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Section 1: 10-Q (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

 

 

    

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 1, 2017

 

OR

 

 

 

 

    

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                       

 

Commission file numbers:

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)


 

 

 

Delaware (Summit Materials, Inc.)

47-1984212

Delaware (Summit Materials, LLC)

26-4138486

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1550 Wynkoop Street, 3rd Floor

Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

 

Registrants’ telephone number, including area code: (303) 893-0012

Not Applicable

(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.

 

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

Yes ☒

No ◻

Summit Materials, LLC

 

 

 

Yes ☒

No ◻

 

 

 

 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

Yes ☒

No ◻

Summit Materials, LLC

 

 

 

Yes ☒

No ◻

 

 

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting 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

Emerging growth company

Exchange Act.

 

 

 

 

 

 

 

 

 

 

Summit Materials, LLC

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting 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

Emerging growth company

Exchange Act.

 

 

 

 

 

 

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

Yes ◻

No ☒

Summit Materials, LLC

 

 

 

Yes ◻

No ☒

 

As of July 26, 2017, 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 107,504,679 and 100, respectively.

As of July 26, 2017, 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.

 

 


 

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EXPLANATORY NOTE

 

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 July 1, 2017, its sole material asset was a 96.3% economic interest in Summit Materials Holdings L.P. (“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 1/8% senior notes due 2023 (“2023 Notes”) and our 5 1/8% senior notes due 2025 (“2025 Notes” and collectively with the 2022 Notes and 2023 Notes, the "Senior Notes"). Summit Inc.’s only revenue for the three and six months ended July 1, 2017 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, 2016 (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:

 

·

our dependence on the construction industry and the strength of the local economies in which we operate;

 

·

the cyclical nature of our business;

 

·

risks related to weather and seasonality;

 

·

risks associated with our capital-intensive business;

 

·

competition within our local markets;

 


 

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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;

 

·

our dependence on securing and permitting aggregate reserves in strategically located areas;

 

·

declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies;

 

·

environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;

 

·

conditions in the credit markets;

 

·

our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;

 

·

material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications;

 

·

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; and

 

·

interruptions in our information technology systems and infrastructure.

 

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.

 

CERTAIN DEFINITIONS

 

As used in this report, unless otherwise noted or the context otherwise requires:

 

·

"Finance Corp." refers to Summit Materials Finance Corp., an indirect wholly-owned subsidiary of Summit LLC and the co-issuer of the Senior Notes;

 

·

the “Issuers” refers to Summit LLC and Finance Corp. as co-issuers of the Senior Notes but not to any of their subsidiaries;

 

·

“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.;

 

·

“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.; 

 

·

“AMC" refers to American Materials Company;


 

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·

“Boxley” refers to Boxley Materials Company;

 

·

“Sierra” refers to Sierra Ready Mix, LLC;

 

·

"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.;

 

·

“Weldon’’ refers to Weldon Real Estate, LLC;

 

·

“Rustin” refers to H.C. Rustin Corporation;

 

·

“RD Johnson” refers to R.D. Johnson Excavating Company, LLC and Asphalt Sales of Lawrence, LLC;

 

·

“Angelle Assets” refers to two cement terminal operations located in Port Allen and LaPlace, LA.;

 

·

“Midland Concrete” refers to Midland Concrete Ltd.;

 

·

“Everist Materials” refers to Everist Materials, LLC;

 

·

“Razorback” refers to Razorback Concrete Company;

 

·

“Sandidge Concrete” refers to Sandidge Manufacturing, Inc.;

 

·

“Carolina Sand” refers to Carolina Sand, LLC;

 

·

“Hanna’s Bend” refers to Hanna’s Bend Aggregate, Ltd.;

 

·

“Winvan Paving” refers to Winvan Paving Ltd.;

 

·

“Glasscock” refers to Glasscock Company, Inc. and Glasscock Logistics Company, LLC;

 

·

“Somerset” refers to Ready Mix Concrete of Somerset, Inc. and RMCS Holdings, Inc.;

 

·

“Great Southern” refers to Great Southern Ready Mix, LLC, Great Southern Stabilized, LLC and Southern Cement Slurry, LLC;

 

·

“Northwest” refers to Northwest Ready Mix, Inc. and Northwest Aggregates, Inc.;

 

·

“LP Units” refers to the Summit Holdings’ outstanding Class A Units;

 

·

“IPO” refers to initial public offering; and

 

·

“EBITDA” refers to net income (loss) before interest expense, income tax expense (benefit), depreciation, depletion and amortization expense.

