,413 | ) | Total amount recognized | | $ | (1,612 | ) | | $ | (177 | ) | | $ | 9,341 |
| | $ | (128 | ) |
The amount recognized in accumulated other comprehensive income (“AOCI”) is the actuarial loss (credit) and prior service cost, which has not yet been recognized in periodic benefit cost. At December 30, 2017, the actuarial loss (credit) and prior service cost (credit) expected to be amortized from AOCI to benefit cost in 2018 is $0.3 million and $(0.2) million for the pension and postretirement obligations, respectively. | | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | | | Pension | | Healthcare | | Pension | | Healthcare | | Pension | | Healthcare | | | | benefits | | & Life Ins. | | benefits | | & Life Ins. | | benefits | | & Life Ins. | | Amounts recognized in other comprehensive (income) loss: | | | | | | | | | | | | | | | | | | | | Net actuarial gain (loss) | | $ | 1,068 | | $ | (338) | | $ | 688 | | $ | (682) | | $ | (16) | | $ | (1,720) | | Prior service cost | | | — | | | (572) | | | — | | | 64 | | | — | | | — | | Amortization of prior year service cost | | | — | | | 168 | | | — | | | 174 | | | — | | | 174 | | Curtailment benefit | | | (429) | | | — | | | — | | | — | | | — | | | — | | Amortization of gain | | | (547) | | | (64) | | | (463) | | | (207) | | | (326) | | | (235) | | Adjustment to plan benefits | | | — | | | (414) | | | — | | | — | | | — | | | — | | Total amount recognized | | $ | 92 | | $ | (1,220) | | $ | 225 | | $ | (651) | | $ | (342) | | $ | (1,781) | | | | | | | | | | | | | | | | | | | | | | Components of net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | Service cost | | $ | 285 | | $ | 184 | | $ | 279 | | $ | 230 | | $ | 159 | | $ | 149 | | Interest cost | | | 998 | | | 365 | | | 1,049 | | | 470 | | | 1,041 | | | 447 | | Amortization of gain | | | 547 | | | 64 | | | 463 | | | 207 | | | 326 | | | 235 | | Expected return on plan assets | | | (1,302) | | | — | | | (1,386) | | | — | | | (1,385) | | | — | | Amortization of prior service credit | | | — | | | (168) | | | — | | | (174) | | | — | | | (174) | | Net periodic benefit cost | | $ | 528 | | $ | 445 | | $ | 405 | | $ | 733 | | $ | 141 | | $ | 657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | | | Pension | | Healthcare | | Pension | | Healthcare | | Pension | | Healthcare | | | benefits | | & Life Ins. | | benefits | | & Life Ins. | | benefits | | & Life Ins. | Amounts recognized in other comprehensive (income) loss: | | | | | | | | | | | | | Net actuarial (loss) gain | | $ | (1,300 | ) | | $ | (172 | ) | | $ | 1,068 |
| | $ | (338 | ) | | $ | 688 |
| | $ | (682 | ) | Prior service cost | | — |
| | — |
| | — |
| | (572 | ) | | — |
| | 64 |
| Amortization of prior year service cost | | — |
| | 241 |
| | — |
| | 168 |
| | — |
| | 174 |
| Curtailment benefit | | — |
| | — |
| | (429 | ) | | — |
| | — |
| | — |
| Amortization of gain | | (312 | ) | | (118 | ) | | (547 | ) | | (64 | ) | | (463 | ) | | (207 | ) | Adjustment to plan benefits | | — |
| | — |
| | — |
| | (414 | ) | | — |
| | — |
| Total amount recognized | | $ | (1,612 | ) | | $ | (49 | ) | | $ | 92 |
| | $ | (1,220 | ) | | $ | 225 |
| | $ | (651 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | Components of net periodic benefit cost: | | | | | | | | | | | | | Service cost | | $ | 67 |
| | $ | 170 |
| | $ | 285 |
| | $ | 184 |
| | $ | 279 |
| | $ | 230 |
| Interest cost | | 898 |
| | 317 |
| | 998 |
| | 365 |
| | 1,049 |
| | 470 |
| Amortization of gain | | 312 |
| | 118 |
| | 547 |
| | 64 |
| | 463 |
| | 207 |
| Expected return on plan assets | | (1,284 | ) | | — |
| | (1,302 | ) | | — |
| | (1,386 | ) | | — |
| Curtailments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Amortization of prior service credit | | — |
| | (241 | ) | | — |
| | (168 | ) | | — |
| | (174 | ) | Net periodic (expense) benefit cost | | $ | (7 | ) | | $ | 364 |
| | $ | 528 |
| | $ | 445 |
| | $ | 405 |
| | $ | 733 |
|
Assumptions—Weighted-average assumptions used to determine the benefit obligations as of year-end 2018 and 2017 and 2016 are: | | | | | | | | | | | | 2017 | | 2016 | | | | | | Healthcare | | | | Healthcare | | | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | | Discount rate | | 3.23% - 3.37% | | 3.20% - 3.25% | | 3.61% - 3.81% | | 3.32% - 3.65% | | Expected long-term rate of return on plan assets | | 7.00% | | N/A | | 7.00% | | N/A | |
| | | | | | | | | | | | 2018 | | 2017 | | | | | Healthcare | | | | Healthcare | | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | Discount rate | | 3.90% - 4.02% | | 3.87% - 3.91% | | 3.23% - 3.37% | | 3.20% - 3.25% | Expected long-term rate of return on plan assets | | 7.00% | | N/A | | 7.00% | | N/A |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016: | | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | | | | | Healthcare | | | | Healthcare | | | | Healthcare | | | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | | Discount rate | | 3.61% - 3.81% | | 3.54% - 3.65% | | 3.74% - 3.97% | | 3.34% - 3.80% | | 3.50% - 3.98% | | 3.39% - 3.52% | | Expected long-term rate of return on plan assets | | 7.00% | | N/A | | 7.30% | | N/A | | 7.30% | | N/A | |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | | | | | Healthcare | | | | Healthcare | | | | Healthcare | | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | | Pension benefits | | & Life Ins. | Discount rate | | 3.23% - 3.37% | | 3.20% - 3.25% | | 3.61% - 3.81% | | 3.54% - 3.65% | | 3.74% - 3.97% | | 3.34% - 3.80% | Expected long-term rate of return on plan assets | | 7.00% | | N/A | | 7.00% | | N/A | | 7.30% | | N/A |
The expected long-term return on plan assets is based upon the Plans’ consideration of historical and forward-looking returns and the Company’s estimation of what a portfolio, with the target allocation described below, will earn over a long-term horizon. The discount rate is derived using the Citigroup Pension Discount Curve. Assumed health care cost trend rates were 8.0% grading to 4.5% as of year-end 20172018 and 2016.2017. Assumed health care cost trend rates have a significant effect on the amounts reported for the Company’s healthcare and life insurance benefits plans. A one percentage-point change in assumed health care cost trend rates would have the following effects as of year-end 20172018 and 2016: 2017: | | | | | | | | | | | | | | | | 2017 | | 2016 | | | | Increase | | Decrease | | Increase | | Decrease | | Total service cost and interest cost components | | $ | 39 | | $ | (33) | | $ | 55 | | $ | (47) | | APBO | | | 857 | | | (769) | | | 1,197 | | | (1,038) | |
| | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | | Increase | | Decrease | | Increase | | Decrease | Total service cost and interest cost components | | $ | 31 |
| | $ | (27 | ) | | $ | 39 |
| | $ | (33 | ) | APBO | | 765 |
| | (690 | ) | | 857 |
| | (769 | ) |
