Washington, D.C. 20549
FORM 10-Q
(Mark One)
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(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017June 29, 2019 | | |
◻
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto 001-36873 (Summit Materials, Inc.) 333-187556 (Summit Materials, LLC)
SUMMIT MATERIALS, INC.
SUMMIT MATERIALS, LLC
(Exact name of registrants as specified in their charters)
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SUMMIT MATERIALS, INC.
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| SUMMIT MATERIALS, LLC |
| (Exact name of registrants as specified in their charters) |
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Delaware (Summit | (Summit Materials, Inc.)
| | | 47-1984212 |
Delaware (Summit | (Summit Materials, LLC)
| | | 26-4138486
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(State
(State or other jurisdiction of incorporation or organization) | | | Identification No.) |
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1550 Wynkoop Street 3rd Floor Denver, Colorado
| 80202
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(Address3rd Floor
| | | | |
| Denver | Colorado | | | 80202 |
(Address of principal executive offices)
| | | (Zip Code) |
Registrants’ telephone number, including area code: (303) (303) 893-0012 (Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| Class A Common Stock (par value $.01 per share) | | SUM | | New York Stock Exchange |
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| | | | | | | |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | |
| Summit Materials, Inc. | | | | Yes ☒ | ☒ | No ◻ | ☐ |
Summit Materials, LLC | | | | Yes ☒ | ☒ | No ◻ | ☐ |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). | |
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Summit Materials, Inc. | | | | Yes ☒ | ☒ | No ◻ | ☐ |
Summit Materials, LLC | | | | Yes ☒ | ☒ | No ◻ | ☐ |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |
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Summit Materials, Inc. | | | | | | | |
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Large accelerated filer | ☒ | | Accelerated filer | | | ☐ |
Non-accelerated filer | ◻
☐ | (Do not check if a smaller reporting company)
| Smaller reporting company | |
| ☐ |
| | | Emerging growth company | |
| ☐ |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | | ☐ |
| Summit Materials, LLC | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | | | ☐ |
| Non-accelerated filer | ☒ | | Smaller reporting company | |
| ☐ |
| | | Emerging growth company | |
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Exchange Act.
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Summit Materials, LLC
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Large accelerated filer
| ◻
| | Accelerated filer
| ☐
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Non-accelerated filer
| ☒
| (Do not check if a smaller reporting company)
| Smaller reporting company
| ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | Emerging growth company
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Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |
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Summit Materials, Inc. | | | | Yes ◻ | ☐ | No | ☒ |
Summit Materials, LLC | | | | Yes ◻ | ☐ | No | ☒ |
As of
October 28, 2017,July 29, 2019, the number of shares of Summit Materials, Inc.’s outstanding Class A and Class B common stock, par value $0.01 per share for each class, was
108,471,857112,074,156 and
100,99, respectively.
As of
October 28, 2017,July 29, 2019, 100% of Summit Materials, LLC’s outstanding limited liability company interests were held by Summit Materials Intermediate Holdings, LLC, its sole member and an indirect subsidiary of Summit Materials, Inc.
This quarterly report on Form 10-Q (this “report”) is a combined quarterly report being filed separately by two registrants: Summit Materials, Inc. and Summit Materials, LLC. Each registrant hereto is filing on its own behalf all of the information contained in this report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. We believe that combining the quarterly reports on Form 10-Q of Summit Materials, Inc. and Summit Materials, LLC into this single report eliminates duplicative and potentially confusing disclosure and provides a more streamlined presentation since a substantial amount of the disclosure applies to both registrants.
Unless stated otherwise or the context requires otherwise, references to “Summit Inc.” mean Summit Materials, Inc., a Delaware corporation, and references to “Summit LLC” mean Summit Materials, LLC, a Delaware limited liability company. The references to Summit Inc. and Summit LLC are used in cases where it is important to distinguish between them. We use the terms “we,” “our,” “us” or “the Company” to refer to Summit Inc. and Summit LLC together with their respective subsidiaries, unless otherwise noted or the context otherwise requires.
Summit Inc. was formed on September 23, 2014 to be a holding company. As of September 30, 2017,June 29, 2019, its sole material asset was a 96.5%97.0% economic interest in Summit Materials Holdings L.P., a Delaware limited partnership (“Summit Holdings”). Summit Inc. has 100% of the voting rights of Summit Holdings, which is the indirect parent of Summit LLC. Summit LLC is a co-issuer of our outstanding 8 1/2% senior notes due 2022 (“2022 Notes”), our 6 1/1/8% senior notes due 2023 (“2023 Notes”) and, our 5 1/1/8% senior notes due 2025 (“2025 Notes”) and our 6 1/2% senior notes due 2027 (“2027 Notes” and collectively with the 20222023 Notes and 20232025 Notes, the "Senior Notes"“Senior Notes”). Summit Inc.’s only revenue for the three and ninesix months ended September 30, 2017June 29, 2019 was that generated by Summit LLC and its consolidated subsidiaries. Summit Inc. controls all of the business and affairs of Summit Holdings and, in turn, Summit LLC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “trends,” “plans,” “estimates,” “projects” or “anticipates” or similar expressions that concern our strategy, plans, expectations or intentions. All statements made relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, it is very difficult to predict the effect of known factors, and, of course, it is impossible to anticipate all factors that could affect our actual results. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be realized. Important factors could affect our results and could cause results to differ materially from those expressed in our forward-looking statements, including but not limited to the factors discussed in the section entitled “Risk Factors” in Summit Inc.’s Annual Report on Form 10-K for the fiscal year ended December
31, 201629, 2018 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”), any factors discussed in the section entitled “Risk Factors” of this report and the following:
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| | our dependence on the construction industry and the strength of the local economies in which we operate;
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| | the cyclical nature of our business;
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| | risks related to weather and seasonality;
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| | risks associated with our capital-intensive business;
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| | competition within our local markets;
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our dependence on the construction industry and the strength of the local economies in which we operate;risks related to weather and seasonality; | ·
| | our ability to execute on our acquisition strategy, successfully integrate acquisitions with our existing operations and retain key employees of acquired businesses;
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risks associated with our capital-intensive business; | ·
| | our dependence on securing and permitting aggregate reserves in strategically located areas;
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competition within our local markets; | ·
| | declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies;
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our ability to execute on our acquisition strategy, successfully integrate acquisitions with our existing operations and retain key employees of acquired businesses; | ·
| | environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;
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our dependence on securing and permitting aggregate reserves in strategically located areas; | ·
| | conditions in the credit markets;
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| | our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
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declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies; | ·
| | material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications;
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environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use; | ·
| | cancellation of a significant number of contracts or our disqualification from bidding for new contracts;
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rising prices for commodities, labor and other production and delivery costs as a result of inflation or otherwise; | ·
| | special hazards related to our operations that may cause personal injury or property damage not covered by insurance;
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conditions in the credit markets; | ·
| | our substantial current level of indebtedness;
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our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us; | ·
| | our dependence on senior management and other key personnel; and
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material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications; | ·
| | interruptions in our information technology systems and infrastructure.
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cancellation of a significant number of contracts or our disqualification from bidding for new contracts;special hazards related to our operations that may cause personal injury or property damage not covered by insurance;
our substantial current level of indebtedness;
our dependence on senior management and other key personnel;
supply constraints or significant price fluctuations in the electricity and petroleum-based resources that we use, including diesel and liquid asphalt;
climate change and climate change legislation or regulations;
unexpected operational difficulties;
interruptions in our information technology systems and infrastructure; and
potential labor disputes.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
Any forward-looking statement that we make herein speaks only as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
As used in this report, unless otherwise noted or the context otherwise requires:
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| | "Finance Corp." refers to Summit Materials Finance Corp., an indirect wholly-owned subsidiary of Summit LLC and the co-issuer of the Senior Notes;
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| | the “Issuers” refers to Summit LLC and Finance Corp. as co-issuers of the Senior Notes but not to any of their subsidiaries;
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| | “Harper Contracting” refers collectively to substantially all the assets of Harper Contracting, Inc., Harper Sand and Gravel, Inc., Harper Excavating, Inc., Harper Ready Mix Company, Inc. and Harper Investments, Inc.;
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| | “Mainland” refers to Mainland Sand & Gravel ULC, which is the surviving entity from the acquisition of Rock Head Holdings Ltd., B.I.M Holdings Ltd., Carlson Ventures Ltd., Mainland Sand and Gravel Ltd. and Jamieson Quarries Ltd.;
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| | “AMC" refers to American Materials Company;
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“EBITDA” refers to net income (loss) before interest expense (income), income tax expense (benefit) and depreciation, depletion and amortization;Summit LLC and the co-issuer of the Senior Notes; | ·
| | “Boxley” refers to Boxley Materials Company;
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| | “Sierra” refers to Sierra Ready Mix, LLC;
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| | "Oldcastle Assets" refers to the seven aggregates quarries located in central and northwest Missouri acquired from APAC-Kansas, Inc. and APAC-Missouri, Inc., subsidiaries of Oldcastle, Inc.;
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| | “Weldon’’ refers to Weldon Real Estate, LLC;
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| | “Rustin” refers to H.C. Rustin Corporation;
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| | “RD Johnson” refers to R.D. Johnson Excavating Company, LLC and Asphalt Sales of Lawrence, LLC;
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| | “Angelle Assets” refers to two cement terminal operations located in Port Allen and LaPlace, LA.;
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| | “Midland Concrete” refers to Midland Concrete Ltd.;
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| | “Everist Materials” refers to Everist Materials, LLC;
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| | “Razorback” refers to Razorback Concrete Company;
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| | “Sandidge Concrete” refers to Sandidge Manufacturing, Inc.;
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| | “Carolina Sand” refers to Carolina Sand, LLC;
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| | “Hanna’s Bend” refers to Hanna’s Bend Aggregate, Ltd.;
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| | “Winvan Paving” refers to Winvan Paving Ltd.;
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| | “Glasscock” refers to Glasscock Company, Inc. and Glasscock Logistics Company, LLC;
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| | “Somerset” refers to Ready Mix Concrete of Somerset, Inc. and RMCS Holdings, Inc.;
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| | “Great Southern” refers to Great Southern Ready Mix, LLC, Great Southern Stabilized, LLC and Southern Cement Slurry, LLC;
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| | “Northwest” refers to Northwest Ready Mix, Inc. and Northwest Aggregates, Inc.;
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| | “Georgia Stone” refers to Georgia Stone Products, LLC;
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| | “Alan Ritchey” refers to Alan Ritchey Materials Company, L.C.;
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| | “Columbia Silica” refers to CSS Conversion Holdco, Inc., CA Conversion Holdco, LLC, Columbia Silica Sand, Inc. and Columbia Aggregates, LLC;
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| | “Stockman” refers to Stockman Quarry, LLC and Stockman Properties, LLC;
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| | “LP Units” refers to the Summit Holdings’ outstanding Class A Units;
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| | “IPO” refers to the March 2015 initial public offering of Summit Inc.; and
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| | “EBITDA” refers to net income (loss) before interest expense, income tax expense (benefit), depreciation, depletion and amortization expense.
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“IPO” refers to the March 2015 initial public offering of Summit Inc.;
“LP Units” refers to the Class A limited partnership units of Summit Holdings; andLP Units and their permitted assignees. The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of
September 30, 2017.June 29, 2019. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.
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| (2) | | The shares of Class B Common Stock are currently held by pre-IPO investors, including certain members of management or their family trusts that directly hold LP Units. A holder of Class B Common Stock is entitled, without regard to the number of shares of Class B Common Stock held by such holder, to a number of votes that is equal to the aggregate number of LP Units held by such holder. |
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| (3) | | Guarantor under the senior secured credit facilities, but not the Senior Notes. |
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| (4) | | Summit LLC and Finance Corp are the issuers of the Senior Notes and Summit LLC is the borrower under our senior secured credit facilities. Finance Corp. was formed solely for the purpose of serving as co-issuer or guarantor of certain indebtedness, including the Senior Notes. Finance Corp. does not and will not have operations of any kind and does not and will not have revenue or assets other than as may be incidental to its activities as a co-issuer or guarantor of certain indebtedness. |
PART I—FINANCIAL INFORMATION
ITEM 1.FINANCIAL1. FINANCIAL STATEMENTS
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands, except share and per share amounts)
| | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
| | (unaudited) | | (audited) |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 287,082 | | $ | 143,392 |
Accounts receivable, net | | | 295,491 | | | 162,377 |
Costs and estimated earnings in excess of billings | | | 39,316 | | | 7,450 |
Inventories | | | 181,784 | | | 157,679 |
Other current assets | | | 11,669 | | | 12,800 |
Total current assets | | | 815,342 | | | 483,698 |
Property, plant and equipment, less accumulated depreciation, depletion and amortization (September 30, 2017 - $592,086 and December 31, 2016 - $484,554) | | | 1,620,123 | | | 1,446,452 |
Goodwill | | | 1,012,771 | | | 782,212 |
Intangible assets, less accumulated amortization (September 30, 2017 - $6,376 and December 31, 2016 - $7,854) | | | 16,995 | | | 17,989 |
Deferred tax assets, less valuation allowance (September 30, 2017 - $2,677 and December 31, 2016 - $502,839) | | | 477,493 | | | 4,326 |
Other assets | | | 50,068 | | | 46,789 |
Total assets | | $ | 3,992,792 | | $ | 2,781,466 |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Current portion of debt | | $ | 6,500 | | $ | 6,500 |
Current portion of acquisition-related liabilities | | | 25,153 | | | 24,162 |
Accounts payable | | | 134,925 | | | 81,565 |
Accrued expenses | | | 130,502 | | | 111,605 |
Billings in excess of costs and estimated earnings | | | 18,043 | | | 15,456 |
Total current liabilities | | | 315,123 | | | 239,288 |
Long-term debt | | | 1,807,064 | | | 1,514,456 |
Acquisition-related liabilities | | | 36,326 | | | 32,664 |
Tax receivable agreement liability | | | 548,885 | | | 58,145 |
Other noncurrent liabilities | | | 68,030 | | | 76,874 |
Total liabilities | | | 2,775,428 | | | 1,921,427 |
Commitments and contingencies (see note 11) | | | | | | |
Stockholders’ equity: | | | | | | |
Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 108,465,688 and 96,033,222 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | | | 1,085 | | | 961 |
Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 100 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | | | — | | | — |
Additional paid-in capital | | | 1,098,151 | | | 824,304 |
Accumulated earnings | | | 95,636 | | | 19,028 |
Accumulated other comprehensive income (loss) | | | 6,688 | | | (2,249) |
Stockholders’ equity | | | 1,201,560 | | | 842,044 |
Noncontrolling interest in consolidated subsidiaries | | | 1,351 | | | 1,378 |
Noncontrolling interest in Summit Holdings | | | 14,453 | | | 16,617 |
Total stockholders’ equity | | | 1,217,364 | | | 860,039 |
Total liabilities and stockholders’ equity | | $ | 3,992,792 | | $ | 2,781,466 |
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| | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| | (unaudited) | | (audited) |
| Assets | |
| | |
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| Current assets: | |
| | |
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| Cash and cash equivalents | $ | 67,658 |
| | $ | 128,508 |
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| Accounts receivable, net | 294,604 |
| | 214,518 |
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| Costs and estimated earnings in excess of billings | 45,371 |
| | 18,602 |
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| Inventories | 208,136 |
| | 213,851 |
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| Other current assets | 12,618 |
| | 16,061 |
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| Total current assets | 628,387 |
| | 591,540 |
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| Property, plant and equipment, less accumulated depreciation, depletion and amortization (June 29, 2019 - $881,606 and December 29, 2018 - $794,251) | 1,788,664 |
| | 1,780,132 |
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| Goodwill | 1,198,177 |
| | 1,192,028 |
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| Intangible assets, less accumulated amortization (June 29, 2019 - $9,054 and December 29, 2018 - $8,247) | 17,653 |
| | 18,460 |
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| Deferred tax assets, less valuation allowance (June 29, 2019 - $27,863 and December 29, 2018 - $19,366) | 237,089 |
| | 225,397 |
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| Operating lease right-of-use assets | 34,101 |
| | — |
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| Other assets | 50,785 |
| | 50,084 |
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| Total assets | $ | 3,954,856 |
| | $ | 3,857,641 |
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| Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | | | |
| Current portion of debt | $ | 4,765 |
| | $ | 6,354 |
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| Current portion of acquisition-related liabilities | 35,470 |
| | 34,270 |
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| Accounts payable | 131,391 |
| | 107,702 |
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| Accrued expenses | 113,996 |
| | 100,491 |
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| Current operating lease liabilities | 8,470 |
| | — |
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| Billings in excess of costs and estimated earnings | 10,733 |
| | 11,840 |
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| Total current liabilities | 304,825 |
| | 260,657 |
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| Long-term debt | 1,854,189 |
| | 1,807,502 |
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| Acquisition-related liabilities | 40,088 |
| | 49,468 |
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| Tax receivable agreement liability | 309,733 |
| | 309,674 |
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| Noncurrent operating lease liabilities | 26,614 |
| | — |
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| Other noncurrent liabilities | 96,636 |
| | 88,195 |
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| Total liabilities | 2,632,085 |
| | 2,515,496 |
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| Commitments and contingencies (see note 12) |
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| Stockholders’ equity: | | | |
| Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 112,073,494 and 111,658,927 shares issued and outstanding as of June 29, 2019 and December 29, 2018, respectively | 1,122 |
| | 1,117 |
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| Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 99 shares issued and outstanding as of June 29, 2019 and December 29, 2018 | — |
| | — |
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| Additional paid-in capital | 1,205,221 |
| | 1,194,204 |
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| Accumulated earnings | 97,377 |
| | 129,739 |
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| Accumulated other comprehensive income | 5,791 |
| | 2,681 |
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| Stockholders’ equity | 1,309,511 |
| | 1,327,741 |
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| Noncontrolling interest in Summit Holdings | 13,260 |
| | 14,404 |
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| Total stockholders’ equity | 1,322,771 |
| | 1,342,145 |
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| Total liabilities and stockholders’ equity | $ | 3,954,856 |
| | $ | 3,857,641 |
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See notes to unaudited consolidated financial statements.
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except share and per share amounts)
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | | | | | | | | | | | | |
Product | | $ | 465,556 | | $ | 386,236 | | $ | 1,088,299 | | $ | 907,679 |
Service | | | 108,831 | | | 93,974 | | | 223,500 | | | 193,206 |
Net revenue | | | 574,387 | | | 480,210 | | | 1,311,799 | | | 1,100,885 |
Delivery and subcontract revenue | | | 59,794 | | | 49,227 | | | 130,752 | | | 102,205 |
Total revenue | | | 634,181 | | | 529,437 | | | 1,442,551 | | | 1,203,090 |
Cost of revenue (excluding items shown separately below): | | | | | | | | | | | | |
Product | | | 277,301 | | | 224,868 | | | 677,861 | | | 559,293 |
Service | | | 72,450 | | | 61,725 | | | 154,408 | | | 136,250 |
Net cost of revenue | | | 349,751 | | | 286,593 | | | 832,269 | | | 695,543 |
Delivery and subcontract cost | | | 59,794 | | | 49,227 | | | 130,752 | | | 102,205 |
Total cost of revenue | | | 409,545 | | | 335,820 | | | 963,021 | | | 797,748 |
General and administrative expenses | | | 59,175 | | | 64,096 | | | 175,729 | | | 184,956 |
Depreciation, depletion, amortization and accretion | | | 48,969 | | | 39,427 | | | 133,756 | | | 109,195 |
Transaction costs | | | 2,581 | | | 1,684 | | | 6,474 | | | 5,290 |
Operating income | | | 113,911 | | | 88,410 | | | 163,571 | | | 105,901 |
Interest expense | | | 28,921 | | | 25,273 | | | 79,876 | | | 72,467 |
Loss on debt financings | | | — | | | — | | | 190 | | | — |
Tax receivable agreement expense | | | 489,215 | | | — | | | 490,740 | | | — |
Other (income) expense, net | | | (2,716) | | | 722 | | | (3,963) | | | 1,270 |
(Loss) income from operations before taxes | | | (401,509) | | | 62,415 | | | (403,272) | | | 32,164 |
Income tax (benefit) expense | | | (483,584) | | | 1,309 | | | (482,327) | | | (7,913) |
Net income | | | 82,075 | | | 61,106 | | | 79,055 | | | 40,077 |
Net income (loss) attributable to noncontrolling interest in subsidiaries | | | 59 | | | 92 | | | (27) | | | 57 |
Net income attributable to Summit Holdings | | | 2,964 | | | 16,194 | | | 2,474 | | | 2,947 |
Net income attributable to Summit Inc. | | $ | 79,052 | | $ | 44,820 | | $ | 76,608 | | $ | 37,073 |
Income per share of Class A common stock: | | | | | | | | | | | | |
Basic | | $ | 0.73 | | $ | 0.60 | | $ | 0.72 | | $ | 0.59 |
Diluted | | $ | 0.72 | | $ | 0.60 | | $ | 0.71 | | $ | 0.40 |
Weighted average shares of Class A common stock: | | | | | | | | | | | | |
Basic | | | 108,024,055 | | | 74,433,487 | | | 106,698,076 | | | 62,686,433 |
Diluted | | | 109,303,412 | | | 74,579,797 | | | 107,327,624 | | | 101,479,150 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Revenue: | | | | | | | |
| Product | $ | 467,637 |
| | $ | 459,967 |
| | $ | 739,278 |
| | $ | 716,774 |
|
| Service | 84,954 |
| | 89,268 |
| | 119,263 |
| | 122,377 |
|
| Net revenue | 552,591 |
| | 549,235 |
| | 858,541 |
| | 839,151 |
|
| Delivery and subcontract revenue | 48,300 |
| | 51,655 |
| | 74,989 |
| | 76,160 |
|
| Total revenue | 600,891 |
| | 600,890 |
| | 933,530 |
| | 915,311 |
|
| Cost of revenue (excluding items shown separately below): | | | | | | | |
| Product | 294,857 |
| | 295,147 |
| | 508,583 |
| | 492,580 |
|
| Service | 62,336 |
| | 64,130 |
| | 88,925 |
| | 90,053 |
|
| Net cost of revenue | 357,193 |
| | 359,277 |
| | 597,508 |
| | 582,633 |
|
| Delivery and subcontract cost | 48,300 |
| | 51,655 |
| | 74,989 |
| | 76,160 |
|
| Total cost of revenue | 405,493 |
| | 410,932 |
| | 672,497 |
| | 658,793 |
|
| General and administrative expenses | 60,961 |
| | 61,657 |
| | 128,571 |
| | 131,518 |
|
| Depreciation, depletion, amortization and accretion | 53,625 |
| | 49,731 |
| | 109,013 |
| | 96,689 |
|
| Transaction costs | 390 |
| | 1,291 |
| | 698 |
| | 2,557 |
|
| Operating income | 80,422 |
| | 77,279 |
| | 22,751 |
| | 25,754 |
|
| Interest expense | 29,401 |
| | 28,943 |
| | 59,506 |
| | 57,727 |
|
| Loss on debt financings | — |
| | 149 |
| | 14,565 |
| | 149 |
|
| Other income, net | (3,676 | ) | | (916 | ) | | (6,479 | ) | | (8,571 | ) |
| Income (loss) from operation before taxes | 54,697 |
| | 49,103 |
| | (44,841 | ) | | (23,551 | ) |
| Income tax expense (benefit) | 16,707 |
| | 12,190 |
| | (11,330 | ) | | (4,516 | ) |
| Net income (loss) | 37,990 |
| | 36,913 |
| | (33,511 | ) | | (19,035 | ) |
| Net income (loss) attributable to Summit Holdings | 1,580 |
| | 1,404 |
| | (1,149 | ) | | (815 | ) |
| Net income (loss) attributable to Summit Inc. | $ | 36,410 |
| | $ | 35,509 |
| | $ | (32,362 | ) | | $ | (18,220 | ) |
| Income (loss) per share of Class A common stock: | | | | | | | |
| Basic | $ | 0.32 |
| | $ | 0.32 |
| | $ | (0.29 | ) | | $ | (0.16 | ) |
| Diluted | $ | 0.32 |
| | $ | 0.32 |
| | $ | (0.29 | ) | | $ | (0.16 | ) |
| Weighted average shares of Class A common stock: | | | | | | | |
| Basic | 112,070,009 |
| | 111,564,190 |
| | 111,940,844 |
| | 111,111,644 |
|
| Diluted | 112,182,555 |
| | 112,583,321 |
| | 111,940,844 |
| | 111,111,644 |
|
See notes to unaudited consolidated financial statements.
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | $ | 82,075 | | $ | 61,106 | | $ | 79,055 | | $ | 40,077 |
Other comprehensive income (loss): | | | | | | | | | | | | |
Postretirement liability adjustment | | | — | | | — | | | 413 | | | — |
Foreign currency translation adjustment | | | 4,374 | | | (1,311) | | | 8,498 | | | 3,966 |
Income (loss) on cash flow hedges | | | 212 | | | 60 | | | 384 | | | (3,232) |
Other comprehensive income (loss): | | | 4,586 | | | (1,251) | | | 9,295 | | | 734 |
Comprehensive income | | | 86,661 | | | 59,855 | | | 88,350 | | | 40,811 |
Less comprehensive income (loss) attributable to the noncontrolling interest in consolidated subsidiaries | | | 59 | | | 92 | | | (27) | | | 57 |
Less comprehensive income attributable to Summit Holdings | | | 3,135 | | | 15,827 | | | 2,832 | | | 3,751 |
Comprehensive income attributable to Summit Inc. | | $ | 83,467 | | $ | 43,936 | | $ | 85,545 | | $ | 37,003 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Net income (loss) | $ | 37,990 |
| | $ | 36,913 |
| | $ | (33,511 | ) | | $ | (19,035 | ) |
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustment | 2,233 |
| | (2,045 | ) | | 4,591 |
| | (5,149 | ) |
| (Loss) income on cash flow hedges | (137 | ) | | 361 |
| | (303 | ) | | 1,356 |
|
| Less tax effect of other comprehensive (loss) income items | (508 | ) | | 1,455 |
| | (1,050 | ) | | 935 |
|
| Other comprehensive income (loss) | 1,588 |
| | (229 | ) | | 3,238 |
| | (2,858 | ) |
| Comprehensive income (loss) | 39,578 |
| | 36,684 |
| | (30,273 | ) | | (21,893 | ) |
| Less comprehensive income (loss) attributable to Summit Holdings | 1,576 |
| | 1,353 |
| | (1,087 | ) | | (932 | ) |
| Comprehensive income (loss) attributable to Summit Inc. | $ | 38,002 |
| | $ | 35,331 |
| | $ | (29,186 | ) | | $ | (20,961 | ) |
See notes to unaudited consolidated financial statements.