 

 


 

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Corporate Structure

The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of July 1, 2017. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.

Picture 6


 

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(1)

SEC registrant.

(2)

The shares of Class B Common Stock are currently held by pre-initial public offering 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.

(3)

Guarantor under the senior secured credit facilities, but not the Senior Notes.

(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.

 

 


 

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SUMMIT MATERIALS, INC.

SUMMIT MATERIALS, LLC

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

Page No.

PART I—Financial Information 

 

 

 

 

Item 1. 

Financial Statements for Summit Materials, Inc.

1

 

 

 

 

Consolidated Balance Sheets as of July 1, 2017 (unaudited) and December 31, 2016

1

 

 

 

 

Unaudited Consolidated Statements of Operations for the three and six months ended July 1, 2017 and July 2, 2016

2

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Operations for the three and six months ended July 1, 2017 and July 2, 2016

3

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months ended July 1, 2017 and July 2, 2016

4

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders Equity for the six months ended July 1, 2017  

5

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

 

Financial Statements for Summit Materials, LLC

22

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4. 

Controls and Procedures

47

 

 

 

PART II — Other Information 

 

 

 

 

Item 1. 

Legal Proceedings

48

 

 

 

Item 1A. 

Risk Factors

48

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

Item 3. 

Defaults Upon Senior Securities

48

 

 

 

Item 4. 

Mine Safety Disclosures

48

 

 

 

Item 5. 

Other Information

48

 

 

 

Item 6. 

Exhibits

49

 

 

SIGNATURES 

51

 

 

 

 


 

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PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets 

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

July 1,

 

December 31,

 

    

2017

    

2016

 

    

(unaudited)

    

(audited)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

353,063

 

$

143,392

Accounts receivable, net

 

 

247,546

 

 

162,377

Costs and estimated earnings in excess of billings

 

 

29,212

 

 

7,450

Inventories

 

 

182,886

 

 

157,679

Other current assets

 

 

12,352

 

 

12,800

Total current assets

 

 

825,059

 

 

483,698

Property, plant and equipment, less accumulated depreciation, depletion and amortization (July 1, 2017 - $554,433 and December 31, 2016 - $484,554)

 

 

1,555,816

 

 

1,446,452

Goodwill

 

 

918,511

 

 

782,212

Intangible assets, less accumulated amortization (July 1, 2017 - $6,041 and December 31, 2016 - $7,854)

 

 

17,344

 

 

17,989

Other assets

 

 

48,438

 

 

51,115

Total assets

 

$

3,365,168

 

$

2,781,466

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt

 

$

6,500

 

$

6,500

Current portion of acquisition-related liabilities

 

 

17,721

 

 

24,162

Accounts payable

 

 

116,817

 

 

81,565

Accrued expenses

 

 

119,260

 

 

111,605

Billings in excess of costs and estimated earnings

 

 

16,873

 

 

15,456

Total current liabilities

 

 

277,171

 

 

239,288

Long-term debt

 

 

1,807,713

 

 

1,514,456

Acquisition-related liabilities

 

 

38,039

 

 

32,664

Other noncurrent liabilities

 

 

129,296

 

 

135,019

Total liabilities

 

 

2,252,219

 

 

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, 107,491,979 and 96,033,222 shares issued and outstanding as of July 1, 2017 and December 31, 2016, respectively

 

 

1,076

 

 

961

Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 100 shares issued and outstanding as of July 1, 2017 and December 31, 2016

 

 

 —

 

 

 —

Additional paid-in capital

 

 

1,079,595

 

 

824,304

Accumulated earnings

 

 

16,584

 

 

19,028

Accumulated other comprehensive income (loss)

 

 

2,273

 

 

(2,249)

Stockholders’ equity

 

 

1,099,528

 

 

842,044

Noncontrolling interest in consolidated subsidiaries

 

 

1,292

 

 

1,378

Noncontrolling interest in Summit Holdings

 

 

12,129

 

 

16,617

Total stockholders’ equity

 

 

1,112,949

 

 

860,039

Total liabilities and stockholders’ equity

 

$

3,365,168

 

$

2,781,466

 

See notes to unaudited consolidated financial statements.