Plan Assets—The defined benefit pension plans’ (the “Plans”) investment strategy is to minimize investment risk while generating acceptable returns. The Plans currently invest a relatively high proportion of the plan assets in fixed income securities, while the remainder is invested in equity securities, cash reserves and precious metals. The equity securities are diversified into funds with growth and value investment strategies. The target allocation for plan assets is as follows: equity securities—30%; fixed income securities—63%; cash reserves—5%; and precious metals—2%. The Plans’ current investment allocations are within the tolerance of the target allocation. The Company had no Level 3 investments as of or for the years ended December 30, 201729, 2018 and December 31, 2016.30, 2017. At year-end 20172018 and 2016,2017, the Plans’ assets were invested predominantly in fixed-income securities and publicly traded equities, but may invest in other asset classes in the future subject to the parameters of the investment policy. The Plans’ investments in fixed-income assets include U.S. Treasury and U.S. agency securities and corporate bonds. The Plans’ investments in equity assets include U.S. and international securities and equity funds. The Company estimates the fair value of
the Plans’ assets using various valuation techniques and, to the extent available, quoted market prices in active markets or observable market inputs. The descriptions and fair value methodologies for the Plans’ assets are as follows: Fixed Income Securities—Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields and credit ratings. Equity Securities—Equity securities are valued at the closing market price reported on a U.S. exchange where the security is actively traded and are therefore classified as Level 1 assets. Cash—The carrying amounts of cash approximate fair value due to the short-term maturity. Precious Metals—Precious metals are valued at the closing market price reported on a U.S. exchange where the security is actively traded and are therefore classified as Level 1 assets. The fair value of the Plans’ assets by asset class and fair value hierarchy level as of December 31, 201729, 2018 and December 31, 201630, 2017 are as follows: | | | | | | | | | | | | | | | | 2018 | | | | | Quoted prices in active | | | | | Total fair | | markets for identical | | Observable | | | value | | assets (Level 1) | | inputs (Level 2) | Fixed income securities: | | | | | | | Intermediate—government | | $ | 3,547 |
| | $ | 3,547 |
| | $ | — |
| Intermediate—corporate | | 3,437 |
| | — |
| | 3,437 |
| Short-term—government | | 756 |
| | 756 |
| | — |
| Short-term—corporate | | 957 |
| | — |
| | 957 |
| International | | 1,143 |
| | — |
| | 1,143 |
| Equity securities: | | | | | | | U.S. Large cap value | | 978 |
| | 978 |
| | — |
| U.S. Large cap growth | | 976 |
| | 976 |
| | — |
| U.S. Mid cap value | �� | 471 |
| | 471 |
| | — |
| U.S. Mid cap growth | | 496 |
| | 496 |
| | — |
| U.S. Small cap value | | 463 |
| | 463 |
| | — |
| U.S. Small cap growth | | 474 |
| | 474 |
| | — |
| Managed Futures | | 355 |
| | — |
| | 355 |
| International | | 1,004 |
| | 329 |
| | 675 |
| Emerging Markets | | 362 |
| | 362 |
| | — |
| Commodities Broad Basket | | 1,048 |
| | 388 |
| | 660 |
| Cash | | 982 |
| | 982 |
| | — |
| Total | | $ | 17,449 |
| | $ | 10,222 |
| | $ | 7,227 |
|
| | | | | | | | | | | | | | | | 2017 | | | | | Quoted prices in active | | | | | Total fair | | markets for identical | | Observable | | | value | | assets (Level 1) | | inputs (Level 2) | Fixed income securities: | | | | | | | Intermediate—government | | $ | 3,620 |
| | $ | 3,068 |
| | $ | 552 |
| Intermediate—corporate | | 3,872 |
| | — |
| | 3,872 |
| Short-term—government | | 497 |
| | 497 |
| | — |
| Short-term—corporate | | 1,702 |
| | — |
| | 1,702 |
| Equity securities: | | | | | | | U.S. Large cap value | | 1,765 |
| | 1,765 |
| | — |
| U.S. Large cap growth | | 588 |
| | 588 |
| | — |
| U.S. Mid cap value | | 586 |
| | 586 |
| | — |
| U.S. Mid cap growth | | 586 |
| | 586 |
| | — |
| U.S. Small cap value | | 571 |
| | 571 |
| | — |
| U.S. Small cap growth | | 580 |
| | 580 |
| | — |
| Managed Futures | | 392 |
| | — |
| | 392 |
| International | | 1,547 |
| | 677 |
| | 870 |
| Commodities Broad Basket | | 801 |
| | — |
| | 801 |
| Cash | | 1,522 |
| | — |
| | 1,522 |
| Precious metals | | 383 |
| | 383 |
| | — |
| Total | | $ | 19,012 |
| | $ | 9,301 |
| | $ | 9,711 |
|
| | | | | | | | | | | | | 2016 | | | | | | | Quoted prices in active | | | | | | | Total fair | | markets for identical | | Observable | | | | value | | assets (Level 1) | | inputs (Level 2) | | Fixed income securities: | | | | | | | | | | | Intermediate—government | | $ | 1,770 | | $ | — | | $ | 1,770 | | Intermediate—corporate | | | 2,658 | | | — | | | 2,658 | | Short-term—government | | | 912 | | | — | | | 912 | | Short-term—corporate | | | 3,613 | | | — | | | 3,613 | | Equity securities: | | | | | | | | | | | U.S. Large cap value | | | 1,181 | | | 1,181 | | | — | | U.S. Large cap growth | | | 1,103 | | | 1,103 | | | — | | U.S. Mid cap value | | | 577 | | | 577 | | | — | | U.S. Mid cap growth | | | 546 | | | 546 | | | — | | U.S. Small cap value | | | 551 | | | 551 | | | — | | U.S. Small cap growth | | | 540 | | | 540 | | | — | | Managed Futures | | | 366 | | | 366 | | | — | | International | | | 1,099 | | | 1,099 | | | — | | Emerging Markets | | | 359 | | | 359 | | | — | | Commodities Broad Basket | | | 707 | | | 707 | | | — | | Cash | | | 2,094 | | | 2,094 | | | — | | Precious metals | | | 319 | | | 319 | | | — | | Total | | $ | 18,395 | | $ | 9,442 | | $ | 8,953 | |
Cash Flows—The Company expects to contribute approximately $1.4$1.0 million in 20182019 to both its pension plans and to its healthcare and life insurance benefits plans. The estimated benefit payments for each of the next five years and the five-year period thereafter are as follows: | | | | | | | | | | Pension | | Healthcare and Life | | | | benefits | | Insurance Benefits | | 2018 | | $ | 1,835 | | $ | 702 | | 2019 | | | 1,830 | | | 667 | | 2020 | | | 1,804 | | | 675 | | 2021 | | | 1,771 | | | 655 | | 2022 | | | 1,768 | | | 649 | | 2023 - 2027 | | | 8,457 | | | 3,250 | |
| | | | | | | | | | | | Pension | | Healthcare and Life | | | benefits | | Insurance Benefits | 2019 | | $ | 1,736 |
| | $ | 687 |
| 2020 | | 1,712 |
| | 697 |
| 2021 | | 1,680 |
| | 681 |
| 2022 | | 1,678 |
| | 669 |
| 2023 | | 1,676 |
| | 664 |
| 2024 - 2028 | | 7,806 |
| | 3,415 |
|
Multiemployer Pension Plans— In 2018, The Company acquired Buildex, LLC and assumed its obligation to contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in multiemployer pension plans are different from single-employer plans. Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer ceases contributing to the plan, the unfunded obligations of the plan are the responsibility of the remaining participating employers.