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
| | | | | | |
| | Nine months ended |
| | September 30, | | October 1, |
| | 2017 | | 2016 |
Cash flow from operating activities: | | | | | | |
Net income | | $ | 79,055 | | $ | 40,077 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, depletion, amortization and accretion | | | 140,634 | | | 118,026 |
Share-based compensation expense | | | 14,148 | | | 46,123 |
Deferred income tax benefit (expense) | | | 4,768 | | | (8,994) |
Net gain on asset disposals | | | (6,063) | | | (5,844) |
Non-cash loss on debt financings | | | 85 | | | — |
Other | | | (855) | | | (971) |
(Increase) decrease in operating assets, net of acquisitions: | | | | | | |
Accounts receivable, net | | | (98,961) | | | (81,234) |
Inventories | | | (12,835) | | | (17,072) |
Costs and estimated earnings in excess of billings | | | (31,606) | | | (34,349) |
Other current assets | | | 6,043 | | | (2,876) |
Deferred tax assets, net | | | (488,852) | | | - |
Other assets | | | (3,141) | | | (217) |
Increase (decrease) in operating liabilities, net of acquisitions: | | | | | | |
Accounts payable | | | 38,357 | | | 23,812 |
Accrued expenses | | | 3,854 | | | 8,948 |
Billings in excess of costs and estimated earnings | | | 2,386 | | | 2,138 |
Tax receivable agreement liability | | | 490,740 | | | - |
Other liabilities | | | (5,324) | | | (3,044) |
Net cash provided by operating activities | | | 132,433 | | | 84,523 |
Cash flow from investing activities: | | | | | | |
Acquisitions, net of cash acquired | | | (371,479) | | | (331,463) |
Purchases of property, plant and equipment | | | (147,478) | | | (121,945) |
Proceeds from the sale of property, plant and equipment | | | 13,290 | | | 16,222 |
Other | | | 182 | | | 1,500 |
Net cash used for investing activities | | | (505,485) | | | (435,686) |
Cash flow from financing activities: | | | | | | |
Proceeds from equity offerings | | | 237,600 | | | — |
Capital issuance costs | | | (627) | | | (136) |
Proceeds from debt issuances | | | 302,000 | | | 354,000 |
Debt issuance costs | | | (5,317) | | | (5,675) |
Payments on debt | | | (12,887) | | | (114,254) |
Payments on acquisition-related liabilities | | | (22,616) | | | (28,920) |
Distributions from partnership | | | (109) | | | (9,049) |
Other | | | 17,964 | | | 105 |
Net cash provided by financing activities | | | 516,008 | | | 196,071 |
Impact of foreign currency on cash | | | 734 | | | 330 |
Net increase (decrease) in cash | | | 143,690 | | | (154,762) |
Cash and cash equivalents—beginning of period | | | 143,392 | | | 186,405 |
Cash and cash equivalents—end of period | | $ | 287,082 | | $ | 31,643 |
|
| | | | | | | |
| | Six months ended |
| | June 29, 2019 | | June 30, 2018 |
| Cash flow from operating activities: | | | |
| Net loss | $ | (33,511 | ) | | $ | (19,035 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
| Depreciation, depletion, amortization and accretion | 110,982 |
| | 98,562 |
|
| Share-based compensation expense | 10,605 |
| | 14,190 |
|
| Net gain on asset disposals | (3,937 | ) | | (7,508 | ) |
| Non-cash loss on debt financings | 2,850 |
| | — |
|
| Change in deferred tax asset, net | (12,550 | ) | | (6,934 | ) |
| Other | (120 | ) | | 162 |
|
| (Increase) decrease in operating assets, net of acquisitions and dispositions: | | | |
| Accounts receivable, net | (79,320 | ) | | (57,763 | ) |
| Inventories | 5,208 |
| | (44,428 | ) |
| Costs and estimated earnings in excess of billings | (26,715 | ) | | (34,525 | ) |
| Other current assets | 3,585 |
| | (1,766 | ) |
| Other assets | 4,374 |
| | 780 |
|
| (Decrease) increase in operating liabilities, net of acquisitions and dispositions: | | | |
| Accounts payable | 29,898 |
| | 23,912 |
|
| Accrued expenses | 9,395 |
| | 1,674 |
|
| Billings in excess of costs and estimated earnings | (1,138 | ) | | (2,187 | ) |
| Tax receivable agreement liability | 59 |
| | 1,688 |
|
| Other liabilities | (3,717 | ) | | (540 | ) |
| Net cash provided by (used in) operating activities | 15,948 |
| | (33,718 | ) |
| Cash flow from investing activities: | | | |
| Acquisitions, net of cash acquired | (2,842 | ) | | (153,196 | ) |
| Purchases of property, plant and equipment | (105,569 | ) | | (131,657 | ) |
| Proceeds from the sale of property, plant and equipment | 8,005 |
| | 14,110 |
|
| Other | (439 | ) | | 684 |
|
| Net cash used for investing activities | (100,845 | ) | | (270,059 | ) |
| Cash flow from financing activities: | | | |
| Proceeds from debt issuances | 300,000 |
| | — |
|
| Debt issuance costs | (6,246 | ) | | (550 | ) |
| Payments on debt | (261,025 | ) | | (10,772 | ) |
| Payments on acquisition-related liabilities | (9,158 | ) | | (31,224 | ) |
| Distributions from partnership | — |
| | (69 | ) |
| Proceeds from stock option exercises | 784 |
| | 15,615 |
|
| Other | (502 | ) | | (1,904 | ) |
| Net cash provided by (used in) financing activities | 23,853 |
| | (28,904 | ) |
| Impact of foreign currency on cash | 194 |
| | (471 | ) |
| Net decrease in cash | (60,850 | ) | | (333,152 | ) |
| Cash and cash equivalents—beginning of period | 128,508 |
| | 383,556 |
|
| Cash and cash equivalents—end of period | $ | 67,658 |
| | $ | 50,404 |
|
See notes to unaudited consolidated financial statements.
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 | | (Loss) Income | | Shares | | Dollars | | Shares | | Dollars | | Capital | | Summit Holdings | | Equity |
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) | | | 76,608 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,474 | | | 79,055 |
Issuance of Class A Shares | | | — | | | — | | | — | | | 10,000,000 | | | 100 | | | — | | | — | | | 238,367 | | | (1,496) | | | 236,971 |
LP Unit exchanges | | | — | | | — | | | — | | | 1,255,266 | | | 12 | | | — | | | — | | | 3,379 | | | (3,391) | | | — |
Other comprehensive income | | | — | | | — | | | 8,937 | | | — | | | — | | | — | | | — | | | — | | | 358 | | | 9,295 |
Share-based compensation | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 14,148 | | | — | | | 14,148 |
Distributions from partnership | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (109) | | | (109) |
Other | | | — | | | — | | | — | | | 1,177,200 | | | 12 | | | — | | | — | | | 17,953 | | | — | | | 17,965 |
Balance — September 30, 2017 | | $ | 1,351 | | $ | 95,636 | | $ | 6,688 | | | 108,465,688 | | $ | 1,085 | | | 100 | | $ | — | | $ | 1,098,151 | | $ | 14,453 | | $ | 1,217,364 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Summit Materials, Inc. | | |
| | | | Accumulated | | | | | | | | | | | | | | |
| | | | Other | | Class A | | Class B | | Additional | | Noncontrolling | | Total |
| | Accumulated | | Comprehensive | | Common Stock | | Common Stock | | Paid-in | | Interest in | | Stockholders’ |
| | Earnings | | income | | Shares | | Dollars | | Shares | | Dollars | | Capital | | Summit Holdings | | Equity |
| Balance - December 29, 2018 | $ | 129,739 |
| | $ | 2,681 |
| | 111,658,927 |
| | $ | 1,117 |
| | 99 |
| | $ | — |
| | $ | 1,194,204 |
| | $ | 14,404 |
| | $ | 1,342,145 |
|
| Net loss | (68,772 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,729 | ) | | (71,501 | ) |
| LP Unit exchanges | — |
| | — |
| | 17,500 |
| | — |
| | — |
| | — |
| | 122 |
| | (122 | ) | | — |
|
| Other comprehensive income, net of tax | — |
| | 1,584 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 66 |
| | 1,650 |
|
| Stock option exercises | — |
| | — |
| | 43,142 |
| | 1 |
| | — |
| | — |
| | 766 |
| | — |
| | 767 |
|
| Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,906 |
| | — |
| | 5,906 |
|
| Shares redeemed to settle taxes and other | — |
| | — |
| | 347,962 |
| | 3 |
| | — |
| | — |
| | (495 | ) | | — |
| | (492 | ) |
| Balance — March 30, 2019 | $ | 60,967 |
| | $ | 4,265 |
| | 112,067,531 |
| | $ | 1,121 |
| | 99 |
| | $ | — |
| | $ | 1,200,503 |
| | $ | 11,619 |
| | $ | 1,278,475 |
|
| Net income | 36,410 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,580 |
| | 37,990 |
|
| Other comprehensive income, net of tax | — |
| | 1,526 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62 |
| | 1,588 |
|
| Stock option exercises | — |
| | — |
| | 1,019 |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | 17 |
|
| Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,699 |
| | — |
| | 4,699 |
|
| Shares redeemed to settle taxes and other | — |
| | — |
| | 4,944 |
| | 1 |
| | — |
| | — |
| | 2 |
| | (1 | ) | | 2 |
|
| Balance - June 29, 2019 | $ | 97,377 |
| | $ | 5,791 |
| | 112,073,494 |
| | $ | 1,122 |
| | 99 |
| | $ | — |
| | $ | 1,205,221 |
| | $ | 13,260 |
| | $ | 1,322,771 |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Balance — December 30, 2017 | $ | 95,833 |
| | $ | 7,386 |
| | 110,350,594 |
| | $ | 1,104 |
| | 100 |
| | $ | — |
| | $ | 1,154,220 |
| | $ | 13,178 |
| | $ | 1,271,721 |
|
| Net loss | (53,729 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,219 | ) | | (55,948 | ) |
| LP Unit exchanges | — |
| | | | 104,104 |
| | 1 |
| | — |
| | — |
| | 485 |
| | (486 | ) | | — |
|
| Other comprehensive loss, net of tax | — |
| | (2,563 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (66 | ) | | (2,629 | ) |
| Stock option exercises | — |
| | — |
| | 856,915 |
| | 9 |
| | — |
| | — |
| | 15,468 |
| | — |
| | 15,477 |
|
| Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,507 |
| | — |
| | 8,507 |
|
| Distributions from partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
| Shares redeemed to settle taxes and other | — |
| | — |
| | 176,960 |
| | 2 |
| | — |
| | — |
| | (1,774 | ) | | — |
| | (1,772 | ) |
| Balance — March 31, 2018 | $ | 42,104 |
| | $ | 4,823 |
| | 111,488,573 |
| | $ | 1,116 |
| | 100 |
| | $ | — |
| | $ | 1,176,906 |
| | $ | 10,398 |
| | $ | 1,235,347 |
|
| Net income | 35,509 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,404 |
| | 36,913 |
|
| LP Unit exchanges | — |
| | — |
| | 125,554 |
| | 1 |
| | — |
| | — |
| | 365 |
| | (366 | ) | | — |
|
| Other comprehensive loss, net of tax | — |
| | (178 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (51 | ) | | (229 | ) |
| Stock option exercises | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 139 |
| | — |
| | 139 |
|
| Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,683 |
| | — |
| | 5,683 |
|
| Distributions from partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60 | ) | | (60 | ) |
| Shares redeemed to settle taxes and other | — |
| | — |
| | 15,111 |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
| Balance — June 30, 2018 | $ | 77,613 |
| | $ | 4,645 |
| | 111,629,238 |
| | $ | 1,117 |
| | 100 |
| | $ | — |
| | $ | 1,183,071 |
| | $ | 11,325 |
| | $ | 1,277,771 |
|
See notes to unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(
TablesDollars in tables in thousands, except
per share
amounts)1.SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
amounts or otherwise noted)
| |
| 1. | SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Summit Materials, Inc. (“Summit Inc.” and, together with its subsidiaries,
“Summit,” “we,” “us,” “our” or 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
construction materials, 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,
weather 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
Materials Holdings
L.P. (“Summit Holdings”) and its subsidiaries and, through Summit Holdings, conducts its business.
Equity Offering—On January 10, 2017, Summit Inc. raised $237.6 million, netowns the majority 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 limited partnership interests inof Summit Holdings (see Note 9, Stockholders’ Equity). Summit Materials, LLC (“LP Units”Summit LLC”) and causedan indirect wholly owned subsidiary of Summit Holdings, to use a portionconducts the majority of the proceeds from the offering to acquire two materials-based companies for a combined purchase priceour operations. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of approximately $110 million in cash, with remaining net proceeds to be used for general corporate purposes, which may include, but is not limited to, funding acquisitions, repaying indebtedness, capital expenditures and funding working capital.
Summit LLC, has jointly issued our Senior Notes as described below.
Basis of Presentation—These unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2016.29, 2018. The Company continues to follow the accounting policies set forth in those audited consolidated financial statements. Management believes that these consolidated interim financial statements include all adjustments, normal and recurring in nature, that are necessary to present fairly the financial position of the Company as of
September 30, 2017,June 29, 2019, the results of operations for the three and
ninesix months ended
SeptemberJune 29, 2019 and June 30,
2017 and October 1, 20162018 and cash flows for the
ninesix months ended
SeptemberJune 29, 2019 and June 30,
2017 and October 1, 2016.2018.
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,reorganization into a holding company structure (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. During 2016 and 2017, certain limited partnersthe changes in Summit Inc.’s ownership 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 — December 31, 2016 | | 96,033,222 | | 5,151,297 | | 101,184,519 | | 94.9 | % |
January 2017 public offering | | 10,000,000 | | - | | 10,000,000 | | | |
Exchanges during period | | 236,095 | | (236,095) | | - | | | |
Other equity transactions | | 134,423 | | - | | 134,423 | | | |
Balance — April 1, 2017 | | 106,403,740 | | 4,915,202 | | 111,318,942 | | 95.6 | % |
Exchanges during period | | 778,064 | | (778,064) | | - | | | |
Other equity transactions | | 310,175 | | - | | 310,175 | | | |
Balance — July 1, 2017 | | 107,491,979 | | 4,137,138 | | 111,629,117 | | 96.3 | % |
Exchanges during period | | 241,107 | | (241,107) | | - | | | |
Other equity transactions | | 732,602 | | - | | 732,602 | | | |
Balance — September 30, 2017 | | 108,465,688 | | 3,896,031 | | 112,361,719 | | 96.5 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance — January 2, 2016 (1) | | 50,881,636 | | 50,275,825 | | 101,157,461 | | 50.3 | % |
Issuance of Class A shares | | 1,038 | | - | | 1,038 | | | |
Balance — April 2, 2016 | | 50,882,674 | | 50,275,825 | | 101,158,499 | | 50.3 | % |
Exchanges during period | | 13,177,754 | | (13,177,754) | | - | | | |
Other equity transactions | | 6,250 | | - | | 6,250 | | | |
Balance — July 2, 2016 | | 64,066,678 | | 37,098,071 | | 101,164,749 | | 63.3 | % |
Exchanges during period | | 12,634,500 | | (12,634,500) | | - | | | |
Other equity transactions | | 833 | | - | | 833 | | | |
Balance — October 1, 2016 | | 76,702,011 | | 24,463,571 | | 101,165,582 | | 75.8 | % |
| (1)
| | The January 2, 2016 balance of Summit Inc. Class A Shares of 50,881,636 is shown to reflect the retroactive application of 1,135,692 of Class A common stock issued as a stock dividend on December 28, 2016.
|
As a result of the Reorganization, 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 3.5% and 5.1% as of September 30, 2017 and December 31, 2016, respectively.
Noncontrolling interests in consolidated subsidiaries represent a 20% ownership in Ohio Valley Asphalt, LLC. 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. In October 2017, the Company acquired the 20% of Ohio Valley Asphalt, LLC held by noncontrolling interests, making it a wholly owned subsidiary.
Use of Estimates—Preparation of these consolidated financial statements in conformity with 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 Utah 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 thosethe 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 the three and ninesix months ended SeptemberJune 29, 2019 or June 30, 20172018.
Revenue Recognition—We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and October 1, 2016.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 and when control passes, which generally is when the product is shipped.
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.
Revenue derived from paving and related services is recognized using the percentage of completion method, which approximates progress towards completion. Under the percentage 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 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 three and six months ended June 29, 2019.
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.
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. Tax Receivable Agreement—Agreement— When the Company purchases Class A limited partnership units of Summit Holdings (“LP Units for cash or LP UnitsUnits”) are exchanged for shares of Class A common stock of Summit Inc. or Summit Inc. purchases LP Units for cash, this results in increases in the Company’sSummit 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 us.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. On March 11, 2015,Prior to our initial public offering (“IPO”), we entered into a tax receivable agreement (“TRA”)TRA with the pre-IPO owners that requires us to pay the pre-IPO owners or their permitted assignees 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize (or,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)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.On a quarterly basis, we
We periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common
stock occurring during the period. 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.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
ofequal to 85% of
such deferred tax assets, and the remaining 15% as an increase to additional paid-in capital. If a deferred tax asset subject to the TRA is determined not to be realizable and therefore subject to a valuation allowance, we do not record a TRA liability for such deferred tax assets. In subsequent periods, we assess the realizability of all of our
deferred tax assets, including the 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
thea pre-IPO
ownersowner has become probable and can be estimated, the estimate of payment will be accrued.
Reclassification — As of September 30, 2017, we reclassified $4.3 million from other assets to deferred tax assets, net in the December 31, 2016 consolidated balance sheet to conform to the current presentation. Further, we reclassified $58.1 million from other non-current liabilities to tax receivable agreement liability in the December 31, 2016 consolidated balance sheet to conform to the current presentation.
New Accounting Standards —In March 2017,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostNo. 2016-02, Leases (Topic 842), which requires thatlessees to recognize most leases on the service cost component be reported inbalance sheet. Lessees are required to disclose more quantitative and qualitative information about the same line item as employer compensation costs and that the other components of periodic pension costs be reported outside of operating income.leases than current U.S. GAAP requires. The ASU also restricts capitalization of costs to the service cost component. The
ASU isand subsequent amendments issued in 2018 are effective for public companiesentities for annualfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. 2018. We adopted the standard effective December 30, 2018 using the modified retrospective approach.
The Company early adopted this ASU asmodified retrospective approach provides a method for recording existing leases at adoption. In addition, we elected the package of practical expedients permitted under the beginningtransition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. In addition, we elected the hindsight practical expedient to determine the lease term for existing leases.
The most significant impact upon adoption was the recognition of
fiscal year 2017,$36.8 million of operating lease right-of-use assets and $36.8 million operating lease liabilities. The standard had no material impact on
a retrospective basis; accordingly, the Company reclassified $59,000 and $219,000 from product costour statement of
revenue to other income in the three and nine months ended October 1, 2016, respectively, and $98,000 and $252,000 from general and administrative expenses to other income in the three and nine months ended October 1, 2016, respectively, to conform to the current year presentation.cash flows.
In
JanuaryAugust 2017, the FASB issued ASU
2017-04, Simplifying the TestNo. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Goodwill Impairment, which eliminates the two step goodwill impairment testHedging Activities, allowing more financial and replaces it with a single step test. The single step test compares the carrying amount of a reporting unitnonfinancial hedging strategies 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 to do a qualitative assessment are still permitted to do so.be eligible for hedge accounting. The ASU is effective for SEC filers for fiscal years beginning after December 15, 2020. However, the Company early adopted this ASU as of the beginning of2018 and interim periods within those fiscal year 2017.years. The adoption of this new ASU did not have a material impact on theour consolidated financial statements.results.
In
March 2016,June 2018, the FASB issued ASU
2016-09,No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to EmployeeNonemployee Share-Based Payment Accounting, which requires thatincreasing the income tax effectscope of Topic 718 to include share-based awards be recognized in the income statementpayment transactions for acquiring goods and allows entities to elect an accounting method to recognize forfeitures as they occur or to estimate forfeitures. The Company early adopted this ASU as of the beginning of fiscal year 2016 and made an election to recognize forfeitures as they occur.services from nonemployees. The ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The adoption was applied usingof this new ASU did not have a modified retrospective method by means of a $1.7 million cumulative-effect adjustment to accumulated earnings (deficit) as of the beginning of the 2016 fiscal year.2.ACQUISITIONS
material impact on our consolidated financial results.
| |
| 2. | GOODWILL AND INTANGIBLES |
The Company has completed numerous acquisitions since its
formation.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 acquisitions completed in the nine months ended September 30, 2017 and in fiscal 2016 were not material individually, or when combined:West segment:
| ·
| | On August 20, 2017, the Company acquired Alan Ritchey Materials Company, L.C. (“Alan Ritchey”), a large aggregates business servicing the Dallas-Fort Worth market.
|
| ·
| | On August 1, 2017, the Company acquired Northwest Ready Mix, Inc. and Northwest Aggregates, Inc. (“Northwest”), a ready-mix and aggregates-based business with three ready-mix plants and one sand and gravel pit, servicing the northwest region of Colorado.
|
| ·
| | On July 31, 2017, the Company acquired Great Southern Ready Mix, LLC, Great Southern Stabilized, LLC and Southern Cement Slurry, LLC (“Great Southern”), a primarily ready-mix concrete business with two plants servicing the Houston, Texas market.
|
| ·
| | On May 1, 2017, the Company acquired Winvan Paving, Ltd. (“Winvan Paving”), a paving and construction services company based in Vancouver, British Columbia.
|
| ·
| | On April 3, 2017, the Company acquired Hanna’s Bend Aggregate, Ltd. (“Hanna’s Bend”), an aggregates-based business with one sand and gravel pit servicing the Houston, Texas market.
|
| ·
| | On January 30, 2017, the Company acquired Everist Materials, LLC (“Everist Materials”), a vertically integrated aggregates, ready-mix concrete, and paving business based in Silverthorne, Colorado, with two aggregates plants, five ready-mix plants and two asphalt plants.
|
| ·
| | On October 3, 2016, the Company acquired Midland Concrete Ltd. (“Midland Concrete”), a ready-mix company with one plant servicing the Midland, Texas market.
|
| ·
| | On August 19, 2016, the Company acquired H.C. Rustin Corporation (“Rustin”), a ready-mix company with 12 ready-mix plants servicing the Southern Oklahoma market.
|
| ·
| | On April 29, 2016, the Company acquired Sierra Ready Mix, LLC (“Sierra”), a vertically integrated aggregates and ready-mix concrete business with one sand and gravel pit and two ready-mix concrete plants located in Las Vegas, Nevada.
|
East segment:
| ·
| | On September 6, 2017, the Company acquired CSS Conversion Holdco, Inc., CA Conversion Holdco, LLC, Columbia Silica Sand, Inc. and Columbia Aggregates, LLC (“Columbia Silica”), an aggregates business with four pits in central South Carolina.
|
| ·
| | On August 3, 2017, the Company acquired Georgia Stone Products, LLC (“Georgia Stone”), an aggregates business with two quarries servicing northern Georgia.
|
| ·
| | On July 28, 2017, the Company acquired Ready Mix Concrete of Somerset, Inc. and RMCS Holdings, Inc. (“Somerset”), a ready-mix company with ten plants in southeast Kentucky.
|
| ·
| | On May 12, 2017, the Company acquired Glasscock Company, Inc. and Glasscock Logistics Company, LLC (“Glasscock”), a vertically integrated sand, ready-mix, recycle and trucking business based in Sumter, South Carolina.
|
| ·
| | On April 3, 2017, the Company acquired Carolina Sand, LLC (“Carolina Sand”), a sand and trucking business with four sand pits in northeastern South Carolina.
|
| ·
| | On March 17, 2017, the Company acquired Sandidge Concrete (“Sandidge”), a ready-mix concrete company with three plants servicing the Columbia, Missouri market.
|
| ·
| | On February 24, 2017, the Company acquired Razorback Concrete Company (“Razorback”), an aggregates-based business with ready-mix concrete operations in central and northeastern Arkansas.
|
| ·
| | On August 26, 2016, the Company acquired R.D. Johnson Excavating Company, LLC and Asphalt Sales of Lawrence, LLC (“RD Johnson”), an asphalt producer and construction services company based in Lawrence, Kansas.
|
| ·
| | On August 8, 2016, the Company acquired the assets of Weldon Real Estate, LLC (“Weldon”) and the membership interests of Honey Creek Disposal Service, LLC. (‘‘Honey Creek’’). Honey Creek is a trash collection business, which was sold immediately after acquisition. The Company retained the building assets of Weldon, where its recycling business in Kansas is operated.