 

 

1


 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations 

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

    

2017

    

2016

    

2017

    

2016

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

397,726

 

$

341,341

 

$

622,743

 

$

521,443

Service

 

 

80,642

 

 

71,295

 

 

114,669

 

 

99,232

Net revenue

 

 

478,368

 

 

412,636

 

 

737,412

 

 

620,675

Delivery and subcontract revenue

 

 

45,725

 

 

32,638

 

 

70,958

 

 

52,978

Total revenue

 

 

524,093

 

 

445,274

 

 

808,370

 

 

673,653

Cost of revenue (excluding items shown separately below):

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

233,592

 

 

202,029

 

 

400,560

 

 

334,425

Service

 

 

56,587

 

 

50,471

 

 

81,958

 

 

74,525

Net cost of revenue

 

 

290,179

 

 

252,500

 

 

482,518

 

 

408,950

Delivery and subcontract cost

 

 

45,725

 

 

32,638

 

 

70,958

 

 

52,978

Total cost of revenue

 

 

335,904

 

 

285,138

 

 

553,476

 

 

461,928

General and administrative expenses

 

 

58,086

 

 

75,490

 

 

116,554

 

 

120,860

Depreciation, depletion, amortization and accretion

 

 

45,039

 

 

37,408

 

 

84,787

 

 

69,768

Transaction costs

 

 

2,620

 

 

290

 

 

3,893

 

 

3,606

Operating income

 

 

82,444

 

 

46,948

 

 

49,660

 

 

17,491

Interest expense

 

 

25,986

 

 

25,617

 

 

50,955

 

 

47,194

Loss on debt financings

 

 

 —

 

 

 —

 

 

190

 

 

 —

Tax receivable agreement expense

 

 

1,525

 

 

 —

 

 

1,525

 

 

 —

Other (income) expense, net

 

 

(590)

 

 

882

 

 

(1,247)

 

 

548

Income (loss) from operations before taxes

 

 

55,523

 

 

20,449

 

 

(1,763)

 

 

(30,251)

Income tax expense (benefit)

 

 

3,435

 

 

(1,056)

 

 

1,257

 

 

(9,222)

Net income (loss)

 

 

52,088

 

 

21,505

 

 

(3,020)

 

 

(21,029)

Net income (loss) attributable to noncontrolling interest in subsidiaries

 

 

12

 

 

44

 

 

(86)

 

 

(35)

Net income (loss) attributable to Summit Holdings

 

 

2,076

 

 

8,090

 

 

(490)

 

 

(13,247)

Net income (loss) attributable to Summit Inc.

 

$

50,000

 

$

13,371

 

$

(2,444)

 

$

(7,747)

Income (loss) per share of Class A common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47

 

$

0.21

 

$

(0.02)

 

$

(0.14)

Diluted

 

$

0.46

 

$

0.21

 

$

(0.02)

 

$

(0.20)

Weighted average shares of Class A common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

106,898,512

 

 

62,743,149

 

 

106,035,087

 

 

56,812,906

Diluted

 

 

107,908,888

 

 

63,893,909

 

 

106,035,087

 

 

100,954,233

 

See notes to unaudited consolidated financial statements.