The Company's participation in these plans for the annual period ended December 31, 2018, is outlined in the table below. The ''EIN/Pension Plan Number" column provides the Employer Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2018 and 2017 is for the plan 's year end at December 31, 2017, and December 31, 2016, respectively. The zone status is based on information the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The "Surcharge Imposed" column indicates whether a surcharge has been imposed on contributions to the plan. The last column lists the expiration date(s) of the collective-
bargaining agreement(s) to which the plans are subject. There have been no significant changes that affect the comparability of 2018 and 2017 contributions.
| | | | | | | | | | | | | | | | | | | | | | Expiration Date of | | | Pension Protection Act | FIP/RP Status | Contributions of Company | | Collective- | Pension | EIN/ Pension | Zone Status | Pending/ | ($ in thousands) | Surcharge | Bargaining | Trust Fund | Plan Number | 2018 | 2017 | Implemented | 2018 | 2017 | Imposed | Agreement (1) | Construction Industry Laborers Pension Fund | 43-6060737/001 | Green - as of December 31, 2017 | Green - as of December 31, 2016 | None | $ | 115 |
| $ | 104 |
| No | 12/31/2018 | Operating Engineers Local 101 Pension Plan | 43-6059213/001 | Green - as of December 31, 2017 | Green - as of December 31, 2016 | None | 26 |
| 30 |
| No | 12/31/2018 | Total Contributions | | | | $ | 141 |
| $ | 134 |
| | |
_____________________ (1) Currently in final negotiations to extend both collective-bargaining agreements.
The Company was not listed as providing more than 5% of the total contributions for the Operating Engineers Local 101 Pension Plan for the plan years 2017 and 2016 per the plan's Form 5500. The Company did not provide over 5% of total contributions in 2017 or 2016 for the Construction Industry Laborers Pension Fund per the plan's Form 5500. As of the date of the filing of this annual report on Form 10-K, Forms 5500 were not available for the plan year ending December 31, 2018.
(15) Accrued Mining and Landfill Reclamation The Company has asset retirement obligations arising from regulatory or contractual requirements to perform certain reclamation activities at the time that certain quarries and landfills are closed, which are primarily included in other noncurrent liabilities on the consolidated balance sheets. The current portion of the liabilities, $3.9$4.1 million and $5.1$3.9 million as of December 30, 201729, 2018 and December 31, 2016,30, 2017, respectively, is included in accrued expenses on the consolidated balance sheets. The total undiscounted anticipated costs for site reclamation as of December 29, 2018 and December 30, 2017 and December 31, 2016 were $67.9$92.5 million and $63.6$67.9 million, respectively. The liabilities were initially measured at fair value and are subsequently adjusted for accretion expense, payments and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. The following table presents the activity for the asset retirement obligations for the years ended December 30, 201729, 2018 and December 31, 2016:30, 2017: | | | | | | | | | | 2017 | | 2016 | | Beginning balance | | $ | 23,906 | | $ | 20,735 | | Acquired obligations | | | 2,303 | | | 835 | | Change in cost estimate | | | (1,764) | | | 3,055 | | Settlement of reclamation obligations | | | (1,996) | | | (2,283) | | Accretion expense | | | 1,880 | | | 1,564 | | Ending balance | | $ | 24,329 | | $ | 23,906 | |
| | | | | | | | | | | | 2018 | | 2017 | Beginning balance | | $ | 24,329 |
| | $ | 23,906 |
| Acquired obligations | | 3,937 |
| | 2,303 |
| Change in cost estimate | | 2,808 |
| | (1,759 | ) | Settlement of reclamation obligations | | (1,680 | ) | | (1,996 | ) | Accretion expense | | 1,605 |
| | 1,875 |
| Ending balance | | $ | 30,999 |
| | $ | 24,329 |
|
(16) Commitments and Contingencies The Company is party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current pending or threatened claims and litigation will not have a material effect on the Company’s consolidated financial position, results of operations financial position or liquidity. The Company records legal fees as incurred. Litigation
In March 2018, we were notified of an investigation by the Canadian Competition Bureau (the “CCB”) into pricing practices by certain asphalt paving contractors in British Columbia, including Winvan Paving, Ltd. (“Winvan”). We believe the investigation is focused on time periods prior to our April 2017 acquisition of Winvan and Claims—The Company is obligated under an indemnification agreement entered intowe are cooperating with the sellersCCB.
Although we currently do not believe this matter will have a material adverse effect on our business, financial condition or results of operations, we are not able to predict the sellers’ ownership interests in a joint venture agreement. The Company hasultimate outcome or cost of the rights to any benefits under the joint venture as well as the assumption of any obligations, but does not own equity interests in the joint venture. The joint venture has incurred significant losses on a highway project in Utah, which have resulted in requests for funding from the joint venture partners and ultimately from the Company. In the third quarter of 2017, the Company settled its remaining obligations under the indemnification agreement for $3.5 million, which was $0.8 million less than amounts previously accrued.investigation at this time. Environmental Remediation and Site Restoration—The Company’s operations are subject to and affected by federal, state, provincial and local laws and regulations relating to the environment, health and safety and other regulatory matters. These operations require environmental operating permits, which are subject to modification, renewal and revocation. The Company regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation of the Company’s business, as it is with other companies engaged in similar businesses and there can be no assurance that environmental liabilities or noncompliance will not have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. Other—The Company is obligated under various firm purchase commitments for certain raw materials and services that are in the ordinary course of business. Management does not expect any significant changes in the market value of these goods and services during the commitment period that would have a material adverse effect on the financial condition, results of operations and cash flows of the Company. The terms of the purchase commitments generally approximate one year. (17) Leasing Arrangements Rent expense, which primarily relates to land, plants and equipment, during the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 was $25.2 million, $21.7 million $18.6 million and $12.1$18.6 million, respectively. The Company has lease agreements associated with quarry facilities under which royalty payments are made. The payments are generally based on tons sold in a particular period; however, certain agreements have minimum annual payments. Royalty expense recorded in cost of revenue during the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 was $20.1 million, $18.7 million $15.6 million and $12.6$15.6 million, respectively. Minimum contractual commitments for the subsequent five years under long-term operating leases and under royalty agreements are as follows: | | | | | | | | | | Operating | | Royalty | | | | Leases | | Agreements | | 2018 | | $ | 8,627 | | $ | 6,450 | | 2019 | | | 7,077 | | | 6,017 | | 2020 | | | 5,826 | | | 5,833 | | 2021 | | | 4,650 | | | 5,550 | | 2022 | | | 2,475 | | | 5,431 | |
| | | | | | | | | | | | Operating | | Royalty | | | Leases | | Agreements | 2019 | | $ | 9,479 |
| | $ | 7,124 |
| 2020 | | 8,101 |
| | 6,929 |
| 2021 | | 6,701 |
| | 6,665 |
| 2022 | | 4,279 |
| | 6,742 |
| 2023 | | 3,411 |
| | 6,656 |
|
(18) Related Party TransactionsUnder the terms of a transaction and management fee agreement between Summit Holdings and Blackstone Management Partners L.L.C. (“BMP”), whose affiliates include controlling stockholders of the Company, BMP provided monitoring, advisory and consulting services to the Company through March 17, 2015. Under the terms of the agreement, BMP was permitted to assign, and had assigned, a portion of the fees to which it was entitled to Silverhawk Summit, L.P. and to certain other equity investors.
In connection with the IPO, the transaction and management fee agreement with BMP was terminated on March 17, 2015 for a termination payment of $13.8 million; $13.4 million was paid to affiliates of BMP and the remaining $0.4 million was paid to affiliates of Silverhawk Summit, L.P. and to certain other equity investors.
Blackstone Advisory Partners L.P., an affiliate of BMP, served as an initial purchaser of $18.8 million of the 2022 Notes issued in March 2016 and $22.5 million and $26.3 million of the 2023 Notes issued in November 2015 and July 2015, respectively, and received compensation in connection therewith. In addition, Blackstone Advisory Partners L.P. served as an underwriter of 1,681,875 shares of Class A common stock issued in connection with the August 2015 follow-on offering and received compensation in connection therewith.