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| ·
| | On May 20, 2016, the Company acquired seven aggregates quarries in central and northwest Missouri from APAC-Kansas, Inc. and APAC-Missouri, Inc., subsidiaries of Oldcastle Materials, Inc. (“Oldcastle Assets”).
|
| ·
| | On March 18, 2016, the Company acquired Boxley Materials Company (“Boxley”), a vertically integrated company based in Roanoke, Virginia with six quarries, four ready-mix concrete plants and four asphalt plants.
|
| ·
| | On February 5, 2016, the Company acquired American Materials Company (“AMC”), an aggregates company with five sand and gravel pits servicing coastal North and South Carolina.
|
Cement segment:
| ·
| | On August 30, 2016, the Company acquired two river-supplied cement and fly-ash distribution terminals in Southern Louisiana.
|
The purchase price allocation, primarily the valuation of property, plant and equipment for the 2017 acquisitions, as well as the 2016 acquisitions that occurred after September 30, 2016, has not yet been finalized due to the timing of the acquisitions. The following table summarizes aggregated information regarding the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:
| | | | | | |
| | Nine months ended | | Year ended |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
| | | | | | |
Financial assets (1) | | $ | 31,895 | | $ | 22,204 |
Inventories | | | 11,315 | | | 17,215 |
Property, plant and equipment | | | 159,154 | | | 180,321 |
Intangible assets | | | — | | | 5,531 |
Other assets | | | 5,321 | | | 6,757 |
Financial liabilities (1) | | | (16,422) | | | (20,248) |
Other long-term liabilities | | | (17,806) | | | (36,074) |
Net assets acquired | | | 173,457 | | | 175,706 |
Goodwill | | | 222,451 | | | 176,319 |
Purchase price | | | 395,908 | | | 352,025 |
Acquisition related liabilities | | | (23,238) | | | (17,034) |
Other | | | (1,191) | | | 1,967 |
Net cash paid for acquisitions | | $ | 371,479 | | $ | 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.
|
Changes in the carrying amount of goodwill, by reportable segment, from December 31, 201629, 2018 to September 30, 2017June 29, 2019 are summarized as follows:
| | | | | | | | | | | | |
| | West | | East | | Cement | | Total |
Balance, December 31, 2016 | | $ | 334,257 | | $ | 243,417 | | $ | 204,538 | | $ | 782,212 |
Acquisitions (1) | | | 169,317 | | | 56,602 | | | 118 | | | 226,037 |
Foreign currency translation adjustments | | | 4,522 | | | — | | | — | | | 4,522 |
Balance, September 30, 2017 | | $ | 508,096 | | $ | 300,019 | | $ | 204,656 | | $ | 1,012,771 |
| | | | | | | | | | | | |
Accumulated impairment losses as of September 30, 2017 and December 31, 2016 | | $ | (53,264) | | $ | (14,938) | | $ | — | | $ | (68,202) |
|
| | | | | | | | | | | | | | | |
| | West | | East | | Cement | | Total |
| Balance, December 29, 2018 | $ | 580,567 |
| | $ | 406,805 |
| | $ | 204,656 |
| | $ | 1,192,028 |
|
| Acquisitions (1) | 1,173 |
| | 2,621 |
| | — |
| | 3,794 |
|
| Foreign currency translation adjustments | 2,355 |
| | — |
| | — |
| | 2,355 |
|
| Balance, June 29, 2019 | $ | 584,095 |
| | $ | 409,426 |
| | $ | 204,656 |
| | $ | 1,198,177 |
|
| |
| (1) | | Reflects goodwill from 20172019 acquisitions and working capital adjustments from prior year acquisitions. |
The Company’s intangible assets are primarily composed of goodwill,
mineral lease agreements and reserve rights. The assets related to
mineral 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. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but does 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:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Gross | | | | | Net | | Gross | | | | | Net |
| | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying |
| | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
Leases | | $ | 15,888 | | $ | (3,963) | | $ | 11,925 | | $ | 15,888 | | $ | (3,382) | | $ | 12,506 |
Reserve rights | | | 6,234 | | | (1,550) | | | 4,684 | | | 8,706 | | | (3,710) | | | 4,996 |
Trade names | | | 1,000 | | | (733) | | | 267 | | | 1,000 | | | (658) | | | 342 |
Other | | | 249 | | | (130) | | | 119 | | | 249 | | | (104) | | | 145 |
Total intangible assets | | $ | 23,371 | | $ | (6,376) | | $ | 16,995 | | $ | 25,843 | | $ | (7,854) | | $ | 17,989 |
Table of Contents
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| | | | | | | | | | | | | | | | | | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Mineral leases | $ | 19,064 |
| | $ | (5,835 | ) | | $ | 13,229 |
| | $ | 19,064 |
| | $ | (5,259 | ) | | $ | 13,805 |
|
| Reserve rights | 6,234 |
| | (2,098 | ) | | 4,136 |
| | 6,234 |
| | (1,940 | ) | | 4,294 |
|
| Trade names | 1,000 |
| | (908 | ) | | 92 |
| | 1,000 |
| | (858 | ) | | 142 |
|
| Other | 409 |
| | (213 | ) | | 196 |
| | 409 |
| | (190 | ) | | 219 |
|
| Total intangible assets | $ | 26,707 |
| | $ | (9,054 | ) | | $ | 17,653 |
| | $ | 26,707 |
| | $ | (8,247 | ) | | $ | 18,460 |
|
Amortization expense totaled
$0.3$0.4 million and
$1.0$0.8 million for the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively, and
$0.6$0.3 million and
$2.1$0.6 million for the three and
ninesix months
ended October 1, 2016,June 30, 2018, respectively. The estimated amortization expense for the intangible assets for each of the five years subsequent to
September 30, 2017June 29, 2019 is as follows:
| | | | |
2017 (three months) | | $ | 321 | |
2018 | | | 1,265 | |
2019 | | | 1,259 | |
| | 2019 (six months) | | $ | 791 |
|
2020 | | | 1,176 | 1,510 |
|
2021 | | | 1,134 | 1,475 |
|
2022 | | | 1,104 | 1,482 |
|
| 2023 | | 1,349 |
|
| 2024 | | 1,254 |
|
Thereafter | | | 10,736 | 9,792 |
|
Total | | $ | 16,995 | $ | 17,653 |
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3.ACCOUNTS RECEIVABLE, NET
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 three and six months ended June 29, 2019 and June 30, 2018 is as follows:
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Revenue by product*: | | | | | | | |
| Aggregates | $ | 128,650 |
| | $ | 103,690 |
| | $ | 216,522 |
| | $ | 171,140 |
|
| Cement | 77,799 |
| | 76,413 |
| | 110,298 |
| | 109,530 |
|
| Ready-mix concrete | 154,180 |
| | 160,609 |
| | 271,500 |
| | 282,624 |
|
| Asphalt | 93,365 |
| | 88,372 |
| | 116,403 |
| | 106,513 |
|
| Paving and related services | 95,304 |
| | 107,306 |
| | 129,649 |
| | 141,642 |
|
| Other | 51,593 |
| | 64,500 |
| | 89,158 |
| | 103,862 |
|
| Total revenue | $ | 600,891 |
| | $ | 600,890 |
| | $ | 933,530 |
| | $ | 915,311 |
|
*Revenue from liquid asphalt terminals is included in asphalt revenue.
The following table outlines the significant changes in contract assets and contract liability balances from December 29, 2018 to June 29, 2019. Also included in the table is the net change in estimate as a percentage of aggregate revenue for such contracts:
|
| | | | | | | |
| | Costs and estimated earnings in excess of billings | | Billings in excess of costs and estimated earnings |
| Balance - December 29, 2018 | $ | 18,602 |
| | $ | 11,840 |
|
| Changes in revenue billed, contract price or cost estimates | 26,715 |
| | (1,138 | ) |
| Other | 54 |
| | 31 |
|
| Balance - June 29, 2019 | $ | 45,371 |
| | $ | 10,733 |
|
Accounts receivable, net consisted of the following as of
September 30, 2017June 29, 2019 and December
31, 2016:29, 2018: | | | | | | | |
| | September 30, | | December 31, | | | | | |
| | 2017 | | 2016 | June 29, 2019 | | December 29, 2018 |
Trade accounts receivable | | $ | 285,062 | | $ | 152,845 | $ | 232,597 |
| | $ | 157,601 |
|
| Construction contract receivables | | 52,536 |
| | 47,994 |
|
Retention receivables | | | 13,536 | | | 12,117 | 14,573 |
| | 15,010 |
|
Receivables from related parties | | | 348 | | | 721 | 1,198 |
| | 629 |
|
Accounts receivable | | | 298,946 | | | 165,683 | 300,904 |
| | 221,234 |
|
Less: Allowance for doubtful accounts | | | (3,455) | | | (3,306) | (6,300 | ) | | (6,716 | ) |
Accounts receivable, net | | $ | 295,491 | | $ | 162,377 | $ | 294,604 |
| | $ | 214,518 |
|
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.
4.INVENTORIES
Inventories consisted of the following as of
September 30, 2017June 29, 2019 and December
31, 2016: | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Aggregate stockpiles | | $ | 122,508 | | $ | 103,073 |
Finished goods | | | 34,269 | | | 35,071 |
Work in process | | | 7,685 | | | 6,440 |
Raw materials | | | 17,322 | | | 13,095 |
Total | | $ | 181,784 | | $ | 157,679 |
Table of Contents
|
| | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| Aggregate stockpiles | $ | 146,264 |
| | $ | 151,300 |
|
| Finished goods | 29,272 |
| | 34,993 |
|
| Work in process | 7,754 |
| | 7,478 |
|
| Raw materials | 24,846 |
| | 20,080 |
|
| Total | $ | 208,136 |
| | $ | 213,851 |
|
Accrued expenses consisted of the following as of
September 30, 2017June 29, 2019 and December
31, 2016: | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Interest | | $ | 23,307 | | $ | 22,991 |
Payroll and benefits | | | 32,945 | | | 30,546 |
Capital lease obligations | | | 20,454 | | | 11,766 |
Insurance | | | 13,863 | | | 11,966 |
Non-income taxes | | | 12,366 | | | 5,491 |
Professional fees | | | 2,659 | | | 2,459 |
Other (1) | | | 24,908 | | | 26,386 |
Total | | $ | 130,502 | | $ | 111,605 |
|
| | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| Interest | $ | 25,326 |
| | $ | 26,223 |
|
| Payroll and benefits | 22,482 |
| | 15,952 |
|
| Finance lease obligations | 17,805 |
| | 15,557 |
|
| Insurance | 15,807 |
| | 13,625 |
|
| Non-income taxes | 13,075 |
| | 7,442 |
|
| Professional fees | 1,482 |
| | 1,408 |
|
| Other (1) | 18,019 |
| | 20,284 |
|
| Total | $ | 113,996 |
| | $ | 100,491 |
|
| |
| (1) | | Consists primarily of subcontractor and working capital settlement accruals. |
6.DEBT
Debt consisted of the following as of
September 30, 2017June 29, 2019 and December
31, 2016:29, 2018: | | | | | | | |
| | September 30, | | December 31, | | | | | |
| | 2017 | | 2016 | June 29, 2019 | | December 29, 2018 |
Term Loan, due 2022: | | | | | | | |
$635.4 million and $640.3 million, net of $2.2 million and $2.6 million discount at September 30, 2017 and December 31, 2016, respectively | | $ | 633,165 | | $ | 637,658 | |
| Term Loan, due 2024: | | | | |
| $625.8 million and $630.6 million, net of $1.2 million and $1.3 million discount at June 29, 2019 and December 29, 2018, respectively | | $ | 624,615 |
| | $ | 629,268 |
|
81⁄2% Senior Notes, due 2022 | | | 250,000 | | | 250,000 | — |
| | 250,000 |
|
61⁄8% Senior Notes, due 2023: | | | | | | | | | |
$650.0 million, net of $1.4 million and $1.6 million discount at September 30, 2017 and December 31, 2016, respectively | | | 648,589 | | | 648,407 | |
| $650.0 million, net of $1.0 million and $1.1 million discount at June 29, 2019 and December 29, 2018, respectively | | 649,012 |
| | 648,891 |
|
51⁄8% Senior Notes, due 2025 | | | 300,000 | | | — | 300,000 |
| | 300,000 |
|
61⁄2% Senior Notes, due 2027 | | 300,000 |
| | — |
|
Total | | | 1,831,754 | | | 1,536,065 | 1,873,627 |
| | 1,828,159 |
|
Current portion of long-term debt | | | 6,500 | | | 6,500 | 4,765 |
| | 6,354 |
|
Long-term debt | | $ | 1,825,254 | | $ | 1,529,565 | $ | 1,868,862 |
| | $ | 1,821,805 |
|
The contractual payments of long-term debt, including current maturities, for the five years subsequent to
September 30, 2017,June 29, 2019, are as follows:
| | | |
2017 (three months) | | $ | 1,625 |
2018 | | | 4,875 |
2019 | | | 6,500 |
2020 | | | 8,125 |
2021 | | | 6,500 |
2022 | | | 857,750 |
Thereafter | | | 950,000 |
Total | | | 1,835,375 |
Less: Original issue net discount | | | (3,621) |
Less: Capitalized loan costs | | | (18,190) |
Total debt | | $ | 1,813,564 |
|
| | | |
| 2019 (six months) | $ | 1,588 |
|
| 2020 | 7,942 |
|
| 2021 | 6,354 |
|
| 2022 | 6,354 |
|
| 2023 | 656,354 |
|
| 2024 | 597,252 |
|
| Thereafter | 600,000 |
|
| Total | 1,875,844 |
|
| Less: Original issue net discount | (2,217 | ) |
| Less: Capitalized loan costs | (14,673 | ) |
| Total debt | $ | 1,858,954 |
|
Senior Notes—On June 1, 2017,March 15, 2019, Summit LLC and Summit Materials Finance Corp., an indirect wholly-owned subsidiary of Summit LLC ("Finance Corp." and with Summit LLC,(together, the “Issuers”) issued $300.0 million in aggregate principal amount of 5.125%6.500% senior notes due June 1, 2025March 15, 2027 (the “2025“2027 Notes”). The 20252027 Notes were issued at 100.0% of their par value with proceeds of $295.4$296.3 million, net of related fees and expenses. Proceeds from the sale of the 2025 Notes are intended to be used for acquisitions and to pay fees and expenses incurred in connection with any such acquisitions and the offering, with any remaining net proceeds to be used for general corporate purposes, which may include repaying indebtedness, capital expenditures and funding working capital. The 20252027 Notes were issued
under an indenture dated June 1, 2017 (as amended and supplemented, the “2017 Indenture”March 25, 2019 (the "2019 Indenture"). The 20172019 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 interinto certain transactions with affiliates, and designate subsidiaries as unrestricted subsidiaries. The 20172019 Indenture also contains customary events of default. Interest on the 2027 Notes is payable semi-annually on March 15 and September 15 of each year commencing on September 15, 2019.
In March 2019, using the proceeds from the 2027 Notes, all of the outstanding $250.0 million 8.500% senior notes due 2022 (the “2022 Notes”) were redeemed at a price equal to par plus an applicable premium and the indenture under which the 2022 Notes were issued was satisfied and discharged. As a result of the extinguishment, charges of $14.6 million were recognized in the quarter ended March 30, 2019, which included charges of $11.7 million for the applicable redemption premium and $2.9 million for the write-off of deferred financing fees.
In 2017, the Issuers issued $300.0 million of 5.125% senior notes due June 1, 2025 (the “2025 Notes”). The 2025 Notes were issued at 100.0% 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, the terms of which are generally consistent with the 2019 Indenture. 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 of 8.500% senior notes due April 15, 2022 (the “2022 Notes”). The 2022 Notes were issued at 100.0% 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, replenish cash used for the acquisition of AMC 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 million of 6.125% senior notes due July 2023 (the
"2023“2023 Notes” and collectively with the
20222025 Notes and the
20252027 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
20172019 Indenture. Interest on the 2023 Notes is payable semi-annually in arrears on January 15 and July 15 of each year.
As of
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, 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$345.0 million (the “Senior Secured Credit Facilities”). Under the Senior Secured Credit Facilities, required principal repayments of 0.25% of the originalrefinanced aggregate amount of term debt are due on the last business day of each March, June, September and December.December commencing with the March 2018 payment. The unpaid principal balance is due in full on the maturity date, which is July 17, 2022.November 21, 2024.
On
January 19, 2017,February 25, 2019, Summit LLC entered into
Incremental Amendment No.
1 (“Amendment No. 1”)4 to the credit agreement governing the Senior Secured Credit Facilities (the “Credit Agreement”)
, which, among other things, increased the total amount available under the revolving credit facility to $345.0 million and extended the maturity date of the Credit Agreement to February 2024. During 2018 and 2017, Summit LLC entered into three different amendments to the Credit Agreement, which among other things, reduced the applicable margin in respect
of thento the outstanding
$640.3 million principal amount
at the time 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.respective amendments.
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%2.00% 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%3.00% for LIBOR rate loans.
There were no outstanding borrowings under the revolving credit facility as of
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, leaving remaining borrowing capacity of
$218.9$329.8 million as of
September 30, 2017,June 29, 2019, which is net of
$16.1$15.2 million of outstanding letters of credit. The outstanding letters of credit are renewed annually and support required bonding on construction projects,
large leases, workers compensation claims 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
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, Summit LLC was in compliance with all financial covenants.
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 ninesix months ended SeptemberJune 29, 2019 and June 30, 2017 and October 1, 2016:
2018: | | | | |
| | Deferred financing fees | | | |
Balance—December 31, 2016 | | $ | 18,290 | |
| | | Deferred financing fees |
| Balance—December 29, 2018 | | $ | 15,475 |
|
Loan origination fees | | | 5,317 | 6,246 |
|
Amortization | | | (2,945) | (1,832 | ) |
Write off of deferred financing fees | | | (45) | (2,851 | ) |
Balance—September 30, 2017 | | $ | 20,617 | |
| Balance—June 29, 2019 | | $ | 17,038 |
|
| | | | |
| | | | |
Balance—January 2, 2016 | | $ | 15,892 | |
| Balance - December 30, 2017 | | $ | 19,033 |
|
Loan origination fees | | | 5,675 | 550 |
|
Amortization | | | (2,503) | (2,040 | ) |
Balance—October 1, 2016 | | $ | 19,064 | |
| Balance - June 30, 2018 | | $ | 17,543 |
|
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 September 30, 2017June 29, 2019 or December 31, 2016.7.FAIR VALUE
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 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 (loss) 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 September 30, 2017 and December 31, 2016 was:
| | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Current portion of acquisition-related liabilities and Accrued expenses: | | | | | | |
Contingent consideration | | $ | 927 | | $ | 9,288 |
Cash flow hedges | | | 904 | | | 942 |
Acquisition-related liabilities and Other noncurrent liabilities | | | | | | |
Contingent consideration | | $ | 14,996 | | $ | 2,377 |
Cash flow hedges | | | 1,183 | | | 1,438 |
The fair value of contingent consideration was based on unobservable, or Level 3, inputs, including projected probability-weighted cash payments and an 11.0% 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 valuation adjustments to contingent consideration or derivatives as of September 30, 2017 and October 1, 2016.
29, 2018. 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 September 30, 2017 and December 31, 2016 was:
| | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Level 2 | | | | | | | | | | | | |
Long-term debt(1) | | $ | 1,913,052 | | $ | 1,831,754 | | $ | 1,586,102 | | $ | 1,536,065 |
| | | | | | | | | | | | |
Level 3 | | | | | | | | | | | | |
Current portion of deferred consideration and noncompete obligations(2) | | | 24,226 | | | 24,226 | | | 14,874 | | | 14,874 |
Long term portion of deferred consideration and noncompete obligations(3) | | | 21,330 | | | 21,330 | | | 30,287 | | | 30,287 |
| (1)
|
| 7. | | $6.5 million included in current portion of debt as of September 30, 2017 and December 31, 2016.
INCOME TAXES |
| (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.
8.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 — December 31, 2016 | | $ | 1,450 | | $ | (3,106) | | $ | (593) | | $ | (2,249) |
Postretirement liability adjustment | | | 397 | | | — | | | — | | | 397 |
Foreign currency translation adjustment | | | — | | | 8,172 | | | — | | | 8,172 |
Income on cash flow hedges | | | — | | | — | | | 368 | | | 368 |
Balance — September 30, 2017 | | $ | 1,847 | | $ | 5,066 | | $ | (225) | | $ | 6,688 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance — January 2, 2016 | | $ | 1,049 | | $ | (3,379) | | $ | (465) | | $ | (2,795) |
Foreign currency translation adjustment | | | — | | �� | 1,661 | | | — | | | 1,661 |
Loss on cash flow hedges | | | — | | | — | | | (1,731) | | | (1,731) |
Balance — October 1, 2016 | | $ | 1,049 | | $ | (1,718) | | $ | (2,196) | | $ | (2,865) |
9.INCOME TAXES
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 accounts.
Our income tax benefitexpense (benefit) was $483.6$16.7 million and $482.3$(11.3) million in the three and nine months ended September 30, 2017, respectively. We recorded an income tax benefit in the three months ended September 30, 2017, primarily related to the release of the valuation allowance as discussed below, partially offset by an increase in deferred tax liabilities of approximately $29.6 million. Our effective income tax rate was higher in the third quarter of 2017 as compared to the same period in 2016, primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense and depletion in excess of U.S. GAAP depletion recognized in the three and nine months ended September 30, 2017. During the three and nine months ended October 1, 2016, our income tax expense (benefit) was $1.3$12.2 million and $(7.9)$(4.5) million in the three and six months ended June 29, 2019 and June 30, 2018, respectively. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the release in valuation allowance,state taxes, (2) tax depletion expense in excess of the expense recorded under U.S. GAAP, (3) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (4) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.
The ultimate realization of deferredcosts and (5) unrecognized tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible,benefits as well as consideration of tax-planning strategies we may seek to utilize any net operating loss carryforwards scheduled to expire in the near future. In assessing the realizability of deferred tax assets, including the deferred tax assets subject to the TRA described below, management determined that it was more likely than not that a portion of the deferred tax assets would not be realized as of December 31, 2016. Given the seasonality of our business, in the nine months ended September 30, 2017, the amount of cumulative income increased significantly, and represents the largest three month period for income generation in 2017. We expect to generate additional income in the fourth quarter of 2017, as well as 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. The Company still retains a valuation allowance of $2.7 million as an offset to certain net operating loss deferred tax assets within the C corporation entities that the Company does not expect to be realized. Accordingly, we reduced the valuation allowance against our deferred tax assets by $513.2 million as of September 30, 2017.
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.
noted below.
As of
September 30, 2017June 29, 2019 and December
31, 2016, after the release of the valuation allowance referred to above,29, 2018, Summit Inc. had a valuation allowance of
$2.7$27.9 million and
$502.8$19.4 million, respectively, which relates to certain deferred tax assets in taxable entities where realization is not more likely than not.
Summit Inc. and its subsidiaries expect additional unrecognized tax benefits in 2019 that if recognized would affect the annual effective tax rate, and included that in its estimate of those amounts in its annual effective tax rate. We did not recognize interest or penalties related to this amount as it is offset by other attributes. No material interest or penalties were recognized in income tax expense during the three and six months ended June 29, 2019 and June 30, 2018. No uncertain tax benefits were recognized in the three and six months ended June 30, 2018.
Tax Receivable Agreement—The Company is party to a TRA with thecertain current and former 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 (1) increases in the tax basis of tangible and intangible assets of Summit Holdings and (2) the utilization of certain net operating losses of the Investor Entities and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. As of December 31, 2016, we had a partial valuation allowance against all of our net deferred tax assets, including our net operating loss carryforwards. In the
ninesix months ended
September 30, 2017, 1,255,266June 29, 2019, 17,500 LP Units were acquired by Summit Inc. in exchange for an equal number of newly-issued shares of Summit Inc.’s Class A common stock. These exchanges
which occurred prior to the date of analysis of the realizability of our deferred tax asset, resulted in net new deferred tax assets of approximately
$14.7 million, and an increase in our valuation allowance for those new$0.1 million. As we determined that the deferred tax
assets. As a resultassets created from these exchanges are realizable and payment under the TRA is considered probable, we have recorded 85% of the
analysis of the realizability of ourincrease in deferred tax assets as
indicated above, 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
the remainder as
such, we recorded 85% of the deferred tax assets subject to the TRA, or $489.2 million, as TRA liability.an increase in additional paid in capital. As of
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, we had recorded
$548.9$309.7 million and
$59.3$310.3 million of TRA liability,
respectively, of which
$1.1$0.6 million was classified as accrued expenses as of December
31, 2016.29, 2018.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 or corporate resident in New York, New York (or a corporate residentYork. Summit Holdings did not make any tax distributions in certain circumstances). In the ninesix months ended September 30, 2017June 29, 2019 and October 1, 2016, we made tax distribution payments of $0.1 million and $25.5 million, respectively. Of the $25.5 million ofin tax distribution payments madedistributions in the ninesix months ended October 1, 2016, $9.0 million was paid to holders of LP units, and $16.5 million was paid to Summit Inc.
As of SeptemberJune 30, 2017 and December 31, 2016, Summit Inc. and its subsidiaries had not recognized any liabilities for uncertain tax positions. The Company records interest and penalties as a component of the income tax provision. No material interest or penalties were recognized in income tax expense during the three and nine months ended September 30, 2017 and October 1, 2016.
10. NET EARNINGS PER SHARE
2018.
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
earningsand diluted loss per share:
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to Summit Inc. | | $ | 79,052 | | $ | 44,820 | | $ | 76,608 | | $ | 37,073 |
Weighted average shares of Class A stock outstanding | | | 108,024,055 | | | 74,433,487 | | | 106,698,076 | | | 62,686,433 |
Basic income per share | | $ | 0.73 | | $ | 0.60 | | $ | 0.72 | | $ | 0.59 |
| | | | | | | | | | | | |
Net income attributable to Summit Inc. | | $ | 79,052 | | $ | 44,820 | | $ | 76,608 | | $ | 37,073 |
Add: Noncontrolling interest impact of LP Unit conversion | | | — | | | — | | | — | | | 3,745 |
Diluted net income attributable to Summit Inc. | | | 79,052 | | | 44,820 | | | 76,608 | | | 40,818 |
| | | | | | | | | | | | |
Weighted average shares of Class A stock outstanding | | | 108,024,055 | | | 74,433,487 | | | 106,698,076 | | | 62,686,433 |
Add: weighted average of LP Units | | | — | | | — | | | — | | | 38,293,384 |
Add: stock options | | | 926,613 | | | — | | | 184,875 | | | 181,961 |
Add: warrants | | | 39,555 | | | 17,368 | | | 42,094 | | | 11,639 |
Add: restricted stock units | | | 220,531 | | | 100,876 | | | 285,088 | | | 225,786 |
Add: performance stock units | | | 92,658 | | | 28,066 | | | 117,491 | | | 79,947 |
Weighted average dilutive shares outstanding | | | 109,303,412 | | | 74,579,797 | | | 107,327,624 | | | 101,479,150 |
Diluted earnings per share | | $ | 0.72 | | $ | 0.60 | | $ | 0.71 | | $ | 0.40 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Net income (loss) attributable to Summit Inc. | $ | 36,410 |
| | $ | 35,509 |
| | $ | (32,362 | ) | | $ | (18,220 | ) |
| Weighted average shares of Class A stock outstanding | 112,070,009 |
| | 111,564,190 |
| | 111,940,844 |
| | 111,111,644 |
|
| Basic and diluted income (loss) per share | $ | 0.32 |
| | $ | 0.32 |
| | $ | (0.29 | ) | | $ | (0.16 | ) |
| | | | | | | | |
| Diluted net income (loss) attributable to Summit Inc. | $ | 36,410 |
| | $ | 35,509 |
| | $ | (32,362 | ) | | $ | (18,220 | ) |
| | | | | | | | |
| Weighted average shares of Class A stock outstanding | 112,070,009 |
| | 111,564,190 |
| | 111,940,844 |
| | 111,111,644 |
|
| Add: weighted average of LP Units | — |
| | — |
| | — |
| | — |
|
| Add: stock options | — |
| | 794,065 |
| | — |
| | — |
|
| Add: warrants | — |
| | 36,488 |
| | — |
| | — |
|
| Add: restricted stock units | 76,539 |
| | 91,347 |
| | — |
| | — |
|
| Add: performance stock units | 36,007 |
| | 97,231 |
| | — |
| | — |
|
| Weighted average dilutive shares outstanding | 112,182,555 |
| | 112,583,321 |
| | 111,940,844 |
| | 111,111,644 |
|
| Diluted earnings (loss) per share | $ | 0.32 |
| | $ | 0.32 |
| | $ | (0.29 | ) | | $ | (0.16 | ) |
Excluded from the above calculations were the shares noted below as they were antidilutive:
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Antidilutive shares: | | | | | | | | | | | | |
LP Units | | | 4,039,020 | | | 26,731,747 | | | 4,560,976 | | | — |
Time-vesting stock options | | | — | | | 5,017,664 | | | — | | | — |
|
| | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Antidilutive shares: | | | | | | | |
| LP Units | 3,418,018 |
| | 3,517,602 |
| | 3,418,018 |
| | 3,583,407 |
|
| Time-vesting stock options | 3,168,170 |
| | — |
| | 3,168,170 |
| | 3,286,163 |
|
| Warrants | 100,037 |
| | — |
| | 100,037 |
| | 100,037 |
|
| Time-vesting restricted stock units | — |
| | — |
| | 1,493,119 |
| | 841,618 |
|
| Market-based restricted stock units | — |
| | — |
| | 390,645 |
| | 295,252 |
|
During 2019 and 2018, certain limited partners of Contents
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:11. COMMITMENTS AND CONTINGENCIES
|
| | | | | | | | | | | |
| | Summit Inc.
Shares (Class A) | | LP Units | | Total | | Summit Inc.
Ownership
Percentage |
| Balance — December 29, 2018 | 111,658,927 |
| | 3,435,518 |
| | 115,094,445 |
| | 97.0 | % |
| Exchanges during period | 17,500 |
| | (17,500 | ) | | — |
| | |
| Other equity transactions | 397,067 |
| | — |
| | 397,067 |
| | |
| Balance — June 29, 2019 | 112,073,494 |
| | 3,418,018 |
| | 115,491,512 |
| | 97.0 | % |
| | | | | | | | |
| | | | | | | | |
| Balance — December 30, 2017 | 110,350,594 |
| | 3,689,620 |
| | 114,040,214 |
| | 96.8 | % |
| Exchanges during period | 229,658 |
| | (229,658 | ) | | — |
| | |
| Other equity transactions | 1,048,986 |
| | — |
| | 1,048,986 |
| | |
| Balance — June 30, 2018 | 111,629,238 |
| | 3,459,962 |
| | 115,089,200 |
| | 97.0 | % |
As a result of the Reorganization, Summit Inc. is Summit Holdings’ primary beneficiary and thus consolidates Summit Holdings in its consolidated financial statements with a corresponding noncontrolling interest reclassification, which was 3.0% as of June 29, 2019 and December 29, 2018.
Accumulated other comprehensive income (loss) —The changes in each component of accumulated other comprehensive income (loss) consisted of the following:
|
| | | | | | | | | | | | | | | |
| | Change in retirement plans | | Foreign currency translation adjustments | | Cash flow hedge adjustments | | Accumulated other comprehensive income (loss) |
| Balance — December 29, 2018 | $ | 3,573 |
| | $ | (2,147 | ) | | $ | 1,255 |
| | $ | 2,681 |
|
| Foreign currency translation adjustment, net of tax | — |
| | 3,330 |
| | — |
| | 3,330 |
|
| Loss on cash flow hedges, net of tax | — |
| | — |
| | (220 | ) | | (220 | ) |
| Balance — June 29, 2019 | $ | 3,573 |
| | $ | 1,183 |
| | $ | 1,035 |
| | $ | 5,791 |
|
| | | | | | | | |
| | | | | | | | |
| Balance — December 30, 2017 | $ | 2,364 |
| | $ | 4,637 |
| | $ | 385 |
| | $ | 7,386 |
|
| Foreign currency translation adjustment, net of tax | — |
| | (3,721 | ) | | — |
| | (3,721 | ) |
| Income on cash flow hedges, net of tax | — |
| | — |
| | 980 |
| | 980 |
|
| Balance — June 30, 2018 | $ | 2,364 |
| | $ | 916 |
| | $ | 1,365 |
| | $ | 4,645 |
|
| |
| 10. | SUPPLEMENTAL CASH FLOW INFORMATION |
Supplemental cash flow information is as follows:
|
| | | | | | | |
| | Six months ended |
| | June 29, 2019 | | June 30, 2018 |
| Cash payments: | | | |
| Interest | $ | 36,834 |
| | $ | 52,206 |
|
| Income taxes | 1,190 |
| | 3,061 |
|
| Operating cash payments on operating leases | 5,410 |
| | — |
|
| Operating cash payments on finance leases | 1,516 |
| | — |
|
| Finance cash payments on finance leases | 6,000 |
| | — |
|
| Non cash financing activities: | | | |
| Right of use assets obtained in exchange for operating lease obligations | $ | 3,298 |
| | $ | — |
|
| Right of use assets obtained in exchange for finance leases obligations | 16,248 |
| | — |
|
| Exchange of LP Units to shares of Class A common stock | 277 |
| | 6,987 |
|
We lease construction and office equipment, distribution facilities and office space. Leases with an initial term of 12 months or less, including month to month leases, are not recorded on the balance sheet. Lease expense for short-term leases is recognized on a straight line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, we combine lease and nonlease components. While we also own mineral leases for mining operations, those leases are outside the scope of ASC 842. Assets acquired under finance leases are included in property, plant and equipment.
Many of our leases include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease expense were as follows:
|
| | | | | | |
| | Three months ended | Six months ended |
| | June 29, 2019 | June 29, 2019 |
| Operating lease cost | $ | 2,694 |
| $ | 5,149 |
|
| Variable lease cost | 143 |
| 215 |
|
| Short-term lease cost | 9,591 |
| 16,172 |
|
| Financing lease cost: | | |
| Amortization of right-of-use assets | 2,670 |
| 5,293 |
|
| Interest on lease liabilities | 876 |
| 1,631 |
|
| Total lease cost | $ | 15,974 |
| $ | 28,460 |
|
| | |
| | June 29, 2019 |
| Supplemental balance sheet information related to leases: | |
| Operating leases: | |
| Operating lease right-of-use assets | $ | 34,101 |
|
| | |
| Current operating lease liabilities | $ | 8,470 |
|
| Noncurrent operating lease liabilities | 26,614 |
|
| Total operating lease liabilities | $ | 35,084 |
|
| Finance leases: | |
| Property and equipment, gross | $ | 79,911 |
|
| Less accumulated depreciation | (21,667 | ) |
| Property and equipment, net | $ | 58,244 |
|
| | |
| Current finance lease liabilities | $ | 17,805 |
|
| Long-term finance lease liabilities | 41,123 |
|
| Total finance lease liabilities | $ | 58,928 |
|
| | |
| | June 29, 2019 |
| | Lease Term | Discount Rate |
| | (years) | (%) |
| Weighted average: | | |
| Operating leases | 7.7 |
| 5.6 | % |
| Finance lease | 2.8 |
| 5.5 | % |
| | | |
| Maturities of lease liabilities were as follows: | | |
| | Operating Leases | Finance Leases |
| 2019 (six months) | $ | 5,124 |
| $ | 10,115 |
|
| 2020 | 9,391 |
| 17,539 |
|
| 2021 | 7,434 |
| 20,235 |
|
| 2022 | 4,558 |
| 11,745 |
|
| 2023 | 3,546 |
| 1,509 |
|
| 2024 | 2,413 |
| 1,750 |
|
| Thereafter | 11,252 |
| 2,662 |
|
| Total lease payments | 43,718 |
| 65,555 |
|
| Less imputed interest | (8,634 | ) | (6,627 | ) |
| Present value of lease payments | $ | 35,084 |
| $ | 58,928 |
|
As previously disclosed, our future minimum lease payment obligations as of December 29, 2018 were as follows:
|
| | | |
| | Operating Leases |
| 2019 | $ | 9,479 |
|
| 2020 | 8,101 |
|
| 2021 | 6,701 |
|
| 2022 | 4,279 |
|
| 2023 | 3,411 |
|
| |
| 12. | 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 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. The Company has 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 incurred significant losses on a highway project in Utah, which resulted in requests for funding from the joint venture partners and ultimately from the Company. Through September 30, 2017, the Company has funded $12.3 million. In the third quarter of 2017, the Company settled its remaining obligations under this agreement for $3.5 million, which was $0.8 million less than amounts previously accrued under the agreement.CCB.
Environmental Remediation and Site Restoration—TheCompany’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. The Company has asset retirement obligations arising from regulatory and contractual requirements to perform reclamation activities at the time certain quarries and landfills are closed. As of
September 30, 2017June 29, 2019 and December
31, 2016, $21.129, 2018, $28.6 million and
$18.8$26.9 million, respectively, were included in other noncurrent liabilities on the consolidated balance sheets and
$6.2$3.5 million and
$5.1$4.1 million, respectively, were included in accrued expenses for future reclamation costs. The total undiscounted anticipated costs for site reclamation as of
September 30, 2017June 29, 2019 and December
31, 201629, 2018 were
$72.5$90.2 million and
$63.6$92.5 million, respectively.
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.12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental
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
informationhedges is
recorded in accumulated other comprehensive income (loss) 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
follows: | | | | | | |
| | Nine months ended |
| | September 30, | | October 1, |
| | 2017 | | 2016 |
Cash payments: | | | | | | |
Interest | | $ | 71,117 | | $ | 62,438 |
Income taxes | | | 1,841 | | | 1,536 |
Non cash financing activities: | | | | | | |
Exchange of LP units to shares of Class A common stock | | | 34,831 | | | 525,711 |
19
|
| | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| Current portion of acquisition-related liabilities and Accrued expenses: | | | |
| Contingent consideration | $ | 2,622 |
| | $ | 1,394 |
|
| Cash flow hedges | 112 |
| | — |
|
| Acquisition-related liabilities and Other noncurrent liabilities: | | | |
| Contingent consideration | $ | 1,238 |
| | $ | 5,175 |
|
| Cash flow hedges | — |
| | — |
|
The fair value of contingent consideration was based on unobservable, or Level 3, inputs, including projected probability-weighted cash payments and a 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 is based on observable, or Level 2, inputs such as interest rates, bond yields and prices in inactive markets. There were no material valuation adjustments to contingent consideration or derivatives as of June 29, 2019 and June 30, 2018.
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 June 29, 2019 and December 29, 2018 was:
|
| | | | | | | | | | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Level 2 | | | | | | | |
| Long-term debt(1) | $ | 1,895,932 |
| | $ | 1,873,627 |
| | $ | 1,777,722 |
| | $ | 1,828,159 |
|
| Level 3 | | | | | | | |
| Current portion of deferred consideration and noncompete obligations(2) | 32,848 |
| | 32,848 |
| | 32,876 |
| | 32,876 |
|
| Long term portion of deferred consideration and noncompete obligations(3) | 38,850 |
| | 38,850 |
| | 44,293 |
| | 44,293 |
|
| |
| (1) | $4.8 million and $6.4 million were included in current portion of debt as of June 29, 2019 and December 29, 2018, 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 Contents
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.
The following tables display selected financial data for the Company’s reportable business segments as of
September 30, 2017June 29, 2019 and December
31, 201629, 2018 and for the three and
ninesix months ended
SeptemberJune 29, 2019 and June 30,
2017 and October 1, 2016: | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenue*: | | | | | | | | | | | | |
West | | $ | 327,917 | | $ | 264,874 | | $ | 746,991 | | $ | 614,868 |
East | | | 204,990 | | | 175,000 | | | 466,222 | | | 385,054 |
Cement | | | 101,274 | | | 89,563 | | | 229,338 | | | 203,168 |
Total revenue | | $ | 634,181 | | $ | 529,437 | | $ | 1,442,551 | | $ | 1,203,090 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Revenue*: | | | | | | | |
| West | $ | 300,212 |
| | $ | 321,713 |
| | $ | 482,157 |
| | $ | 503,426 |
|
| East | 216,132 |
| | 197,336 |
| | 329,520 |
| | 292,493 |
|
| Cement | 84,547 |
| | 81,841 |
| | 121,853 |
| | 119,392 |
|
| Total revenue | $ | 600,891 |
| | $ | 600,890 |
| | $ | 933,530 |
| | $ | 915,311 |
|
*Intercompany sales are immaterial and the presentation above only reflects sales to external customers.
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenue by product*: | | | | | | | | | | | | |
Aggregates | | $ | 90,594 | | $ | 78,274 | | $ | 236,437 | | $ | 201,217 |
Cement | | | 94,915 | | | 81,154 | | | 213,243 | | | 179,658 |
Ready-mix concrete | | | 139,934 | | | 111,141 | | | 361,824 | | | 288,607 |
Asphalt | | | 115,917 | | | 93,551 | | | 218,934 | | | 182,185 |
Paving and related services | | | 136,445 | | | 113,648 | | | 270,449 | | | 219,282 |
Other | | | 56,376 | | | 51,669 | | | 141,664 | | | 132,141 |
Total revenue | | $ | 634,181 | | $ | 529,437 | | $ | 1,442,551 | | $ | 1,203,090 |
*Revenue from the liquid asphalt terminals is included in asphalt revenue.
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Income (loss) from operation before taxes | $ | 54,697 |
| | $ | 49,103 |
| | $ | (44,841 | ) | | $ | (23,551 | ) |
| Interest expense | 29,401 |
| | 28,943 |
| | 59,506 |
| | 57,727 |
|
| Depreciation, depletion and amortization | 53,035 |
| | 49,402 |
| | 107,842 |
| | 95,945 |
|
| Accretion | 590 |
| | 329 |
| | 1,171 |
| | 744 |
|
| Loss on debt financings | — |
| | 149 |
| | 14,565 |
| | 149 |
|
| Transaction costs | 390 |
| | 1,291 |
| | 698 |
| | 2,557 |
|
| Non-cash compensation | 4,699 |
| | 5,683 |
| | 10,605 |
| | 14,190 |
|
| Other | (2,346 | ) | | 441 |
| | (2,492 | ) | | (6,907 | ) |
| Total Adjusted EBITDA | $ | 140,466 |
| | $ | 135,341 |
| | $ | 147,054 |
| | $ | 140,854 |
|
| | | | | | | | |
| Total Adjusted EBITDA by Segment: | | | | | | | |
| West | $ | 54,820 |
| | $ | 61,227 |
| | $ | 69,118 |
| | $ | 77,400 |
|
| East | 54,412 |
| | 45,395 |
| | 57,654 |
| | 42,192 |
|
| Cement | 35,441 |
| | 34,660 |
| | 32,854 |
| | 38,327 |
|
| Corporate and other | (4,207 | ) | | (5,941 | ) | | (12,572 | ) | | (17,065 | ) |
| Total Adjusted EBITDA | $ | 140,466 |
| | $ | 135,341 |
| | $ | 147,054 |
| | $ | 140,854 |
|
|
| | | | | | | |
| | Six months ended |
| | June 29, 2019 | | June 30, 2018 |
| Purchases of property, plant and equipment | | | |
| West | $ | 51,517 |
| | $ | 76,223 |
|
| East | 41,801 |
| | 37,303 |
|
| Cement | 11,467 |
| | 14,412 |
|
| Total reportable segments | 104,785 |
| | 127,938 |
|
| Corporate and other | 784 |
| | 3,719 |
|
| Total purchases of property, plant and equipment | $ | 105,569 |
| | $ | 131,657 |
|
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Adjusted EBITDA: | | | | | | | | | | | | |
West | | $ | 76,637 | | $ | 63,683 | | $ | 152,856 | | $ | 127,547 |
East | | | 56,397 | | | 51,558 | | | 99,511 | | | 90,405 |
Cement | | | 46,860 | | | 40,264 | | | 93,328 | | | 78,828 |
Corporate and other | | | (7,193) | | | (9,314) | | | (24,129) | | | (27,448) |
Total Adjusted EBITDA | | | 172,701 | | | 146,191 | | | 321,566 | | | 269,332 |
Interest expense | | | 28,921 | | | 25,273 | | | 79,876 | | | 72,467 |
Depreciation, depletion and amortization | | | 48,483 | | | 39,055 | | | 132,374 | | | 107,993 |
Accretion | | | 486 | | | 372 | | | 1,382 | | | 1,202 |
IPO/ Legacy equity modification costs | | | — | | | 12,506 | | | — | | | 37,257 |
Loss on debt financings | | | — | | | — | | | 190 | | | — |
Tax receivable agreement expense | | | 489,215 | | | — | | | 490,740 | | | — |
Transaction costs | | | 2,581 | | | 1,684 | | | 6,474 | | | 5,290 |
Non-cash compensation | | | 4,724 | | | 3,801 | | | 14,148 | | | 8,866 |
Other | | | (200) | | | 1,085 | | | (346) | | | 4,093 |
Income (loss) from continuing operations before taxes | | $ | (401,509) | | $ | 62,415 | | $ | (403,272) | | $ | 32,164 |
| | | | | | |
| | Nine months ended |
| | September 30, | | October 1, |
| | 2017 | | 2016 |
Purchases of property, plant and equipment | | | | | | |
West | | $ | 64,257 | | $ | 64,350 |
East | | | 52,920 | | | 37,143 |
Cement | | | 25,306 | | | 16,683 |
Total reportable segments | | | 142,483 | | | 118,176 |
Corporate and other | | | 4,995 | | | 3,769 |
Total purchases of property, plant and equipment | | $ | 147,478 | | $ | 121,945 |
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Depreciation, depletion, amortization and accretion: | | | | | | | | | | | | |
West | | $ | 18,907 | | $ | 16,492 | | $ | 51,989 | | $ | 48,714 |
East | | | 17,628 | | | 14,744 | | | 49,939 | | | 37,485 |
Cement | | | 11,815 | | | 7,619 | | | 29,888 | | | 21,147 |
Total reportable segments | | | 48,350 | | | 38,855 | | | 131,816 | | | 107,346 |
Corporate and other | | | 619 | | | 572 | | | 1,940 | | | 1,849 |
Total depreciation, depletion, amortization and accretion | | $ | 48,969 | | $ | 39,427 | | $ | 133,756 | | $ | 109,195 |
| | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Total assets: | | | | | | |
West | | $ | 1,271,602 | | $ | 902,763 |
East | | | 1,070,346 | | | 870,613 |
Cement | | | 890,013 | | | 868,440 |
Total reportable segments | | | 3,231,961 | | | 2,641,816 |
Corporate and other | | | 760,831 | | | 139,650 |
Total | | $ | 3,992,792 | | $ | 2,781,466 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| Depreciation, depletion, amortization and accretion: | | | | | | | |
| West | $ | 22,924 |
| | $ | 22,589 |
| | $ | 46,849 |
| | $ | 44,740 |
|
| East | 19,840 |
| | 17,826 |
| | 40,051 |
| | 35,553 |
|
| Cement | 9,869 |
| | 8,681 |
| | 20,169 |
| | 15,051 |
|
| Total reportable segments | 52,633 |
| | 49,096 |
| | 107,069 |
| | 95,344 |
|
| Corporate and other | 992 |
| | 635 |
| | 1,944 |
| | 1,345 |
|
| Total depreciation, depletion, amortization and accretion | $ | 53,625 |
| | $ | 49,731 |
| | $ | 109,013 |
| | $ | 96,689 |
|
Table of Contents
|
| | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| Total assets: | | | |
| West | $ | 1,437,583 |
| | $ | 1,370,501 |
|
| East | 1,307,364 |
| | 1,253,640 |
|
| Cement | 887,751 |
| | 877,586 |
|
| Total reportable segments | 3,632,698 |
| | 3,501,727 |
|
| Corporate and other | 322,158 |
| | 355,914 |
|
| Total | $ | 3,954,856 |
| | $ | 3,857,641 |
|
14. RELATED PARTY TRANSACTIONS
Blackstone Advisory Partners L.P., an affiliate of Blackstone Management Partners L.L.C., served as an initial purchaser of $18.8 million of the 2022 Notes issued in March 2016, and received compensation in connection therewith.
SUMMIT MATERIALS, LLC
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements and notes thereto for Summit Materials, LLC and subsidiaries are included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are incorporated by reference herein.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. Forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section entitled “Risk Factors” in the Annual Report, and any factors discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated interim financial statements and the related notes and other information included in this report.
We are one of the fastest growing construction materials companies in the United States. Within our markets, we offer customers a single-source provider for construction materials and related downstream products through our vertical integration. Our materials include aggregates, which we supply across the United States, and in British Columbia, Canada, and cement, which we supply to surrounding states along the Mississippi River from MinneapolisMinnesota to New Orleans. Within our markets, we offer customers a single-source provider for construction materials and related downstream products through our vertical integration.Louisiana. In addition to supplying aggregates to customers, we use a portion of our materials internally to produce ready-mix concrete and asphalt paving mix, which may be sold externally or used in our paving and related services businesses. Our vertically-integrated business modelvertical integration creates opportunities to increase aggregates sales,volumes, optimize margin at each stage of production and provide customers with efficiency gains, convenience and reliability, which we believe providesgives us a competitive advantageadvantage.
Since our inception in
the markets2009, we
serve.We have completed 61dozens of acquisitions which are organized into 12 operating companies that make up our three distinct operating segments—segments: West, East and Cement—spanning 22 U.S. states and British Columbia, Canada and 43 metropolitan statistical areas. Our highly experienced management team, led byCement, which are also our President and Chief Executive Officer, Thomas Hill, a 35-year industry veteran, has successfully enhanced the operations of acquired companies by focusing on scale advantages, cost efficiencies and price optimization to improve profitability and cash flow.
As of September 30, 2017, we had 3.3 billion tons of proven and probable aggregates reserves serving our aggregates and cement businesses and operated over 400 sites and plants, to which we believe we have adequate road, barge and/or railroad access.
reporting segments. We operate in 23 U.S. states and British Columbia, Canada and currently have assets in 22 U.S. states and in British Columbia, Canada. We have three operating segments: West, East and Cement, which are also our reporting segments. The map below illustrates our geographic footprint:
footprint.
Business Trends and Conditions
The U.S. construction materials industry is composed of four primary sectors: aggregates; cement; ready-mix concrete; and asphalt paving mix. Each of these materials is widely used in most forms of construction activity. Participants in these sectors typically range from small, privately-held companies focused on a single material, product or market to multinational corporations that offer a wide array of construction materials and services. Competition is constrained in part by the distance materials can be transported efficiently, resulting in predominantly local or regional operations. Due to the lack of product differentiation, competition for all of our products is predominantly based on price and, to a lesser extent, quality of products and service. As a result, the prices we charge our customers are not likely to be materially different from the prices charged by other producers in the same markets. Accordingly, our profitability is generally dependent on the level of demand for our
products in the localmaterials and
regional marketsproducts and our ability to control operating costs.
Our revenue is derived from multiple end-use markets including public infrastructure construction and private residential and nonresidential construction. Public infrastructure includes spending by federal, state, provincial and local governments for roads, highways, bridges, airports and other infrastructure projects. Public infrastructure projects have historically been a relatively stable portion of state and federal budgets. Residential and nonresidential construction
consists of new construction and repair and remodel markets. Any economic stagnation or decline, which could vary by local region and market, could affect our results of operations. Our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical changes in construction spending, especially in the private sector. From a macroeconomic view, we see positive indicators for the construction sector, including upwardpositive trends in highway obligations, housing starts and construction employment. All of these factors should result in increased construction activity in the private sector. However, construction activity is not consistent across the United States. Certain of our markets are showing greater, more rapid signs of recovery.
Transportation infrastructure projects, driven by both federal and state funding programs, represent a significant share of the U.S. construction materials market. Federal funds are allocated to the states, which are required to match a portion of the federal funds they receive. Federal highway spending uses funds predominantly from the Federal Highway Trust Fund, which derives its revenue from taxes on diesel fuel, gasoline and other user fees. The dependability of federal funding allows the state departments of transportation to plan for their
long termlong-term highway construction and maintenance needs. Funding for the existing federal transportation
funding program extends through 2020. With the nation’s infrastructure aging, there is increased demand by states and municipalities for long-term federal funding to support
both the construction of new roads, highways and bridges in addition to the maintaining the existing infrastructure.
The U.S. President and his administration have called for, among other things, an infrastructure stimulus plan. However, there is currently a lack of clarity around both the timing and details of any such infrastructure plan and the impact, if any, it or other proposed changes in law and regulations may have on our business.In addition to federal funding, state, county and local agencies provide highway construction and maintenance funding. Each of ourOur four largest states by revenue, (Texas,Texas, Utah, Kansas Utah and Missouri, which represented approximately 25%23%, 14%13%, 12% and 12%8%, respectively, of our total revenue in 2016) have funds whose revenue sources have certain constitutional protections2018. The following is a summary of key funding initiatives in those states:
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. In July 2019, TXDOT released a preliminary 2020 UTP presentation that
limit spendingproposes $76.9 billion in transportation funding through 2029. 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 July 2019, the TXDOT updated its fiscal year 2019 state and local lettings estimate to
transportation projects:$8.7 billion, up 19.6% from $7.3 billion in fiscal year 2018, and provided a fiscal year 2020 estimate of $9.2 billion, a 4.9% annual increase. Longer-term, TXDOT has indicated a target of $8 billion per year in total state and local lettings.
| ·
|
| ◦ | | Texas’ Unified Transportation Program plansIn February 2018, the federal government approved 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 2017. Furthermore, in June 2019, Congress passed an additional $19.1 billion disaster aid package and released more than $4 billion to Texas that Congress originally allocated in early 2018. At the state-level, between December 2018 and January 2019, the Texas Land Commission and the City of Houston rolled out two federally funded programs, totaling $2.27 billion, assist to homeowners affected by Hurricane Harvey. In July 2019, the Texas Governor signed four bills into law aimed at bolstering the state’s emergency preparedness and disaster relief programs, including a framework that provides more than $1.6 billion for $70 billon to fundflood control projects and repairs across the state. We believe that the federal and state-level funding stemming from these legislative actions will result in the construction of significant new water and transportation projects from 2017 – 2026.
infrastructure in the Houston market. |
| o
|
| ◦ | | 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.
|
| o
| | 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. In 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. |
| ·
|
| ◦ | | Kansas hasIn November 2014, Texas voters approved a 10‑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. In September 2018, TXDOT announced that it anticipated that funding from Proposition 1 for fiscal year $8.22019 would be $1.37 billion, highway bill that was passedup from $734 million received in fiscal year 2018. Furthermore, in May 2010. In2019, the Texas Comptroller increased its fiscal year 2020 Proposition 1 transfer estimate to $1.7 billion and in June 2017, a bi-partisan coalition of Kansas legislators voted2019, the Texas State Legislature extended the sunset period on Proposition 1 to raise $1.2 billion in revenue by raising personal income taxes and other exemptions, reversing austerity measures put into place five years ago by the Kansas governor. We anticipate additional funding will be made available to the Kansas Department of Transportation over the next 12-24 months as a result of this legislative action.
2034 from 2024. |
| ·
| | Utah’s transportation investment fund has $2.3 billion programmed for 2017 – 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 has already approved.
|
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. Furthermore, in January 2019, Utah’s Transportation Governance and Funding Task Force, appointed by the state legislature in 2017, released draft legislation that would increase fees on electric and hybrid vehicles and create a hotel room tax and local | ·
| | Missouri’s Statewide Transportation Improved Program for 2017 – 2021 states that $4.0 billion is available for awards for highway and bridge construction.
|
option sales tax to aid in transit development. The proposal would also authorize the Utah Department of Transportation to begin a study on a road usage charge pilot program.
In May 2010, Kansas passed a 10-year $8.2 billion highway bill. 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 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. Based on the task force’s recommendations, in March 2019, the Kansas State Legislature approved the Governor’s fiscal year 2020 budget with $1.5 billion in transportation funding, a 32% increase from the $1.1 billion in fiscal year 2019, with the further plan to eliminate all transfers out of the State Highway Fund by 2023, starting with a $108 million reduction in fiscal year 2020 transfers. Furthermore, with the Kansas Department of Transportation budget, the highway program was allocated $546 million, an increase of 138% or $317 million from fiscal year 2017.
Missouri’s proposed 2020 Statewide Transportation Improvement Program (“STIP”) increases funding to $4.6 billion for highway and bridge construction through 2024 from $4.5m in the 2019 STIP and $4.2 billion in the 2018 STIP.
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-
relatedweather-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. As a result of Hurricane Harvey, our business operations in the Houston area were temporarily interrupted during the third quarter of 2017. We expect our volumes in the Houston area to return to normal levels in the future.
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 escalator provisions in most of our private and commercial contracts limit our exposure to price fluctuations in this commodity. We often obtain similar escalators on public infrastructure contracts. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials.
Our products are generally delivered upon receipt of orders or requests from customers, or shortly thereafter. Accordingly, the backlog associated with product sales is converted into revenue within a relatively short period of time. Inventory for products is generally maintained in sufficient quantities to meet rapid delivery requirements of customers. Therefore, a
period over periodperiod-over-period increase or decrease of backlog does not necessarily result in an improvement or a deterioration of our business. Our backlog includes only those products and projects for which we have obtained a purchase order or a signed contract with the customer and does not include products purchased and sold or services awarded and provided within the period. Subject to applicable contract terms, substantially all contracts in our backlog may be
cancelledcanceled or modified by our customers. Historically, we have not been materially adversely affected by contract cancellations or modifications.
As a vertically-integrated business,
approximately 25%20% of aggregates sold were used internally in our ready-mix concrete and asphalt paving mixes and approximately 72%63% of the asphalt paving mix were laid by our paving crews during the ninesix months ended September 30, 2017.June 29, 2019. Our backlog as of September 30, 2017,June 29, 2019, was 12.616.3 million tons of aggregates, 1.21.9 million cubic yards of ready-mix concrete, 2.44.4 million tons of asphalt and $350.9$541.7 million of construction services, which includes the value of the aggregate and asphalt tons and ready-mix concrete cubic yards that are expected to be sourced internally.
The principal factors in evaluating our financial condition and operating results
as of and for the three and
ninesix months ended
September 30, 2017June 29, 2019 as compared to
October 1, 2016, are: | ·
| | Net revenue increased $94.2 million and $210.9 million in the three and nine months ended September 30, 2017, respectively, as a result of pricing and volume increases across our product lines, which includes contributions from our acquisitions.
|
| ·
| | Our operating income increased $25.5 million and $57.7 million in the three and nine months ended September 30, 2017, respectively, 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 for the three and nine month period ended September 30, 2017 are lower than the comparable periods in 2016. Excluding the $24.8 million of pre-IPO/legacy equity modification expenses in the nine month period October 1, 2016, our general and administrative expenses are essentially flat as a percentage of net revenue.
|
| ·
| | In June 2017, we issued $300.0 million of 5.125% senior notes due June 1, 2025 (the “2025 Notes”), resulting in proceeds of $295.4 million, net of related fees and expenses.
|
| ·
| | 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.
|
| ·
| | During the third quarter of 2017, we reduced the valuation allowance against our deferred tax assets by $513.2 million, resulting in the recordation of a deferred income tax benefit of $513.2 million. Further, as those deferred tax assets were also subject to our TRA, we recorded TRA expense of $489.2 million in the third quarter of 2017 as well.
|
Acquisitions
In addition to ourNet revenue increased $3.4 million and $19.4 million in the three and six months ended June 29, 2019, respectively, primarily resulting from organic growth and contributions from our acquisitions.
Our operating income increased $3.1 million in the three months ended June 29, 2019, as decreases in cost of revenue offset increases in depreciation, depletion, amortization and accretion expenses. Our operating income decreased $3.0 million in the six months ended June 29, 2019, primarily due to higher levels of depreciation and amortization resulting from our acquisitions in 2018 and a new cement terminal in late 2018. Our general and administrative expenses for the three and six month periods ended June 29, 2019 were lower than the comparable period in 2018 primarily due to reduced stock-based compensation charges in 2019.
In March 2019, we continuedissued $300.0 million of 6.500% senior notes due 2027 (the “2027 Notes”), resulting in net proceeds of $296.3 million, after related fees and expenses. The proceeds from the 2027 Notes were used to growredeem the $250.0 million of 8.500% senior notes due 2022 (the “2022 Notes”).
In February 2019, we entered into Incremental Amendment No. 4 to the Credit Agreement (as defined below) increasing the size of our
business through acquisitions, completingrevolving credit facility to $345.0 million and extending the
following transactions in 2017 and 2016: | ·
| | On October 6, 2017, we acquired Stockman, a limestone quarry located in Jefferson City, Missouri.
|
| ·
| | On September 6, 2017, we acquired Columbia Silica, an aggregates business with four pits in central South Carolina.
|
| ·
| | On August 20, 2017, we acquired Alan Ritchey, a large aggregates business servicing the Dallas-Fort Worth market.
|
| ·
| | On August 3, 2017, we acquired Georgia Stone, an aggregates business with two quarries servicing northern Georgia.
|
| ·
| | On August 1, 2017, we acquired Northwest, a ready-mix and aggregates-based business with three ready-mix plants and one sand and gravel pit, servicing the northwest region of Colorado.
|
| ·
| | On July 31, 2017, we acquired Great Southern, a ready-mix company with two plants servicing Houston, Texas.
|
| ·
| | On July 28, 2017, we acquired Somerset, a ready-mix company with ten plants in southeast Kentucky.
|
| ·
| | On May 12, 2017, we acquired Glasscock, a vertically integrated sand, ready-mix, recycle and trucking business based in Sumter, South Carolina.
|
| ·
| | On May 1, 2017, we acquired Winvan Paving, a paving and construction services company based in Vancouver, British Columbia.
|
| ·
| | On April 3, 2017, we acquired Carolina Sand, a sand and trucking business with four sand pits in northeastern South Carolina.
|
| ·
| | On April 3, 2017, we acquired Hanna’s Bend, an aggregates-based business with one sand and gravel pit servicing the Houston, Texas market.
|
| ·
| | On March 17, 2017, we acquired Sandidge Concrete, a ready-mix company with three plants servicing the Columbia, Missouri market.
|
| ·
| | On February 24, 2017, we acquired Razorback, an aggregates-based business with one of the larger ready-mix concrete operations in central and northeastern Arkansas.
|
| ·
| | On January 30, 2017, we acquired Everist Materials, a vertically integrated aggregates, ready-mix concrete, and paving business based in Silverthorne, Colorado, with two aggregates plants, five ready-mix plants and two asphalt plants.
|
| ·
| | On October 3, 2016, we acquired Midland Concrete, a ready-mix company with one plant servicing the Midland, Texas market.
|
| ·
| | On August 30, 2016, we acquired the Angelle Assets, including two Mississippi River cement distribution terminals in Southern Louisiana.
|
| ·
| | On August 26, 2016, we acquired RD Johnson, a large excavating business and asphalt operation based in Lawrence, Kansas.
|
| ·
| | On August 19, 2016, we acquired Rustin, a ready-mix company with 12 ready-mix plants servicing the southeast Oklahoma market.
|
| ·
| | On August 8, 2016, we acquired the assets of Weldon and the membership interests of Honey Creek Disposal Service, LLC. (‘‘Honey Creek’’). Honey Creek is a trash collection business, which we sold immediately after acquisition. We retained the building from Weldon, where our recycling business in Kansas is operated.
|
| ·
| | On May 20, 2016, we acquired the Oldcastle Assets, seven aggregates quarries in central and northwest Missouri.
|
| ·
| | On April 29, 2016, we acquired Sierra, a vertically integrated aggregates and ready-mix concrete business with one sand and gravel pit and two ready-mix concrete plants located in Las Vegas, Nevada.
|
| ·
| | On March 18, 2016, we acquired Boxley, a vertically integrated company based in Roanoke, Virginia with six quarries, four ready-mix concrete plants and four asphalt plants.
|
| ·
| | On February 5, 2016, we acquired AMC, an aggregates company with five sand and gravel pits servicing coastal North and South Carolina.
|
Results of Operations
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.
General and administrative expenses as a percentage of revenue vary throughout the year due to the seasonality of our business. 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
number and size of acquisitions completedlevel acquisition activity each year.
The table below includes revenue and operating income (loss) by segment for the three and ninesix months ended SeptemberJune 29, 2019 and June 30, 20172018. Operating income (loss) by segment is computed as earnings before interest, taxes and October 1, 2016.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, 2017 | | October 1, 2016 | | September 30, 2017 | | October 1, 2016 |
| | | | Operating | | | | Operating | | | | Operating | | | | Operating |
($ in thousands) | | Revenue | | income (loss) | | Revenue | | income (loss) | | Revenue | | income (loss) | | Revenue | | income (loss) |
West | | $ | 327,917 | | $ | 57,549 | | $ | 264,874 | | $ | 47,012 | | $ | 746,991 | | $ | 100,169 | | $ | 614,868 | | $ | 78,360 |
East | | | 204,990 | | | 36,902 | | | 175,000 | | | 35,067 | | | 466,222 | | | 46,514 | | | 385,054 | | | 49,899 |
Cement | | | 101,274 | | | 35,091 | | | 89,563 | | | 32,779 | | | 229,338 | | | 63,546 | | | 203,168 | | | 57,093 |
Corporate (1) | | | — | | | (15,631) | | | — | | | (26,448) | | | — | | | (46,658) | | | — | | | (79,451) |
Total | | $ | 634,181 | | $ | 113,911 | | $ | 529,437 | | $ | 88,410 | | $ | 1,442,551 | | $ | 163,571 | | $ | 1,203,090 | | $ | 105,901 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| (in thousands) | Revenue | | Operating
income (loss) | | Revenue | | Operating
income (loss) | | Revenue | | Operating
income (loss) | | Revenue | | Operating
income (loss) |
| West | $ | 300,212 |
| | $ | 31,624 |
| | $ | 321,713 |
| | $ | 38,413 |
| | $ | 482,157 |
| | $ | 20,002 |
| | $ | 503,426 |
| | $ | 32,283 |
|
| East | 216,132 |
| | 33,662 |
| | 197,336 |
| | 26,939 |
| | 329,520 |
| | 16,406 |
| | 292,493 |
| | 6,051 |
|
| Cement | 84,547 |
| | 25,480 |
| | 81,841 |
| | 25,838 |
| | 121,853 |
| | 12,570 |
| | 119,392 |
| | 22,990 |
|
| Corporate (1) | — |
| | (10,344 | ) | | — |
| | (13,911 | ) | | — |
| | (26,227 | ) | | — |
| | (35,570 | ) |
| Total | $ | 600,891 |
| | $ | 80,422 |
| | $ | 600,890 |
| | $ | 77,279 |
| | $ | 933,530 |
| | $ | 22,751 |
| | $ | 915,311 |
| | $ | 25,754 |
|
| |
| (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 three and
ninesix months ended
SeptemberJune 29, 2019 and June 30,
2017 and October 1, 2016. | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | October 1, | | September 30, | | October 1, |
| | 2017 | | 2016 | | 2017 | | 2016 |
(in thousands) | | | | | | | | | | | | |
Net revenue | | $ | 574,387 | | $ | 480,210 | | $ | 1,311,799 | | $ | 1,100,885 |
Delivery and subcontract revenue | | | 59,794 | | | 49,227 | | | 130,752 | | | 102,205 |
Total revenue | | | 634,181 | | | 529,437 | | | 1,442,551 | | | 1,203,090 |
Cost of revenue (excluding items shown separately below) | | | 409,545 | | | 335,820 | | | 963,021 | | | 797,748 |
General and administrative expenses | | | 59,175 | | | 64,096 | | | 175,729 | | | 184,956 |
Depreciation, depletion, amortization and accretion | | | 48,969 | | | 39,427 | | | 133,756 | | | 109,195 |
Transaction costs | | | 2,581 | | | 1,684 | | | 6,474 | | | 5,290 |
Operating income | | | 113,911 | | | 88,410 | | | 163,571 | | | 105,901 |
Interest expense (1) | | | 28,921 | | | 25,273 | | | 79,876 | | | 72,467 |
Loss on debt financings | | | — | | | — | | | 190 | | | — |
Tax receivable agreement expense (1) | | | 489,215 | | | — | | | 490,740 | | | — |
Other (income) expense, net | | | (2,716) | | | 722 | | | (3,963) | | | 1,270 |
(Loss) income from operations before taxes (1) | | | (401,509) | | | 62,415 | | | (403,272) | | | 32,164 |
Income tax (benefit) expense | | | (483,584) | | | 1,309 | | | (482,327) | | | (7,913) |
Net income (1) | | $ | 82,075 | | $ | 61,106 | | $ | 79,055 | | $ | 40,077 |
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| (in thousands) | | | | | �� | | |
| Net revenue | $ | 552,591 |
| | $ | 549,235 |
| | $ | 858,541 |
| | $ | 839,151 |
|
| Delivery and subcontract revenue | 48,300 |
| | 51,655 |
| | 74,989 |
| | 76,160 |
|
| Total revenue | 600,891 |
| | 600,890 |
| | 933,530 |
| | 915,311 |
|
| Cost of revenue (excluding items shown separately below) | 405,493 |
| | 410,932 |
| | 672,497 |
| | 658,793 |
|
| General and administrative expenses | 60,961 |
| | 61,657 |
| | 128,571 |
| | 131,518 |
|
| Depreciation, depletion, amortization and accretion | 53,625 |
| | 49,731 |
| | 109,013 |
| | 96,689 |
|
| Transaction costs | 390 |
| | 1,291 |
| | 698 |
| | 2,557 |
|
| Operating income | 80,422 |
| | 77,279 |
| | 22,751 |
| | 25,754 |
|
| Interest expense (1) | 29,401 |
| | 28,943 |
| | 59,506 |
| | 57,727 |
|
| Loss on debt financings | — |
| | 149 |
| | 14,565 |
| | 149 |
|
| Other income, net | (3,676 | ) | | (916 | ) | | (6,479 | ) | | (8,571 | ) |
| Income (loss) from operation before taxes | 54,697 |
| | 49,103 |
| | (44,841 | ) | | (23,551 | ) |
| Income tax expense (benefit) (1) | 16,707 |
| | 12,190 |
| | (11,330 | ) | | (4,516 | ) |
| Net income (loss) | $ | 37,990 |
| | $ | 36,913 |
| | $ | (33,511 | ) | | $ | (19,035 | ) |
| |
| (1) | | The statement of operations above is based on the financial results of Summit Inc. and its subsidiaries. The statement of operations of Summit LLC and its subsidiaries differs from Summit Inc. in that Summit LLC has $0.2$0.1 million and $0.7$0.3 million less interest expense than Summit Inc., in the three and ninesix months ended September 30, 2017,June 29, 2019, respectively. The additional interest expense for Summit Inc. is associated with a deferred consideration obligation of Summit Holdings, which is excluded from Summit LLC’s consolidated interest expense. |
Three and ninesix months ended September 30, 2017June 29, 2019 compared to the three and ninesix months ended October 1, 2016
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | | | | | | | September 30, | | October 1, | | | | | | |
($ in thousands) | | 2017 | | 2016 | | Variance | | | 2017 | | 2016 | | Variance | |
Net revenue | | $ | 574,387 | | $ | 480,210 | | $ | 94,177 | | 19.6 | % | | $ | 1,311,799 | | $ | 1,100,885 | | $ | 210,914 | | 19.2 | % |
Operating income | | | 113,911 | | | 88,410 | | | 25,501 | | 28.8 | % | | | 163,571 | | | 105,901 | | | 57,670 | | 54.5 | % |
Operating margin percentage | | | 19.8 | % | | 18.4 | % | | | | | | | | 12.5 | % | | 9.6 | % | | | | | |
Adjusted EBITDA (1) | | $ | 172,701 | | $ | 146,191 | | $ | 26,510 | | 18.1 | % | | $ | 321,566 | | $ | 269,332 | | $ | 52,234 | | 19.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Net revenue | $ | 552,591 |
| | $ | 549,235 |
| | $ | 3,356 |
| | 0.6 | % | | $ | 858,541 |
| | $ | 839,151 |
| | $ | 19,390 |
| | 2.3 | % |
| Operating income | 80,422 |
| | 77,279 |
| | 3,143 |
| | 4.1 | % | | 22,751 |
| | 25,754 |
| | (3,003 | ) | | (11.7 | )% |
| Operating margin percentage | 14.6 | % | | 14.1 | % | | | | | | 2.6 | % | | 3.1 | % | | | | |
| Adjusted EBITDA (1) | $ | 140,466 |
| | $ | 135,341 |
| | $ | 5,125 |
| | 3.8 | % | | $ | 147,054 |
| | $ | 140,854 |
| | $ | 6,200 |
| | 4.4 | % |
| |
| (1) | | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the"Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, below. which is the most directly comparable GAAP measure. |
Net revenue increased
$94.2$3.4 million in the three months ended
September 30, 2017, primarilyJune 29, 2019, resulting from
both organic growth and our acquisition program. Of the increase in net revenue,
$26.1$26.4 million was from increased sales of materials,
$53.2offset by a $4.3 million
was from increaseddecrease in service revenue and $18.7 million decrease in sales of
products and $14.9 million was from increased service revenue.products. We generated organic volume growth
across theof 4.4% in aggregates,
cementwhile our organic ready-mix concrete and asphalt
lines of business during the third quarter of 2017 over the prior year period, while the ready-mixvolumes decreased 7.2% and 2.5%, respectively. Our cement line of business had a
slight decline2.6% increase in organic
volumes.volume. We had organic price growth in
across all of our
cement, ready-mix concrete and asphalt lines of business during the
thirdsecond quarter of
2017.2019. Additional discussion about the impact of acquisitions on each segment is presented in more detail below.
Net revenue increased
$210.9$19.4 million in the
ninesix months ended
September 30, 2017,June 29, 2019, primarily resulting from our acquisition
program.program as well as organic growth in our aggregates and asphalt operations. Of the increase in net revenue,
$68.8$46.1 million was from increased sales of materials,
$111.8offset by a $3.1 million
was from increaseddecrease in service revenue and a $23.6 million decrease in sales of
products and $30.3 million was from increased service revenue.products. We generated organic volume growth
of 5.3%, 2.2% and 1.6% in
our aggregates, cement and asphalt,
lines of businessrespectively, during the first
ninesix months of
20172019 over the prior year
period.period, while our organic ready-mix volumes decreased 6.5% compared to the first six months of 2018. We had organic price growth in our
cement lineaggregate and asphalt lines of business
of 7.4% and 6.2%, respectively, during the first
ninesix months of
2017.2019. Organic cement volumes increased by 2.2%, while organic cement pricing was flat during the first six months of 2019. Additional discussion about the impact of acquisitions on each segment is presented in more detail below.
In the three months ended
September 30, 2017,June 29, 2019, our net revenue
growth was $66.6 million and $27.6increased $12.1 million from acquisitions,
andoffset by $8.7 million of organic
revenue, respectively.declines. Operating income increased by
$25.5$3.1 million in the
thirdsecond quarter of
20172019 as compared to the
thirdsecond quarter of
20162018 primarily as a result of a decrease in our
general administrative expenses, partially offset by an increasecost of revenue and additional decreases in our
depreciation, depletion, amortizationgeneral and
accretion.administrative expense and transaction costs. Our general and administrative expenses
and transaction costs decreased in the
thirdsecond quarter of
20172019 as compared to the same period a year ago,
asdue to fewer acquisitions through the
three months ended October 1, 2016, included a $12.5 million stock-based compensation charge associated with certain LP Units exchanged and options granted at the timefirst half of the IPO for which the performance metrics were met or waived.year. Our depreciation, depletion, amortization and accretion increased $5.5$3.9 million primarily due to acquisitions completedlower levels of cement production in 2016 and 2017.our Cement segment led to less depreciation being capitalized into inventory, as well as higher depreciation levels from our acquisition program.
In the ninesix months ended September 30, 2017,June 29, 2019, our net revenue growth was $157.8 million and $53.1increased $23.6 million from acquisitions, andoffset by $4.2 million of organic revenue, respectively.declines. Operating income increaseddecreased by $57.7$3.0 million in the first ninesix months of 20172019 as compared to the first ninesix months of 20162018 primarily as a result of a decrease in our general administrative expenses items referred to above, offset by an$12.3 million increase in our depreciation, depletion, amortization and accretion. In the nine months ended we recognized $37.3 million of stock-based compensation charges associated with certain LP Units exchangedaccretion expense, partially offset by a decrease in general and options granted at the time of the IPO for which the performance metrics were met or waived.administrative expenses. Our depreciation, depletion, amortization and accretion increased $16.8 millionexpense is higher in 2019 partially due to acquisitions completed in 2016 and 2017.the second half of 2018, as well as less depreciation being capitalized into inventory as inventory levels are decreased.
Our operating margin percentage
improvedincreased from
18.4%14.1% to
19.8%14.6% and
decreased from
9.6%3.1% to
12.5%2.6% in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively, due to
pricing on materials and cement volume growth.the items noted above. Adjusted EBITDA, as defined
in "Non-GAAP Performance Measures" below, increased by
$26.5$5.1 million and
$52.2$6.2 million in the three and
ninesix months ended
September 30, 2017, respectively.During 2016 and 2017, certain limited partners of Summit Holdings exchanged their LP Units for shares of Class A common stock of Summit Inc. The following table summarizesJune 29, 2019, respectively, due to the changes in our ownership of Summit Holdings:
factors noted above. | | | | | | | | | |
| | Summit Inc. Shares (Class A) | | LP Units | | Total | | Summit Inc. Ownership Percentage | |
Balance — December 31, 2016 | | 96,033,222 | | 5,151,297 | | 101,184,519 | | 94.9 | % |
January 2017 public offering | | 10,000,000 | | - | | 10,000,000 | | | |
Exchanges during period | | 236,095 | | (236,095) | | - | | | |
Other equity transactions | | 134,423 | | - | | 134,423 | | | |
Balance — April 1, 2017 | | 106,403,740 | | 4,915,202 | | 111,318,942 | | 95.6 | % |
Exchanges during period | | 778,064 | | (778,064) | | - | | | |
Other equity transactions | | 310,175 | | - | | 310,175 | | | |
Balance — July 1, 2017 | | 107,491,979 | | 4,137,138 | | 111,629,117 | | 96.3 | % |
Exchanges during period | | 241,107 | | (241,107) | | - | | | |
Other equity transactions | | 732,602 | | - | | 732,602 | | | |
Balance — September 30, 2017 | | 108,465,688 | | 3,896,031 | | 112,361,719 | | 96.5 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance — January 2, 2016 (1) | | 50,881,636 | | 50,275,825 | | 101,157,461 | | 50.3 | % |
Issuance of Class A shares | | 1,038 | | - | | 1,038 | | | |
Balance — April 2, 2016 | | 50,882,674 | | 50,275,825 | | 101,158,499 | | 50.3 | % |
Exchanges during period | | 13,177,754 | | (13,177,754) | | - | | | |
Other equity transactions | | 6,250 | | - | | 6,250 | | | |
Balance — July 2, 2016 | | 64,066,678 | | 37,098,071 | | 101,164,749 | | 63.3 | % |
Exchanges during period | | 12,634,500 | | (12,634,500) | | - | | | |
Other equity transactions | | 833 | | - | | 833 | | | |
Balance — October 1, 2016 | | 76,702,011 | | 24,463,571 | | 101,165,582 | | 75.8 | % |
| (1)
| | The January 2, 2016 balance of Summit Inc. Class A Shares of 50,881,636 is shown to reflect the retroactive application of 1,135,692 of Class A common stock issued as a stock dividend on December 28, 2016.
|
As a result, the ownership percentage of the noncontrolling interest decreased from 24.2% as of October 1, 2016 to 3.5% as of September 30, 2017. Accordingly, although the amount of net income increased by $21.0 million and $39.0 million in the three and nine months ended September 30, 2017, respectively, the amount of net income attributable to Summit Holdings decreased from $16.2 million and $2.9 million in the three and nine months October 1, 2016, respectively, to $3.0 million and $2.5 million in the three and nine months ended September 30, 2017.
As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by line of business was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | Variance | | September 30, | | October 1, | | Variance |
($ in thousands) | | 2017 | | 2016 | | Dollar | | Percentage | | | 2017 | | 2016 | | Dollar | | Percentage | |
Revenue by product*: | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregates | | $ | 122,796 | | $ | 108,565 | | $ | 14,231 | | 13.1 | % | | $ | 313,686 | | $ | 270,628 | | $ | 43,058 | | 15.9 | % |
Cement | | | 96,223 | | | 82,746 | | | 13,477 | | 16.3 | % | | | 216,512 | | | 183,968 | | | 32,544 | | 17.7 | % |
Ready-mix concrete | | | 140,049 | | | 111,954 | | | 28,095 | | 25.1 | % | | | 362,349 | | | 289,562 | | | 72,787 | | 25.1 | % |
Asphalt | | | 124,484 | | | 103,037 | | | 21,447 | | 20.8 | % | | | 236,954 | | | 199,514 | | | 37,440 | | 18.8 | % |
Paving and related services | | | 231,516 | | | 192,231 | | | 39,285 | | 20.4 | % | | | 441,884 | | | 371,296 | | | 70,588 | | 19.0 | % |
Other | | | (80,887) | | | (69,096) | | | (11,791) | | 17.1 | % | | | (128,834) | | | (111,878) | | | (16,956) | | 15.2 | % |
Total revenue | | $ | 634,181 | | $ | 529,437 | | $ | 104,744 | | 19.8 | % | | $ | 1,442,551 | | $ | 1,203,090 | | $ | 239,461 | | 19.9 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Revenue by product*: | | | | | | | | | | | | | | | |
| Aggregates | $ | 161,842 |
| | $ | 134,213 |
| | $ | 27,629 |
| | 20.6 | % | | $ | 270,230 |
| | $ | 221,092 |
| | $ | 49,138 |
| | 22.2 | % |
| Cement | 80,248 |
| | 77,714 |
| | 2,534 |
| | 3.3 | % | | 113,848 |
| | 111,480 |
| | 2,368 |
| | 2.1 | % |
| Ready-mix concrete | 154,239 |
| | 160,930 |
| | (6,691 | ) | | (4.2 | )% | | 271,667 |
| | 283,238 |
| | (11,571 | ) | | (4.1 | )% |
| Asphalt | 104,007 |
| | 91,951 |
| | 12,056 |
| | 13.1 | % | | 130,404 |
| | 110,253 |
| | 20,151 |
| | 18.3 | % |
| Paving and related services | 162,467 |
| | 173,081 |
| | (10,614 | ) | | (6.1 | )% | | 208,094 |
| | 219,481 |
| | (11,387 | ) | | (5.2 | )% |
| Other | (61,912 | ) | | (36,999 | ) | | (24,913 | ) | | (67.3 | )% | | (60,713 | ) | | (30,233 | ) | | (30,480 | ) | | (100.8 | )% |
| Total revenue | $ | 600,891 |
| | $ | 600,890 |
| | $ | 1 |
| | — | % | | $ | 933,530 |
| | $ | 915,311 |
| | $ | 18,219 |
| | 2.0 | % |
*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 in the three and ninesix months ended SeptemberJune 29, 2019 and June 30, 2017 and October 1, 20162018 were as follows:
| | | | | | | | | | | | | | | |
| | Three months ended | | | | | |
| | September 30, 2017 | | October 1, 2016 | | | | | |
| | Volume(1) | | | | Volume(1) | | | | Percentage Change in | |
| | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | |
Aggregates | | 11,998 | | $ | 10.23 | | 10,658 | | $ | 10.19 | | 12.6 | % | 0.4 | % |
Cement | | 850 | | | 113.15 | | 757 | | | 109.35 | | 12.3 | % | 3.5 | % |
Ready-mix concrete | | 1,320 | | | 106.09 | | 1,083 | | | 103.36 | | 21.9 | % | 2.6 | % |
Asphalt | | 2,124 | | | 54.37 | | 1,735 | | | 53.91 | | 22.4 | % | 0.9 | % |
| | | | | | | | | | | | | | | |
| | Nine months ended | | | | | |
| | September 30, 2017 | | October 1, 2016 | | | | | |
| | Volume(1) | | | | Volume(1) | | | | Percentage Change in | |
| | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing | |
Aggregates | | 31,247 | | $ | 10.04 | | 27,302 | | $ | 9.91 | | 14.4 | % | 1.3 | % |
Cement | | 1,925 | | | 112.45 | | 1,699 | | | 108.26 | | 13.3 | % | 3.9 | % |
Ready-mix concrete | | 3,463 | | | 104.63 | | 2,798 | | | 103.48 | | 23.8 | % | 1.1 | % |
Asphalt | | 4,004 | | | 54.55 | | 3,269 | | | 55.63 | | 22.5 | % | (1.9) | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | |
| | June 29, 2019 | | June 30, 2018 | | | | |
| | Volume(1) | | | | Volume(1) | | | | Percentage Change in |
| | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing |
| Aggregates | 14,528 |
| | $ | 11.14 |
| | 13,151 |
| | $ | 10.21 |
| | 10.5 | % | | 9.1 | % |
| Cement | 698 |
| | 114.95 |
| | 680 |
| | 114.21 |
| | 2.6 | % | | 0.6 | % |
| Ready-mix concrete | 1,398 |
| | 110.35 |
| | 1,503 |
| | 107.09 |
| | (7.0 | )% | | 3.0 | % |
| Asphalt | 1,596 |
| | 58.16 |
| | 1,611 |
| | 54.70 |
| | (0.9 | )% | | 6.3 | % |
| | | | | | | | | | | | |
| | Six months ended | | | | |
| | June 29, 2019 | | June 30, 2018 | | | | |
| | Volume(1) | | | | Volume(1) | | | | Percentage Change in |
| | (in thousands) | | Pricing(2) | | (in thousands) | | Pricing(2) | | Volume | | Pricing |
| Aggregates | 24,735 |
| | $ | 10.93 |
| | 21,966 |
| | $ | 10.07 |
| | 12.6 | % | | 8.5 | % |
| Cement | 995 |
| | 114.46 |
| | 974 |
| | 114.46 |
| | 2.2 | % | | — | % |
| Ready-mix concrete | 2,489 |
| | 109.15 |
| | 2,645 |
| | 107.09 |
| | (5.9 | )% | | 1.9 | % |
| Asphalt | 2,017 |
| | 57.42 |
| | 1,961 |
| | 54.23 |
| | 2.9 | % | | 5.9 | % |
| |
| (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
$14.2$27.6 million and
$43.1$49.1 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
primarily due to increased
volumes.volumes and improved average sales prices. Aggregate volumes were positively affected by
the acquisitions completed in late 2016our acquisition program and
2017, together with broad basedorganic growth in
most of our markets, partially offset by declines in our Missouriboth the West and
Houston markets.East segments. Organic aggregate volumes increased
3.4%5.3% in the first
nine monthshalf of
20172019 as compared to the same period a year ago primarily
from Austin, northeastdue to increases in Kansas and Texas
and Utah, offset by a decline in Houston, Texas. In Houston, volumes were affected by temporary disruptions related to Hurricane Harvey.markets. Aggregate
pricingaverage sales prices of
$10.04$10.93 per ton
slightly increased
8.5% in the first six months of 2019 as compared to the first
ninesix months of
2016.2018, supported by strong increases in Missouri.
Revenue from cement increased
$13.5$2.5 million and
$32.5$2.4 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
due primarily
to increased volume and improved average selling price. Our organic cement volumes increased 10.2% due to
improved weather along the Mississippi river corridor and growtha 2.2% increase in
our existing customer base. During the first nine months of 2017, pricing for cement improved by 3.9% to $112.45 per ton, primarily resulting from price increases implemented in 2017.organic volume, as organic average sales prices remained flat.
Revenue from ready-mix concrete
increased $28.1decreased $6.7 million and
$72.8$11.6 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
due to a 6.5% decrease in organic volumes primarily
fromin our Texas and Intermountain regions partially offset by a 1.8% increase in organic average sales prices. Volumes in the
acquisitions referred to above. Ready-mix concrete pricingTexas and Intermountain regions were impacted by less favorable weather conditions during the first half of
$104.63 per cubic yard ton in 2017 increased slightly2019 as compared to
the first nine months of 2016.2018.
Revenue from asphalt increased $21.5$12.1 million and $37.4$20.2 million in the three and ninesix months ended September 30, 2017,June 29, 2019, respectively. Our organic asphalt volumes increased 12.1% with the balance of the increased volumes coming from acquisitions. Our revenue in Austin, Texas, was higher in the first nine months of 2017 as an aggressive competitor impacted our paving and related services revenue in 2016. In the first nine monthshalf of 2017,2019, our marketing effortsorganic increases in volumes and pricing were able1.6% and 6.2%, respectively, with strong pricing gains in Kansas and the Intermountain geographies.
Other Financial Information
Loss on Debt Financings
In March 2019, we used the net proceeds from the offering of the 2027 Notes to
improve our market share over 2016 levelsredeem all of the outstanding 2022 Notes. In connection with that transaction, charges of $14.6 million were recognized in the
Austin market. Pricingsix months ended June 29, 2019. The fees included $11.7 million for
asphalt declined 1.8% as liquid asphalt prices have decreased.the applicable prepayment premium and $2.9 million for the write-off of unamortized deferred financing fees.
Other
Financial InformationTax Receivable Agreement Expense
InIncome, net
During the thirdsecond quarter of 2017,2019, we recorded $489.2 millionreduced the estimated liability related to an earnout provision for one of tax receivable agreement (“TRA”) expense. This estimateour operations in the East segment by $2.0 million. As the period of time to record this adjustment against the purchase accounting entries had passed, this adjustment was recorded based on the realization of our deferred tax assets subject to the TRA being more likely than not.as other income.
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.
Income Tax Benefit
Expense (Benefit)
Our income tax
benefitexpense (benefit) was
$483.6$16.7 million and
$482.3$(11.3) million in the three and
ninesix months ended
September 30, 2017, respectively. We recorded an income tax benefit in the three months ended September 30, 2017, primarily related to the release of the valuation allowance as discussed below, partially offset by an increase in deferred tax liabilities of approximately $29.6 million. Our effective income tax rate was higher in the third quarter of 2017 as compared to the same period in 2016 primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expenseJune 29, 2019, respectively, and
depletion in excess of U.S. GAAP depletion recognized in the three and nine months ended September 30, 2017. During the three and nine months periods ended October 1, 2016, our income tax expense (benefit) was
$1.3$12.2 million and
$(7.9)$(4.5) million
in the three and six months ended June 30, 2018, respectively.
TheOur effective tax rate for Summit Inc. differs from the federal rate primarily due to (1)
the change in valuation allowance,state taxes, (2) tax depletion expense in excess of the expense recorded under U.S. GAAP, (3) the minority interest in the Summit Holdings partnership that is allocated outside of the Company,
and (4) various other items such as limitations on meals and entertainment, certain stock compensation and other
costs.costs and (5) unrecognized tax benefits.
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
scheduledthat begin to expire in
the near future. In assessing the realizability of deferred tax assets, including the deferred tax assets subject to the TRA described below, management determined that it was more likely than not that a portion of the deferred tax assets would not be realized as of December 31, 2016. Given the seasonality of our business, in the nine months ended September 30, 2017, the amount of cumulative income increased significantly, and represents the largest three month period for income generation in 2017. We expect to generate additional income in the fourth quarter of 2017, as well as 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. The Company still retains a valuation allowance of $2.7 million as an offset to certain net operating loss deferred tax assets within the C Corporation entities that the Company does not expect to be realized. Accordingly, we reduced the valuation allowance against our deferred tax assets by $513.2 million as of September 30, 2017.2030.
As of
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, Summit Inc. had a valuation allowance of
$2.7$27.9 million and
$502.8$19.4 million, respectively,
the remaining valuationwhich relates to certain deferred tax assets in taxable entities where realization is
on certain net operating loss carryforwards. not more likely than not.
Segment results of operations
West Segment
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | | | | | | | September 30, | | October 1, | | | | | | |
($ in thousands) | | 2017 | | 2016 | | Variance | | | 2017 | | 2016 | | Variance | |
Net revenue | | $ | 293,851 | | $ | 235,667 | | $ | 58,184 | | 24.7 | % | | $ | 675,674 | | $ | 558,488 | | $ | 117,186 | | 21.0 | % |
Operating income | | | 57,549 | | | 47,012 | | | 10,537 | | 22.4 | % | | | 100,169 | | | 78,360 | | | 21,809 | | 27.8 | % |
Operating margin percentage | | | 19.6 | % | | 19.9 | % | | | | | | | | 14.8 | % | | 14.0 | % | | | | | |
Adjusted EBITDA (1) | | $ | 76,637 | | $ | 63,683 | | $ | 12,954 | | 20.3 | % | | $ | 152,856 | | $ | 127,547 | | $ | 25,309 | | 19.8 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Net revenue | $ | 273,306 |
| | $ | 293,685 |
| | $ | (20,379 | ) | | (6.9 | )% | | $ | 441,535 |
| | $ | 462,629 |
| | $ | (21,094 | ) | | (4.6 | )% |
| Operating income | 31,624 |
| | 38,413 |
| | (6,789 | ) | | (17.7 | )% | | 20,002 |
| | 32,283 |
| | (12,281 | ) | | (38.0 | )% |
| Operating margin percentage | 11.6 | % | | 13.1 | % | | | | | | 4.5 | % | | 7.0 | % | | | | |
| Adjusted EBITDA (1) | $ | 54,820 |
| | $ | 61,227 |
| | $ | (6,407 | ) | | (10.5 | )% | | $ | 69,118 |
| | $ | 77,400 |
| | $ | (8,282 | ) | | (10.7 | )% |
| |
| (1) | | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the"Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, below. which is the most directly comparable GAAP measure. |
Net revenue decreased $20.4 million in the three months ended June 29, 2019, primarily resulting from the sale a non-core business in the third quarter of 2018 partially offset by increases in organic aggregate volumes and average sales prices in the second quarter of 2019. Unfavorable weather in Texas and Utah impacted our ready-mix volumes, which were down 5.9% in the second quarter of 2019 compared to the same period in 2018, while average sales prices for ready-mix improved 3.4%.
Net revenue in the West segment decreased $21.1 million in the six months ended June 29, 2019, primarily due to the sale of a non-core business in the third quarter of 2018, partially offset by increases in net revenues from aggregates. Organic aggregate volumes increased $58.24.8% in the first half of 2019 as compared to the first half of 2018, and organic aggregates average sales prices increased 4.6%. Organic ready-mix concrete volumes were down 5.8% while we achieved a 1.5% increase in organic ready-mix concrete average sales prices.
The West segment’s operating income decreased $6.8 million and
$117.2$12.3 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
primarily due to incremental revenue from the acquisition of Everist Materials, Winvan Paving and Hanna’s Bend in 2017 and acquisitions of Sierra, Midland Concrete and Rustin in 2016. Net revenue growth from acquisitions in the three and nine months ended September 30, 2017 increased $43.0Adjusted EBITDA declined $6.4 million and
$94.3 million, respectively, with the balance attributable to organic operations.The West segment’s operating income improved $10.5 million and $21.8$8.3 million in the three and ninesix months ended September 30, 2017, respectively. Adjusted EBITDA improved $12.9 million and $25.3 million in the three and nine months ended September 30, 2017,June 29, 2019, respectively. The improvementdecreases in West operating income and adjusted
Adjusted EBITDA was primarily due to improved organic volume growththe sale of a non-core business in aggregates and asphalt,the third quarter of 2018, as well as contributions fromoperational inefficiencies related to the acquisitions mentioned above.loss of a piece of mining equipment in the second quarter of 2019. Further, colder weather conditions in our Utah and Colorado markets had a negative effect on our operational efficiencies. The operating margin percentage in the West segment decreased slightly in the three and six months ended September 30, 2017June 29, 2019 to 19.6%11.6% from 13.1% and to 4.5% from 7.0% as compared to the three and six months ended October 1, 2016 at 19.9%,June 30, 2018, respectively, due in part to the impact of Hurricane Harvey, as well as the same factors mentioned above contributed to similar improvements in net revenue, operating income, and adjusted EBITDA in the respective nine month periods. In the nine months ended September 30, 2017, operating margin increased to 14.8% as compared to 14.0% in the comparable period in 2016.
items noted above.
Gross revenue by product/ service was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | Variance | | September 30, | | October 1, | | Variance |
($ in thousands) | | 2017 | | 2016 | | Dollar | | Percentage | | | 2017 | | 2016 | | Dollar | | Percentage | |
Revenue by product*: | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregates | | $ | 55,496 | | $ | 47,425 | | $ | 8,071 | | 17.0 | % | | $ | 143,589 | | $ | 122,602 | | $ | 20,987 | | 17.1 | % |
Ready-mix concrete | | | 98,134 | | | 79,591 | | | 18,543 | | 23.3 | % | | | 267,704 | | | 215,542 | | | 52,162 | | 24.2 | % |
Asphalt | | | 86,807 | | | 71,737 | | | 15,070 | | 21.0 | % | | | 170,371 | | | 145,711 | | | 24,660 | | 16.9 | % |
Paving and related services | | | 147,496 | | | 122,821 | | | 24,675 | | 20.1 | % | | | 277,799 | | | 243,385 | | | 34,414 | | 14.1 | % |
Other | | | (60,016) | | | (56,700) | | | (3,316) | | 5.8 | % | | | (112,472) | | | (112,372) | | | (100) | | 0.1 | % |
Total revenue | | $ | 327,917 | | $ | 264,874 | | $ | 63,043 | | 23.8 | % | | $ | 746,991 | | $ | 614,868 | | $ | 132,123 | | 21.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Revenue by product*: | | | | | | | | | | | | | | | |
| Aggregates | $ | 64,737 |
| | $ | 56,814 |
| | $ | 7,923 |
| | 13.9 | % | | $ | 112,726 |
| | $ | 99,530 |
| | $ | 13,196 |
| | 13.3 | % |
| Ready-mix concrete | 117,098 |
| | 120,362 |
| | (3,264 | ) | | (2.7 | )% | | 212,106 |
| | 219,621 |
| | (7,515 | ) | | (3.4 | )% |
| Asphalt | 70,797 |
| | 65,394 |
| | 5,403 |
| | 8.3 | % | | 95,098 |
| | 82,273 |
| | 12,825 |
| | 15.6 | % |
| Paving and related services | 100,467 |
| | 110,312 |
| | (9,845 | ) | | (8.9 | )% | | 131,241 |
| | 141,578 |
| | (10,337 | ) | | (7.3 | )% |
| Other | (52,887 | ) | | (31,169 | ) | | (21,718 | ) | | (69.7 | )% | | (69,014 | ) | | (39,576 | ) | | (29,438 | ) | | (74.4 | )% |
| Total revenue | $ | 300,212 |
| | $ | 321,713 |
| | $ | (21,501 | ) | | (6.7 | )% | | $ | 482,157 |
| | $ | 503,426 |
| | $ | (21,269 | ) | | (4.2 | )% |
*Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in “Other”
. which also includes revenue from a non-core business which was sold in the third quarter of 2018. Revenue from the liquid asphalt terminals is included in asphalt revenue.
The West segment’s percent changes in sales volumes and pricing in the
ninethree and six months ended
September 30, 2017June 29, 2019 from the
ninethree and six months ended
October 1, 2016June 30, 2018 were as follows:
| | | | | | | | | |
| | Three months ended | | Nine months ended | |
| | Percentage Change in | | Percentage Change in | |
| | Volume | | Pricing | | Volume | | Pricing | |
Aggregates | | 17.2 | % | (0.2) | % | 17.0 | % | 0.1 | % |
Ready-mix concrete | | 19.9 | % | 2.9 | % | 23.1 | % | 0.9 | % |
Asphalt | | 24.4 | % | 0.1 | % | 21.3 | % | (1.9) | % |
|
| | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | Percentage Change in | | Percentage Change in |
| | Volume | | Pricing | | Volume | | Pricing |
| Aggregates | 8.5 | % | | 5.1 | % | | 7.7 | % | | 5.1 | % |
| Ready-mix concrete | (5.9 | )% | | 3.4 | % | | (5.0 | )% | | 1.7 | % |
| Asphalt | (3.0 | )% | | 4.1 | % | | 2.5 | % | | 3.3 | % |
Gross revenue from aggregates in the West segment increased
$8.1$7.9 million and
$21.0$13.2 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
primarily due to an increase in
organic volumes
in the first three and
nine months of 2017.average selling prices. The increase in aggregates volumes was primarily in
the Austin, northeastour Texas
and Vancouver, British Columbia markets.
Aggregates volume increased mainly due to organic growth in these markets with additional contributions from the 2017 and 2016 acquisitions, partially offset by a decrease in organic volumes in Houston resulting from the impact of Hurricane Harvey. Aggregates pricing for the three and
ninesix months ended
September 30, 2017 remained consistent withJune 29, 2019 increased 5.1% and 5.1%, respectively, when compared to the
comparable 2016 periods.same period in 2018.
Revenue from ready-mix concrete in the West segment
increased $18.5decreased $3.3 million and
$52.2$7.5 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
primarily as
a result oforganic volumes decreased and were partially offset by increases in average sales prices. For the
2017six months ended June 29, 2019, our ready-mix concrete organic volumes decreased 5.8% due to challenging weather conditions in Texas and
2016 acquisitions.the Intermountain geographies.
Revenue from asphalt in the West segment increased
$15.1$5.4 million and
$24.7$12.8 million in the three and
ninesix months ended
September 30, 2017, respectively, primarily due to higher volumes partially offset by slightly lower pricing. OrganicJune 29, 2019, respectively. Our second quarter asphalt volumes
increased 8.7% due to improvement indecreased 3.0%, while our
Austin, Texas marketvolumes in the first
ninesix months of
2017. In2019 were 2.5% higher than the
ninecomparable period in 2018. Average sales prices for asphalt increased 4.1% and 3.3% in the three and six month
periodperiods ended
September 30, 2017,June 2019, respectively. Additionally, our liquid asphalt
pricing decreased consistent with lower input prices.terminal, damaged by Hurricane Harvey, was in service during the three and six months ended June 29, 2019 but not in the comparable 2018 periods. Revenue for paving and related services in the West segment
increaseddecreased by
$24.7$9.8 million and
$34.4$10.3 million in the three and
ninesix months ended
September 30, 2017, respectively, due to organic growth and acquisitions.June 29, 2019, respectively.
Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in the
ninesix months ended
September 30, 2017June 29, 2019 was approximately
$98.3($2.2) million and
$(0.5)$20.7 million, respectively.
Our Houston operations were negatively impacted by Hurricane Harvey in the third quarter of 2017. After temporary interruptions, our operations have resumed, although volumes are below comparable levels in prior periods. We expect our volumes in the Houston area to return to normal levels in the future. Our Austin operation operates a liquid asphalt terminal in the Houston area which was also damaged by Hurricane Harvey.Harvey in 2017. The terminal will be shut down for 6-9commenced limited operations in the third quarter of 2018. In 2019, in the six months while undergoing significant repairs. We anticipate filing insurance claims for not only damaged property, plant and equipment, but also underended June 29, 2019, we received $1.9 million related to our business interruption policy.
Our reporting unit basedclaim, which is included in Austin, Texas, where the economy has been expanding, has seen new market entrants, one of which aggressively sought market share, which negatively impacted Adjusted EBITDA in the West segment in 2016. Our efforts to improve our profitability in that area are showing positive results in 2017, as organic volume growth has occurred in the first nine months of 2017 as compared to the same period a year ago. We will continue to monitor the effect of this activity to assess whether an event occurs that indicates the carrying amount of the Austin-based reporting unit may be impaired requiring a goodwill impairment analysis.
other income, net.
East Segment
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | | | | | | | September 30, | | October 1, | | | | | | |
($ in thousands) | | 2017 | | 2016 | | Variance | | | 2017 | | 2016 | | Variance | |
Net revenue | | $ | 179,262 | | $ | 154,980 | | $ | 24,282 | | 15.7 | % | | $ | 406,787 | | $ | 339,229 | | $ | 67,558 | | 19.9 | % |
Operating income | | | 36,902 | | | 35,067 | | | 1,835 | | 5.2 | % | | | 46,514 | | | 49,899 | | | (3,385) | | (6.8) | % |
Operating margin percentage | | | 20.6 | % | | 22.6 | % | | | | | | | | 11.4 | % | | 14.7 | % | | | | | |
Adjusted EBITDA (1) | | $ | 56,397 | | $ | 51,558 | | $ | 4,839 | | 9.4 | % | | $ | 99,511 | | $ | 90,405 | | $ | 9,106 | | 10.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Net revenue | $ | 194,738 |
| | $ | 173,709 |
| | $ | 21,029 |
| | 12.1 | % | | $ | 295,153 |
| | $ | 257,130 |
| | $ | 38,023 |
| | 14.8 | % |
| Operating income | 33,662 |
| | 26,939 |
| | 6,723 |
| | 25.0 | % | | 16,406 |
| | 6,051 |
| | 10,355 |
| | 171.1 | % |
| Operating margin percentage | 17.3 | % | | 15.5 | % | | | | | | 5.6 | % | | 2.4 | % | | | | |
| Adjusted EBITDA (1) | $ | 54,412 |
| | $ | 45,395 |
| | $ | 9,017 |
| | 19.9 | % | | $ | 57,654 |
| | $ | 42,192 |
| | $ | 15,462 |
| | 36.6 | % |
| |
| (1) | | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the"Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, below. which is the most directly comparable GAAP measure. |
Net revenue in the East segment increased
$24.3$21.0 million and
$67.6$38.0 million in the three and
ninesix month periods ended
September 30, 2017,June 29, 2019, respectively,
as compared to the same period a year ago, primarily due to
acquisitions contributing $21.5growth in our aggregates business, both in organic volumes and organic average sales prices. Operating income increased $6.7 million and
$57.1$10.4 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
over the same period a year ago. The increase in operating income for the three and six months ended June 29, 2019 was due to a mix of acquisition and organic growth
of $2.8 millionin aggregate volumes and
$10.5 million, respectively.Netnet revenue, increased in the East segment primarily due to acquisitions. Operating income increased $1.8 million in the three months ended September 30, 2017 and decreased $3.4 million in the nine months ended September 30, 2017, respectively, due to the impact ofoffset by increases in depreciation and general and administrative expenses on the 2017 and fourth quarter of 2016depreciation, deletion, amortization and accretion primarily related to 2018 acquisitions. Adjusted EBITDA improved $4.8increased $9.0 million and $9.1$15.5 million in the three and ninesix months ended September 30, 2017,June 29, 2019, respectively, asdue to the increases in net revenue were offset by additional general and administrative expenses on acquired companies.
items noted above relating to operating income.
Operating margin percentage for the three
and six months ended
September 30, 2017 decreasedJune 29, 2019 improved to
20.6%17.3% from
22.6% in15.5% and to 5.6% from 2.4%, respectively, from the comparable period a year ago, as
revenue from paving and related services, which generally have lower operating marginsaverage sales prices increased more than
materials and products, increased slightly, as well as the other factors mentioned above.Operating margin percentage for the nine months ended September 30, 2017 decreased to 11.4% from 14.7% in the comparable period a year ago, as revenue from paving and related services, which generally have lower operating
our cost of revenues.margins than materials and products, accounted for about half of our gross revenue increase, as well as the other factors mentioned above.
Gross revenue by product/ service was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | Variance | | September 30, | | October 1, | | Variance |
($ in thousands) | | 2017 | | 2016 | | Dollar | | Percentage | | | 2017 | | 2016 | | Dollar | | Percentage | |
Revenue by product*: | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregates | | $ | 67,300 | | $ | 61,140 | | $ | 6,160 | | 10.1 | % | | $ | 170,097 | | $ | 148,026 | | $ | 22,071 | | 14.9 | % |
Ready-mix concrete | | | 41,915 | | | 32,363 | | | 9,552 | | 29.5 | % | | | 94,645 | | | 74,020 | | | 20,625 | | 27.9 | % |
Asphalt | | | 37,677 | | | 31,300 | | | 6,377 | | 20.4 | % | | | 66,583 | | | 53,803 | | | 12,780 | | 23.8 | % |
Paving and related services | | | 84,020 | | | 69,410 | | | 14,610 | | 21.0 | % | | | 164,085 | | | 127,911 | | | 36,174 | | 28.3 | % |
Other | | | (25,922) | | | (19,213) | | | (6,709) | | 34.9 | % | | | (29,188) | | | (18,706) | | | (10,482) | | 56.0 | % |
Total revenue | | $ | 204,990 | | $ | 175,000 | | $ | 29,990 | | 17.1 | % | | $ | 466,222 | | $ | 385,054 | | $ | 81,168 | | 21.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Revenue by product*: | | | | | | | | | | | | | | | |
| Aggregates | $ | 97,105 |
| | $ | 77,399 |
| | $ | 19,706 |
| | 25.5 | % | | $ | 157,504 |
| | $ | 121,562 |
| | $ | 35,942 |
| | 29.6 | % |
| Ready-mix concrete | 37,141 |
| | 40,568 |
| | (3,427 | ) | | (8.4 | )% | | 59,561 |
| | 63,617 |
| | (4,056 | ) | | (6.4 | )% |
| Asphalt | 33,210 |
| | 26,557 |
| | 6,653 |
| | 25.1 | % | | 35,306 |
| | 27,980 |
| | 7,326 |
| | 26.2 | % |
| Paving and related services | 62,000 |
| | 62,769 |
| | (769 | ) | | (1.2 | )% | | 76,853 |
| | 77,903 |
| | (1,050 | ) | | (1.3 | )% |
| Other | (13,324 | ) | | (9,957 | ) | | (3,367 | ) | | (33.8 | )% | | 296 |
| | 1,431 |
| | (1,135 | ) | | (79.3 | )% |
| Total revenue | $ | 216,132 |
| | $ | 197,336 |
| | $ | 18,796 |
| | 9.5 | % | | $ | 329,520 |
| | $ | 292,493 |
| | $ | 37,027 |
| | 12.7 | % |
*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.
The East segment’s percent changes in sales volumes and pricing in the three and
ninesix months ended
September 30, 2017June 29, 2019 from the three and
ninesix months ended
October 1, 2016June 30, 2018 were as follows:
| | | | | | | | | |
| | Three months ended | | Nine months ended | |
| | Percentage Change in | | Percentage Change in | |
| | Volume | | Pricing | | Volume | | Pricing | |
Aggregates | | 8.5 | % | 1.4 | % | 12.0 | % | 2.7 | % |
Ready-mix concrete | | 26.8 | % | 1.9 | % | 25.8 | % | 1.6 | % |
Asphalt | | 18.3 | % | 2.2 | % | 25.5 | % | (1.6) | % |
|
| | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | Percentage Change in | | Percentage Change in |
| | Volume | | Pricing | | Volume | | Pricing |
| Aggregates | 12.1 | % | | 11.9 | % | | 17.0 | % | | 10.8 | % |
| Ready-mix concrete | (10.2 | )% | | 1.8 | % | | (9.0 | )% | | 2.8 | % |
| Asphalt | 4.3 | % | | 12.8 | % | | 3.8 | % | | 14.8 | % |
Gross revenue from aggregates in the East segment increased $6.2$19.7 million and $22.135.9 million in the three and ninesix months ended September 30, 2017,June 29, 2019, respectively, primarily due primarily to the acquisition of Razorback, Carolina Sand, Glasscock, Somersetgrowth in organic aggregates volumes and Columbia Silica, among others,to a lesser extent, acquisitions in 2017.2018. Aggregate volumes in the first ninesix months of 20172019 increased 12.0%17.0%, primarily as a result of those acquisitions.both organic and
acquisition volumes. Aggregates pricing increased
in the three and six month period of 2019 as
a result of an improved marketorganic average sales prices increased 10.6% and
shift in product mix.9.5%, respectively.
Revenue from ready-mix concrete in the East segment
increased $9.6decreased $3.4 million and
$20.6$4.1 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
primarily as
a result ofcompared to the
acquisitions mentioned above.same period in 2018. In the
ninethree and six months ended
September 30, 2017, ready-mixJune 29, 2019, declines in our organic volumes
increased due to acquisitions,were partially offset by an
organicincrease in average sales prices of 1.8% and 2.8%, respectively. The declines in ready-mix concrete volumes
decline of 7.2%.occurred primarily in Arkansas and Kansas.
Revenue from asphalt increased
$6.4$6.7 million and
$12.8$7.3 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
duewhen compared to
anthe comparable period of 2018. The increase
was mainly attributable to increased organic pricing. Asphalt pricing increased 14.8% as the sales mix favored higher priced markets as well as increases in
liquid asphalt volumes
offset byand pricing
decline, primarily in the Kentucky and Kansas markets.from our terminals. The
$14.6$0.8 million and
$36.2$1.1 million
increasedecrease in paving and related service revenue in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively, was primarily
a result of acquisitions in Kansas and Virginia.due to decreased paving volumes.
Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in the
ninesix months ended
September 30, 2017June 29, 2019 was approximately
$51.0$18.0 million and
$4.5$21.1 million, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Net revenue | $ | 84,547 |
| | $ | 81,841 |
| | $ | 2,706 |
| | 3.3 | % | | $ | 121,853 |
| | $ | 119,392 |
| | $ | 2,461 |
| | 2.1 | % |
| Operating income | 25,480 |
| | 25,838 |
| | (358 | ) | | (1.4 | )% | | 12,570 |
| | 22,990 |
| | (10,420 | ) | | (45.3 | )% |
| Operating margin percentage | 30.1 | % | | 31.6 | % | | | | | | 10.3 | % | | 19.3 | % | | | | |
| Adjusted EBITDA (1) | $ | 35,441 |
| | $ | 34,660 |
| | $ | 781 |
| | 2.3 | % | | $ | 32,854 |
| | $ | 38,327 |
| | $ | (5,473 | ) | | (14.3 | )% |
Cement Segment
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | | | | | | | September 30, | | October 1, | | | | | | |
($ in thousands) | | 2017 | | 2016 | | Variance | | | 2017 | | 2016 | | Variance | |
Net revenue | | $ | 101,274 | | $ | 89,563 | | $ | 11,711 | | 13.1 | % | | $ | 229,338 | | $ | 203,168 | | $ | 26,170 | | 12.9 | % |
Operating income | | | 35,091 | | | 32,779 | | | 2,312 | | 7.1 | % | | | 63,546 | | | 57,093 | | | 6,453 | | 11.3 | % |
Operating margin percentage | | | 34.6 | % | | 36.6 | % | | | | | | | | 27.7 | % | | 28.1 | % | | | | | |
Adjusted EBITDA (1) | | $ | 46,860 | | $ | 40,264 | | $ | 6,596 | | 16.4 | % | | $ | 93,328 | | $ | 78,828 | | $ | 14,500 | | 18.4 | % |
| |
| (1) | | Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the"Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, below. which is the most directly comparable GAAP measure. |
Net revenue in the Cement segment increased $11.7$2.7 million and $26.2$2.5 million in the three and nine month periodssix months ended September 30, 2017,June 29, 2019, respectively, primarily due to a 2.2% increase in organic growth within existing operations andvolume.
The Cement segment’s operating income was flat during the
acquisition ofthree months ended June 29, 2019, while it decreased $10.4 million in the
Angelle Assets, which contributed incremental net revenue of $2.2six months ended June 29, 2019. Adjusted EBITDA increased $0.8 million and
$6.4decreased $5.5 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively.
The Cement segment’s operating income improved $2.3 million and $6.5 million in the three and nine months ended September 30, 2017, respectively. Adjusted EBITDA improved $6.6 million and $14.5 million in the three and nine months ended September 30, 2017, respectively. The increase in operating income was primarily due to increased organic cement volumes and pricing. Operating margin percentage for the three and six months ended September 30, 2017June 29, 2019 decreased to 34.6%30.1% from 36.6%31.6% and to 10.3% from 19.3%, respectively, from the comparable periods a year ago. The increase in the third quarter. Operating margin for the nine months ended September 30, 2017 also decreased slightly as compared to the same period in 2016. Theoperating loss and decrease in operating margin infor the three and nine month periods issix months ended June 29, 2019 was primarily due to increased salesflood levels on the Mississippi River, resulting in lower levels of purchased cementproduction due to extended plant shutdowns in 2019 which resulted in higher costs of revenue as less production costs were capitalized into inventory. Further, the lower production levels in the first half of 2019 as compared to prior periods. Operating margin for the nine months ended September 30, 20172018 also decreased slightlyresulted in higher depreciation expense as compared to the same period in 2016.
less depreciation was capitalized into inventory.
Gross revenue by product was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | October 1, | | Variance | | September 30, | | October 1, | | Variance |
($ in thousands) | | 2017 | | 2016 | | Dollar | | Percentage | | | 2017 | | 2016 | | Dollar | | Percentage | |
Revenue by product*: | | | | | | | | | | | | | | | | | | | | | | | | |
Cement | | $ | 96,223 | | $ | 82,746 | | $ | 13,477 | | 16.3 | % | | $ | 216,512 | | $ | 183,968 | | $ | 32,544 | | 17.7 | % |
Other | | | 5,051 | | | 6,817 | | | (1,766) | | (25.9) | % | | | 12,826 | | | 19,200 | | | (6,374) | | (33.2) | % |
Total revenue | | $ | 101,274 | | $ | 89,563 | | $ | 11,711 | | 13.1 | % | | $ | 229,338 | | $ | 203,168 | | $ | 26,170 | | 12.9 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | Six months ended | | | | |
| ($ in thousands) | June 29, 2019 | | June 30, 2018 | | Variance | | June 29, 2019 | | June 30, 2018 | | Variance |
| Revenue by product*: | | | | | | | | | | | | | | | |
| Cement | $ | 80,248 |
| | $ | 77,714 |
| | $ | 2,534 |
| | 3.3 | % | | $ | 113,848 |
| | $ | 111,480 |
| | $ | 2,368 |
| | 2.1 | % |
| Other | 4,299 |
| | 4,127 |
| | 172 |
| | 4.2 | % | | 8,005 |
| | 7,912 |
| | 93 |
| | 1.2 | % |
| Total revenue | $ | 84,547 |
| | $ | 81,841 |
| | $ | 2,706 |
| | 3.3 | % | | $ | 121,853 |
| | $ | 119,392 |
| | $ | 2,461 |
| | 2.1 | % |
*Revenue by product includes intercompany and intracompany sales transferred at market value. Revenue from waste processing and the elimination of intracompany transactions is included in Other.
The Cement segment’s percent changes in sales volumes and pricing in the
ninethree and six months ended
September 30, 2017June 29, 2019 from the three and
ninesix months ended
October 1, 2016June 30, 2018 were as follows:
| | | | | | | | | |
| | Three months ended | | Nine months ended | |
| | Percentage Change in | | Percentage Change in | |
| | Volume | | Pricing | | Volume | | Pricing | |
Cement | | 12.3 | % | 3.5 | % | 13.3 | % | 3.9 | % |
|
| | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | Percentage Change in | | Percentage Change in |
| | Volume | | Pricing | | Volume | | Pricing |
| Cement | 2.6 | % | | 0.6 | % | | 2.2 | % | | — | % |
Revenue from cement increased
$13.5$2.5 million and
$32.5$2.4 million in the three and
ninesix months ended
September 30, 2017,June 29, 2019, respectively,
due primarily to increasedas organic cement
volumespricing in the three and
pricing. For the ninesix months ended
September 30, 2017, cementJune 29, 2019 was flat, while we obtained a 2.6% and 2.2% increase in volumes,
and pricing increased 13.3% and 3.9%, respectively.
The acquisition of the Angelle Assets contributed 3.1% and 12.6% in cement volumes and pricing increases, respectively, in the nine months ended September 30, 2017. Organic cement volumes increased 10.2% year over year, with the balance attributable to the acquisition referred to above.Liquidity and Capital Resources
Our primary sources of liquidity include cash on-hand, cash provided by operations, amounts available for borrowing under our senior secured credit facilities and capital-raising activities in the debt and capital markets. As of
September 30, 2017,June 29, 2019, we had
$287.1$67.7 million in cash and cash equivalents and
$500.2$323.6 million of working capital compared to
$143.4$128.5 million and
$244.4$330.9 million, respectively, at December
31, 2016.29, 2018. Working capital is calculated as current assets less current liabilities. There were no restricted cash balances as of
September 30, 2017June 29, 2019 or December
31, 2016.29, 2018. Our remaining borrowing capacity on our senior secured revolving credit facility was
$218.9$329.8 million as of
September 30, 2017,June 29, 2019, which is net of
$16.1$15.2 million of outstanding letters of credit and is fully available to us within the terms and covenant requirements of our credit agreement governing the senior secured credit facilities (the “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.
Our acquisition strategy has historically required us to raise capital through equity issuances or debt financings. As of
September 30, 2017June 29, 2019 and December
31, 2016,29, 2018, our long-term borrowings
including the current portion without giving effect to original issue discount, totaled
$1.8$1.9 billion and
$1.5$1.8 billion, respectively, for which we incurred $25.6 million and
$70.1$51.9 million of interest expense for the three and
ninesix months ended
September 30, 2017, respectively,June 29, 2019, and
$21.8$25.6 million and
$62.0$51.3 million for the three and
ninesix months ended
October 1, 2016, respectively. We remain in compliance with our debt covenants and, when we have made additional issuances of senior notes to fund acquisitions, we have complied with the incurrence tests in the indentures governing our senior notes. In addition, our cash flows provided by operating activities were $244.9 million in the year ended December 31, 2016, which is net of interest payments.June 30, 2018. Our senior secured revolving credit facility has been adequate to fund our seasonal working capital needs and certain
acquisitions.acquisitions. We had no outstanding borrowings on the revolving credit facility as of September 30, 2017.June 29, 2019.
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.
We and our affiliates may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Please refer to the notes to the consolidated interim financial statements for detailed information about our long-term debt, scheduled maturities of long-term debt and affirmative and negative covenants, including the maximum allowable consolidated first lien net leverage ratio. As of
September 30, 2017,June 29, 2019, we were in compliance with all debt covenants.
At
September 30, 2017June 29, 2019 and December
31, 2016, $1.829, 2018, $1.9 billion and
$1.5$1.8 billion of total debt, respectively,
without giving effect to original issuance discount, werewas outstanding under our respective debt agreements. Summit LLC has senior secured 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$345.0 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
Sand & Gravel ULC, 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,February 28, 2019, Summit LLC entered into Incremental Amendment No. 1 (“Amendment No. 1”)4 to the Credit Agreement which, among other things, reducedincreased the applicable margin in respecttotal amount available under the revolving credit facility to $345.0 million and extended the maturity date of the $640.3 million outstanding principal amountCredit Agreement to February 2024.
On March 15, 2019, Summit LLC and Summit Finance (together, the “Issuers”) issued the 2027 Notes, at 100.0% of term loans thereunder and included a 1.00% prepayment premium in connection with certain further
repricing events that occur on or prior to the six-month anniversary of the effective date of Amendment No. 1. 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 June 1, 2017, the Issuers issued $300.0 million in aggregate principal amount of 5.125% senior notes due June 1, 2025. The 2025 Notes were issued attheir par value resulting inwith proceeds of $295.4$296.3 million, net of related fees and expenses. Interest on the 20252027 Notes is payable semi-annually on June 1 and December 1 of each year commencing on December 1, 2017. Proceeds from the sale of the 2025 Notes are intended to be used for acquisitions and to pay fees and expenses incurred in connection with any such acquisitions and the offering, with any remaining net proceeds to be used for general corporate purposes, which may include repaying indebtedness, capital expenditures and funding working capital.
On March 8, 2016, the Issuers issued $250.0 million in aggregate principal amount of 8.500% senior notes due April 15, 2022 (the “2022 Notes”). The 2022 Notes were issued at par and interest on the 2022 Notes is payable semi-annually in arrears on April 15 and OctoberSeptember 15 of each year commencing on OctoberSeptember 15, 2016. The net2019. In March 2019, using the proceeds from the 2027 Notes, all of the 2022 Notes were usedredeemed at a price equal to fundpar plus an applicable premium and the Boxley acquisition, replenish cash usedindenture under which the 2022 Notes were issued was satisfied and discharged. As a result of the extinguishment, charges of $14.6 million were recognized in the quarter ended March 30, 2019, which included charges of $11.7 million for the AMC acquisitionapplicable redemption premium and pay expenses incurred therewith.
$2.9 million for the write-off of deferred financing fees.
The following table summarizes our net cash used
forin or provided by operating, investing and financing activities and our capital expenditures in the
ninesix months ended
SeptemberJune 29, 2019 and June 30,
2017 and October 1, 2016:2018: | | | | | | |
| | Summit Inc. |
| | September 30, | | October 1, |
(in thousands) | | 2017 | | 2016 |
Net cash provided by (used for): | | | | | | |
Operating activities | | $ | 132,433 | | $ | 84,523 |
Investing activities | | | (505,485) | | | (435,686) |
Financing activities | | | 516,008 | | | 196,071 |
Cash paid for capital expenditures | | $ | (147,478) | | $ | (121,945) |
|
| | | | | | | |
| | Summit Inc. |
| (in thousands) | June 29, 2019 | | June 30, 2018 |
| Net cash provided by (used in): | | | |
| Operating activities | $ | 15,948 |
| | $ | (33,718 | ) |
| Investing activities | (100,845 | ) | | (270,059 | ) |
| Financing activities | 23,853 |
| | (28,904 | ) |
During the
ninesix months ended
September 30, 2017,June 29, 2019, cash provided by operating activities was
$132.4$15.9 million primarily as a result of:
| ·
| | Net income of $79.1 million, as well as $152.7 million of non-cash expenses, including $140.6 million of depreciation, depletion, amortization and accretion and $9.4 million of share-based compensation.
|
| ·
| | Additional investment in inventory of $12.8 million consistent with the seasonality of our business for which our inventory levels typically increase in the first half of the year in preparation for the upcoming season.
|
| ·
| | Billed and unbilled accounts receivable increased by $130.6 million in the first nine months of 2017 as a result of the seasonality of our business. The majority of our sales occur in the spring, summer and fall and we typically incur an increase in accounts receivable (net billed and unbilled) during the second and third quarters of each year. This amount is typically converted to cash in the fourth and first quarters.
|
| ·
| | Deferred tax assets increased by $488.9 million as a result of the analysis of the realizability of our deferred tax assets offset by an increase in tax receivable agreement payment payable of $490.7 million.
|
| ·
| | 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 $71.1 million of interest payments in the nine months ended September 30, 2017.
|
Net loss of $33.5 million, offset by non-cash expenses, including $111.0 million of depreciation, depletion, amortization and accretion expense and $10.6 million of share-based compensation.2019 as a result of the seasonality of our business. The majority of our sales occur in the spring, summer and fall and we typically incur an increase in accounts receivable (net billed and unbilled) during the second and third quarters of each year. This amount is typically converted to cash in the fourth and first quarters. 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 $36.8 million of interest payments in the six months ended June 29, 2019.
During the ninesix months ended October 1, 2016, June 30, 2018, cash provided byused in operating activities was $84.5$33.7 million primarily as a result of:
Net loss of
: $19.0 million, offset by non-cash expenses, including $98.6 million of depreciation, depletion, amortization and accretion and $14.2 million of share-based compensation. | ·
| | Net income of $40.1 million, as well as $148.3 million of non-cash expenses, including $118.0 million of depreciation, depletion, amortization and accretion and $46.1 million of share-based compensation.
|
Additional investment in inventory of $44.4 million consistent with the seasonality of our business for which our inventory levels typically increase in the first half of the year in preparation for the upcoming season. | ·
| | Additional investment in inventory of $17.1 million consistent with the seasonality of our business for which our inventory levels typically increase in the first half of the year in preparation for the upcoming season.
|
Billed and unbilled accounts receivable increased by $92.3 million in the first six months of 2018 as a result of the seasonality of our business as described above. | ·
| | $115.6 million of accounts receivable (billed and unbilled) as a result of the seasonality of our business. The majority of our sales occur in the spring, summer and fall and we typically incur an increase in accounts receivable (net billed and unbilled) during the second and third quarters of each year. This amount is typically converted to cash in the fourth and first quarters.
|
The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business as described above. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $52.2 million of interest payments in the six months ended June 30, 2018. | ·
| | The timing of payments associated with accounts payable and accrued expenses added $32.8 million 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 $60.7 million of interest payments in the nine months ended October 1, 2016.
|
During the
ninesix months ended
September 30, 2017,June 29, 2019, cash used for investing activities was
$505.5$100.8 million, of which
$371.5$2.8 million related to the
14 acquisitionsone acquisition completed in the period and
$147.5$105.6 million was invested in capital expenditures, which was partially offset by
$13.3$8.0 million of proceeds from asset sales.
During the
ninesix months ended
October 1, 2016, June 30, 2018, cash used for investing activities was $435.7$270.1 million, of which $331.5$153.2 million related to the eight 2016seven acquisitions completed in the period and $121.9$131.7 million was invested in capital expenditures, which was partially offset by $16.2$14.1 million of proceeds from asset sales.During the ninesix months ended September 30, 2017,June 29, 2019, cash provided by financing activities was $516.0 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$23.9 million. We received $0.8 million of proceeds from stock option exercises and $300.0 million from proceeds from debt issuance, which was offset by $9.2 million of payments on acquisition-related liabilities and $261.0 million of payments on debt.
During the
2025 Notes, netsix months ended June 30, 2018, cash used in financing activities was $28.9 million. We received $15.6 million of
related fees and expenses. We made $22.6proceeds from stock option exercises, which was partially offset by $31.2 million of payments on acquisition related liabilities and
$5.9 million in payments for debt and capital issuance costs.During the nine months ended October 1, 2016, cash provided by financing activities was $196.1 million, which was primarily composed of $246.3 million of proceeds from the 2022 Notes, net of fees. We made $28.9$10.8 million of payments on acquisition related liabilities, and $5.7 million in debt issuance costs.
debt.
Cash paid for capital expenditures
We
expendedpaid cash of approximately
$147.5$105.6 million in capital expenditures in the
ninesix months ended
September 30, 2017June 29, 2019 compared to
$121.9$131.7 million in the
ninesix months ended
October 1, 2016. The third quarter of 2017 capital expenditures were primarily composed of rolling stock and plant upgrades.June 30, 2018.
We estimate that we will invest between
$180.0$160.0 million and
$190.0$175.0 million in capital expenditures in
2017,2019, which we
have funded or expect to fund through cash on hand, cash from operations, outside financing arrangements and available borrowings under our revolving credit facility.
In the first quarter of 2019, we completed the construction of a new aggregates plant in Vancouver which is now fully operational. We
also expect to
invest $14complete two new aggregates plants in Georgia and make aggregate plant improvements in Texas, Virginia, Kansas, Kentucky and Vancouver, investing approximately $37.7 million
on a new plant and terminal in
Vancouver and along the Mississippi River during the fourth quarter of 2017, with an additional investment of approximately $31 million to complete thethese projects in
2018. Additionally,2019. Further, we also plan to purchase land reserves for greenfield opportunities in Virginia and Texas for approximately $8.5 million in the third quarter. In addition, we are
completingin the process of installing a
$4.5high efficiency finish mill separator at our cement plant in Davenport, Iowa for $4.0 million,
aggregate plant upgradewith completion expected to occur in
northeast Texas and a new $5.0 million ready-mix concrete plant near Houston.the third quarter 2019.
When the Company purchases LP Units for cash or LP Units are exchanged for shares of Class A common stock, this results in increases in the Company’s share of 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 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 onupon 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.
income and the effective tax rate.
We anticipate funding payments under the TRA
agreement from cash flows from operations, available cash and available borrowings under our Senior Secured Revolving Credit Facilities.
As of June 29, 2019, we had accrued $309.7 million as TRA liability in our consolidated financial statements. We do not expect significant payments on our TRA liability to occur within the next twelve months.
Based upon a $32.03$19.25 per share price of our Class A common stock, the closing price of our stock on Septemberthe last trading day of the three months ended June 29, 2017,2019, and a contractually defined discount rate of 2.82%3.18%, we estimate that if Summit Inc. were to exercise its right to terminate the TRA, the aggregate amount required to settle the TRA would be approximately $495.7$276.4 million. Estimating the amount and the timing of payments that may be made under the TRA is by its nature difficult and imprecise, insofar as the amounts payable depends on a variety of factors, including, but not limited to, the timing of future exchanges, our stock price at the date of the exchange and the timing of the generation of future taxable income. The increases
in tax basis as a result of an exchange, as well as the amount and timing of any payments under the TRA, will vary depending on a variety of factors.
As of September 30, 2017, we had accrued $548.9 million as TRA liability in our consolidated financial statements. We do not expect payments on our TRA liability to occur within the next twelve months.
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 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 and Claims—We are obligated under an indemnification agreement entered into with the sellers of Harper Contracting 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, but do not own equity interests in the joint venture. The joint venture incurred significant losses on a highway project in Utah, which resulted in requests for funding from the joint venture partners and ultimately from us. Through September 30, 2017, we have funded $12.3 million. In the third quarter of 2017, we settled our remaining obligations under this agreement for $3.5 million, which was $0.8 million less than amounts previously accrued under the agreement.
Environmental Remediation—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
September 30, 2017,June 29, 2019, we had no material off-balance sheet arrangements.
New Accounting Pronouncements Not Yet Adopted
In August 2017,2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives2018-15, Intangibles-Goodwill and Hedging (Topic 815)Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements toCustomer’s Accounting for Hedging Activities, allowing more financialImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which reduces the accounting complexity of implementing a cloud computing service arrangement. The ASU aligns the capitalization of implementation costs among hosting arrangements and nonfinancial hedging strategiescosts incurred 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 of this ASU is not expected to have a material impact on the consolidated financial statements.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 constitute 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 is not expected to have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which will result in lessees recognizing most leases on the balance sheet. Lessees are required to disclose more quantitative and qualitative information about their leases than current U.S. GAAP requires. The ASU is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.permitted. We are beginning to compile all operatingcompiling a list of our contracts and capital leasesare beginning to assess the impact of adopting this standard.
ASU.
In May 2014,August 2018, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which prescribes a five-step modelmodifies the disclosure requirements for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP.employer sponsored defined benefit and other postretirement benefits plans. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAPis effective for fiscal years beginning after December 15, 2020 and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflectsinterim periods within those fiscal years. Early adoption is permitted. We are evaluating 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, timingrequirements and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurredare beginning 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 cumulative effect transition approach. While we are currently evaluatingassess the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we do not expect the adoption of these ASU’s to have a material impact on our consolidated statements of operations.adopting this ASU.
Non-GAAP Performance Measures
We evaluate our operating performance using metrics that we refer to as “Adjusted EBITDA,”
"Adjusted“Adjusted Cash Gross
Profit"Profit” and “Adjusted Cash Gross
Profit 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 operationsgain on sale of business, transaction costs 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
Profit Margin as Adjusted Cash Gross Profit as a percentage of net revenue.
We present Adjusted EBITDA, Adjusted Cash Gross Profit and Adjusted Cash Gross Profit 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 | | Three months ended September 30, 2017 |
by Segment | | West | | East | | Cement | | Corporate | | Consolidated |
(in thousands) | | | | | | | | | | | | | | | |
Net income (loss) (1) | | $ | 54,839 | | $ | 37,617 | | $ | 36,056 | | $ | (46,437) | | $ | 82,075 |
Interest expense (income) (1) | | | 1,839 | | | 889 | | | (1,011) | | | 27,204 | | | 28,921 |
Income tax expense (benefit) | | | 889 | | | — | | | — | | | (484,473) | | | (483,584) |
Depreciation, depletion and amortization | | | 18,697 | | | 17,416 | | | 11,751 | | | 619 | | | 48,483 |
EBITDA | | $ | 76,264 | | $ | 55,922 | | $ | 46,796 | | $ | (503,087) | | $ | (324,105) |
Accretion | | | 210 | | | 212 | | | 64 | | | — | | | 486 |
Loss on debt financings | | | — | | | — | | | — | | | — | | | — |
Tax receivable agreement expense (1) | | | — | | | — | | | — | | | 489,215 | | | 489,215 |
Transaction costs | | | 14 | | | — | | | — | | | 2,567 | | | 2,581 |
Non-cash compensation | | | — | | | — | | | — | | | 4,724 | | | 4,724 |
Other | | | 149 | | | 263 | | | — | | | (612) | | | (200) |
Adjusted EBITDA (1) | | $ | 76,637 | | $ | 56,397 | | $ | 46,860 | | $ | (7,193) | | $ | 172,701 |
| | | | | | | | | | | | | | | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Three months ended October 1, 2016 |
by Segment | | West | | East | | Cement | | Corporate | | Consolidated |
(in thousands) | | | | | | | | | | | | | | | |
Net income (loss) (1) | | $ | 42,249 | | $ | 34,657 | | $ | 32,823 | | $ | (48,623) | | $ | 61,106 |
Interest expense (income) (1) | | | 2,556 | | | 1,929 | | | (178) | | | 20,966 | | | 25,273 |
Income tax expense | | | 97 | | | — | | | — | | | 1,212 | | | 1,309 |
Depreciation, depletion and amortization | | | 16,301 | | | 14,572 | | | 7,610 | | | 572 | | | 39,055 |
EBITDA | | $ | 61,203 | | $ | 51,158 | | $ | 40,255 | | $ | (25,873) | | $ | 126,743 |
Accretion | | | 191 | | | 172 | | | 9 | | | — | | | 372 |
IPO/ Legacy equity modification costs | | | — | | | — | | | — | | | 12,506 | | | 12,506 |
Transaction costs | | | 75 | | | 20 | | | — | | | 1,589 | | | 1,684 |
Non-cash compensation | | | — | | | — | | | — | | | 3,801 | | | 3,801 |
Other | | | 2,214 | | | 208 | | | — | | | (1,337) | | | 1,085 |
Adjusted EBITDA (1) | | $ | 63,683 | | $ | 51,558 | | $ | 40,264 | | $ | (9,314) | | $ | 146,191 |
|
| | | | | | | | | | | | | | | | | | | |
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | Three months ended June 29, 2019 |
| by Segment | West | | East | | Cement | | Corporate | | Consolidated |
| ($ in thousands) | | | | | | | | | |
| Net income (loss) (1) | $ | 30,739 |
| | $ | 35,175 |
| | $ | 27,917 |
| | $ | (55,841 | ) | | $ | 37,990 |
|
| Interest expense (income) (1) | 751 |
| | 1,047 |
| | (2,345 | ) | | 29,948 |
| | 29,401 |
|
| Income tax expense (1) | 777 |
| | 64 |
| | — |
| | 15,866 |
| | 16,707 |
|
| Depreciation, depletion and amortization | 22,784 |
| | 19,540 |
| | 9,719 |
| | 992 |
| | 53,035 |
|
| EBITDA | $ | 55,051 |
| | $ | 55,826 |
| | $ | 35,291 |
| | $ | (9,035 | ) | | $ | 137,133 |
|
| Accretion | 140 |
| | 300 |
| | 150 |
| | — |
| | 590 |
|
| Transaction costs | 11 |
| | — |
| | — |
| | 379 |
| | 390 |
|
| Non-cash compensation | — |
| | — |
| | — |
| | 4,699 |
| | 4,699 |
|
| Other (2) | (382 | ) | | (1,714 | ) | | — |
| | (250 | ) | | (2,346 | ) |
| Adjusted EBITDA (1) | $ | 54,820 |
| | $ | 54,412 |
| | $ | 35,441 |
| | $ | (4,207 | ) | | $ | 140,466 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | Six months ended June 29, 2019 |
| by Segment | West | | East | | Cement | | Corporate | | Consolidated |
| ($ in thousands) | | | | | | | | | |
| Net income (loss) (1) | $ | 21,187 |
| | $ | 16,808 |
| | $ | 17,349 |
| | $ | (88,855 | ) | | $ | (33,511 | ) |
| Interest expense (income) (1) | 1,494 |
| | 2,055 |
| | (4,664 | ) | | 60,621 |
| | 59,506 |
|
| Income tax expense (benefit) (1) | 334 |
| | 118 |
| | — |
| | (11,782 | ) | | (11,330 | ) |
| Depreciation, depletion and amortization | 46,580 |
| | 39,445 |
| | 19,873 |
| | 1,944 |
| | 107,842 |
|
| EBITDA | $ | 69,595 |
| | $ | 58,426 |
| | $ | 32,558 |
| | $ | (38,072 | ) | | $ | 122,507 |
|
| Accretion | 269 |
| | 606 |
| | 296 |
| | — |
| | 1,171 |
|
| Loss on debt financings | — |
| | — |
| | — |
| | 14,565 |
| | 14,565 |
|
| Transaction costs | 11 |
| | — |
| | — |
| | 687 |
| | 698 |
|
| Non-cash compensation | — |
| | — |
| | — |
| | 10,605 |
| | 10,605 |
|
| Other (2) | (757 | ) | | (1,378 | ) | | — |
| | (357 | ) | | (2,492 | ) |
| Adjusted EBITDA (1) | $ | 69,118 |
| | $ | 57,654 |
| | $ | 32,854 |
| | $ | (12,572 | ) | | $ | 147,054 |
|
| | | | | | | | | | | | | | | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Nine months ended September 30, 2017 |
by Segment | | West | | East | | Cement | | Corporate | | Consolidated |
(in thousands) | | | | | | | | | | | | | | | |
Net income (loss) (1) | | $ | 93,342 | | $ | 46,124 | | $ | 65,785 | | $ | (126,196) | | $ | 79,055 |
Interest expense (income) (1) | | | 5,586 | | | 2,503 | | | (2,345) | | | 74,132 | | | 79,876 |
Income tax expense (benefit) | | | 1,424 | | | (21) | | | — | | | (483,730) | | | (482,327) |
Depreciation, depletion and amortization | | | 51,389 | | | 49,343 | | | 29,702 | | | 1,940 | | | 132,374 |
EBITDA | | $ | 151,741 | | $ | 97,949 | | $ | 93,142 | | $ | (533,854) | | $ | (191,022) |
Accretion | | | 600 | | | 596 | | | 186 | | | — | | | 1,382 |
Loss on debt financings | | | — | | | — | | | — | | | 190 | | | 190 |
Tax receivable agreement expense (1) | | | — | | | — | | | — | | | 490,740 | | | 490,740 |
Transaction costs | | | 23 | | | — | | | — | | | 6,451 | | | 6,474 |
Non-cash compensation | | | — | | | — | | | — | | | 14,148 | | | 14,148 |
Other | | | 492 | | | 966 | | | — | | | (1,804) | | | (346) |
Adjusted EBITDA (1) | | $ | 152,856 | | $ | 99,511 | | $ | 93,328 | | $ | (24,129) | | $ | 321,566 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Nine months ended October 1, 2016 | Three months ended June 30, 2018 |
by Segment | | West | | East | | Cement | | Corporate | | Consolidated | West | | East | | Cement | | Corporate | | Consolidated |
(in thousands) | | | | | | | | | | | | | | | | |
| ($ in thousands) | | | | | | | | | | |
Net income (loss) (1) | | $ | 67,705 | | $ | 46,369 | | $ | 53,395 | | $ | (127,392) | | $ | 40,077 | $ | 36,532 |
| | $ | 26,421 |
| | $ | 27,458 |
| | $ | (53,498 | ) | | $ | 36,913 |
|
Interest expense (1) | | | 7,087 | | | 5,827 | | | 3,322 | | | 56,231 | | | 72,467 | |
| Interest expense (income) (1) | | 1,554 |
| | 947 |
| | (1,479 | ) | | 27,921 |
| | 28,943 |
|
Income tax expense (benefit) | | | 175 | | | — | | | — | | | (8,088) | | | (7,913) | 431 |
| | (84 | ) | | — |
| | 11,843 |
| | 12,190 |
|
Depreciation, depletion and amortization | | | 48,044 | | | 36,984 | | | 21,116 | | | 1,849 | | | 107,993 | 22,445 |
| | 17,606 |
| | 8,716 |
| | 635 |
| | 49,402 |
|
EBITDA | | $ | 123,011 | | $ | 89,180 | | $ | 77,833 | | $ | (77,400) | | $ | 212,624 | $ | 60,962 |
| | $ | 44,890 |
| | $ | 34,695 |
| | $ | (13,099 | ) | | $ | 127,448 |
|
Accretion | | | 670 | | | 501 | | | 31 | | | — | | | 1,202 | 144 |
| | 220 |
| | (35 | ) | | — |
| | 329 |
|
IPO/ Legacy equity modification costs | | | — | | | — | | | — | | | 37,257 | | | 37,257 | |
| Loss on debt financings | | — |
| | — |
| | — |
| | 149 |
| | 149 |
|
Transaction costs | | | 440 | | | 25 | | | — | | | 4,825 | | | 5,290 | (2 | ) | | — |
| | — |
| | 1,293 |
| | 1,291 |
|
Non-cash compensation | | | — | | | — | | | — | | | 8,866 | | | 8,866 | — |
| | — |
| | — |
| | 5,683 |
| | 5,683 |
|
Other | | | 3,426 | | | 699 | | | 964 | | | (996) | | | 4,093 | 123 |
| | 285 |
| | — |
| | 33 |
| | 441 |
|
Adjusted EBITDA (1) | | $ | 127,547 | | $ | 90,405 | | $ | 78,828 | | $ | (27,448) | | $ | 269,332 | $ | 61,227 |
| | $ | 45,395 |
| | $ | 34,660 |
| | $ | (5,941 | ) | | $ | 135,341 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | Six months ended June 30, 2018 |
| by Segment | West | | East | | Cement | | Corporate | | Consolidated |
| ($ in thousands) | | | | | | | | | |
| Net income (loss) (1) | $ | 36,604 |
| | $ | 4,777 |
| | $ | 26,361 |
| | $ | (86,777 | ) | | $ | (19,035 | ) |
| Interest expense (benefit) (1) | 2,734 |
| | 1,553 |
| | (3,085 | ) | | 56,525 |
| | 57,727 |
|
| Income tax expense (benefit) | 49 |
| | (270 | ) | | — |
| | (4,295 | ) | | (4,516 | ) |
| Depreciation, depletion and amortization | 44,453 |
| | 35,118 |
| | 15,029 |
| | 1,345 |
| | 95,945 |
|
| EBITDA | $ | 83,840 |
| | $ | 41,178 |
| | $ | 38,305 |
| | $ | (33,202 | ) | | $ | 130,121 |
|
| Accretion | 287 |
| | 435 |
| | 22 |
| | — |
| | 744 |
|
| Loss on debt financings | — |
| | — |
| | — |
| | 149 |
| | 149 |
|
| Transaction costs | (6 | ) | | — |
| | — |
| | 2,563 |
| | 2,557 |
|
| Non-cash compensation | — |
| | — |
| | — |
| | 14,190 |
| | 14,190 |
|
| Other (2) | (6,721 | ) | | 579 |
| | — |
| | (765 | ) | | (6,907 | ) |
| Adjusted EBITDA (1) | $ | 77,400 |
| | $ | 42,192 |
| | $ | 38,327 |
| | $ | (17,065 | ) | | $ | 140,854 |
|
| |
| (1) | | The reconciliation of net income (loss) to Adjusted EBITDA is based on the financial results of Summit Inc. and its subsidiaries, which was $0.3 million$0.1 and $0.8$0.3 million less than Summit LLC and its subsidiaries in the three and ninesix months ended October 1, 2016,June 29, 2019, respectively, and $0.2 million and $0.7$0.4 million less in the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, due to interest expense associated with a deferred consideration obligation, which is an obligation of Summit Holdings and is thus excluded from Summit LLC’s consolidated interest expense. |
| |
| (2) | In the three and six months ended June 29, 2019, we negotiated a $2.0 million reduction in the amount of a contingent liability from one of our acquisitions. In the six months ended June 30, 2018, we negotiated a $6.9 million reduction in the amount of a contingent liability from one of our acquisitions. As we had passed the period to revise the opening balance sheet for this acquisition, the adjustment was recorded in the respective period as other income. |
|
| | | | | | | |
| Reconciliation of Working Capital | June 29, 2019 | | December 29, 2018 |
| ($ in thousands) | | | |
| Total current assets | $ | 628,387 |
| | $ | 591,540 |
|
| Less total current liabilities | (304,825 | ) | | (260,657 | ) |
| Working capital | $ | 323,562 |
| | $ | 330,883 |
|
|
| | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| Reconciliation of Operating Income to Adjusted Cash Gross Profit | June 29, 2019 | | June 30, 2018 | | June 29, 2019 | | June 30, 2018 |
| ($ in thousands) | | | | | | | |
| Operating income | $ | 80,422 |
| | $ | 77,279 |
| | $ | 22,751 |
| | $ | 25,754 |
|
| General and administrative expenses | 60,961 |
| | 61,657 |
| | 128,571 |
| | 131,518 |
|
| Depreciation, depletion, amortization and accretion | 53,625 |
| | 49,731 |
| | 109,013 |
| | 96,689 |
|
| Transaction costs | 390 |
| | 1,291 |
| | 698 |
| | 2,557 |
|
| Adjusted Cash Gross Profit (exclusive of items shown separately) | $ | 195,398 |
| | $ | 189,958 |
| | $ | 261,033 |
| | $ | 256,518 |
|
| Adjusted Cash Gross Profit Margin (exclusive of items shown separately) (1) | 35.4 | % | | 34.6 | % | | 30.4 | % | | 30.6 | % |
| | | | | | | |
| | September 30, | | December 31, | |
Reconciliation of Working Capital | | 2017 | | 2016 | |
(in thousands) | | | | | | | |
Total current assets | | $ | 815,342 | | $ | 483,698 | |
Less total current liabilities | | | (315,123) | | | (239,288) | |
Working capital | | $ | 500,219 | | $ | 244,410 | |
| | | | | | | | | | | | | | |
| | Three months ended | | | Nine months ended | |
| | September 30, | | October 1, | | | September 30, | | October 1, | |
Reconciliation of Operating Income to Adjusted Cash Gross Profit | | 2017 | | 2016 | | | 2017 | | 2016 | |
($ in thousands) | | | | | | | | | | | | | | |
Operating income | | $ | 113,911 | | $ | 88,410 | | | $ | 163,571 | | $ | 105,901 | |
General and administrative expenses | | | 59,175 | | | 64,096 | | | | 175,729 | | | 184,956 | |
Depreciation, depletion, amortization and accretion | | | 48,969 | | | 39,427 | | | | 133,756 | | | 109,195 | |
Transaction costs | | | 2,581 | | | 1,684 | | | | 6,474 | | | 5,290 | |
Adjusted Cash Gross Profit (exclusive of items shown separately) | | $ | 224,636 | | $ | 193,617 | | | $ | 479,530 | | $ | 405,342 | |
Adjusted Cash Gross Profit Margin (exclusive of items shown separately) (1) | | | 39.1 | % | | 40.3 | % | | | 36.6 | % | | 36.8 | % |
| |
| (1) | | Adjusted Cash Gross Profit Margin, which we define as Adjusted Cash Gross Profit as a percentage of net revenue. |
ITEM
3.QUANTITATIVE3. 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. TheseConsequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs. For a discussion of quantitative and qualitative disclosures about market risk, please refer to the Annual Report from which our exposure to market risk has not materially changed.
ITEM
4.CONTROLS4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Summit Inc. maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 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 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
September 30, 2017.June 29, 2019. Based upon that evaluation, Summit Inc.’s Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2017,June 29, 2019, Summit Inc.’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Summit LLC maintains 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 LLC’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 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 LLC’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Summit LLC’s disclosure controls and procedures as of
September 30, 2017.June 29, 2019. Based upon that evaluation, Summit LLC’s Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2017,June 29, 2019, Summit LLC’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in Summit Inc.’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during its last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Summit Inc.’s internal control over financial reporting.
There was no change in Summit LLC’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during its last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Summit LLC’s internal control over financial reporting.
PartPART II—OTHER INFORMATION
ITEM
1.LEGAL1. LEGAL PROCEEDINGS
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 results of operations, financial position or liquidity.
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 we are cooperating with the CCB. 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 ultimate outcome or cost of the investigation at this time.
ITEM
1A.RISK1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in the Annual Report which could materially affect the Company’s business, financial condition, operating results or liquidity or future results. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its results of operations, financial condition or liquidity. There have been no material changes to the risk factors disclosed in the Annual Report.
ITEM 2.UNREGISTERED2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.DEFAULTS3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4.MINE4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this report.
ITEM
5.OTHER5. OTHER INFORMATION
None.
ITEM
6.EXHIBITS6. EXHIBITS | |
3.1
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| 3.1 | |
3.2 | |
3.3 | |
3.4 | |
31.1* | |
31.2* | |
31.3* | |
31.4* | |
32.1** | |
32.2** | |
32.3** | |
32.4** | |
95.1* | |
99.1* | |
101.INS* | XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL 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 |
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.
Pursuant to the requirements 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: November 2, 2017 August 1, 2019 | By: | By:
| /s/ Thomas W. Hill |
| | | Thomas W. Hill |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: November 2, 2017 August 1, 2019 | By: | By:
| /s/ Brian J. Harris |
| | | Brian J. Harris |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