 

2


 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Operations

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

    

2017

    

2016

    

2017

    

2016

Net income (loss)

 

$

52,088

 

$

21,505

 

$

(3,020)

 

$

(21,029)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement liability adjustment

 

 

413

 

 

 —

 

 

413

 

 

 —

Foreign currency translation adjustment

 

 

3,418

 

 

635

 

 

4,124

 

 

5,277

(Loss) income on cash flow hedges

 

 

(240)

 

 

(1,058)

 

 

172

 

 

(3,292)

Other comprehensive income (loss):

 

 

3,591

 

 

(423)

 

 

4,709

 

 

1,985

Comprehensive income (loss)

 

 

55,679

 

 

21,082

 

 

1,689

 

 

(19,044)

Less comprehensive income (loss) attributable to the noncontrolling interest in consolidated subsidiaries

 

 

12

 

 

44

 

 

(86)

 

 

(35)

Less comprehensive income (loss) attributable to Summit Holdings

 

 

1,145

 

 

8,051

 

 

(303)

 

 

(12,076)

Comprehensive income (loss) attributable to Summit Inc.

 

$

54,522

 

$

12,987

 

$

2,078

 

$

(6,933)

 

See notes to unaudited consolidated financial statements.

 

 

3


 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

July 1,

 

July 2,

 

    

2017

    

2016

Cash flow from operating activities:

 

 

 

 

 

 

Net loss

 

$

(3,020)

 

$

(21,029)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

90,781

 

 

76,252

Share-based compensation expense

 

 

9,424

 

 

29,817

Deferred income tax benefit

 

 

374

 

 

(10,040)

Net gain on asset disposals

 

 

(4,052)

 

 

(3,717)

Non-cash loss on debt financings

 

 

85

 

 

 —

Other

 

 

710

 

 

129

Decrease (increase) in operating assets, net of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

 

(68,539)

 

 

(55,489)

Inventories

 

 

(19,272)

 

 

(27,948)

Costs and estimated earnings in excess of billings

 

 

(21,571)

 

 

(24,542)

Other current assets

 

 

3,552

 

 

(2,646)

Other assets

 

 

(1,565)

 

 

(367)

Increase (decrease) in operating liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts payable

 

 

28,550

 

 

9,682

Accrued expenses

 

 

(6,789)

 

 

10,343

Billings in excess of costs and estimated earnings

 

 

1,252

 

 

(3,523)

Other liabilities

 

 

1,229

 

 

(3,422)

Net cash provided by (used in) operating activities

 

 

11,149

 

 

(26,500)

Cash flow from investing activities:

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(213,124)

 

 

(296,664)

Purchases of property, plant and equipment

 

 

(109,088)

 

 

(91,669)

Proceeds from the sale of property, plant and equipment

 

 

8,411

 

 

9,442

Other

 

 

137

 

 

1,500

Net cash used for investing activities

 

 

(313,664)

 

 

(377,391)

Cash flow from financing activities:

 

 

 

 

 

 

Proceeds from equity offerings

 

 

237,600

 

 

 —

Capital issuance costs

 

 

(627)

 

 

(136)

Proceeds from debt issuances

 

 

302,000

 

 

321,000

Debt issuance costs

 

 

(5,308)

 

 

(5,110)

Payments on debt

 

 

(9,288)

 

 

(63,676)

Payments on acquisition-related liabilities

 

 

(17,204)

 

 

(25,662)

Distributions from partnership

 

 

(79)

 

 

(373)

Other

 

 

4,904

 

 

113

Net cash provided by financing activities

 

 

511,998

 

 

226,156

Impact of foreign currency on cash

 

 

188

 

 

498

Net increase (decrease) in cash

 

 

209,671

 

 

(177,237)

Cash and cash equivalents—beginning of period

 

 

143,392

 

 

186,405

Cash and cash equivalents—end of period

 

$

353,063

 

$

9,168

 

See notes to unaudited consolidated financial statements.