On July 17, 2015, the Company purchased the Davenport Assets from Lafarge North America Inc. for a purchase price of $450.0 million in cash and a cement distribution terminal in Bettendorf, Iowa. At closing, $370.0 million of the purchase price was paid, and the remaining $80.0 million was paid on August 13, 2015. Summit Holdings entered into a commitment letter dated April 16, 2015, with Blackstone Capital Partners V L.P. (“BCP”) for equity financing up to $90.0 million in the form of a preferred equity interest (the “Equity Commitment Financing”), which would have been used to pay the $80.0 million deferred purchase price if other financing was not secured by December 31, 2015. For the Equity Commitment Financing, the Company paid a $1.8 million commitment fee to BCP for the year ended January 2, 2016.
(19) Fair Value of Financial Instruments
Fair Value Measurements—Certain acquisitions made by the Company require the payment of contingent amounts of purchase consideration. These payments are contingent on specified operating results being achieved in periods subsequent to the acquisition and will only be made if earn-out thresholds are achieved. Contingent consideration obligations are measured at fair value each reporting period. Any adjustments to fair value are recognized in earnings in the period identified. The Company has entered into interest rate derivatives on $200.0 million of its term loan borrowings to add stability to interest expense and to manage its exposure to interest rate movements. The interest rate derivative expires in September 2019. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The fair value of contingent consideration and derivatives as of December 29, 2018 and December 30, 2017 and December 31, 2016 was: | | | | | | | | | 2017 | | 2016 | Current portion of acquisition-related liabilities and Accrued expenses: | | | | | | | Contingent consideration | | $ | 594 | | $ | 9,288 | Cash flow hedges | | | 488 | | | 942 | Acquisition-related liabilities and Other noncurrent liabilities | | | | | | | Contingent consideration | | $ | 34,301 | | $ | 2,377 | Cash flow hedges | | | 492 | | | 1,438 |
| | | | | | | | | | | | 2018 | | 2017 | Current portion of acquisition-related liabilities and Accrued expenses: | | | | | Contingent consideration | | $ | 1,394 |
| | $ | 594 |
| Cash flow hedges | | — |
| | 488 |
| Acquisition-related liabilities and Other noncurrent liabilities | | | | | Contingent consideration | | $ | 5,175 |
| | $ | 34,301 |
| Cash flow hedges | | — |
| | 492 |
|
The fair value accounting guidance establishes the following fair value hierarchy that prioritizes the inputs used to measure fair value: Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 — Inputs other than Level 1 that are based on observable market data, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs that are observable that are not prices and inputs that are derived from or corroborated by observable markets. Level 3 — Valuations developed from unobservable data, reflecting the Company’s own assumptions, which market participants would use in pricing the asset or liability. The fair value of contingent consideration was based on unobservable, or Level 3, inputs, including projected probability-weighted cash payments and an 11.0%10.0% discount rate, which reflects a market discount rate. Changes in fair value may occur as a result of a change in actual or projected cash payments, the probability weightings applied by the Company to projected payments or a change in the discount rate. Significant increases or decreases in any of these inputs in isolation could result in a lower, or higher, fair value measurement. The fair value of the cash flow hedges are based on observable, or Level 2, inputs such as interest rates, bond yields and prices in inactive markets. There were no material adjustments to the fair value of contingent consideration in 20172018 or 2016,2017, or to cash flow hedges in 20172018 or 2016. In 2016, a $6.1 million increase in the fair value of contingent consideration was recognized as a result of a change in projected cash payments.2017. Financial Instruments—The Company’s financial instruments include debt and certain acquisition-related liabilities (deferred consideration and noncompete obligations). The carrying value and fair value of these financial instruments as of December 29, 2018 and December 30, 2017 and December 31, 2016 were: | | | | | | | | | | | | | | | December 30, 2017 | | December 31, 2016 | | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | Level 2 | | | | | | | | | | | | | Long-term debt(1) | | $ | 1,893,239 | | $ | 1,832,455 | | $ | 1,586,102 | | $ | 1,536,065 | | | | | | | | | | | | | | Level 3 | | | | | | | | | | | | | Current portion of deferred consideration and noncompete obligations(2) | | | 13,493 | | | 13,493 | | | 14,874 | | | 14,874 | Long term portion of deferred consideration and noncompete obligations(3) | | | 23,834 | | | 23,834 | | | 30,287 | | | 30,287 |
| | | | | | | | | | | | | | | | | | | | December 29, 2018 | | December 30, 2017 | | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | Level 2 | | | | | | | | | Long-term debt(1) | | $ | 1,777,722 |
| | $ | 1,828,159 |
| | $ | 1,893,239 |
| | $ | 1,832,455 |
| | | | | | | | | | Level 3 | | | | | | | | | Current portion of deferred consideration and noncompete obligations(2) | | 32,876 |
| | 32,876 |
| | 13,493 |
| | 13,493 |
| Long term portion of deferred consideration and noncompete obligations(3) | | 44,293 |
| | 44,293 |
| | 23,834 |
| | 23,834 |
|
_____________________ | | (1) | | $4.86.4 million and $6.5$4.8 million included in current portion of debt as of December 29, 2018 and December 30, 2017, and December 31, 2016, respectively. |
| | (2) | | Included in current portion of acquisition-related liabilities on the consolidated balance sheets. |
| | (3) | | Included in acquisition-related liabilities on the consolidated balance sheets. |
The fair value of debt was determined based on observable, or Level 2 inputs, such as interest rates, bond yields and quoted prices in inactive markets. The fair values of the deferred consideration and noncompete obligations were determined based on unobservable, or Level 3, inputs, including the cash payment terms in the purchase agreements and a discount rate reflecting the Company’s credit risk. The discount rate used is generally consistent with that used when the obligations were initially recorded. Securities with a maturity of three months or less are considered cash equivalents and the fair value of these assets approximates their carrying value. (20)