 

 

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Table of Contents

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

Accumulated

 

Other

 

Class A

 

Class B

 

Additional

 

Noncontrolling

 

Total

 

 

Interest in

 

Earnings

 

Comprehensive

 

Common Stock

 

Common Stock

 

Paid-in

 

Interest in

 

Stockholders’

 

    

Subsidiaries

    

(Deficit)

    

Loss

    

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

 

 

(86)

 

 

(2,444)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(490)

 

 

(3,020)

Issuance of Class A Shares

 

 

 —

 

 

 —

 

 

 —

 

 

10,000,000

 

 

100

 

 

 —

 

 

 —

 

 

238,367

 

 

(1,496)

 

 

236,971

LP Unit exchanges

 

 

 —

 

 

 —

 

 

 —

 

 

1,014,159

 

 

10

 

 

 —

 

 

 —

 

 

2,600

 

 

(2,610)

 

 

 —

Other comprehensive income

 

 

 —

 

 

 —

 

 

4,522

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

187

 

 

4,709

Share-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,424

 

 

 —

 

 

9,424

Distributions from partnership

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(79)

 

 

(79)

Other

 

 

 —

 

 

 —

 

 

 —

 

 

444,598

 

 

 5

 

 

 —

 

 

 —

 

 

4,900

 

 

 —

 

 

4,905

Balance — July 1, 2017

 

$

1,292

 

$

16,584

 

$

2,273

 

 

107,491,979

 

$

1,076

 

 

100

 

$

 —

 

$

1,079,595

 

$

12,129

 

$

1,112,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements.

 

 

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Table of Contents

SUMMIT MATERIALS, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(Tables in thousands, except share amounts)

 

1.SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Summit Materials, Inc. (“Summit Inc.” and, together with its subsidiaries, the “Company”) is a vertically-integrated construction materials company. The Company is engaged in the production and sale of aggregates, cement, ready-mix concrete, asphalt paving mix and concrete products and owns and operates quarries, sand and gravel pits, two cement plants, cement distribution terminals, ready-mix concrete plants, asphalt plants and landfill sites. It is also engaged in paving and related services. The Company’s three operating and reporting segments are the West, East and Cement segments.

 

Substantially all of the Company’s products and services are produced, consumed and performed outdoors, primarily in the spring, summer and fall. Seasonal changes and other weather-related conditions can affect the production and sales volumes of its products and delivery of services. Therefore, the financial results for any interim period are typically not indicative of the results expected for the full year. Furthermore, the Company’s sales and earnings are sensitive to national, regional and local economic conditions and to cyclical changes in construction spending, among other factors.

 

On September 23, 2014, Summit Inc. was formed as a Delaware corporation to be a holding company. Its sole material asset is a controlling equity interest in Summit Materials Holdings L.P. (“Summit Holdings”). Pursuant to a reorganization into a holding company structure (the “Reorganization”) consummated in connection with Summit Inc.’s March 2015 initial public offering, Summit Inc. became a holding corporation operating and controlling all of the business and affairs of Summit Holdings and its subsidiaries and, through Summit Holdings, conducts its business.

 

Equity OfferingOn January 10, 2017, Summit Inc. raised $237.6 million, net of underwriting discounts, through the issuance of 10,000,000 shares of Class A common stock at a public offering price of $24.05 per share. Summit Inc. used these proceeds to purchase an equal number of limited partnership interests in Summit Holdings (“LP Units”) and caused Summit Holdings to use a portion of the proceeds from the offering to acquire two materials-based companies for a combined purchase price 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.

 

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. The Company continues to follow the accounting policies set forth in those 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 July 1, 2017, the results of operations for the three and six months ended July 1, 2017 and July 2, 2016 and cash flows for the six months ended July 1, 2017 and July 2, 2016.

 

Principles of Consolidation—The consolidated financial statements include the accounts of Summit Inc. and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated. As a result of the Reorganization, Summit Holdings became a variable interest entity over which Summit Inc. has 100% voting power and control and for which Summit Inc. has the obligation to absorb losses and the right to receive benefits.

 

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Table of Contents

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 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

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 2, 2016

 

49,745,944

 

50,275,825

 

100,021,769

 

49.7

%

Issuance of Class A shares

 

1,038

 

 -

 

1,038

 

 

 

Stock Dividend - December 28, 2016

 

1,135,692

 

 -

 

1,135,692

 

 

 

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

%

 

 

As a result, 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 3.7% and 5.1% as of July 1, 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.