The Company has three operating segments: West; East; and Cement, which are its reporting segments. These segments are consistent with the Company’s management reporting structure. The operating results of each segment are regularly reviewed and evaluated by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”). The CODM primarily evaluates the performance of its segments and allocates resources to them based on a segment profit metric that we call Adjusted EBITDA, which is computed as earnings from continuing operations before interest, taxes, depreciation, depletion, amortization, accretion, share-based compensation, and transaction costs, as well as various other non-recurring, non-cash amounts. The West and East segments have several acquired subsidiaries that are engaged in various activities including quarry mining, aggregate production and contracting. The Cement segment is engaged in the production of Portland cement. Assets employed by each segment include assets directly identified with those operations. Corporate assets consist primarily of cash, property, plant and equipment for corporate operations and other assets not directly identifiable with a reportable business segment. The accounting policies applicable to each segment are consistent with those used in the consolidated financial statements. The following tables display selected financial data for the Company’s reportable business segments as of and for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016: | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Revenue*: | | | | | | | | | | West | | $ | 998,843 | | $ | 813,682 | | $ | 804,503 | East | | | 629,919 | | | 531,294 | | | 432,310 | Cement | | | 303,813 | | | 281,087 | | | 195,484 | Total revenue | | $ | 1,932,575 | | $ | 1,626,063 | | $ | 1,432,297 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Revenue*: | | | | | | | West | | $ | 1,117,066 |
| | $ | 998,843 |
| | $ | 813,682 |
| East | | 703,147 |
| | 629,919 |
| | 531,294 |
| Cement | | 280,789 |
| | 303,813 |
| | 281,087 |
| Total revenue | | $ | 2,101,002 |
| | $ | 1,932,575 |
| | $ | 1,626,063 |
|
______________________ * Intercompany sales are immaterial and the presentation above only reflects sales to external customers. | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Income (loss) from operations before taxes | | $ | 96,077 |
| | $ | (158,200 | ) | | $ | 40,827 |
| Interest expense | | 116,548 |
| | 108,549 |
| | 97,536 |
| Depreciation, depletion and amortization | | 203,305 |
| | 177,643 |
| | 147,736 |
| Accretion | | 1,605 |
| | 1,875 |
| | 1,564 |
| IPO/ Legacy equity modification costs | | — |
| | — |
| | 37,257 |
| Loss on debt financings | | 149 |
| | 4,815 |
| | — |
| Tax receivable agreement (benefit) expense | | (22,684 | ) | | 271,016 |
| | 14,938 |
| Gain on sale of business | | (12,108 | ) | | — |
| | — |
| Transaction costs | | 4,238 |
| | 7,733 |
| | 6,797 |
| Management fees and expenses | | — |
| | — |
| | (1,379 | ) | Non-cash compensation | | 25,378 |
| | 21,140 |
| | 12,683 |
| Other | | (6,247 | ) | | 1,206 |
| | 13,388 |
| Total Adjusted EBITDA | | $ | 406,261 |
| | $ | 435,777 |
| | $ | 371,347 |
| | | | | | | | Total Adjusted EBITDA by Segment: | | | | | | | West | | $ | 188,999 |
| | $ | 203,590 |
| | $ | 167,434 |
| East | | 138,032 |
| | 139,108 |
| | 126,007 |
| Cement | | 111,394 |
| | 127,547 |
| | 112,991 |
| Corporate and other | | (32,164 | ) | | (34,468 | ) | | (35,085 | ) | Total Adjusted EBITDA | | $ | 406,261 |
| | $ | 435,777 |
| | $ | 371,347 |
|
| | | | | | | | | | | | 2017 | | 2016 | | 2015 | (Loss) income from continuing operations before taxes | | $ | (158,200) | | $ | 40,827 | | $ | (19,194) | Interest expense | | | 108,549 | | | 97,536 | | | 84,629 | Depreciation, depletion and amortization | | | 177,643 | | | 147,736 | | | 118,321 | Accretion | | | 1,875 | | | 1,564 | | | 1,402 | IPO/ Legacy equity modification costs | | | — | | | 37,257 | | | 28,296 | Loss on debt financings | | | 4,815 | | | — | | | 71,631 | Tax receivable agreement expense | | | 271,016 | | | 14,938 | | | — | Transaction costs | | | 7,733 | | | 6,797 | | | 9,519 | Management fees and expenses | | | — | | | (1,379) | | | 1,046 | Non-cash compensation | | | 21,140 | | | 12,683 | | | 5,448 | Other | | | 1,206 | | | 13,388 | | | (13,570) | Total Adjusted EBITDA | | $ | 435,777 | | $ | 371,347 | | $ | 287,528 | | | | | | | | | | | Total Adjusted EBITDA by Segment: | | | | | | | | | | West | | $ | 203,590 | | $ | 167,434 | | $ | 150,764 | East | | | 139,108 | | | 126,007 | | | 92,303 | Cement | | | 127,547 | | | 112,991 | | | 74,845 | Corporate and other | | | (34,468) | | | (35,085) | | | (30,384) | Total Adjusted EBITDA | | $ | 435,777 | | $ | 371,347 | | $ | 287,528 |
| | | | | | | | | | | | 2017 | | 2016 | | 2015 | Purchases of property, plant and equipment | | | | | | | | | | West | | $ | 83,591 | | $ | 77,335 | | $ | 39,896 | East | | | 68,556 | | | 45,492 | | | 26,268 | Cement | | | 35,803 | | | 25,408 | | | 17,151 | Total reportable segments | | | 187,950 | | | 148,235 | | | 83,315 | Corporate and other | | | 6,196 | | | 5,248 | | | 5,635 | Total purchases of property, plant and equipment | | $ | 194,146 | | $ | 153,483 | | $ | 88,950 |
| | | | | | | | | | | | 2017 | | 2016 | | 2015 | Depreciation, depletion, amortization and accretion: | | | | | | | | | | West | | $ | 71,314 | | $ | 65,345 | | $ | 53,727 | East | | | 67,252 | | | 51,540 | | | 38,923 | Cement | | | 38,351 | | | 30,006 | | | 24,758 | Total reportable segments | | | 176,917 | | | 146,891 | | | 117,408 | Corporate and other | | | 2,601 | | | 2,409 | | | 2,315 | Total depreciation, depletion, amortization and accretion | | $ | 179,518 | | $ | 149,300 | | $ | 119,723 |
| | | | | | | | | | | | 2017 | | 2016 | | 2015 | Total assets: | | | | | | | | | | West | | $ | 1,225,463 | | $ | 902,763 | | $ | 821,479 | East | | | 1,035,609 | | | 870,613 | | | 545,187 | Cement | | | 870,652 | | | 868,440 | | | 843,941 | Total reportable segments | | | 3,131,724 | | | 2,641,816 | | | 2,210,607 | Corporate and other | | | 655,609 | | | 139,650 | | | 185,572 | Total | | $ | 3,787,333 | | $ | 2,781,466 | | $ | 2,396,179 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Purchases of property, plant and equipment | | | | | | | West | | $ | 120,657 |
| | $ | 83,591 |
| | $ | 77,335 |
| East | | 64,384 |
| | 68,556 |
| | 45,492 |
| Cement | | 28,036 |
| | 35,803 |
| | 25,408 |
| Total reportable segments | | 213,077 |
| | 187,950 |
| | 148,235 |
| Corporate and other | | 7,608 |
| | 6,196 |
| | 5,248 |
| Total purchases of property, plant and equipment | | $ | 220,685 |
| | $ | 194,146 |
| | $ | 153,483 |
|
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Depreciation, depletion, amortization and accretion: | | | | | | | West | | $ | 91,794 |
| | $ | 71,314 |
| | $ | 65,345 |
| East | | 75,433 |
| | 67,252 |
| | 51,540 |
| Cement | | 35,061 |
| | 38,351 |
| | 30,006 |
| Total reportable segments | | 202,288 |
| | 176,917 |
| | 146,891 |
| Corporate and other | | 2,622 |
| | 2,601 |
| | 2,409 |
| Total depreciation, depletion, amortization and accretion | | $ | 204,910 |
| | $ | 179,518 |
| | $ | 149,300 |
|
| | | | | | | | | | | | 2017 | | 2016 | | 2015 | Revenue by product*: | | | | | | | | | | Aggregates | | $ | 313,383 | | $ | 264,609 | | $ | 219,040 | Cement | | | 282,041 | | | 250,349 | | | 167,696 | Ready-mix concrete | | | 492,302 | | | 395,917 | | | 350,262 | Asphalt | | | 285,653 | | | 239,419 | | | 252,031 | Paving and related services | | | 371,763 | | | 304,041 | | | 295,995 | Other | | | 187,433 | | | 171,728 | | | 147,273 | Total revenue | | $ | 1,932,575 | | $ | 1,626,063 | | $ | 1,432,297 |
| | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Total assets: | | | | | | | West | | $ | 1,370,501 |
| | $ | 1,225,463 |
| | $ | 902,763 |
| East | | 1,253,640 |
| | 1,035,609 |
| | 870,613 |
| Cement | | 877,586 |
| | 870,652 |
| | 868,440 |
| Total reportable segments | | 3,501,727 |
| | 3,131,724 |
| | 2,641,816 |
| Corporate and other | | 355,914 |
| | 655,609 |
| | 139,650 |
| Total | | $ | 3,857,641 |
| | $ | 3,787,333 |
| | $ | 2,781,466 |
|
* Revenue from the liquid asphalt terminals is included in asphalt revenue.
(21)
(20) Supplementary Data (Unaudited) Supplemental financial information (unaudited) by quarter is shown below for the years ended December 30, 201729, 2018 and December 31, 2016. The basic and diluted earnings per share amounts for each period shown reflect retroactive application of 1,521,056 and 1,135,962 shares of Class A common stock issued as stock dividends in 2017 and 2016, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | | | 4Q | | 3Q | | 2Q | | 1Q | | 4Q | | 3Q | | 2Q | | 1Q | | Net revenue | | $ | 440,610 | | $ | 574,387 | | $ | 478,368 | | $ | 259,044 | | $ | 387,389 | | $ | 480,210 | | $ | 412,636 | | $ | 208,039 | | Operating income (loss) | | | 57,306 | | | 113,911 | | | 82,444 | | | (32,784) | | | 48,761 | | | 88,410 | | | 46,948 | | | (29,457) | | Net income (loss) (1) | | | 44,510 | | | 84,287 | | | 52,088 | | | (55,108) | | | 6,049 | | | 61,106 | | | 21,505 | | | (42,534) | | Net income (loss) attributable to Summit Inc. (1) | | | 43,010 | | | 81,264 | | | 50,000 | | | (52,444) | | | (290) | | | 44,820 | | | 13,371 | | | (21,118) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic earnings per share attributable to Summit Inc. (1) | | $ | 0.39 | | $ | 0.74 | | $ | 0.46 | | $ | (0.49) | | $ | (0.00) | | $ | 0.59 | | $ | 0.21 | | $ | (0.40) | | Diluted earnings per share attributable to Summit Inc. (1) | | | 0.38 | | | 0.73 | | | 0.46 | | | (0.49) | | | (0.00) | | | 0.59 | | | 0.20 | | | (0.40) | |
30, 2017.
| (1)
| | The third quarter of 2017 amounts are revised from prior disclosed amounts due to adjustments identified during the fourth quarter of 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | | 4Q | | 3Q | | 2Q | | 1Q | | 4Q | | 3Q | | 2Q | | 1Q | Net revenue | | $ | 445,090 |
| | $ | 625,017 |
| | $ | 549,235 |
| | $ | 289,916 |
| | $ | 440,610 |
| | $ | 574,387 |
| | $ | 478,368 |
| | $ | 259,044 |
| Operating income (loss) | | 28,545 |
| | 108,167 |
| | 77,279 |
| | (51,525 | ) | | 57,306 |
| | 113,911 |
| | 82,444 |
| | (32,784 | ) | Net income (loss) | | (18,627 | ) | | 73,992 |
| | 36,913 |
| | (55,948 | ) | | 44,510 |
| | 84,287 |
| | 52,088 |
| | (55,108 | ) | Net income (loss) attributable to Summit Inc. | | (19,163 | ) | | 71,289 |
| | 35,509 |
| | (53,729 | ) | | 43,010 |
| | 81,264 |
| | 50,000 |
| | (52,444 | ) | | | | | | | | | | | | | | | | | | Basic earnings per share attributable to Summit Inc. | | $ | (0.17 | ) | | $ | 0.64 |
| | $ | 0.32 |
| | $ | (0.49 | ) | | $ | 0.39 |
| | $ | 0.74 |
| | $ | 0.46 |
| | $ | (0.49 | ) | Diluted earnings per share attributable to Summit Inc. | | (0.17 | ) | | 0.64 |
| | 0.32 |
| | (0.49 | ) | | 0.38 |
| | 0.73 |
| | 0.46 |
| | (0.49 | ) |
SUMMIT MATERIALS, LLC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements and notes thereto for Summit Materials, LLC and subsidiaries are included as Exhibit 99.1 to this Annual Report on Form 10-K and are incorporated by reference herein.
| | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.
ITEM 9A.CONTROLS9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures Summit Inc. and Summit LLC maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in Summit Inc.’s reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Summit Inc.’s and Summit LLC’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Summit Inc.’s and Summit LLC’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Summit Inc.’s disclosure controls and procedures as of December 30, 2017.29, 2018. Based upon that evaluation, Summit Inc.’s and Summit LLC’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 30, 2017,29, 2018, Summit Inc.’s and Summit LLC’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting The Stockholders of Summit Materials, Inc.: The management of Summit Materials, Inc. and Summit Materials, LLC is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management evaluated the effectiveness of our internal control over financial reporting as of December 30, 2017.29, 2018. In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our evaluation we believe that, as of December 30, 201729, 2018 our internal control over financial reporting is effective based on those criteria. KPMG LLP has issued an audit report on the effectiveness of Summit Materials, Inc.’s internal control over financial reporting. The KPMG report immediately follows this report. This annual report does not include an attestation report of Summit Materials, LLC’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by Summit Materials, LLC’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission applicable to “non-accelerated filers.” | | | | | | /s/ Thomas W. Hill | /s/ Brian J. Harris | Chief Executive Officer | Chief Financial Officer |
Report of Independent Registered Public Accounting Firm To the stockholdersStockholders and boardBoard of directors
Directors
Opinion on Internal Control Over Financial Reporting We have audited Summit Materials, Inc. and subsidiaries’ (the “Company”)Company) internal control over financial reporting as of December 30, 2017,29, 2018, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,29, 2018, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheets of the Company as of December 30, 201729, 2018 and December 31, 2016,30, 2017, the related consolidated statements of operations, comprehensive loss, cash flows and changes in redeemable noncontrolling interest and stockholders’ equity, and cash flows for each of the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 and January 2, 2016 and the related notes (collectively, the consolidated financial statements), and our report dated February 14, 20186, 2019 expressed an unqualified opinion on those consolidated financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | | | /s/ KPMG LLP | Denver, Colorado
| | Denver, Colorado | | February 14, 20186, 2019 | |
Changes in Internal Control over Financial Reporting There was no change in Summit Materials, Inc.’s or Summit Materials, LLC’s internal control over financial reporting that occurred during their last fiscal quarter that has materially affected, or is reasonably likely to materially affect, their internal control over financial reporting. ITEM 9B.OTHER9B. OTHER INFORMATION. None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required to be set forth herein is included in the sections entitled “Item 1–Election of Directors”, “Corporate Governance—Board Meetings and Committees—Audit Committee”, “Corporate Governance—Code of Conduct”Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement with respect to the 20182019 annual meeting of stockholders (the “2018“2019 Proxy Statement”) is incorporated herein by reference, except that certain information regarding our executive officers called for by Item 401(b) and (e) of Regulation S–K has been included in Part 1 of this Annual Report on Form 10–K.ITEM 11. EXECUTIVE COMPENSATION The information set forth under the heading “Executive Compensation” in our 20182019 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. | | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required to be set forth herein pursuant to Item 403 of Regulation S–K is included in the section entitled “Beneficial Ownership of Shares” in our 20182019 Proxy Statement is incorporated herein by reference. The information regarding certain Company equity compensation plans called for by Item 201(d) of Regulation S–K is set forth below.Securities Authorized for Issuance Under Equity Compensation Plans | | | | | | | | | | | As of December 30, 2017 | | | | Number of securities | | | | | Number of securities | | | | to be issued upon | | Weighted-average | | remaining available | | | | exercise of | | exercise price of | | for future issuance | | | | outstanding options | | outstanding options | | under equity | | | | and rights | | and rights | | compensation plans | | Equity compensation plan approved by stockholders(1) | | 13,500,000 | | $ | 18.83 | | 8,626,346 | |
| | | | | | | | | | | | | | As of December 29, 2018 | | | Number of securities | | | | Number of securities | | | to be issued upon | | Weighted-average | | remaining available | | | exercise of | | exercise price of | | for future issuance | | | outstanding options | | outstanding options | | under equity | | | and rights | | and rights | | compensation plans | Equity compensation plan approved by stockholders(1) | | 13,500,000 |
| | $ | 18.54 |
| | 6,620,934 |
|
_______________________ | | (1) | | Relates only to the Omnibus Incentive Plan detailed below. |
In connection with our IPO, the board of directors and our then sole voting stockholder adopted the Omnibus Incentive Plan under which 13,500,000 shares of common stock were reserved. The Omnibus Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based and performance compensation awards to eligible employees, officers, directors, consultants and advisors of the Company. If an award under the Omnibus Incentive Plan terminates, lapses or is settled without the payment of the full number of shares subject to the award, the undelivered shares may be granted again under the Omnibus Incentive Plan. As of December 30, 2017,29, 2018, there were no equity compensation plans not approved by stockholders of Summit Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information required to be set forth herein is included in the sections entitled “Certain“Certain Relationships and Related Person Transactions” in our 20182019 Proxy Statement is incorporated herein by reference. ITEM 14.PRINCIPAL14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information provided under the heading “Item“Item 2—Ratification of Appointment of KPMG LLP” included in our 20182019 Proxy Statement is incorporated herein by reference.
ITEM 15.EXHIBITS15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 1.Financial
Financial statements for Summit Inc. and Summit LLC are included under Item 8 of this report, which incorporates Exhibit 99.1 with respect to Summit LLC. 2.Financial
2. Financial statement schedules: Financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the financial statements or notes thereto. 3.Exhibits:
3. Exhibits:
2.1
| | | | 2.1 | | | | | | 2.2 | | | | | | 3.1 | | | | | | 3.2 | | | | | | 3.3 | | | | | | 3.4 | | | | | | 4.1 | | Indenture, dated as of July 8, 2015, among Summit Materials, LLC, Summit Materials Finance Corp., the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Summit Materials, Inc.’s Current Report on Form 8-K filed on July 8, 2015 (File No. 001-36873)). | | | | 4.2 | | First Supplemental Indenture, dated as of July 17, 2015, among Kilgore Partners, L.P., Lewis & Lewis, Inc., Summit Materials, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.14 to Summit Materials, Inc.’s Registration Statement on Form S-1/A, filed on July 27, 2015 (File No. 333-205561)). | | | | 4.3 | | | | | |
4.4
| | | | 4.4 | | Third Supplemental Indenture, dated as of November 19, 2015, by and among Summit Materials, LLC, Summit Materials Finance Corp., the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Summit Materials, LLC’s Current Report on Form 8-K filed on November 19, 2015 (File No. 333-187556)). | | | | 4.5 | | | | | | 4.6 | | | | | | 4.7 | | | | | |
| 4.8
| | | 4.8 | | Seventh Supplemental Indenture, dated as of September 23, 2016, among H.C. Rustin Corporation, R.D. Johnson Excavating Company, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.9 to Summit Materials, LLC’s Registration Statement on Form S-4, filed September 30, 2016 (File No. 333-213904)). | | | | 4.9 | | | | | | 4.10 | | | | | | 4.11* 4.11 | | | | | | 4.12* 4.12 | | Eleventh Supplemental Indenture, dated as of November 10,9, 2017, among Columbia Silica Sand, LLC, Columbia Aggregates, LLC, Northwest Aggregates, Inc. and Northwest Ready Mix, Inc. and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.12 to the Registrants’ Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | | 4.13* 4.13 | | Twelfth Supplemental Indenture, dated as of January 26, 2018, among Georgia Stone Products, LLC, Broad River Crushed Stone, LLC, Stockman Quarry, L.L.C., Stockman Properties, L.L.C., McLanahan Crushed Stone, LLC and Ohio Valley Asphalt, LLC and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.13 to the Registrants’ Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | | 4.14 | | Thirteenth Supplemental Indenture, dated as of May 3, 2018, among Laredo Paving, Inc., Metro Ready Mix, L.L.C., Price Construction, Ltd. and Mid-Missouri Limestone, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.30 to the Registrants’ Quarterly Report on Form 10-Q, filed August 2, 2018 (File No. 001-36873)). | | | | 4.15 | | | | | | 4.15 4.16 | | | | | | 4.16 4.17 | | | | | |
4.17
| | | | 4.18 | | | | | | 4.18 4.19 | | Third Supplemental Indenture, dated as of September 23, 2016, among H.C. Rustin Corporation, R.D. Johnson Excavating Company, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.14 to Summit Materials, LLC’s Registration Statement on Form S-4, filed September 30, 2016 (File No. 333-213904)). | | | | 4.19 4.20 | | |
| | | | 4.20
| | | 4.21 | | | | | | 4.21* 4.22 | | | | | | 4.22* 4.23 | | Seventh Supplemental Indenture, dated as of November 10, 2017, among Columbia Silica Sand, LLC, Columbia Aggregates, LLC, Northwest Aggregates, Inc. and Northwest Ready Mix, Inc. and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.22 to the Registrants’ Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | | 4.23* 4.24 | | Eighth Supplemental Indenture, dated as of January 26, 2018, among Georgia Stone Products, LLC, Broad River Crushed Stone, LLC, Stockman Quarry, L.L.C., Stockman Properties, L.L.C., McLanahan Crushed Stone, LLC and Ohio Valley Asphalt, LLC and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.23 to the Registrants’ Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | | 4.24 4.25 | | Ninth Supplemental Indenture, dated as of May 3, 2018, among Laredo Paving, Inc., Metro Ready Mix, L.L.C., Price Construction, Ltd. and Mid-Missouri Limestone, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrants’ Quarterly Report on Form 10-Q, filed August 2, 2018 (File No. 001-36873)). | | | | 4.26 | | | | | | 4.25 4.27 | | Indenture, dated as of June 1, 2017, by and among Summit Materials, LLC, Summit Materials Finance Corp., the subsidiary guarantors named on the signature pages thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrants’ Current Report on Form 8-K, filed June 1, 2017 (File No. 001-36873)). | | | | 4.26 4.28 | | | | | | 4.27 4.29 | | | | | | 4.28* 4.30 | | | | | | 4.29* 4.31 | | Third Supplemental Indenture, dated as of November 10, 2017, among Columbia Silica Sand, LLC, Columbia Aggregates, LLC, Northwest Aggregates, Inc. and Northwest Ready Mix, Inc. and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.29 to the Registrants’ Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | | 4.30* 4.32 | | Fourth Supplemental Indenture, dated as of January 26, 2018, among Georgia Stone Products, LLC, Broad River Crushed Stone, LLC, Stockman Quarry, L.L.C., Stockman Properties, L.L.C., McLanahan Crushed Stone, LLC and Ohio Valley Asphalt, LLC and Wilmington Trust, National Association, as trustee.trustee (incorporated by reference to Exhibit 4.30 to the Registrants Annual Report on Form 10-K, filed February 14, 2018 (File No. 001-36873)). | | | |
10.1
| | | | 4.33 | | Fifth Supplemental Indenture, dated as of May 3, 2018, among Laredo Paving, Inc., Metro Ready Mix, L.L.C., Price Construction, Ltd. and Mid-Missouri Limestone, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Registrants’ Quarterly Report on Form 10-Q, filed August 2, 2018 (File No. 001-36873)). |
| | | | 10.1 | | | | | | 10.2 | | | | | | 10.3 | | | | | | 10.4 | | | | | | 10.5 | | | | | | 10.6+ | | | | | | 10.7+ | | | | | | 10.8+ | | | | | | 10.9+ | | | | | | 10.10+ | | | | | | 10.11+ | | | | | | 10.12+ | | | | | | 10.13+ | | | | | |
10.14
| | | | 10.14 | | Credit Agreement, dated as of January 30, 2012, by and among Summit Materials, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc., as joint lead arrangers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., UBS Securities LLC, Barclays Capital, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc., as joint bookrunners, Bank of America, N.A., as administrative agent, collateral agent and swing line lender, Bank of America, N.A., as letter of credit issuer, and Citigroup Global Markets Inc., as syndication agent (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to Summit Materials, LLC’s Registration Statement on Form S-4, filed May 3, 2013 (File No. 333-187556)). | | | | 10.15 | | Amendment No. 1, dated as of February 5, 2013, to the Credit Agreement, dated as of January 30, 2012, by and among Summit Materials, LLC, Bank of America, N.A. as sole lead arranger, and Bank of America, N.A. and Citigroup Global Markets Inc., as joint bookrunners (incorporated by reference to Exhibit 10.2 of Summit Materials, LLC’s Registration Statement on Form S-4, filed March 27, 2013 (File No. 333-187556)). | | | | 10.16 | | Amendment No. 2, dated as of January 16, 2014, to the Credit Agreement, dated as of January 30, 2012, by and among Summit Materials, LLC, the guarantors party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.1 to Summit Materials, LLC’s Current Report on Form 8-K, filed January 23, 2014 (File No. 333-187556)). | | | | 10.17 | | Amendment No. 3, dated as of March 11, 2015, to the Credit Agreement, dated as of January 30, 2012, by and among Summit Materials, LLC, the guarantors party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.1 filed Summit Materials, LLC’s Current Report on Form 8-K, filed March 17, 2015 (File No. 333-187556)). | | | | | 10.18 | | Tranche A Revolving Credit Commitment Conversion Agreement, dated as of February 11, 2013, under the Credit Agreement, dated as of January 30, 2012, among Summit Materials, LLC, the guarantors party thereto, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.3 of Summit Materials, LLC’s Registration Statement on Form S-4, filed March 27, 2013 (File No. 333-187556)). | | | | 10.19 | | | | | | 10.20 | | Restatement Agreement, providing for the Amended and Restated Credit Agreement, dated as of July 17, 2015, among Summit Materials, LLC, Summit Materials Intermediate Holdings, LLC, the subsidiary guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender (incorporated by reference to Exhibit 10.1 to Summit Materials, Inc.’s Current Report on Form 8-K filed on July 20, 2015 (File No. 001-36873)). | | | | 10.21 | | Amendment No. 1, dated as of January 19, 2017, to the Amended and Restated Credit Agreement, dated as of July 17, 2015, among Summit Materials, LLC, as the borrower, the guarantors party thereto, the several banks and other financial institutions or entities from time to time party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Registrants’ Current Report on Form 8-K, filed January 19, 2017 (File No. 001-36873)). | | | | 10.22 | | Amendment No. 2, dated as of November 21, 2017, to the Amended and Restated Credit Agreement, dated as of July 17, 2015, among Summit Materials, LLC, as the borrower, the guarantors party thereto, the several banks and other financial institutions or entities from time to time party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Registrants’ Current Report on Form 8-K filed on November 21, 2017 (File No. 001-36873)). |
| | | | 10.23 | | Amendment No. 3, dated as of May 22, 2018, to the Amended and Restated Credit Agreement, dated as of July 17, 2015 (as amended by Amendment No. 1, dated as of January 19, 2017 and Amendment No. 2, dated as of November 21, 2017), among Summit Materials, LLC, as the borrower, the guarantors party thereto, the several banks and other financial institutions or entities from time to time party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Registrants’ Current Report on Form 8-K, filed May 22, 2018). | | | | 10.24 | | Acquisition Agreement, dated as of December 5, 2013, among Alleyton Resource Corporation, Colorado Gulf, LP, Texas CGC, LLC, Barten Shepard Investments, LP, TBGSI Corp., the individuals signatory thereto and Summit Materials, LLC (incorporated by reference to Exhibit 10.6 to Summit Materials, LLC’s Annual Report on Form 10-K, filed March 7, 2014 (File No. 333-187556)). | | | | 10.24 10.25 | | Amendment dated January 14, 2014, to Acquisition Agreement, dated as of December 5, 2013, among Alleyton Resource Corporation, Colorado Gulf, LP, Texas CGC, LLC, Barten Shepard Investments, LP, TBGSI Corp., the individuals signatory thereto and Summit Materials, LLC (incorporated by reference to Exhibit 10.7 to Summit Materials, LLC’s Annual Report on Form 10-K, filed March 7, 2014 (File No. 333-187556)). | | | | 10.25+ 10.26+ | | | | | | 10.26+ 10.27+ | | | | | | 10.27+ 10.28+ | | | | | | 10.28+ 10.29+ | | | | | | 10.29 10.30 | | Contribution and Purchase Agreement, dated December 18, 2014, between Summit Materials, Inc., Summit Materials Holdings L.P., Summit Materials Holdings GP, Ltd., and Summit Owner Holdco LLC, and Missouri Materials Company, L.L.C., J&J Midwest Group, L.L.C., R. Michael Johnson Family Limited Liability Company, and Thomas A. Beck Family, LLC, and Continental Cement Company, L.L.C (incorporated by reference to Exhibit 10.27 to Summit Materials, Inc.’s Registration Statement on Form S-1/A, filed on January 9, 2015 (File No. 333-201058)). | | | | 10.30+ 10.31+ | | | | | | 10.31+ 10.32+ | | | | | | 10.32+ 10.33+ | | | | | | 10.33+ 10.34+ | | | | | | 10.34+ 10.35+ | | | | | | 10.35+*
| | Agreement and Release, dated as of January 17, 2018, between Damian J. Murphy, Summit Materials Holdings L.P., and solely for certain purposes specified therein, Summit Materials, Inc.
| | | |
12.1*
| | Computation of ratio of earnings to fixed charges
| | | | 21*
| | | 21* | | | | | | 23.1* | | | | | | 31.1* | | | | | | 31.2* | | | | | | 31.3* | | | | | | 31.4* | | | | | | 32.1** | | | | | | 32.2** | | | | | | 32.3** | | | | | | 32.4** | | | | | | 95.1* | | | | | | 99.1* | | | | | | 101.1NS* | | 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. |
+ Indicates management or compensating plan or arrangement
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
ITEM 16.FORM16 FORM 10-K SUMMARY None. None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. | | | | | SUMMIT MATERIALS, INC. | | SUMMIT MATERIALS, LLC | | | Date: February 14, 2018 6, 2019 | By: | /s/ Thomas W. Hill | | | Thomas W. Hill | | | Chief Executive Officer | | | (Principal Executive Officer) |
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on the 146th day of February 2018.2019. Signature
| | Title
| | | | Signature | | Title | | | | /s/ Thomas W. Hill | | President and Chief Executive Officer; Director of
Summit Materials, Inc.
(Principal Executive Officer) | Thomas W. Hill | | | | | /s/ Brian J. Harris | | Chief Financial Officer
(Principal Financial and Accounting Officer) | Brian J. Harris | | | | | /s/ Joseph S. Cantie | | Director of Summit Materials, Inc. | Joseph S. Cantie | | | | /s/ Ted A. Gardner Anne M. Cooney | | Director of Summit Materials, Inc. | Anne M. Cooney | | | | /s/ Susan A. Ellerbusch | | Director of Summit Materials, Inc. | Susan A. Ellerbusch | | | | | /s/ Ted A. Gardner | | Director of Summit Materials, Inc. | Ted A. Gardner | | | | | | /s/ Howard L. Lance | | Director of Summit Materials, Inc. | Howard L. Lance | | | | | /s/ John R. Murphy | | Director of Summit Materials, Inc. | John R. Murphy | | | | | /s/ Neil P. Simpkins Anne K. Wade | | Director of Summit Materials, Inc. | Neil P. Simpkins
| | | | /s/ Anne K. Wade
| | | | /s/ Steven H. Wunning | | Director of Summit Materials, Inc. | Anne K. Wade
| | | | /s/ Steven H. Wunning
| | Director of Summit Materials, Inc.
| Steven H. Wunning
|
|