 

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, 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 21 U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, 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 the aforementioned states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been granted to many customers, and management does not believe that a significant concentration of credit exists with respect to any individual customer or group of customers. No single customer accounted for more than 10% of the Company’s total revenue in the three and six months ended July 1, 2017 and July 2, 2016.

 

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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—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, which increases the tax depreciation and amortization deductions that otherwise would not have been available to us. 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, we entered into a tax receivable agreement (“TRA”) with the pre-IPO owners that requires us to pay them 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize (or, under certain circumstances such as an early termination of the TRA, we are deemed to realize) as a result of the increases in tax basis in connection with exchanges by the pre-IPO owners described above and certain other tax benefits attributable to payments under the TRA.

On a quarterly basis, we 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. If deferred tax assets are determined to be realizable, we record a TRA liability of 85% of such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets, 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 a corresponding TRA liability will be recorded. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies.  

The measurement of the TRA is accounted for as a contingent liability. Therefore, once we determine that a payment to the pre-IPO owners has become probable and can be estimated, the estimate of payment will be accrued.

 

New Accounting Standards — In March 2017, 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 Cost, which requires that the service cost component be reported in the same line item as employer compensation costs and that the other components of periodic pension costs be reported outside of operating income. The ASU also restricts capitalization of costs to the service cost component. The ASU is effective for public companies for annual periods beginning after December 15, 2017. The Company early adopted this ASU as of the beginning of fiscal year 2017, on a retrospective basis; accordingly, the Company reclassified $62,000 and $160,000 from product cost of revenue to other income in the three and six months ended July 2, 2016, respectively, and $154,000 from general and administrative expenses to other income in the three and six months ended July 2, 2016, to conform to the current year presentation.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment,  which eliminates the two step goodwill impairment test and replaces it with a single step test.  The single step test compares the carrying amount of a reporting unit to its fair value; if the carrying amount is greater than the fair value the difference is the amount of the goodwill impairment.  Step zero is left unchanged. Therefore, entities that wish to do a qualitative assessment are still permitted to do so. 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 of fiscal year 2017. The adoption of this ASU did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires that the income tax effect of share-based awards be recognized in the income statement and allows

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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. The ASU adoption was applied using a modified retrospective method by means of a $1.7 million cumulative-effect adjustment to accumulated earnings (deficit) as of the beginning of the fiscal year.

2.ACQUISITIONS

 

The Company has completed numerous acquisitions since its formation, which have been financed through a combination of debt and equity funding. The operations of each acquisition have been included in the Company’s consolidated results of operations since the respective closing dates of the acquisitions. The Company measures all assets acquired and liabilities assumed at their acquisition-date fair value. The following acquisitions completed in the six months ended July 1, 2017 and in fiscal 2016 were not material individually, or when combined:

 

West segment:

 

·

On May 1, 2017, we acquired Winvan Paving, Ltd. (“Winvan Paving”), a paving and construction services company based in Vancouver, British Columbia.

 

·

On April 3, 2017, we 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 May 12, 2017, we 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, we 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

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collection business, which was sold immediately after acquisition. The Company retained the building assets of Weldon, where its recycling business in Kansas is operated.

 

·

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 certain of the 2016 acquisitions 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:

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Year Ended

 

 

July 1,

 

December 31,

 

    

2017

    

2016

 

 

 

 

 

 

 

Financial assets (1)

 

$

18,042

 

$

22,204

Inventories

 

 

6,099

 

 

17,215

Property, plant and equipment

 

 

84,402

 

 

180,321

Intangible assets

 

 

13

 

 

5,531

Other assets

 

 

3,477

 

 

6,757

Financial liabilities (1)

 

 

(10,751)

 

 

(20,248)

Other long-term liabilities

 

 

(4,157)

 

 

(36,074)

Net assets acquired

 

 

97,125

 

 

175,706

Goodwill

 

 

130,582

 

 

176,319

Purchase price

 

 

227,707

 

 

352,025

Acquisition related liabilities

 

 

(13,390)

 

 

(17,034)

Other

 

 

(1,193)

 

 

1,967

Net cash paid for acquisitions

 

$

213,124

 

$

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, 2016 to July 1, 2017 are summarized as follows: