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Section 1: 10-K (10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 29, 2018
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.)
Delaware (Summit Materials, LLC)
47-1984212
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class 
   
Name of each exchange on which registered 
Class A Common Stock (par value $.01 per share)
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Summit Materials, Inc.
Yes x
No ¨
Summit Materials, LLC
Yes ¨
No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 
 
 
Summit Materials, LLC     
Yes ¨
No x
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 x
No ¨
Summit Materials, LLC
Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Summit Materials, Inc.     
Yes x
No ¨
Summit Materials, LLC    
Yes x
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    ☐
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
x
 
Accelerated filer
¨
Non-accelerated filer
¨

 
Smaller reporting company
¨

 
 
 
Emerging growth company
¨

Summit Materials, LLC
 
 
 
 
Large accelerated filer
¨

 
Accelerated filer
¨
Non-accelerated filer
x
 
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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, Inc.
Yes ¨
No x
Summit Materials, LLC
Yes ¨
No x
The aggregate market value of the Summit Materials, Inc. voting stock held by non-affiliates of the Registrants as of July 1, 2017 was approximately $3.1 billion.
As of January 30, 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 111,671,837 and 99, respectively.
As of January 30, 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.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from Summit Materials, Inc.’s definitive proxy statement relating to its 2019 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of Summit Materials, Inc.’s fiscal year.

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PART
 
ITEM
 
 
 
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EXPLANATORY NOTE
 
This annual report on Form 10-K (this “report”) is a combined annual 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 annual reports on Form 10-K 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,” “Summit Materials” 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 December 29, 2018, its sole material asset was a 97.0% 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 year ended December 29, 2018 is that generated by Summit LLC. Summit Inc. controls all of the business and affairs of Summit Holdings and, in turn, Summit LLC, as a result of its reorganization into a holding corporation structure (the “Reorganization”) consummated in connection with its initial public offering.

DISCLOSURE 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. 
 
Some of the important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” and elsewhere in this report. 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.
 
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 otherwise required by law.

CERTAIN DEFINITIONS
 
As used in this report, unless otherwise noted or the context otherwise requires:
 
“board” and the “directors” refer to the board and the directors of Summit Inc. following its March 2015 initial public offering (“IPO”) and to the board and the directors of the general partner of Summit Holdings prior to Summit Inc.’s IPO;

“Continental Cement” refers to Continental Cement Company, L.L.C.;

“Davenport Assets” refer to a cement plant and quarry in Davenport, Iowa and seven cement distribution terminals along the Mississippi River;


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

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

“Issuers” refers to Summit LLC and Finance Corp. as co‑issuers of the Senior Notes;

“LP Units” refers to the Class A limited partnership units of Summit Holdings;

“Mainland” refers to Mainland Construction Materials 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.;

“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.;

"APAC Assets" refers to two quarries, one landfill and two asphalt plants located in northeast Kansas; and

“TRA” refers to tax receivable agreement between Summit Inc. and holders of LP Units.

See “Business—Acquisition History” for a table of acquisitions we have completed since August 2009.


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Corporate Structure
The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of December 29, 2018. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.
 
396645443_corpstructurea01.jpg
______________________
(1)
U.S. Securities and Exchange Commission (“SEC”) registrant.

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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.
(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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PART I 
 

ITEM 1.    BUSINESS.
 
Overview
 
We are one of the fastest growing construction materials companies in the United States, with a 74% increase in revenue between the year ended December 27, 2014 and the year ended December 29, 2018. 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 Minnesota to Louisiana. In addition to supplying aggregates to customers, we use 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 vertical integration creates opportunities to increase aggregates volumes, optimize margin at each stage of production and provide customers with efficiency gains, convenience and reliability, which we believe gives us a competitive advantage.
 
Since our inception in 2009, we have become a major participant in the U.S. construction materials industry. We believe that, by volume, we are a top 10 aggregates supplier, a top 15 cement producer and a major producer of ready‑mix concrete and asphalt paving mix. Our proven and probable aggregates reserves were 3.9 billion tons as of December 29, 2018. In the year ended December 29, 2018 we sold 47.6 million tons of aggregates, 2.3 million tons of cement, 5.4 million cubic yards of ready-mix concrete and 5.4 million tons of asphalt paving mix across our more than 400 sites and plants.
 
The rapid growth we have achieved over the last nine years has been due in large part to our acquisitions, which we funded through equity issuances, debt financings and cash from operations. Over the past decade, the U.S. economy witnessed a cyclical decline followed by a gradual recovery in the private construction market and modest growth in public infrastructure spending. The U.S. private construction market has grown in recent years both nationally and in our markets. We believe we are well positioned to capitalize on this growth to continue to expand our business.

Our revenue in 2018 was $2.1 billion with net income of $36.3 million. As of December 29, 2018, our total indebtedness outstanding was approximately $1.8 billion.
 
We anticipate continued growth in our primary end markets, public infrastructure and the private construction market. Public infrastructure, which includes spending by federal, state and local governments for roads, highways, bridges, airports and other public infrastructure projects, has been a relatively stable portion of government budgets providing consistent demand to our industry and is projected by the Portland Cement Association (“PCA”) to grow approximately 4% in the U.S. from 2019 to 2023. We believe states will continue to institute state and local level funding initiatives dedicated towards increased infrastructure spending. We believe that growth in infrastructure spending will not be consistent across the United States, but will vary across different geographies. The public infrastructure market represented 35% of our revenue in 2018.
 
The private construction market includes residential and nonresidential new construction and the repair and remodel market. According to the PCA, the number of total housing starts in the United States, a leading indicator for our residential business, is expected to grow 5% from 2019 to 2023. In addition, the PCA projects that spending in private nonresidential construction will grow 5% over the same period. Growth in private construction spending is influenced by changes in population, employment and general economic activity, among other factors which vary by geography across the United States. The private construction market represented 65% of our revenue in 2018.
 
In addition to anticipated demand growth in our end markets, we expect continued improvement in pricing, especially in our materials businesses. The United States Geological Survey ("USGS") reports that aggregates pricing has increased in 70 of the last 75 years. Accordingly, we believe that this trend will continue in the future. The PCA estimates that cement consumption will increase approximately 6% in the U.S. from 2019 to 2023, reflecting rising demand in the major end markets. We believe that the increased demand will drive higher cement pricing as production capacity in the United States tightens.

Historically, we have supplemented organic growth with acquisitions by strategically targeting attractive, new markets and expanding in existing markets. We consider population trends, employment rates, competitive landscape, private and public construction outlook, public funding and various other factors prior to entering a new market. In addition to considering

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macroeconomic data, we seek to establish, and believe that we have, a top three position in our local markets, which we believe supports improving profit margins and sustainable organic growth. This positioning provides local economies of scale and synergies, which benefits our profitability.
 
Our acquisition strategy, to date, has helped us to achieve scale and rapid growth, and we believe that significant opportunities remain for growth through acquisitions. We estimate that approximately 65% of the U.S. construction materials market is privately owned. Our management team maintains contact with hundreds of private companies. These long‑standing relationships, cultivated over decades, have been the primary source for our past acquisitions and, we believe, will continue to be an important source for future acquisitions. We believe we offer a compelling value proposition for private company sellers, including secure ongoing stewardship of their legacy businesses.
 
Our Business Segments
 
We operate in 23 U.S. states and in British Columbia, Canada and have assets in 22 U.S. states and in British Columbia, Canada through our platforms that make up our operating segments: West; East; and Cement. The platform businesses in the West and East segments have their own management teams that report to a segment president or chief operating officer. The segment presidents are responsible for overseeing the operating platforms, implementing best practices, developing growth opportunities and integrating acquired businesses. Acquisitions are an important element of our strategy, as we seek to enhance value through increased scale, efficiencies and cost savings within local markets.
 
West Segment:  Our West segment includes operations in Texas, Utah, Colorado, Idaho, Wyoming, Oklahoma, Nevada and British Columbia, Canada. We supply aggregates, ready‑mix concrete, asphalt paving mix and paving and related services in the West segment. As of December 29, 2018, the West segment controlled approximately 1.2 billion tons of proven and probable aggregates reserves and $630.2 million of net property, plant and equipment and inventories (“hard assets”). During the year ended December 29, 2018, approximately 53% of our revenue was generated in the West segment.

East Segment:  Our East segment serves markets extending across the Midwestern and Eastern United States, most notably in Kansas, Missouri, Virginia, Kentucky, North Carolina, South Carolina, Georgia, Arkansas and Nebraska where we supply aggregates, ready‑mix concrete, asphalt paving mix and paving and related services. As of December 29, 2018, the East segment controlled approximately 2.2 billion tons of proven and probable aggregates reserves and $734.1 million of hard assets. During the year ended December 29, 2018, approximately 33% of our revenue was generated in the East segment.

Cement Segment:  Our Cement segment consists of our Hannibal, Missouri and Davenport, Iowa cement plants and 10 distribution terminals along the Mississippi River from Minnesota to Louisiana. Our highly efficient plants are complemented by our integrated distribution system that spans the Mississippi River. We process solid and liquid waste into fuel for the plants, which can reduce the plants’ fuel costs by up to 50%. The Hannibal, Missouri plant is one of very few cement facilities in the United States that can process both hazardous and non-hazardous solid and liquid waste into fuel. As of December 29, 2018, the Cement segment controlled approximately 0.5 billion tons of proven and probable aggregates reserves, which serve its cement business, and $616.3 million of hard assets. During the year ended December 29, 2018, approximately 14% of our revenue was generated in the Cement segment.

Acquisition History
 
The following table lists acquisitions we have completed since August 2009:
 
Company
    
Date of Acquisition
    
Segment
Hamm, Inc.
 
August 25, 2009
 
East
Hinkle Contracting Company, LLC
 
February 1, 2010
 
East
Cornejo & Sons LLC and affiliates
 
April 16, 2010
 
East
Elmo Greer & Sons, LLC
 
April 20, 2010
 
East
Continental Cement LLC
 
May 27, 2010
 
Cement
Harshman Construction L.L.C. and Harshman Farms, Inc.
 
June 15, 2010
 
East
South Central Kentucky Limestone, LLC
 
July 23, 2010
 
East
Harper Contracting, Inc. and affiliates
 
August 2, 2010
 
West

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Kilgore Pavement Maintenance, LLC and Kilgore Properties, LLC
 
August 2, 2010
 
West
Con-Agg of MO, L.L.C.
 
September 15, 2010
 
East
Altaview Concrete, LLC and affiliates
 
September 15, 2010
 
West
EnerCrest Products, Inc.
 
September 28, 2010
 
West
RK Hall Construction, Ltd and affiliates
 
November 30, 2010
 
West
Triple C Concrete, Inc.
 
January 14, 2011
 
West
Elam Construction, Inc.
 
March 31, 2011
 
West
Bourbon Limestone Company
 
May 27, 2011
 
East
Fischer Quarries, L.L.C.
 
May 27, 2011
 
East
B&B Resources, Inc. and affiliates
 
June 8, 2011
 
West
Grand Junction Concrete Pipe, Inc.
 
June 10, 2011
 
West
Industrial Asphalt, LLC and affiliates
 
August 2, 2011
 
West
J. D. Ramming Paving Co. LLC and affiliates
 
October 28, 2011
 
West
Norris Quarries, LLC
 
February 29, 2012
 
East
Kay & Kay Contracting, LLC
 
October 5, 2012
 
East
Sandco Inc.
 
November 30, 2012
 
West
Lafarge-Wichita
 
April 1, 2013
 
East
Westroc, LLC
 
April 1, 2013
 
West
Alleyton Resource Company LLC and affiliates
 
January 17, 2014
 
West
Troy Vines, Inc.
 
March 31, 2014
 
West
Buckhorn Materials, LLC and affiliate
 
June 9, 2014
 
East
Canyon Redi-Mix, Inc. and affiliate
 
July 29, 2014
 
West
Mainland Sand & Gravel ULC and affiliates
 
September 4, 2014
 
West
Southwest Ready Mix, LLC
 
September 19, 2014
 
West
Colorado County Sand & Gravel Co., LLC and affiliates
 
September 30, 2014
 
West
Concrete Supply of Topeka, Inc. and affiliates
 
October 3, 2014
 
East
Lewis & Lewis, Inc.
 
June 1, 2015
 
West
Davenport Assets
 
July 17, 2015
 
Cement
LeGrand Johnson Construction Co.
 
August 21, 2015
 
West
Pelican Asphalt Company, LLC.
 
December 11, 2015
 
West
American Materials Company
 
February 5, 2016
 
East
Boxley Materials Company
 
March 18, 2016
 
East
Sierra Ready Mix, LLC
 
April 29, 2016
 
West
Oldcastle Assets
 
May 20, 2016
 
East
Weldon Real Estate LLC
 
August 8, 2016
 
East
H. C. Rustin Corporation
 
August 19, 2016
 
West
RD Johnson Excavating Company LLC and affiliate
 
August 26, 2016
 
East
Angelle Assets
 
August 30, 2016
 
Cement
Midland Concrete Ltd.
 
October 3, 2016
 
West
Everist Materials, LLC.
 
January 30, 2017
 
West
Razorback Concrete Company
 
February 24, 2017
 
East
Sandidge Manufacturing, Inc.
 
March 17, 2017
 
East
Hanna’s Bend Aggregate Ltd
 
April 3, 2017
 
West
Carolina Sand, LLC
 
April 3, 2017
 
East
Winvan Paving Ltd.
 
May 1, 2017
 
West
Glasscock Company, Inc. and affiliate
 
May 12, 2017
 
East
Ready Mix Concrete of Somerset and affiliate
 
July 28, 2017
 
East
Great Southern Ready Mix LLC and affiliates
 
July 31, 2017
 
West
Northwest Ready Mix, Inc. and affiliate
 
August 1, 2017
 
West
Georgia Stone Products, LLC
 
August 3, 2017
 
East

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Alan Ritchey Materials Company LC
 
August 20, 2017
 
West
Columbia Silica Sand, Inc. and affiliates
 
September 8, 2017
 
East
Stockman Quarry LLC and affiliate
 
October 6, 2017
 
East
Metro Ready Mix, LLC
 
January 5, 2018
 
West
Price Construction, Ltd and affiliates
 
January 12, 2018
 
West
Mertens Construction Company, Inc. and affiliates
 
January 26, 2018
 
East
Stoner Sand, LLC
 
February 16, 2018
 
East
Day Concrete Block Company, Inc. and affiliate
 
April 2, 2018
 
West
Midwest Minerals, LLC
 
April 27, 2018
 
East
Superior Ready Mix, Inc.
 
April 27, 2018
 
East
Buckingham Slate Company, LLC
 
June 1, 2018
 
East
Buildex, LLC
 
July 1, 2018
 
East
APAC Assets
 
July 2, 2018
 
East
XIT Sand and Gravel, LLC and affiliate
 
July 16, 2018
 
West
Walker Sand and Gravel Ltd. Co.
 
October 1, 2018
 
West
Jefferson Quarry, LLC and affiliate
 
October 10, 2018
 
East
 
Our End Markets
 
Public Infrastructure.    Public infrastructure construction includes spending by federal, state and local governments for highways, bridges, airports, schools, public buildings and other public infrastructure projects. Public infrastructure spending has historically been more stable than private sector construction. We believe that public infrastructure spending is less sensitive to interest rate changes and economic cycles and often is supported by multi-year federal and state legislation and programs. A significant portion of our revenue is derived from public infrastructure projects. As a result, the supply of federal and state funding for public infrastructure highway construction significantly affects our public infrastructure end-use business.
 
In the past, public infrastructure sector funding was underpinned by a series of six‑year federal highway authorization bills. 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-term highway construction and maintenance needs. The Fixing America’s Surface Transportation (“FAST”) Act was signed into law on December 4, 2015 and authorizes $305 billion of funding between 2016 and 2020. It provides funding for surface transportation infrastructure, including roads, bridges, transit systems, and the rail transportation network.
 
Residential Construction.  Residential construction includes single family homes and multi‑family units such as apartments and condominiums. Demand for residential construction is influenced primarily by employment prospects, new household formation and mortgage interest rates. In recent years, residential construction demand has been growing, although the rate of growth has varied across the U.S.
 
Nonresidential Construction.  Nonresidential construction encompasses all privately financed construction other than residential structures. Demand for nonresidential construction is driven primarily by population and economic growth. Population growth spurs demand for stores, shopping centers and restaurants. Economic growth creates demand for projects such as hotels, office buildings, warehouses and factories, although growth rates vary across the U.S. The supply of nonresidential construction projects is also affected by interest rates and the availability of credit to finance these projects.
 
Our Competitive Strengths
 
Leading market positions.  We believe each of our operating companies has a top three market share position in its local market area achieved through their respective, extensive operating histories, averaging over 30 years. We believe we are a top 10 supplier of aggregates, a top 15 producer of cement and a major producer of ready‑mix concrete and asphalt paving mix in the United States by volume. We focus on acquiring aggregate-based companies that have leading local market positions, which we seek to enhance by building scale through additional bolt-on acquisitions. The construction materials industry is highly local in nature due to transportation costs from the high weight‑to‑value ratio of the products. Given this dynamic, we believe achieving local market scale provides a competitive advantage that drives growth and profitability for our business. We

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believe that our ability to prudently acquire, rapidly integrate and improve multiple businesses has enabled, and will continue to enable, us to become market leaders.
 
Operations positioned to benefit from attractive industry fundamentals.  We believe the construction materials industry has attractive fundamentals, characterized by high barriers to entry and a stable competitive environment in the majority of markets. Barriers to entry are created by scarcity of raw material resources, limited efficient distribution range, asset intensity of equipment, land required for quarry operations and a time‑consuming and complex regulatory and permitting process. According to a January 2019 U.S. Geological Survey, aggregates pricing in the United States had increased in 70 of the previous 75 years, with growth accelerating since 2002 as continuing resource scarcity in the industry has led companies to focus increasingly on improved pricing strategies.
 
One contributing factor that supports pricing growth through the economic cycles is that aggregates and asphalt paving mix have significant exposure to public road construction, which has demonstrated growth over the past 30 years, even during times of broader economic weakness. The majority of public road construction spending is funded at the state level through the states’ respective departments of transportation. Texas, Utah and Missouri, three of the states in which we have had our highest revenues, have funds with certain constitutional protections for revenue sources dedicated for transportation projects. These dedicated, earmarked funding sources limit the negative effect state deficits may have on public spending. As a result, we believe our business’ profitability is significantly more stable than most other building product subsectors.
 
Vertically‑integrated business model.  We generate revenue across a spectrum of related products and services. Approximately 24% of the aggregates used in our products and services are internally supplied. Our vertically‑integrated business model enables us to operate as a single source provider of materials and paving and related services, creating cost, convenience and reliability advantages for our customers, while at the same time creating significant cross‑marketing opportunities among our interrelated businesses. We believe this creates opportunities to increase aggregates volumes, optimize margin at each stage of production, foster more stable demand for aggregates through a captive demand outlet, create a competitive advantage through the efficiency gains, convenience and reliability provided to customers and enhance our acquisition strategy by providing a greater population of target companies.
 
Attractive diversity, scale and product portfolio.  We operate in dozens of metropolitan statistical areas across 23 U.S. states and in British Columbia, Canada. Between the year ended December 27, 2014 and the year ended December 29, 2018, we grew our revenue by 74% and brought substantial additional scale and geographic diversity to our operations. In the year ended December 29, 2018, 40.5% of our operating income increase came from the West segment, 26.2% from the Cement segment and 33.3% from East segment, excluding corporate charges. As of December 29, 2018, we had approximately 3.9 billion tons of proven and probable aggregates reserves serving our aggregates and cement business. We estimate that the useful life of our proven and probable reserves serving our aggregates and cement businesses are approximately 101 years and 273 years, respectively, based on the average production rates in 2018 and 2017.
 
Our dry process cement plants in Hannibal, Missouri and Davenport, Iowa were commissioned in 2008 and 1981, respectively. These low-cost cement plants have efficient manufacturing capabilities and are strategically located on the Mississippi River and complemented by an extensive network of river and rail fed distribution terminals. Our terminal network can accept imported cement to supplement our internal production capacity as demand and market conditions dictate. Due to the location of our Hannibal and Davenport plants on the Mississippi River, in 2018, approximately 70% of cement distributed to our terminals and customers was shipped by barge, which is generally more cost-effective than truck transport.
 
Proven ability to incorporate new acquisitions and grow businesses.  We have acquired dozens of businesses, successfully integrating them into three segments through the implementation of operational improvements, industry‑proven information technology systems, a comprehensive safety program and best in class management programs. A typical acquisition and subsequent integration generally involves implementing common safety and financial back office systems, driving best practices in pricing and productivity and leveraging scale while maintaining local branding and management decision-making and providing management support, strategic direction and financial capital for investment under a leadership team directed by Tom Hill, our President and Chief Executive Officer, who has over 35 years of industry experience. These acquisitions have helped us achieve significant revenue growth, from $0.4 billion in 2010 to $2.1 billion in 2018.
 
Experienced and proven leadership driving organic growth and acquisition strategy. In addition to Mr. Hill, our management team, including corporate and segment managers, corporate development, finance executives and other heavy side industry operators, has extensive experience in the industry. Our management team has successfully enhanced the operations of acquired companies, focusing on scale advantages, cost efficiencies and price optimization to improve profitability and cash flow.


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Our Business Strategy
 
Utilize vertically‑integrated and strategically located operations for growth.  We believe that our vertical integration of construction materials, products and services is a significant competitive advantage that we will utilize to grow share in our existing markets and enter into new markets. A significant portion of materials used to produce our products and provide services to our customers is internally supplied, which enables us to operate as a single source provider of materials, products and paving and related services. This creates cost, convenience and reliability advantages for our customers and enables us to capture additional value throughout the supply chain, while at the same time creating significant cross‑marketing opportunities among our interrelated businesses.
 
Enhance margins and free cash flow generation through implementation of operational improvements.  Our management team includes individuals with decades of experience in our industry and proven success in integrating acquired businesses and organically growing operations. We have enhanced margins through proven profit optimization plans, managed working capital and achieved scale‑driven purchasing synergies and fixed overhead control and reduction. Our segment presidents, supported by our operations, development, risk management, information technology and finance teams, drive the implementation of detailed and thorough profit optimization plans for each acquisition post close. These integration and improvement plans typically include, among other things, implementation of a common pricing strategy, safety and financial systems, systematic commercial strategies, operational benefits, efficiency improvement plans and business-wide cost reduction techniques.
 
Expand local positions in the most attractive markets through targeted capital investments and bolt‑on acquisitions.  We seek to expand our business through organic growth and bolt‑on acquisitions in each of our local markets. Our acquisition strategy involves acquiring platforms that serve as the foundation for continued incremental and complementary growth via locally situated bolt‑on acquisitions to these platforms. We believe that increased local market scale drives profitable growth through efficiencies. Our existing platform of operations is expected to enable us to continue our growth as we expand in our existing markets. In pursuing our growth strategy, we may also pursue larger acquisition transactions that may require us to raise additional equity capital and or debt from time to time. Consistent with this strategy, we regularly evaluate potential acquisition opportunities, including ones that would be significant to us. We cannot predict the timing of any contemplated transactions.
 
Drive profitable growth through strategic acquisitions.  Based on aggregates sales, by volume, we believe that we are currently one of the ten largest producers in the United States. Our growth has been a result of the successful execution of our acquisition strategy and implementation of best practices to drive organic growth. We believe that the relative fragmentation of our industry creates an environment in which we can continue to acquire companies at attractive valuations and increase scale and diversity over time. We believe we have opportunity for further growth through strategic acquisitions in markets adjacent to our existing markets within the states where we currently operate, as well as into additional states as market and competitive conditions permit.
 
Capitalize on growth in the U.S. economy and construction markets.  Given the nation’s aging infrastructure and considering longstanding historical spending trends, we expect U.S. infrastructure investment to grow over time. We believe we are well positioned to capitalize on any such increase in investment.  The PCA forecasts total housing starts to accelerate to 1.36 million in the United States by 2023. The American Institute of Architects’ Consensus Construction Forecast projects nonresidential construction to grow 2.4% in 2020. We believe that exposure to the public infrastructure, residential and nonresidential end markets across our markets will benefit us as the U.S. economy moves through economic cycles.
 
Our Industry
 
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 and our ability to control operating costs.
 
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

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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-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 the construction of new roads, highways and bridges in addition to the maintenance of existing infrastructure.
 
In addition to federal funding, state, county and local agencies provide highway construction and maintenance funding. Our four largest states by revenue, Texas, Utah, Kansas and Missouri, represented approximately 23%, 13%, 12% and 8%, respectively, of our total revenue in 2018.
 
Our Industry and Operations
 
Demand for our materials and products is observed to have low elasticity in relation to prices. We believe this is partially explained by the absence of competitive replacement products. We do not believe that increases in our prices of materials or products are likely to affect the decision to undertake a construction project since these costs usually represent a small portion of total construction costs.
 
We operate our construction materials, products and paving and related services businesses through local management teams, which work closely with our end customers to deliver the materials, products and services that meet each customer’s specific needs for a project. We believe that this strong local presence gives us a competitive advantage by allowing us to obtain a unique understanding for the evolving needs of our customers.
 
We have operations in 23 U.S. states and in British Columbia, Canada. Our business in each region is vertically‑integrated. We supply aggregates internally for the production of cement, ready‑mix concrete and asphalt paving mix and a significant portion of our asphalt paving mix is used internally by our paving and related services businesses. In the year ended December 29, 2018, approximately 76% of our aggregates production was sold directly to outside customers with the remaining amount being further processed by us and sold as a downstream product. In addition, we operate a municipal waste landfill in our East segment, and have construction and demolition debris landfills and liquid asphalt terminal operations in our West and East segments.

Approximately 74% of our asphalt paving mix was installed by our paving and related services businesses in the year ended December 29, 2018. We charge a market price and competitive margin at each stage of the production process in order to optimize profitability across our operations. Our production value chain is illustrated as follows:
 
396645443_productionvaluechain.jpg

Aggregates
 
Aggregates are key material components used in the production of cement, ready‑mix concrete and asphalt paving mixes for the public infrastructure, residential and nonresidential end markets and are also widely used for various applications

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and products, such as road and building foundations, railroad ballast, erosion control, filtration, roofing granules and in solutions for snow and ice control. Generally extracted from the earth using surface or underground mining methods, aggregates are produced from natural deposits of various materials such as limestone, sand and gravel, granite and trap rock. Aggregates are produced mainly from blasting hard rock from quarries and then crushing and screening it to various sizes to meet our customers’ needs. The production of aggregates also involves the extraction of sand and gravel, which requires less crushing, but still requires screening for different sizes. Aggregate production utilizes capital intensive heavy equipment which includes the use of loaders, large haul trucks, crushers, screens and other heavy equipment at quarries and sand and gravel pits. Once extracted, processed and/or crushed and graded on-site into crushed stone, concrete and masonry sand, specialized sand, pulverized lime or agricultural lime, they are supplied directly to their end use or incorporated for further processing into construction materials and products, such as cement, ready‑mix concrete and asphalt paving mix. The minerals are processed to meet customer specifications or to meet industry standard sizes. Crushed stone is used primarily in ready‑mix concrete, asphalt paving mix, and the construction of road base for highways.
 
We believe that the long‑term growth of the market for aggregates is predominantly driven by growth in population, employment and households, which in turn affects demand for transportation infrastructure, residential and nonresidential construction, including stores, shopping centers and restaurants. While short‑term demand for aggregates fluctuates with economic cycles, the declines have historically been followed by strong recovery, with each peak establishing a new historical high. We believe we are in the midst of an extended economic recovery.
 
We mine limestone, gravel, and other natural resources from 140 crushed stone quarries and 105 sand and gravel deposits throughout the United States and in British Columbia, Canada. Our extensive network of quarries, plants and facilities, located throughout the regions in which we operate, enables us to have a nearby operation to meet the needs of customers in each of our markets. As of December 29, 2018, we had approximately 3.9 billion tons of proven and probable reserves of recoverable stone, and sand and gravel of suitable quality for economic extraction. Our estimate is based on drilling and studies by geologists and engineers, recognizing reasonable economic and operating restraints as to maximum depth of extraction and permit or other restrictions. Reported proven and probable reserves include only quantities that are owned or under lease, and for which all required zoning and permitting have been obtained. Of the 3.9 billion tons of proven and probable aggregates reserves, 2.4 billion, or 60%, are located on owned land and 1.5 billion are located on leased land.

According to the August 2018 U.S. Geological Survey, approximately 1.5 billion tons of crushed stone with a value of approximately $15.6 billion was produced in the United States in 2017, which was consistent with the 1.5 billion tons produced in 2016. Sand and gravel production was approximately 1.0 billion tons in 2017 and 2016, valued at approximately $7.8 billion in 2017. The U.S. aggregate industry is highly fragmented relative to other building product markets, with numerous participants operating in localized markets and the top ten players controlling approximately 35% of the national market in 2018. In January 2018, the U.S. Geological Survey reported that a total of 1,400 companies operating 3,700 quarries and 187 sales/distribution yards produced or sold crushed stone in 2017 in the United States. This fragmentation is a result of the cost of transporting aggregates, which typically limits producers to a market area within approximately 40 miles of their production facilities.
 
Transportation costs are a major variable in determining the marketing radius for our products. The cost of transporting aggregate products from the plant to the market often equates to or exceeds the sale price of the product at the plant. As a result of the high transportation costs and the large quantities of bulk material that have to be shipped, finished products are typically marketed locally. High transportation costs are responsible for the wide dispersion of production sites. Where possible, construction material producers maintain operations adjacent to highly populated areas to reduce transportation costs and enhance margins. However, more recently, rising land values combined with local environmental concerns have been forcing production sites to move further away from the end‑use locations.
 
Each quarry location is unique with regards to demand for each product, proximity to competition and distribution network. Each of our aggregates operations is responsible for the sale and marketing of its aggregates products. Approximately 76% of our aggregates production is sold directly to outside customers and the remaining amount is further processed by us and sold as a downstream product. Even though aggregates are a commodity product, we work to optimize pricing depending on the site location, availability of a particular product, customer type, project type and haul cost. We sell aggregates to internal downstream operations at market prices.
 
A significant portion of annual demand for aggregates is derived from large public infrastructure and highway construction projects. According to the Montana Contractors’ Association, approximately 38,000 tons of aggregate are required to construct a one mile stretch of a typical four‑lane interstate highway. Highways located in markets with significant seasonal temperature variances are particularly vulnerable to freeze‑thaw conditions that exert excessive stress on pavement and lead to

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more rapid surface degradation. Surface maintenance repairs, as well as general highway construction, occur in the warmer months, resulting in a majority of aggregates production and sales in the period from April through November in most states.
 
The primary national players are large vertically‑integrated companies, including Vulcan Materials Company, Martin Marietta Materials, Inc. (“Martin Marietta”), CRH plc, Heidelberg Cement plc (“Heidelberg”), LafargeHolcim and Cemex, S.A.B. de C.V. (“Cemex”), that have a combined estimated market share of approximately 30%. Our major aggregates competitors by segment include the following:
 
West—CRH plc, Heidelberg, Martin Marietta, CEMEX, LafargeHolcim and various local suppliers.

East—Martin Marietta, CRH plc, LafargeHolcim, Heidelberg, Vulcan Materials Company and various local suppliers.

We believe we have a strong competitive advantage in aggregates through our well located reserves and assets in key markets, high quality reserves and our logistic networks. We further share and implement best practices relating to safety, strategy, sales and marketing, production, and environmental and land management. Our vertical integration and local market knowledge enable us to maintain a strong understanding of the needs of our aggregates customers. In addition, our companies have a reputation for responsible environmental stewardship and land restoration, which assists us in obtaining new permits and new reserves.
 
Cement
 
Portland cement, an industry term for the common cement in general use around the world, is made from a combination of limestone, shale, clay, silica and iron ore. It is a fundamental building material consumed in several stages throughout the construction cycle of public infrastructure, residential and nonresidential projects. It is a binding agent that, when mixed with sand or aggregates and water, produces either ready‑mix concrete or mortar and is an important component of other essential construction materials. Cement is sold either in bulk or as branded products in bags, depending on its final user. Few construction projects can take place without utilizing cement somewhere in the design, making it a key ingredient used in the construction industry. The majority of all cement shipments are sent to ready‑mix concrete operators. The remaining shipments are directed to concrete paving projects or manufacturers of concrete-related products such as block and precast. Sales are made on the basis of competitive terms and prices in each market. Nearly two‑thirds of U.S. consumption occurs between May and November, coinciding with end‑market construction activity.
 
Cement is manufactured through a closely controlled chemical combination of calcium, silicon, aluminum, iron and other ingredients. Common materials used to source these chemicals include limestone (approximately 80% of chemical mixture), shale, clay, slate, slag, silica sand and iron ore. Generally, the limestone and shale are mined from quarries located on site with the production plant. These core ingredients are blended and crushed into a fine grind and then preheated and ultimately introduced into a kiln heated to over 3,000°F. Under this extreme heat, a chemical transformation occurs uniting the elements to form a new substance with new physical and chemical characteristics. This new substance is called clinker and it is formed into pieces approximately the size of marbles. The clinker is then cooled and later ground into a fine powder that then is classified as Portland cement.
 
Cement production in the United States is distributed among 92 production facilities located across a majority of the states and is a capital‑intensive business with variable costs dominated by raw materials and energy required to fuel the kiln. Most U.S. cement producers are owned by large foreign companies operating in multiple international markets. Our largest competitors include LafargeHolcim and Buzzi Unicem. Construction of cement production facilities is highly capital intensive and requires long lead times to complete engineering design, obtain regulatory permits, acquire equipment and construct a plant.
 
As reported by the PCA in the 2018 United States Cement Industry Annual Yearbook, consumption is down significantly from the industry peak of approximately 140.9 million tons in 2005 to approximately 106.5 million tons in 2017 consistent with a decline in U.S. construction activity. U.S. cement consumption has at times outpaced domestic production capacity with the shortfall being supplied with imports, primarily from Canada, Greece, China, Turkey and Mexico. The PCA reports that cement imports remain below their peak of approximately 39.6 million tons in 2006 versus approximately 15.0 million tons in 2017.
 
We operate a highly‑efficient, low-cost integrated cement manufacturing and distribution network through our cement plants in Hannibal, Missouri, 100 miles north of St. Louis, and Davenport, Iowa and our 10 terminals along the Mississippi River from Minnesota to Louisiana. The combined potential capacity at our Hannibal and Davenport cement plants is

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approximately 2.4 million short tons per annum. We also operate on‑site waste fuel processing facilities at the plants, which can reduce plant fuel costs by up to 50%. Our Hannibal plant is one of very few with hazardous waste fuel facilities permitted and operating out of 92 total cement plants in the United States. Competitive factors include price, reliability of deliveries, location, quality of cement and support services. With two cement plants, on‑site raw material supply, a network of cement terminals, and longstanding customer relationships, we believe we are well positioned to serve our customers.
 
Cement is a product that is costly to transport. Consequently, the radius within which a typical cement plant is competitive with truck transportation is typically limited to 150 miles from any shipping/distribution point. However, access to rail and barge can extend the distribution radius significantly. With both of our plants located strategically on the Mississippi River, we are able to cost effectively distribute cement from both of our plants by truck, rail and barge directly to customers or to our 10 storage and distribution terminals along the Mississippi River. Our Hannibal and Davenport plants are strategically located on the Mississippi River and, consequently, in 2018, approximately 70% of cement distributed to our terminals and customers was shipped by barge, which is significantly more cost‑effective than truck transport.
 
Cement plants are subject to the Portland Cement – Maximum Achievable Control Technology (“PC‑MACT”). Our Hannibal and Davenport cement plants utilize alternative fuels, hazardous and non‑hazardous at Hannibal and non‑hazardous at Davenport, as well as coal, natural gas and petroleum coke and, as a result, are subject to the Hazardous Waste Combustor of the National Emission Standards for Hazardous Air Pollutants (“HWC‑NESHAP”) and Commercial/Industrial Solid Waste Incinerators (“CISWI”) standards, respectively, rather than PC‑MACT standards.

Ready‑mix Concrete
 
Ready‑mix concrete is one of the most versatile and widely used materials in construction today. Its flexible recipe characteristics allow for an end product that can assume almost any color, shape, texture and strength to meet the many requirements of end users that range from bridges, foundations, skyscrapers, pavements, dams, houses, parking garages, water treatment facilities, airports, tunnels, power plants, hospitals and schools. The versatility of ready‑mix concrete gives engineers significant flexibility when designing these projects.
 
Cement, coarse aggregate, fine aggregate, water and admixtures are the primary ingredients in ready‑mix concrete. The cement and water are combined and a chemical reaction process called hydration occurs whereby a paste is produced. This paste or binder represents between 15% to 20% of the volume of the mix that coats each particle of aggregate and serves as the agent that binds the aggregates together, according to the National Ready Mixed Concrete Association (“NRMCA”). The aggregates represent approximately 60% to 75% of the mix by volume, with a small portion of volume (5% to 8%) consisting of entrapped air that is generated by using air entraining admixtures. Once fully hydrated, the workable concrete will then harden and take on the shape of the form in which it was placed.
 
The quality of a concrete mix is generally determined by the weight ratio of water to cement. Higher quality concrete is produced by lowering the water‑cement ratio as much as possible without sacrificing the workability of the fresh concrete. Specialty admixtures such as high range water reducers can aid in achieving this condition without sacrificing quality. Competition among ready‑mix concrete suppliers is generally based on product characteristics, delivery times, customer service and price. Product characteristics such as tensile strength, resistance to pressure, durability, set times, ease of placing, aesthetics, workability under various weather and construction conditions as well as environmental effect are the main criteria that our customers consider for selecting their product. Our quality assurance program produces results in excess of design strengths while optimizing material costs. Additionally, we believe our strategic network of locations and superior customer service gives us a competitive advantage relative to other producers. Our ready‑mix concrete operations compete with CEMEX in Texas and Nevada and CRH plc in Utah and Colorado and various other privately owned competitors in other parts of the West and East segments.
 
Other materials commonly used in the production of ready‑mix concrete include fly‑ash, a waste by‑product from coal burning power plants, silica fume, a waste by‑product generated from the manufacture of silicon and ferro‑silicon metals, and ground granulated blast furnace slag, a by‑product of the iron and steel manufacturing process. All of these products have cementitious properties that enhance the strength, durability and permeability of the concrete. These materials are available directly from the producer or via specialist distributors who intermediate between the ready‑mix concrete producers and the users.
 
Given the high weight‑to‑value ratio, delivery of ready‑mix concrete is typically limited to a one‑hour haul from a production plant and is further limited by a 90 minute window in which newly‑mixed concrete must be poured to maintain quality and performance. As a result of the transportation constraints, the ready‑mix concrete market is highly localized, with an estimated 5,500 ready‑mix concrete plants in the United States according to the NRMCA. According to the NRMCA,

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350.8 million cubic yards of ready‑mix concrete were produced in 2017, which is a 2% increase from the 343.0 million cubic yards produced in 2016 but a 23% decrease from the industry peak of 458.3 million cubic yards in 2005.
 
We believe our West and East segments are leaders in the supply of ready‑mix concrete in their respective markets. The West segment has ready‑mix concrete operations in the Texas, Utah, Nevada, Idaho and Colorado markets. Our East segment supplies ready‑mix concrete in the Kansas, Missouri, Arkansas, North Carolina, South Carolina, Kentucky and Virginia markets and surrounding areas. We operated 69 ready-mix concrete plants and over 700 concrete delivery trucks in the West segment and 56 ready-mix concrete plants and almost 400 concrete delivery trucks in the East segment as of December 29, 2018. Our aggregates business serves as the primary source of the raw materials for our concrete production, functioning essentially as a supplier to our ready‑mix concrete operations. Different types of concrete include lightweight concrete, high performance concrete, self‑compacting/consolidating concrete and architectural concrete and are used in a variety of activities ranging from building construction to highway paving.

Asphalt Paving Mix
 
Asphalt paving mix is the most common roadway material used today. It is a versatile and essential building material that has been used to surface 94% of the more than 2.7 million miles of paved roadways in the United States, according to the National Asphalt Pavement Association (“NAPA”).
 
Typically, asphalt paving mix is placed in three distinct layers to create a flexible pavement structure. These layers consist of a base course, an intermediate or binder course, and a surface or wearing course. These layers vary in thicknesses of three to six inches for base mix, two to four inches for intermediate mix and one to two inches for surface mix.
 
Asphalt paving mix is produced by first heating carefully measured amounts of aggregates at high temperatures to remove the moisture from the materials in an asphalt paving mix plant. As the aggregates are heated, liquid asphalt is then introduced to coat the aggregates. Depending on the specifications of a particular mix, recycled asphalt may be added to the mix, which lowers the production costs. The aggregates used for production of these products are generally supplied from our quarries or sand and gravel plants. The ingredients are metered, mixed and brought up to a temperature in excess of 300°F before being placed in a truck and delivered to the jobsite for final placement. According to NAPA, the components of asphalt paving mix by weight are approximately 95% aggregates and 5% asphalt cement, a petroleum-based product that serves as the binder.
 
Asphalt pavement is generally 100% recyclable and reusable and is the most reused and recycled pavement material in the United States. Reclaimed asphalt pavement can be incorporated into new pavement at replacement rates in excess of 30% depending upon the mix and the application of the product. We actively engage in the recycling of previously used asphalt pavement and concrete. This material is crushed and repurposed in the construction cycle. Approximately 76.2 million tons of used asphalt is recycled annually by the industry according to a July 2018 NAPA survey. As of December 29, 2018, we operated 27 and 26 asphalt paving mix plants in the West and East segments, respectively. Approximately 92% of our plants can utilize recycled asphalt pavement.
 
The use of warm mix asphalt (“WMA”) or “green” asphalt is gaining popularity. The immediate benefit to producing WMA is the reduction in energy consumption required by burning fuels to heat traditional hot mix asphalt (“HMA”) to temperatures in excess of 300°F at the production plant. These high production temperatures are needed to allow the asphalt binder to become viscous enough to completely coat the aggregate in the HMA, have good workability during laying and compaction, and durability during traffic exposure. According to the Federal Highway Administration, WMA can reduce the temperature by 50 to 70°F, resulting in lower emissions, fumes and odors generated at the plant and the paving site.
 
Approximately 74% of the asphalt paving mix we produce is installed by our own paving crews. The rest is sold on a per ton basis to road contractors, state departments of transportation and local agencies. Asphalt paving mix is used by our paving crews and by our customers primarily for the construction of roads, driveways and parking lots.
 
According to NAPA, there were approximately 3,500 asphalt paving mix plants in the United States in 2017 and an estimated 379.4 million tons of asphalt paving mix was produced in 2017 compared to 374.9 million tons produced in 2016. Our asphalt paving mix operations compete with CRH plc and other local suppliers. Based on availability of internal aggregate supply, quality, operating efficiencies, and location advantages, we believe we are well positioned vis‑à‑vis our competitors.
 
Asphalt paving mix is generally applied at high temperatures. Prolonged exposure to air causes the mix to lose temperature and harden. Therefore, delivery is typically within close proximity to the asphalt paving mix plant. Local market

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demand, proximity to competition, transportation costs and supply of aggregates and liquid asphalt vary widely from market to market. Most of our asphalt operations use a combination of company‑owned and hired haulers to deliver materials to job sites.
 
As part of our vertical integration strategy, we provide asphalt paving and related services to both the private and public infrastructure sectors as either a prime or sub‑contractor. These services complement our construction materials and products businesses by providing a reliable downstream outlet, in addition to our external distribution channels.

Our asphalt paving and related services businesses bid on both private construction and public infrastructure projects in their respective local markets. We only provide paving and related services operations as a complement to our aggregates operations, which we believe is a major competitive strength. Factors affecting competitiveness in this business segment include price, estimating abilities, knowledge of local markets and conditions, project management, financial strength, reputation for quality and the availability of machinery and equipment.
 
Contracts with our customers are primarily fixed price or fixed unit price. Under fixed unit price contracts, we provide materials or services at fixed unit prices (for example, dollars per ton of asphalt placed). While the fixed unit price contract shifts the risk of estimating the quantity of units required for a particular project to the customer, any increase in our unit cost over the bid amount, whether due to inflation, inefficiency, errors in our estimates or other factors, is borne by us unless otherwise provided in the contract. Most of our contracts contain adjustment provisions to account for changes in liquid asphalt prices.
 
Customers
 
Our business is not dependent on any single customer or a few customers. Therefore, the loss of any single or particular small number of customers would not have a material adverse effect on any individual respective market in which we operate or on us as a whole. No individual customer accounted for more than 10% of our 2018 revenue.
 
Seasonality
 
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 or public infrastructure industries are used outdoors. Our highway operations and production and distribution facilities are also located outdoors. Therefore, seasonal changes and other weather‑related conditions, in particular extended rainy and cold weather in the spring and fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect our business and operations through a decline in both the use of our products and demand for our services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters. The first quarter of our fiscal year typically has lower levels of activity due to weather conditions.
 
Backlog
 
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 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 canceled or modified by our customers. Historically, we have not been materially adversely affected by contract cancellations or modifications. As a vertically‑integrated business, approximately 24% of aggregates sold were used internally in our ready‑mix concrete and asphalt paving mixes and approximately 74% of the asphalt paving mix was laid by our paving crews during the year ended December 29, 2018. Our backlog as of December 29, 2018, was 15.3 million tons of aggregates, 1.2 million cubic yards of ready‑mix concrete, 2.7 million tons of asphalt and $381.8 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.
 
Intellectual Property
 
We do not own or have a license or other rights under any patents that are material to our business.

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Corporate Information
 
Summit Materials, Inc. and Summit Materials, LLC were formed under the laws of the State of Delaware on September 23, 2014 and September 24, 2008, respectively. Our principal executive office is located at 1550 Wynkoop Street, 3rd Floor, Denver, Colorado 80202. Through its predecessor, Summit Inc. commenced operations in 2009 when Summit Holdings was formed. Our telephone number is (303) 893-0012.
 
Employees
 
As of December 29, 2018, we had approximately 6,000 employees, of whom approximately 80% were hourly workers and the remainder were salaried employees. Because of the seasonal nature of our industry, many of our hourly and certain of our salaried employees are subject to seasonal layoffs. The scope of layoffs varies greatly from season to season as they are predominantly a function of the type of projects in process and the weather during the late fall through early spring.
 
Approximately 7% of our employees are union members, with whom we believe we enjoy a satisfactory working relationship.
 
Legal Proceedings
 
We are party to certain legal actions arising from the ordinary course of business activities. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current pending or threatened claims and litigation will not have a material effect on our consolidated financial condition, results of operations 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.
 
Pursuant to an Administrative Order on Consent with the Missouri Department of Natural Resources, Continental Cement paid a penalty of $75,000 relating to alleged past violations of air pollution control requirements at its Hannibal, Missouri facility.  Recent alleged additional violations of environmental requirements may result in the payment of further penalties under that Order, which although anticipated to be immaterial to us, may in aggregate with the prior $75,000 penalty, exceed $100,000.
 
Environmental and Government Regulation
 
We are subject to federal, state, provincial and local laws and regulations relating to the environment and to health and safety, including noise, discharges to air and water, waste management including the management of hazardous waste used as a fuel substitute in our cement plants, remediation of contaminated sites, mine reclamation, operation and closure of landfills and dust control and zoning, land use and permitting. Our failure to comply with such laws and regulations can result in sanctions such as fines or the cessation of part or all of our operations. From time to time, we may also be required to conduct investigation or remediation activities. There also can be no assurance that our compliance costs or liabilities associated with such laws and regulations or activities will not be significant.
 
In addition, our operations require numerous governmental approvals and permits. Environmental operating permits are subject to modification, renewal and revocation and can require us to make capital, maintenance and operational expenditures to comply with the applicable requirements. Stricter laws and regulations, or more stringent interpretations of existing laws or regulations, may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment or impede our opening new, expanding or maintaining existing plants or facilities. We regularly monitor and review our operations, procedures and policies for compliance with environmental laws and regulations, changes in interpretations of existing laws and enforcement policies, new laws that are adopted, and new requirements that we anticipate will be adopted that could affect our operations.
 
Multiple permits are required for our operations, including those required to operate our cement plants. Applicable permits may include conditional use permits to allow us to operate in certain areas absent zoning approval and operational permits governing, among other matters, air and water emissions, dust, particulate matter and storm water management and

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control. In addition, we are often required to obtain bonding for future reclamation costs, most commonly specific to restorative grading and seeding of disturbed surface areas.

Like others in our industry, we expend substantial amounts to comply with applicable environmental laws and regulations and permit limitations, which include amounts for pollution control equipment required to monitor and regulate emissions into the environment. The Hannibal and Davenport cement plants are subject to HWC-MACT and CISWI standards, respectively, for which we do not expect any material incremental costs to maintain compliance. Since many environmental requirements are likely to be affected by future legislation or rule making by government agencies, and are therefore not quantifiable, it is not possible to accurately predict the aggregate future costs of compliance and their effect on our future financial condition, results of operations and liquidity.
 
At most of our quarries, we incur reclamation obligations as part of our mining activities. Reclamation methods and requirements can vary depending on the individual site and state regulations. Generally, we are required to grade the mined properties to a certain slope and seed the property to prevent erosion. We record a mining reclamation liability in our consolidated financial statements to reflect the estimated fair value of the cost to reclaim each property including active and closed sites.
 
Our operations in Kansas include one municipal waste landfill and four construction and demolition debris landfills, one of which has been closed and in Colorado, we have a construction and demolition debris landfill. In Vancouver, British Columbia, we operate a landfill site that accepts environmentally clean soil deposits. Among other environmental, health and safety requirements, we are subject to obligations to appropriately close those landfills at the end of their useful lives and provide for appropriate post‑closure care. Asset retirement obligations relating to these landfills are recorded in our consolidated financial statements.
 
Health and Safety
 
Our facilities and operations are subject to a variety of worker health and safety requirements, particularly those administered by the federal Occupational Safety and Health Administration (“OSHA”) and Mine Safety and Health Administration (“MSHA”). Throughout our organization, we strive for a zero‑incident safety culture and full compliance with safety regulations. Failure to comply with these requirements can result in sanctions such as fines and penalties and claims for personal injury and property damage. These requirements may also result in increased operating and capital costs in the future.
 
Worker safety and health matters are overseen by our corporate risk management and safety department as well as operating company level safety managers. We provide our operating company level safety managers leadership and support, comprehensive training, and other tools designed to accomplish health and safety goals, reduce risk, eliminate hazards, and ultimately make our work places safer.
 
Insurance
 
Our insurance program is structured using multiple “A” rated insurance carriers, and a variety of deductible amounts. Losses within deductible amounts, are accrued for using projections based on past loss history. We also maintain combined umbrella insurance. Other policies include property, contractors equipment, contractors pollution and professional, directors and officers, employment practices liability and fiduciary and crime. We also have a separate marine insurance policy for our cement operations on the Mississippi River, which ship cement on the river via barge.
 
Where You Can Find More Information
 
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website, free of charge, at http://www.summit-materials.com as soon as reasonably practicable after they are filed with or furnished to the SEC.
 
We maintain an internet site at http://www.summit-materials.com. Our website and the information contained on or connected to that site are not incorporated into this report.


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ITEM  1A.    RISK FACTORS  
 
Risks Related to Our Industry and Our Business
 
Industry Risks
 
Our business depends on activity within the construction industry and the strength of the local economies in which we operate.
 
We sell most of our construction materials and products and provide all of our paving and related services to the construction industry, so our results are significantly affected by the strength of the construction industry. Federal and state budget issues may negatively affect the amount of funding available for infrastructure spending, particularly highway construction, which constitutes a significant portion of our business. Demand for our products, particularly in the residential and nonresidential construction markets, could decline if companies and consumers cannot obtain funding for construction projects. In addition, a slow pace of economic activity results in delays or cancellations of capital projects.
 
Our earnings depend on the strength of the local economies in which we operate because of the high cost to transport our products relative to their price. Although some states in recent years, such as Texas, have increased their budgets for road construction, maintenance, rehabilitation and acquiring right of way for public roads, certain other states have reduced their construction spending due to budget shortfalls from lower tax revenue, as well as uncertainty relating to long‑term federal highway funding prior to the FAST Act, which was signed into law on December 4, 2015. As a result, there has been a reduction in certain states’ investment in infrastructure spending. If economic and construction activity diminishes in one or more areas, particularly in our top revenue‑generating markets of Texas, Utah, Kansas and Missouri, our financial condition, results of operations and liquidity could be materially adversely affected.
 
Our business is cyclical and requires significant working capital to fund operations.
 
Our business is cyclical and requires that we maintain significant working capital to fund our operations. Our ability to generate sufficient cash flow depends on future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash to operate our business and service our outstanding debt and other obligations, we may be required, among other things, to further reduce or delay planned capital or operating expenditures, sell assets or take other measures, including the restructuring of all or a portion of our debt, which may only be available, if at all, on unsatisfactory terms.
 
Weather can materially affect our business and we are subject to seasonality.
 
Nearly all of the products we sell and the services we provide are used or performed outdoors. Therefore, seasonal changes and other weather‑related conditions can adversely affect our business and operations through a decline in both the use and production of our products and demand for our services. Adverse weather conditions such as heavy or sustained rainy and cold weather in the spring and fall can reduce demand for our products and reduce sales or render our contracting operations less efficient. For example, during 2018, a wetter than normal third quarter, which included record levels of rainfall in Texas during September 2018, negatively impacted our operations which affected our financial results and our ability to provide accurate financial guidance to investors. Major weather events such as hurricanes, tornadoes, tropical storms and heavy snows have adversely affected and could adversely affect sales in the near term. In particular, our operations in the southeastern and Gulf Coast regions of the United States are at risk for hurricane activity, most notably in August, September and October. For example, in 2017, Hurricane Harvey adversely affected our operations not only during the days immediately before and after the storm, but also in the weeks and months after the storm as our customers recovered and reallocated resources in response to damage caused by the storm.
 
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. The first quarter of our fiscal year has typically lower levels of activity due to the weather conditions. Our second quarter varies greatly with spring rains and wide temperature variations. A cool wet spring increases drying time on projects, which can delay sales in the second quarter, while a warm dry spring may enable earlier project startup. Such adverse weather conditions can adversely affect our business, financial condition and results of operations if they occur with unusual intensity, during abnormal periods or last longer than usual in our major markets, especially during peak construction periods.


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Our industry is capital intensive and we have significant fixed and semi‑fixed costs. Therefore, our profitability is sensitive to changes in volume.
 
The property and machinery needed to produce our materials and products can be very expensive. Therefore, we need to spend a substantial amount of capital to purchase and maintain the equipment necessary to operate our business. Although we believe that our current cash balance, along with our projected internal cash flows and our available financing resources, will provide sufficient cash to support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to purchase and maintain the property and machinery necessary to operate our business, we may be required to reduce or delay planned capital expenditures or incur additional debt. In addition, given the level of fixed and semi‑fixed costs within our business, particularly at our cement production facilities, decreases in volumes could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Within our local markets, we operate in a highly competitive industry.
 
The U.S. construction aggregates industry is highly fragmented with a large number of independent local producers in a number of our markets. Additionally, in most markets, we compete against large private and public infrastructure companies, some of which are also vertically‑integrated. Therefore, there is intense competition in a number of the markets in which we operate. This significant competition could lead to lower prices, lower sales volumes and higher costs in some markets, negatively affecting our financial condition, results of operations and liquidity.
 
Growth Risks
 
The success of our business depends in part on our ability to execute on our acquisition strategy.
 
A significant portion of our historical growth has occurred through acquisitions, and we will likely enter into acquisitions in the future. We are presently evaluating, and we expect to continue to evaluate on an ongoing basis, possible acquisition transactions. We are presently engaged, and at any time in the future we may be engaged, in discussions or negotiations with respect to possible acquisitions, including larger transactions that would be significant to us. We regularly make, and we expect to continue to make, non‑binding acquisition proposals, and we may enter into letters of intent, in each case allowing us to conduct due diligence on a confidential basis. We cannot predict the timing of any contemplated transactions. To successfully acquire a significant target, we may need to raise additional capital through additional equity issuances, additional indebtedness, or a combination of equity and debt issuances. There can be no assurance that we will enter into definitive agreements with respect to any contemplated transactions or that they will be completed. Our growth has placed, and will continue to place, significant demands on our management and operational and financial resources. Acquisitions involve risks that the businesses acquired will not perform as expected.
 
Our results of operations from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill, or other long‑lived assets, particularly if economic conditions worsen unexpectedly. As a result of these changes, our financial condition, results of operations and liquidity could be materially adversely affected. In addition, many of the businesses that we have acquired and will acquire have unaudited financial statements that have been prepared by the management of such companies and have not been independently reviewed or audited. We cannot assure you that the financial statements of companies we have acquired or will acquire would not be materially different if such statements were independently reviewed or audited. If such statements were to be materially different, the tangible and intangible assets we acquire may be more susceptible to impairment charges, which could have a material adverse effect on us.
 
The success of our business depends on our ability to successfully integrate acquisitions.
 
Acquisitions may require integration of the acquired companies’ sales and marketing, distribution, production, purchasing, finance and administrative organizations. We may not be able to integrate successfully any business we may acquire or have acquired into our existing business and any acquired businesses may not be profitable or as profitable as we had expected. Our inability to complete the integration of new businesses in a timely and orderly manner could increase costs and lower profits. Factors affecting the successful integration of acquired businesses include, but are not limited to, the following:
 
We may become liable for certain liabilities of any acquired business, whether or not known to us. These risks could include, among others, tax liabilities, product liabilities, environmental liabilities and liabilities for employment practices. These liabilities may be significant.


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Substantial attention from our senior management and the management of the acquired business may be required, which could decrease the time that they have to service and attract customers.

Capital equipment at acquired businesses may require additional maintenance or need to be replaced sooner than we expected.

The complete integration of acquired companies depends, to a certain extent, on the full implementation of our financial systems and policies.

We may actively pursue a number of opportunities simultaneously and we may encounter unforeseen expenses, complications and delays, including difficulties in employing sufficient staff and maintaining operational and management oversight.

The success of our business depends on our ability to retain key employees of our acquired businesses.
 
We cannot assure you we will be able to retain local managers and employees who are important to the operations of our acquired businesses. The loss of key employees may have an adverse effect on the acquired business and on our business as a whole.
 
Our long‑term success is dependent upon securing and permitting aggregate reserves in strategically located areas. The inability to secure and permit such reserves could negatively affect our earnings in the future.
 
Aggregates are bulky and heavy and therefore difficult to transport efficiently. Because of the nature of the products, the freight costs can quickly surpass production costs. Therefore, except for geographic regions that do not possess commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for our products tend to be localized around our quarry sites and are served by truck. New quarry sites often take a number of years to develop. Our strategic planning and new site development must stay ahead of actual growth. Additionally, in a number of urban and suburban areas in which we operate, it is increasingly difficult to permit new sites or expand existing sites due to community resistance. Therefore, our future success is dependent, in part, on our ability to accurately forecast future areas of high growth in order to locate optimal facility sites and on our ability to either acquire existing quarries or secure operating and environmental permits to open new quarries. If we are unable to accurately forecast areas of future growth, acquire existing quarries or secure the necessary permits to open new quarries, our financial condition, results of operations and liquidity could be materially adversely affected.
 
Economic Risks
 
A decline in public infrastructure construction and reductions in governmental funding could adversely affect our earnings in the future.
 
A significant portion of our revenue is generated from publicly‑funded construction projects. As a result, if publicly‑funded construction decreases due to reduced federal or state funding or otherwise, our financial condition, results of operations and liquidity could be materially adversely affected.
 
Under U.S. law, annual funding levels for highways is subject to yearly appropriation reviews. This annual review of funding increases the uncertainty of many state departments of transportation regarding funds for highway projects. This uncertainty could result in states being reluctant to undertake large multi‑year highway projects which could, in turn, negatively affect our sales. We cannot be assured of the existence, amount and timing of appropriations for spending on federal, state or local projects. Federal support for the cost of highway maintenance and construction is dependent on congressional action. In addition, each state funds its infrastructure spending from specially allocated amounts collected from various taxes, typically gasoline taxes and vehicle fees, along with voter‑approved bond programs. Shortages in state tax revenues can reduce the amounts spent on state infrastructure projects, even below amounts awarded under legislative bills. In recent years, certain states have experienced state‑level funding pressures caused by lower tax revenues and an inability to finance approved projects. Delays or cancellations of state infrastructure spending could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Our business relies on private investment in infrastructure, and periods of economic stagnation or recession may adversely affect our earnings in the future.
 

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A significant portion of our sales are for projects with non‑public owners whose construction spending is affected by developers’ ability to finance projects. Residential and nonresidential construction could decline if companies and consumers are unable to finance construction projects or in periods of economic stagnation or recession, which could result in delays or cancellations of capital projects. If housing starts and nonresidential projects stagnate or decline, sale of our construction materials, downstream products and paving and related services may decline and our financial condition, results of operations and liquidity could be materially adversely affected.
 
Environmental, health and safety laws and regulations and any changes to, or liabilities arising under, such laws and regulations could have a material adverse effect on our financial condition, results of operations and liquidity.
 
We are subject to a variety of federal, state, provincial and local laws and regulations relating to, among other things: (i) the release or discharge of materials into the environment; (ii) the management, use, generation, treatment, processing, handling, storage, transport or disposal of hazardous materials, including the management of hazardous and non-hazardous waste used as a fuel substitute in our cement kiln in Hannibal, Missouri; (iii) the management, use, generation, treatment, processing, handling, storage, transport or disposal of non‑hazardous solid waste used as a fuel substitute in our cement kiln in Davenport, Iowa; and (iv) the protection of public and employee health and safety and the environment. These laws and regulations impose strict liability in some cases without regard to negligence or fault and expose us to liability for the environmental condition of our currently or formerly owned, leased or operated facilities or third‑party waste disposal sites, and may expose us to liability for the conduct of others or for our actions, even if such actions complied with all applicable laws at the time these actions were taken. In particular, we may incur remediation costs and other related expenses because our facilities were constructed and operated before the adoption of current environmental laws and the institution of compliance practices or because certain of our processes are regulated. These laws and regulations may also expose us to liability for claims of personal injury or property or natural resource damage related to alleged exposure to, or releases of, regulated or hazardous materials. The existence of contamination at properties we own, lease or operate could also result in increased operational costs or restrictions on our ability to use those properties as intended.
 
There is an inherent risk of liability in the operation of our business, and despite our compliance efforts, we may be in noncompliance with environmental, health and safety laws and regulations from time to time. These potential liabilities or events of noncompliance could have a material adverse effect on our operations and profitability. In many instances, we must have government approvals, certificates, permits or licenses in order to conduct our business, which could require us to make significant capital, operating and maintenance expenditures to comply with environmental, health and safety laws and regulations. Our failure to obtain and maintain required approvals, certificates, permits or licenses or to comply with applicable governmental requirements could result in sanctions, including substantial fines or possible revocation of our authority to conduct some or all of our operations. Governmental requirements that affect our operations also include those relating to air and water quality, waste management, asset reclamation, the operation and closure of municipal waste and construction and demolition debris landfills, remediation of contaminated sites and worker health and safety. These requirements are complex and subject to frequent change. Stricter laws and regulations, more stringent interpretations of existing laws or regulations or the future discovery of environmental conditions may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment or impede our opening new or expanding existing plants or facilities.
 
We have incurred, and may in the future incur, significant capital and operating expenditures to comply with such laws and regulations. In addition, we have recorded liabilities in connection with our reclamation and landfill closure obligations, but there can be no assurances that the costs of our obligations will not exceed our estimates. The cost of complying with such laws could have a material adverse effect on our financial condition, results of operations and liquidity.

Our operating costs could be adversely affected by rising prices for commodities, labor and other production and delivery costs, as a result of inflation or otherwise.

Increases in production and delivery costs, including rising costs for commodities and labor, and other costs related to the production and delivery of our products, could adversely affect our business. Our cost of revenue consists of production and delivery costs, which primarily include labor, utilities, raw materials, fuel, transportation, royalties and other direct costs incurred in the production and delivery of our products and services. Increases in these costs, as a result of general economic conditions, inflationary pressures or otherwise, may reduce our operating margin and adversely affect our financial position if we are unable to hedge or otherwise offset such increases. Specifically, significant increases or fluctuations in the prices of certain energy commodities, including diesel fuel, liquid asphalt and other petroleum-based resources, which we consume significant amounts of in our production and distribution processes, could negatively affect the results of our business operations or cause our results to suffer. Additionally, labor is a meaningful component in the cost of operating our business.

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Increased labor costs, and specifically costs resulting from wage increases due to competition for qualified workers may reduce our operating margin and adversely affect our financial position.
 
Financial Risks
 
Difficult and volatile conditions in the credit markets could affect our financial condition, results of operations and liquidity.
 
Demand for our products is primarily dependent on the overall health of the economy, and federal, state and local public infrastructure funding levels. A stagnant or declining economy tends to produce less tax revenue for public infrastructure agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements, which constitute a significant part of our business.
 
There is a likelihood that we will not be able to collect on certain of our accounts receivable from our customers. If our customers are unable to obtain credit or unable to obtain credit in a timely manner, they may be unable to pay us, which could have a material adverse effect on our financial condition, results of operations and liquidity.
 
If we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us, we may achieve lower than anticipated profits or incur contract losses.
 
Even though the majority of our government contracts contain raw material escalators to protect us from certain input material price increases, a portion or all of the contracts are often on a fixed cost basis. Pricing on a contract with a fixed unit price is based on approved quantities irrespective of our actual costs and contracts with a fixed total price require that the total amount of work be performed for a single price irrespective of our actual costs. We realize profit on our contracts only if our revenue exceeds actual costs, which requires that we successfully estimate our costs and then successfully control actual costs and avoid cost overruns. If our cost estimates for a contract are inadequate, or if we do not execute the contract within our cost estimates, then cost overruns may cause us to incur a loss or cause the contract not to be as profitable as we expected. The costs incurred and profit realized, if any, on our contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:
 
failure to include materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract;

delays caused by weather conditions or otherwise failing to meet scheduled acceptance dates;

contract or project modifications or conditions creating unanticipated costs that are not covered by change orders;

changes in availability, proximity and costs of materials, including liquid asphalt, cement, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment;

to the extent not covered by contractual cost escalators, variability and inability to predict the costs of purchasing diesel, liquid asphalt and cement;

availability and skill level of workers;

failure by our suppliers, subcontractors, designers, engineers or customers to perform their obligations;

fraud, theft or other improper activities by our suppliers, subcontractors, designers, engineers, customers or our own personnel;

mechanical problems with our machinery or equipment;

citations issued by any governmental authority, including OSHA and MSHA;

difficulties in obtaining required governmental permits or approvals;

changes in applicable laws and regulations;


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uninsured claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part; and

public infrastructure customers may seek to impose contractual risk‑shifting provisions more aggressively which may result in us facing increased risks.

These factors, as well as others, may cause us to incur losses, which could have a material adverse effect on our financial condition, results of operations and liquidity.
 
We could incur material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications.
 
We provide our customers with products designed to meet building code or other regulatory requirements and contractual specifications for measurements such as durability, compressive strength, weight‑bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be damaged. Additionally, if a significant uninsured, non‑indemnified or product‑related claim is resolved against us in the future, that resolution could have a material adverse effect on our financial condition, results of operations and liquidity.
 
The cancellation of a significant number of contracts or our disqualification from bidding for new contracts could have a material adverse effect on our financial condition, results of operations and liquidity.
 
We could be prohibited from bidding on certain government contracts if we fail to maintain qualifications required by the relevant government entities. In addition, contracts with governmental entities can usually be canceled at any time by them with payment only for the work completed. A cancellation of an unfinished contract or our disqualification from the bidding process could result in lost revenue and cause our equipment to be idled for a significant period of time until other comparable work becomes available, which could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses which may not be covered by insurance.
 
Operating hazards inherent in our business, some of which may be outside our control, can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. However, liabilities subject to insurance are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, our financial condition, results of operations and liquidity could be materially adversely effected.
 
Unexpected factors affecting self‑insurance claims and reserve estimates could adversely affect our business.
 
We use a combination of third‑party insurance and self‑insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and medical benefit claims. Although we seek to minimize our exposure on individual claims, for the benefit of costs savings we have accepted the risk of multiple independent material claims arising. We estimate the projected losses and liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Any such matters could have a material adverse effect on our financial condition, results of operations and liquidity.

Our substantial leverage could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and our ability to pay our debts, which could divert our cash flow from operations to debt payments.
 
We are highly leveraged. As of December 29, 2018, our total debt was approximately $1.8 billion, which includes $1.2 billion of Senior Notes and $630.6 million of senior secured indebtedness under our senior secured credit facilities and

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we had an additional $219.6 million of unutilized capacity under our senior secured revolving credit facility (after giving effect to approximately $15.4 million of letters of credit outstanding).
 
Our high degree of leverage could have important consequences, including:
 
increasing our vulnerability to general economic and industry conditions;

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

the deductibility of our interest expense is currently limited under existing law and would be further limited if proposed regulations are finalized in their current form;

subject us to the risk of increased interest rates as a portion of our borrowings under our senior secured credit facilities are exposed to variable rates of interest;

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged; and

making it more difficult for us to make payments on our debt.

Borrowings under our senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We have and may in the future enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any interest rate swaps we enter into may not fully mitigate our interest rate risk. In addition, certain of our variable rate indebtedness uses LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be replaced with a new benchmark or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness. In addition, the indentures that govern the Senior Notes and the amended and restated credit agreement governing our senior secured credit facilities (“Credit Agreement”) contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
 
Despite our current level of indebtedness, we and our subsidiaries may still incur substantially more debt. This could reduce our ability to satisfy our current obligations and further exacerbate the risks to our financial condition described above.
 
We and our subsidiaries may incur significant additional indebtedness in the future to fund acquisitions as part of our growth strategy. Although the indentures governing the Senior Notes and the Credit Agreement contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness in compliance with these restrictions.
 
Our senior secured credit facilities include an uncommitted incremental facility that allows us the option to increase the amount available under the term loan facility and/or the senior secured revolving credit facility by (i) $225.0 million plus (ii) an additional amount so long as we are in pro forma compliance with a consolidated first lien net leverage ratio. Availability of such incremental facilities will be subject to, among other conditions, the absence of an event of default and the receipt of commitments by existing or additional financial institutions.


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We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
 
Our ability to make scheduled payments on our debt obligations, refinance our debt obligations and fund planned capital expenditures and other corporate expenses depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions. We are also subject to certain financial, business, legislative, regulatory and legal restrictions on the payment of distributions and dividends. Many of these factors are beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, which would constitute an event of default if not cured. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” If our cash flows and capital resources are insufficient to fund our debt service obligations or our other needs, we may be forced to reduce or delay investments and capital expenditures, seek additional capital, restructure or refinance our indebtedness or sell assets. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or fund planned capital expenditures. Significant delays in our planned capital expenditures may materially and adversely affect our future revenue prospects. In addition, our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The Credit Agreement and the indentures governing the Senior Notes restrict our ability to use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair and proceeds that we do receive may not be adequate to meet any debt service obligations then due. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness.
 
The indentures governing the Senior Notes and the Credit Agreement contain covenants and provisions that are restrictive.
 
The indentures governing the Senior Notes and Credit Agreement contain restrictive covenants that, among other things, limit our ability, and the ability of our restricted subsidiaries, to:
 
incur additional indebtedness, issue certain preferred shares or issue guarantees;

pay dividends, redeem our membership interests or make other restricted payments, including purchasing our Class A common stock;

make investments, loans or advances;

incur additional liens;

transfer or sell assets;

merge or engage in consolidations;

enter into certain transactions with our affiliates;

designate subsidiaries as unrestricted subsidiaries;

repay subordinated indebtedness; and

change our lines of business.

The senior secured credit facilities also require us to maintain a maximum first lien net leverage ratio. The Credit Agreement also contains certain customary representations and warranties, affirmative covenants and events of default (including, among others, an event of default upon a change of control). If an event of default occurs, the lenders under our senior secured credit facilities will be entitled to take various actions, including the acceleration of amounts due under our senior secured credit facilities and all actions permitted to be taken by a secured creditor. Our failure to comply with obligations under the indentures governing the Senior Notes and the Credit Agreement may result in an event of default under the indenture or the amended and restated Credit Agreement. A default, if not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we may not have sufficient funds available to pay the accelerated indebtedness or the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
 

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Other Risks
 
Our success is dependent on our Chief Executive Officer and other key personnel.
 
Our success depends on the continuing services of our Chief Executive Officer, Tom Hill, and other key personnel led by Mr. Hill. We believe that Mr. Hill possesses valuable knowledge and skills that are crucial to our success and would be difficult to replicate. Not all of our senior management team resides near or works at our headquarters. The geographic distance between the members of our senior management team may impede the team’s ability to work together effectively, and we cannot assure you they will be able to do so.
 
Competition for senior management is intense, and we may not be able to retain our management team or attract additional qualified personnel. The loss of a member of senior management could require certain of our remaining senior officers to divert immediate attention, which could be substantial or require costly external resources in the short term. The inability to adequately fill vacancies in our senior executive positions on a timely basis could negatively affect our ability to implement our business strategy, which could have a material adverse effect on our results of operations, financial condition and liquidity.
 
We use large amounts of electricity, diesel fuel, liquid asphalt and other petroleum‑based resources that are subject to potential reliability issues, supply constraints and significant price fluctuation, which could have a material adverse effect on our financial condition, results of operations and liquidity.
 
In our production and distribution processes, we consume significant amounts of electricity, diesel fuel, liquid asphalt and other petroleum‑based resources. The availability and pricing of these resources are subject to market forces that are beyond our control. Furthermore, we are vulnerable to any reliability issues experienced by our suppliers, which also are beyond our control. Our suppliers contract separately for the purchase of such resources and our sources of supply could be interrupted should our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability. Variability in the supply and prices of these resources could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Climate change and climate change legislation or regulations may adversely affect our business.
 
A number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory changes in response to the potential effects of climate change, and the United States and Canada have agreed to the Paris Agreement, the successor to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which could lead to additional legislative and regulatory changes in the United States and Canada.   Such legislation or regulation has and potentially could include provisions for a “cap and trade” system of allowances and credits, among other provisions. The EPA promulgated a mandatory reporting rule covering greenhouse gas (“GHG”) emissions from sources considered to be large emitters. The EPA has also promulgated a GHG emissions permitting rule, referred to as the “Tailoring Rule” which sets forth criteria for determining which facilities are required to obtain permits for GHG emissions pursuant to the U.S. Clean Air Act’s Prevention of Significant Deterioration (“PSD”) and Title V operating permit programs. The U.S. Supreme Court ruled in June 2014 that the EPA exceeded its statutory authority in issuing the Tailoring Rule but upheld the Best Available Control Technology (“BACT”) requirements for GHGs emitted by sources already subject to PSD requirements for other pollutants. Our cement plants and one of our landfills hold Title V Permits. If future modifications to our facilities require PSD review for other pollutants, GHG BACT requirements may also be triggered, which could require significant additional costs.
 
Other potential effects of climate change include physical effects such as disruption in production and product distribution as a result of major storm events and shifts in regional weather patterns and intensities. There is also a potential for climate change legislation and regulation to adversely affect the cost of purchased energy and electricity.
 
The effects of climate change on our operations are highly uncertain and difficult to estimate. However, because a chemical reaction inherent to the manufacture of Portland cement releases carbon dioxide, a GHG, cement kiln operations may be disproportionately affected by future regulation of GHGs. Climate change and legislation and regulation concerning GHGs could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Unexpected operational difficulties at our facilities could disrupt operations, raise costs, and reduce revenue and earnings in the affected locations.
 
The reliability and efficiency of certain of our facilities is dependent upon vital pieces of equipment, such as our cement manufacturing kilns in Hannibal, Missouri and Davenport, Iowa. Although we have scheduled outages to perform

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maintenance on certain of our facilities, vital equipment may periodically experience unanticipated disruptions due to accidents, mechanical failures or other unanticipated events such as fires, explosions, violent weather conditions or other unexpected operational difficulties. A substantial interruption of one of our facilities could require us to make significant capital expenditures to restore operations and could disrupt our operations, raise costs, and reduce revenue and earnings in the affected locations.
 
We are dependent on information technology. Our systems and infrastructure face certain risks, including cyber security risks and data leakage risks.
 
We are dependent on information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively affect operations. There is also a risk that we could experience a business interruption, theft of information or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third‑party providers. While we have invested in the protection of our data and information technology to reduce these risks and periodically test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Labor disputes could disrupt operations of our businesses.
 
As of December 29, 2018, labor unions represented approximately 7% of our total employees, substantially all in our cement division and at our Canadian operations. Our collective bargaining agreements for employees generally expire between 2020 and 2024. Although we believe we have good relations with our employees and unions, disputes with our trade unions, union organizing activity, or the inability to renew our labor agreements, could lead to strikes or other actions that could disrupt our operations and, consequently, have a material adverse effect on our financial condition, results of operations and liquidity.
 
Organizational Structure Risks
 
Summit Inc.’s only material asset is its interest in Summit Holdings, and it is accordingly dependent upon distributions from Summit Holdings to pay taxes, make payments under the TRA and pay dividends.
 
Summit Inc. is a holding company and has no material assets other than its ownership of LP Units and has no independent means of generating revenue. Summit Inc. intends to cause Summit Holdings to make distributions to holders and former holders of LP Units in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the TRA and cash distributions, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of Summit Holdings and its subsidiaries for any reason, or restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits, could limit or impair their ability to pay such distributions. Additionally, to the extent that Summit Inc. needs funds, and Summit Holdings is restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or is otherwise unable to provide such funds, it could have a material adverse effect on our financial condition, results of operations and liquidity.
 
Payments of dividends, if any, are at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. Any financing arrangement that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Summit Holdings is generally prohibited under Delaware law from making a distribution to a limited partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Summit Holdings (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Summit Holdings are generally subject to similar legal limitations on their ability to make distributions to Summit Holdings.
 
Summit Inc. anticipates using certain distributions from Summit Holdings to acquire additional LP Units.
 
The limited partnership agreement of Summit Holdings provides for cash distributions, which we refer to as “tax distributions,” to be made to the holders of the LP Units if it is determined that the income of Summit Inc. will give rise to net taxable income allocable to holders of LP Units. To the extent that future tax distributions Summit Inc. receives exceed the amounts it actually requires to pay taxes and make payments under the TRA, we expect that our board of directors will cause Summit Inc. to use such excess cash to acquire additional newly-issued LP Units at a per unit price determined by reference to

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the volume weighted average price per share of the Class A common stock during the five trading days immediately preceding the date of the relevant board action. See “Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities–Dividends.” Although we anticipate that any such decision by our board of directors would be approved by a majority of our independent directors, any cash used by Summit Inc. to acquire additional LP Units would not then be available to fund cash dividends on the Class A common stock.
 
Summit Inc. is required to pay exchanging holders of LP Units for most of the benefits relating to any additional tax depreciation or amortization deductions that we may claim as a result of the tax basis step-up we receive in connection with sales or exchanges of LP Units and related transactions.
 
Holders of LP Units (other than Summit Inc.) may, subject to the vesting and minimum retained ownership requirements and transfer restrictions applicable to such holders as set forth in the limited partnership agreement of Summit Holdings, from and after March 17, 2016 (subject to the terms of the exchange agreement), exchange their LP Units for Class A common stock on a one-for-one basis. The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Summit Inc. would otherwise be required to pay in the future, although the Internal Revenue Service (the “IRS”) may challenge all or part of the tax basis increase, and a court could sustain such a challenge.
 
In connection with the IPO, we entered into a TRA with the holders of LP Units that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. is deemed to realize as a result of the increases in tax basis described above and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. This payment obligation is an obligation of Summit Inc. and not of Summit Holdings. While the actual increase in tax basis and the actual amount and utilization of net operating losses, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the tangible and intangible assets of Summit Holdings and our possible utilization of net operating losses, the payments that Summit Inc. may make under the TRA will be substantial.
 
In certain cases, payments under the TRA may be accelerated or significantly exceed the actual benefits Summit Inc. realizes in respect of the tax attributes subject to the TRA.
 
The TRA provides that upon certain changes of control, or if, at any time, Summit Inc. elects an early termination of the TRA, Summit Inc.’s obligations under the TRA may be accelerated. Summit Inc.’s ability to achieve benefits from any tax basis increase or net operating losses, and the payments to be made under the TRA, will depend upon a number of factors, including the timing and amount of our future income. As a result, even in the absence of a change of control or an election to terminate the TRA, payments under the TRA could be in excess of 85% of Summit Inc.’s actual cash tax savings.
 
The actual cash tax savings realized by Summit Inc. under the TRA may be less than the corresponding TRA payments. Further, payments under the TRA may be made years in advance of when the benefits, if any, are realized on our federal and state income tax returns. Accordingly, there may be a material negative effect on our liquidity if the payments under the TRA exceed the actual cash tax savings that Summit Inc. realizes in respect of the tax attributes subject to the TRA and/or distributions to Summit Inc. by Summit Holdings are not sufficient to permit Summit Inc. to make payments under the TRA. Based upon a $12.40 share price of our Class A common stock, which was the closing price on December 28, 2018, and a contractually defined discount rate of 4.01%, we estimate that if Summit Inc. were to exercise its termination right, the aggregate amount of these termination payments would be approximately $259 million. The foregoing number is merely an estimate and the actual payments could differ materially. We may need to incur debt to finance payments under the TRA to the extent our cash resources are insufficient to meet our obligations under the TRA as a result of timing discrepancies or otherwise.
 
Ownership of Our Class A Common Stock Risks
 
The market price of shares of our Class A common stock may be volatile, which could cause the value of your investment to decline.
 
The market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide have recently experienced significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our Class A common stock

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regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly. You may be unable to resell your shares of Class A common stock for a profit.
 
In recent years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
 
Because we have no current plans to pay cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.
 
We have no current plans to pay any cash dividends. The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by our senior secured credit facilities and our Senior Notes and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future. As a result, you may not receive any return on an investment in our Class A common stock unless you sell our Class A common stock for a price greater than that which you paid for it.
 
Future issuance of additional Class A common stock, or securities convertible or exchangeable for Class A common stock, may adversely affect the market price of the shares of our Class A common stock.
 
As of December 29, 2018, we had 111,658,927 shares of Class A common stock issued and outstanding, and 888,341,073 shares authorized but unissued. The number of unissued shares includes 3,435,518 shares available for issuance upon exchange of LP Units held by limited partners of Summit Holdings. Our amended and restated certificate of incorporation authorizes us to issue shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion. We may need to raise significant additional equity capital in connection with acquisitions or otherwise. Similarly, the limited partnership agreement of Summit Holdings permits Summit Holdings to issue an unlimited number of additional limited partnership interests of Summit Holdings with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the LP Units, and which may be exchangeable for shares of our Class A common stock. Sales of substantial amounts of Class A common stock, or securities convertible or exchangeable for Class A common stock, or the perception that such sales could occur may adversely affect the prevailing market price for the shares of our Class A common stock. Thus holders of our Class A common stock will bear the risk of our future issuances reducing the market price of our Class A common stock and diluting the value of their stock holdings in us.
 
An aggregate of 13,500,000 shares of Class A common stock may be granted under the Summit Materials, Inc. 2015 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of which 7,145,208 have been granted as of December 29, 2018. In addition, as of December 29, 2018 we had outstanding warrants to purchase an aggregate of 100,037 shares of Class A common stock. Any Class A common stock that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, or upon exercise of outstanding options or warrants, or other securities convertible or exchangeable for Class A common stock would dilute the percentage ownership held by the investors of our Class A common stock and may adversely affect the market price of the shares of our Class A common stock.
 
Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
 

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Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things, these provisions:
 
would allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of Class A common stock;

prohibit stockholder action by written consent unless such action is recommended by all directors then in office; 

provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 66 2/3% or more in voting power of all outstanding shares of our capital stock.

establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
 
ITEM  1B.    UNRESOLVED STAFF COMMENTS  
 
None.


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ITEM 2.     PROPERTIES.
 
Properties
 
Our headquarters are located in a 21,615 square foot office space, which we lease in Denver, Colorado, under a lease expiring on January 31, 2024.
 
As of December 29, 2018, we had 3.9 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. By segment, our estimate of proven and probable reserves as of December 29, 2018 for which we have permits for extraction and that we consider to be recoverable aggregates of suitable quality for economic extraction are shown in the table below along with average annual production.
 
 
 
 
 
Tonnage of reserves for
 
 
 
 
 
 
 
 
 
 
 
 
each general type of
 
 
 
Average years
 
Percent of
 
 
Number of
 
aggregate
 
 
 
until depletion
 
reserves owned and
 
 
producing
 
 
 
Sand and
 
Annual
 
at current
 
percent leased
Segment
 
quarries
 
Hard rock(1)
 
gravel(1)
 
production(1)
 
production(2)
 
Owned
 
Leased(3)
West
 
81

 
349,609

 
813,793

 
22,812

 
51

 
33
%
 
67
%
East
 
161

 
1,933,468

 
320,926

 
17,751

 
127

 
66
%
 
34
%
Cement
 
3

 
506,044

 

 
1,854

 
273

 
100
%
 

Total
 
245

 
2,789,121

 
1,134,719

 
42,417

 
 
 
 
 
 
______________________
(1)
Hard rock, sand and gravel and annual production tons are shown in thousands.    
(2)
Calculated based on total reserves divided by our average of 2018 and 2017 annual production    
(3)
Lease terms range from monthly to on-going with an average lease expiry of 2025.    

As of December 29, 2018, we operated the following production and distribution facilities:
 
 
 
Quarries and Sand Deposits
 
Cement Plants
 
Cement Distribution Terminals
 
Fixed and portable ready-mix concrete plants
 
Asphalt paving mix plants
Owned
 
95
 
2
 
6
 
99
 
30
Leased
 
134
 
 
4
 
26
 
19
Partially owned and leased
 
16
 
 
 
 
4
Total
 
245
 
2
 
10
 
125
 
53

    

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The following chart summarizes our production and distribution facilities by state as of December 29, 2018:
 
State
 
Sand & Gravel
 
Limestone
 
Cement
  
Ready-mix Concrete
 
Asphalt
Plant
 
Landfill
 
Other*
Arkansas
 
5
 
 
 
17
 
2
 
 
2
Colorado
 
32
 
1
 
 
9
 
7
 
 
3
Georgia
 
 
3
 
 
 
 
 
1
Idaho
 
5
 
 
 
3
 
 
 
3
Illinois
 
 
 
 
 
 
 
1
Iowa
 
 
1
 
2
 
 
 
 
1
Kansas
 
9
 
50
 
 
17
 
9
 
7
 
14
Kentucky
 
1
 
18
 
 
10
 
13
 
 
9
Louisiana
 
 
 
3
 
 
 
 
1
Minnesota
 
 
 
2
 
 
 
 
Missouri
 
1
 
48
 
3
 
7
 
 
 
7
Nebraska
 
 
1
 
 
 
 
 
Nevada
 
1
 
 
 
2
 
 
 
New Mexico
 
1
 
 
 
 
 
 
North Carolina
 
4
 
 
 
 
 
 
2
Oklahoma
 
3
 
1
 
 
12
 
 
 
1
South Carolina
 
11
 
1
 
 
1
 
 
 
Tennessee
 
 
1
 
2
 
 
 
 
Texas
 
11
 
3
 
 
21
 
13
 
 
19
Utah
 
19
 
2
 
 
20
 
4
 
 
3
Virginia
 
 
10
 
 
4
 
4
 
 
4
Wisconsin
 
 
 
1
 
 
 
 
Wyoming
 
 
 
 
2
 
 
 
2
     Total US
 
103
 
140
 
13
 
125
 
52
 
7
 
73
British Columbia, Canada
 
2
 
 
 
 
1
 
1
 
6
     Total
 
105
 
140
 
13
 
125
 
53
 
8
 
79
______________________
*Other primarily consists of office space.

ITEM  3.    LEGAL PROCEEDINGS.  
 
The information set forth under “—Legal Proceedings” in Item 1, “Business,” is incorporated herein by reference.
 
ITEM  4.    MINE SAFETY DISCLOSURES. 
 
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this report.

EXECUTIVE OFFICERS OF THE COMPANY
 
Pursuant to General Instruction G(3) to Form 10-K, certain of the information regarding our executive officers required by Items 401(b) and (e) of Regulation S-K is hereby included in Part I of this report.
 
Thomas W. Hill,  63, President and Chief Executive Officer. Mr. Hill is the founder of Summit Materials and has been President and Chief Executive Officer since its inception. He has been a member of our Board of Directors since August 2009. From 2006 to 2008, he was the Chief Executive Officer of Oldcastle, Inc. (“Oldcastle”), the North American arm of CRH plc,

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one of the world's leading construction materials companies. Mr. Hill served on the CRH plc Board of Directors from 2002 to 2008 and, from 1992 to 2006, ran the Materials division of Oldcastle. Mr. Hill served as Chairman of the American Road and Transportation Builders Association (“ARTBA”) from 2002 to 2004, during congressional consideration of the multi-year transportation bill “SAFETEA-LU.” Mr. Hill has been Treasurer of both the National Asphalt Pavement Association and the National Stone Association, and he remains active with ARTBA’s Executive Committee. Mr. Hill received a Bachelor of Arts in Economics and History from Duke University and a Masters of Business Administration from Trinity College in Dublin, Ireland.
 
Thomas A. Beck, 61, Executive Vice President and Cement Division President. Mr. Beck joined the Company in May 2010 when the Company purchased a controlling interest in Continental Cement. Mr. Beck is Executive Vice President and Cement Division President, a position he has held since January 2013. He was a Senior Vice President with Continental Cement from 2005 to 2013 and its VP, Sales & Marketing, from l996 to 2005. Mr. Beck also held various positions with Holnam (predecessor to Holcim (US) Inc.) from 1987 to 1996. Mr. Beck currently serves on the Executive Committee and is Vice Chairman of the Portland Cement Association and is active on several cement and concrete industry boards. Mr. Beck received a Bachelor of Science degree in Civil Engineering from the University of Illinois.
 
Anne Lee Benedict, 46, Executive Vice President, Chief Legal Officer and Secretary. Ms. Benedict joined the Company in October 2013. Prior to joining the Company, Ms. Benedict was a corporate partner in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP, where she had practiced since 2000. Ms. Benedict's practice involved a wide range of corporate law matters, including mergers and acquisitions, joint ventures and other strategic transactions, securities offerings, securities regulation and corporate governance matters. Ms. Benedict received a Bachelor of Arts degree in English and Psychology from the University of Michigan and a Juris Doctor from the University of Pennsylvania Law School.
 
Michael J. Brady, 51, Executive Vice President and Chief Business Development Officer. Mr. Brady joined the Company in April 2009 after having been a Senior Vice President at CRH Plc’s U.S. subsidiary, Oldcastle, with overall responsibility for acquisitions and business development, having joined Oldcastle in 2000. Prior to that, Mr. Brady worked in several operational and general management positions in the paper and packaging industry in Ireland, the United Kingdom and Asia Pacific with the Jefferson Smurfit Group, plc (now Smurfit Kappa Group plc). Mr. Brady received a Bachelor of Engineering (Electrical) and a Master of Engineering Science (Microelectronics) from University College, Cork in Ireland and a Master of Business Administration degree from INSEAD in France.
 
M. Shane Evans, 48, Executive Vice President and West Division President. Mr. Evans joined the Company as West Region President in August 2010 with over 20 years of experience in the construction materials industry. Prior to joining the Company, Mr. Evans worked at Oldcastle for 12 years, most recently as a Division President. He started his career working in his family's construction and materials business where he held various operational and executive positions. Mr. Evans received a Bachelor of Science degree from Montana State University.
 
Brian J. Harris, 62, Executive Vice President and Chief Financial Officer. Mr. Harris joined the Company as Chief Financial Officer in October 2013 after having been Executive Vice President and Chief Financial Officer of Bausch & Lomb Holdings Incorporated, a leading global eye health company, from 2009 to 2013. From 1990 to 2009, Mr. Harris held positions of increasing responsibility with industrial, automotive, building products and engineering manufacturing conglomerate Tomkins plc, including President of the $2 billion worldwide power transmission business for Gates Corporation, and Senior Vice President for Strategic Business Development and Business Administration, Chief Financial Officer and Secretary of Gates Corporation. Mr. Harris received a Bachelor of Accountancy from Glasgow University and is qualified as a Scottish Chartered Accountant.
 
Karl H. Watson Jr., 54, Executive Vice President and Chief Operating Officer. Mr. Watson joined the Company in January 2018 with over 25 years of experience in the construction materials industry. From January 2017 to December 2017, Mr. Watson served as President, Cement & Southwest Ready Mix at Martin Marietta. Prior to joining Martin Marietta, Mr. Watson served in various leadership positions at CEMEX, and Rinker Group Ltd., an Australian building materials supplier that was acquired by CEMEX in 2007. From January 2016 to June 2016, Mr. Watson served as an advisor to CEMEX, where he was previously the President of CEMEX USA and Global Relation Manager, Network Leader, from 2011 to 2015. From 2008 to 2011, Mr. Watson served as President of CEMEX, Florida and CEMEX, East, USA. From 1988 to 2008, Mr. Watson served in various positions at Rinker Group Ltd., including, most recently, Regional President, Rinker Materials West from 2004 to 2008. Mr. Watson is currently on the board of directors of the Texas Aggregates & Concrete Association and on the executive committee of the Portland Cement Association where he served as the vice chairman from 2013 to 2015. Mr. Watson has received a Bachelor of Science degree in Business Administration from Palm Beach Atlantic University. 


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PART II 
 

ITEM  5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
Market Information
 
Summit Inc.’s Class A common stock began publicly trading on the NYSE under the symbol “SUM” on March 11, 2015. Prior to that time, there was no public market for our Class A common stock. Our Class B common stock is not publicly traded. As of January 30, 2019, there were five holders of record of our Class A common stock and 30 holders of record of our Class B common stock.
 
These stockholder figures do not include a substantially greater number of holders whose shares are held of record by banks, brokers and other financial institutions.
 
As of February 6, 2019, 100% of the outstanding limited liability company interests of Summit LLC were held by Summit Materials Intermediate Holdings, LLC, an indirect subsidiary of Summit Inc. There is no established public trading market for limited liability company interests of Summit LLC.
 
Dividends
  
If Summit Inc. uses future excess tax distributions to purchase additional LP Units, we anticipate that in order to maintain the relationship between the shares of Class A common stock and the LP Units, our board of directors may continue to declare stock dividends on the Class A common stock.
 
Summit Inc. has no current plans to pay cash dividends on its Class A common stock. The declaration, amount and payment of any future dividends on shares of Class A common stock is at the sole discretion of our board of directors and we may reduce or discontinue entirely the payment of any such dividends at any time. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

Summit Inc. is a holding company and has no material assets other than its ownership of LP Units. Should we decide to pay a cash dividend on our Class A common stock in the future, we anticipate funding this cash dividend by causing Summit Holdings to make distributions to Summit Inc. in an amount sufficient to cover such dividend, whereupon the other holders of LP Units will also be entitled to receive distributions pro rata in accordance with the percentages of their respective limited partnership interests. Because Summit Inc. must pay taxes and make payments under the TRA, any amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less on a per share basis than the amounts distributed by Summit Holdings to its partners on a per LP Unit basis.
 
The agreements governing our senior secured credit facilities and the Senior Notes contain a number of covenants that restrict, subject to certain exceptions, Summit LLC’s ability to pay distributions to its parent company and ultimately to Summit Inc. See Note 8, Debt, to our consolidated financial statements.
 
Any financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Summit Holdings is generally prohibited under Delaware law from making a distribution to a limited partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Summit Holdings (with certain exceptions) exceed the fair value of its assets.
 
Subsidiaries of Summit Holdings are generally subject to similar legal limitations on their ability to make distributions to Summit Holdings.
 
Issuer Purchases of Equity Securities
 
During the quarter and year ended December 29, 2018, we did not purchase any of our equity securities that are registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 

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Unregistered Sales of Equity Securities
 
There were no unregistered sales of equity securities which have not been previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K during the year ended December 29, 2018.

ITEM  6.     SELECTED FINANCIAL DATA.

The following selected financial data should be read together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included elsewhere in this report. Summit Holdings, which commenced operations on August 26, 2009, is considered Summit Inc.’s predecessor for accounting purposes, and its consolidated financial statements are Summit Inc.’s historical financial statements. Under U.S. GAAP, Summit Holdings meets the definition of a variable interest entity.

The following tables set forth consolidated financial data for the five most recent years, derived from Summit Inc.’s and Summit LLC’s audited consolidated financial statements. The selected statements of operations data for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and the selected balance sheet data as of December 29, 2018 and December 30, 2017 are derived from audited consolidated financial statements included elsewhere in this report. The selected statements of operations data for the years ended January 2, 2016 and December 27, 2014 and the selected balance sheet data as of December 31, 2016, January 2, 2016 and December 27, 2014 are derived from audited consolidated financial statements not included in this report.
 
Our fiscal year is based on a 52-53 week year with each quarter consisting of 13 weeks ending on a Saturday. The 53-week year occurs approximately once every seven years, including 2015. The additional week in the 53-week year was included in the fourth quarter. Historical results are not necessarily indicative of the results to be expected in the future.
Summit Materials, Inc.
 
 
Year Ended
 
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
January 2, 2016
 
December 27, 2014
($ in thousands, except for per share amounts)
 
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
2,101,002

 
$
1,932,575

 
$
1,626,063

 
$
1,432,297

 
$
1,204,231

Income (loss) from continuing operations
 
$
36,330

 
$
125,777

 
$
46,126

 
$
(931
)
 
$
(6,353
)
Net income per share of Class A common stock:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.30

 
$
1.12

 
$
0.52

 
$
0.68

 

Diluted
 
$
0.30

 
$
1.11

 
$
0.52

 
$
0.50

 

Balance Sheet Data (as of period end):
 
 
 
 
 
 
 
 
 
 
Total assets
 
3,857,641

 
3,787,333

 
2,781,466

 
2,396,179

 
1,712,653

Total debt, including current portion of long-term debt, excluding original issuance premium or discount and deferred financing costs
 
1,830,611

 
1,835,375

 
1,540,250

 
1,296,750

 
1,040,670

Capital leases
 
49,119

 
35,723

 
39,314

 
44,822

 
31,210

Summit Materials, LLC
 
 
Year Ended
 
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
January 2, 2016
 
December 27, 2014
(in thousands)
 
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
2,101,002

 
$
1,932,575

 
$
1,626,063

 
$
1,432,297

 
$
1,204,231

Income (loss) from continuing operations
 
$
63,837

 
$
134,041

 
$
62,087

 
$
(59
)
 
$
(6,353
)
Balance Sheet Data (as of period end):
 
 
 
 
 
 
 
 
 
 
Total assets
 
3,633,244

 
3,504,241

 
2,776,420

 
2,395,162

 
1,712,653

Total debt, including current portion of long-term debt, excluding original issuance premium or discount and deferred financing costs
 
1,830,611

 
1,835,375

 
1,540,250

 
1,296,750

 
1,040,670

Capital leases
 
49,119

 
35,723

 
39,314

 
44,822

 
31,210


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ITEM 7.
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” and any factors discussed in the sections entitled “Disclosure 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 the “Selected Historical Consolidated Financial Data,” our audited consolidated annual financial statements and the related notes thereto and other information included in this report.
 
Overview
 
We are one of the fastest growing construction materials companies in the United States, with a 74% increase in revenue between the year ended December 29, 2014 and the year ended December 29, 2018. 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 Minnesota to Louisiana. In addition to supplying aggregates to customers, we use 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 vertical integration creates opportunities to increase aggregates volumes, optimize margin at each stage of production and provide customers with efficiency gains, convenience and reliability, which we believe gives us a competitive advantage. 
 
Since our inception in 2009, we have completed dozens of acquisitions, which are organized into 12 operating companies that make up our three distinct operating segments—West, East and Cement. We operate in 23 U.S. states and in British Columbia, Canada and currently have assets in 22 U.S. states and British Columbia, Canada. The map below illustrates our geographic footprint:


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396645443_corpassetmap2018a01.jpg 

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 materials and products 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 positive trends in highway obligations, housing starts and construction employment.
 

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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 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 the construction of new roads, highways and bridges in addition to the maintaining the existing infrastructure.
 
In addition to federal funding, state, county and local agencies provide highway construction and maintenance funding. Our four largest states by revenue, Texas, Utah, Kansas and Missouri, represented approximately 23%, 13%, 12% and 8%, respectively, of our total revenue in 2018. 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. The funding available in any given year is separate and distinct from lettings, or the process of providing notice, issuing proposals, receiving proposals, and awarding contracts. In January 2019, the TXDOT updated its fiscal year 2019 statewide lettings estimate to $7.4 billion from $6.4 billion as of October 2018 and $5.7 billion in fiscal 2018, which provides for more than 900 transportation projects. Longer-term, TXDOT has indicated a target of $8 billion per year in total state and local lettings.

In February 2018, the federal government approved a two-year budget agreement. Included within this package was approximately $89 billion in relief funding related to a series of natural disasters, including Hurricane Harvey, which impacted our Houston market in the second half of calendar 2017. We believe that significant federal funding stemming from the $89 billion relief package may result in the construction of new water and transportation infrastructure in the Houston market over the next few years. Further, an omnibus appropriation was approved in March 2018. This bill provides approximately $2.0 billion in new funding for highway, bridge and tunnel obligations at the state level. We believe that this federal funding may be utilized by state departments of transportation between March 2018 and September 2021 on the condition that the states provide some degree of matching funding, as set forth in the omnibus appropriation bill.
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.
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. In September 2018, TXDOT announced that it anticipated that funding from Proposition 1 for fiscal year 2019 would be $1.37 billion, up from $734 million received in fiscal year 2018.

Utah’s transportation investment fund has $2.3 billion programmed for 2017 through 2022. In early 2017, Utah’s governor signed into law a measure to allow the state to issue up to $1 billion in highway general obligation bonds to accelerate funding for several projects that the Utah Transportation Commission already approved. 
Kansas has a 10‑year $8.2 billion highway bill that was passed in May 2010. Kansas’ fiscal year 2019 transportation budget is slightly above the fiscal year 2018 budget, which was below the fiscal year 2017 budget, given austerity measures put into effect under the most recent gubernatorial administration. In May 2018, a legislative task force was convened to evaluate the current transportation system’s condition and funding of the state’s transportation system. The task force released its formal report in January 2019, concluding that it is imperative that the State of Kansas provides consistent, stable funding in order to maintain a quality transportation system; highlighting the negative impacts of $2.1 billion in transfers out of the State Highway Fund since 2011; and recommending that the state legislature review

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new potential sources of additional funding, including increasing registration fees, motor fuels taxes and fees for oversize vehicles and implementing new fees specific to alternative-fuel vehicles.
Missouri’s 2019 Statewide Transportation Improvement Program (“STIP”) increased funding for highway and bridge construction to $4.5 billion through 2023 from $4.2 billion in the prior STIP.

The table below sets forth additional details regarding our four key states, including growth rates as compared to the U.S. as a whole:
 
 
 
 
 
 
 
Projected Industry Growth by End Market
 
 
 
 
Revenue by End Market(1)
 
2019 to 2021(2)
 
 
Percentage of
 
Residential and
 
 
 
 
 
 
Our Total
 
Nonresidential
 
Residential
 
Nonresidential
State
 
Revenue 
 
Construction 
 
Construction 
 
Construction 
Texas
 
23
%
 
68
%
 
0.7
%
 
1.5
 %
Utah
 
13
%
 
78
%
 
0.3
%
 
12.1
 %
Kansas
 
12
%
 
52
%
 
4.6
%
 
(6.1
)%
Missouri
 
8
%
 
71
%
 
1.1
%
 
(1.9
)%
Weighted average(3)
 
 
 
 
 
1.5
%
 
1.9
 %
United States(2)
 
 
 
 
 
2.3
%
 
2.3
 %
______________________
(1)
Percentages based on our revenue by state for the year ended December 29, 2018 and management’s estimates as to end markets.
(2)
Source: PCA
(3)
Calculated using a weighted average based on each state’s percentage contribution to our total revenue.

Use and consumption of our products fluctuate due to seasonality. Nearly all of the products used by us, and by our customers, in the private construction and public infrastructure industries are used outdoors. Our highway operations and production and distribution facilities are also located outdoors. Therefore, seasonal changes and other weather-related conditions, in particular extended rainy and cold weather in the spring and fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect our business and operations through a decline in both the use of our products and demand for our services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters.    

Financial Highlights— Year ended December 29, 2018
 
The principal factors in evaluating our financial condition and operating results for the year ended December 29, 2018 are:

Net revenue increased $156.8 million in 2018 as compared to 2017, primarily resulting from contributions from our acquisitions, offset by the impact of less favorable weather conditions in 2018.

Our operating income decreased $58.4 million in 2018 as compared to 2017, primarily due to higher labor and transportation costs included in our cost of revenue, as well as higher levels of depreciation and amortization in 2018 resulting from our acquisitions. Further, our general and administrative expenses in 2018 were higher than in 2017 due to the acquisitions which occurred during late 2017 and 2018, as well as increased stock-based compensation charges in 2018.

We paid $246.0 million in cash for 12 acquisitions, net of cash acquired. Five of these acquisitions were in the West segment and seven were in the East segment.

In September 2018, we sold a non-core business in the West segment, resulting in cash proceeds of $21.6 million and a total gain on the disposition of the business of $12.1 million.



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Components of Operating Results
 
Total Revenue
 
We derive our revenue predominantly by selling construction materials and products and providing paving and related services. Construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related services that we provide are primarily asphalt paving services.
 
Revenue derived from the sale of construction materials are recognized when risks associated with ownership have passed to unaffiliated customers. Typically this occurs when products are shipped. Product revenue generally includes sales of aggregates, cement and related downstream products and other materials to customers, net of discounts or allowances and taxes, if any.
 
Revenue derived from paving and related services are recognized on the percentage-of-completion basis, measured by the cost incurred to date compared to estimated total cost of each project. This method is used because management considers cost incurred to be the best available measure of progress on these contracts. Due to the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change over the life of the contract.
 
Operating Costs and Expenses
 
The key components of our operating costs and expenses consist of the following:
 
Cost of Revenue (excluding items shown separately)
 
Cost of revenue consists of all production and delivery costs and primarily includes labor, repair and maintenance, utilities, raw materials, fuel, transportation, subcontractor costs, royalties and other direct costs incurred in the production and delivery of our products and services. Our cost of revenue is directly affected by fluctuations in commodity energy prices, primarily diesel fuel, liquid asphalt and other petroleum-based resources. As a result, our operating profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue. We attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when appropriate. In addition, we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs. These provisions are in place for most of our public infrastructure contracts, and we seek to include similar price adjustment provisions in our private contracts.

General and Administrative Expenses
 
General and administrative expenses consist primarily of salaries and personnel costs, including stock-based compensation charges, for our sales and marketing, administration, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, rental costs, property taxes and other corporate and overhead expenses.
 
Depreciation, Depletion, Amortization and Accretion
 
Our business is capital intensive. We carry property, plant and equipment on our balance sheet at cost, net of applicable depreciation, depletion and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset. The general range of depreciable lives by category, excluding mineral reserves, which are depleted based on the units of production method on a site-by-site basis, is as follows:
 

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Buildings and improvements
 
10 - 30
years
Plant, machinery and equipment
 
15 - 20
years
Office equipment
 
3 - 7
years
Truck and auto fleet
 
5 - 8
years
Mobile equipment and barges
 
6 - 8
years
Landfill airspace and improvements
 
10 - 30
years
Other
 
4 - 20
years
 
Amortization expense is the periodic expense related to leasehold improvements and intangible assets. The intangible assets were recognized with certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.
 
Accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method.
 
Transaction Costs
 
Transaction costs consist primarily of third party accounting, legal, valuation and financial advisory fees incurred in connection with acquisitions.
 
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. As a result of our revenue growth occurring primarily through acquisitions, general and administrative expenses and depreciation, depletion, amortization and accretion have historically grown ratably with revenue. However, as organic volumes increase, we expect these costs, as a percentage of revenue, to decrease. General and administrative expenses as a percentage of revenue vary throughout the year due to the seasonality of our business.  Our transaction costs fluctuate with the level acquisition activity each year.

The table below includes revenue and operating income (loss) by segment for the periods indicated. Operating income (loss) by segment is computed as earnings before interest, taxes and other income / expense.
 
 
 
Year ended
 
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
 
 
 
Operating
 
 
 
Operating
 
 
 
Operating
(in thousands)
 
Revenue
 
income (loss)
 
Revenue
 
income (loss)
 
Revenue
 
income (loss)
West
 
$
1,117,066

 
$
92,068

 
$
998,843

 
$
130,334

 
$
813,682

 
$
100,659

East
 
703,147

 
59,554

 
629,919

 
67,739

 
531,294

 
65,424

Cement
 
280,789

 
75,843

 
303,813

 
89,360

 
281,087

 
82,521

Corporate (1)
 

 
(64,999
)
 

 
(66,556
)
 

 
(93,942
)
Total
 
$
2,101,002

 
$
162,466

 
$
1,932,575

 
$
220,877

 
$
1,626,063

 
$
154,662

______________________
(1)
Corporate results primarily consist of compensation and office expenses for employees included in the Company's headquarters.  
 

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Consolidated Results of Operations
 
The table below sets forth our consolidated results of operations for the periods indicated:
 
 
 
2018
 
2017
 
2016
(in thousands)
 
 
 
 
 
 
Net revenue
 
$
1,909,258

 
$
1,752,409

 
$
1,488,274

Delivery and subcontract revenue
 
191,744

 
180,166

 
137,789

Total revenue
 
2,101,002

 
1,932,575

 
1,626,063

Cost of revenue (excluding items shown separately below)
 
1,475,779

 
1,281,777

 
1,071,792

General and administrative expenses
 
253,609

 
242,670

 
243,512

Depreciation, depletion, amortization and accretion
 
204,910

 
179,518

 
149,300

Transaction costs
 
4,238

 
7,733

 
6,797

Operating income
 
162,466

 
220,877

 
154,662

Interest expense (1)
 
116,548

 
108,549

 
97,536

Loss on debt financings
 
149

 
4,815

 

Tax receivable agreement (benefit) expense (1)
 
(22,684
)
 
271,016

 
14,938

Gain on sale of business
 
(12,108
)
 

 

Other (income) loss, net
 
(15,516
)
 
(5,303
)
 
1,361

Income (loss) from operations before taxes
 
96,077

 
(158,200
)
 
40,827

Income tax expense (benefit) (1)
 
59,747

 
(283,977
)
 
(5,299
)
Net income
 
$
36,330

 
$
125,777

 
$
46,126

______________________
(1)
The statement of operations above is based on the financial results of Summit Inc. and its subsidiaries, which was $27.5 million, $8.3 million and $16.0 million less than Summit LLC and its subsidiaries in the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively, due to interest expense associated with a deferred consideration obligation, TRA expense and income tax benefit are obligations of Summit Holdings and Summit Inc., respectively and are thus excluded from Summit LLC’s consolidated net income.


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Fiscal Year 2018 Compared to 2017
 
($ in thousands)
 
2018
 
2017
 
Variance
Net revenue
 
$
1,909,258

 
$
1,752,409

 
$
156,849

    
9.0
 %
Operating income
 
162,466

 
220,877

 
(58,411
)
 
(26.4
)%
Operating margin percentage
 
8.5
%
 
12.6
%
 
 
 
 
Adjusted EBITDA (1)
 
$
406,261

 
$
435,777

 
$
(29,516
)
 
(6.8
)%
______________________
(1)
Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the definition of and the reconciliation below of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure.

Net revenue increased $156.8 million for the year ended December 29, 2018, primarily resulting from our acquisition program, offset by the impact of less favorable weather conditions in 2018. Of the increase in net revenue, $37.3 million was from increased sales of materials, $112.9 million was from increased sales of products and $6.6 million was from increased service revenue. Additional discussion about the impact of acquisitions on each segment is presented in more detail below.
 
For the year ended December 29, 2018, our net revenue growth was due to our 2018 and 2017 acquisitions. However, operating income decreased by $58.4 million in 2018 as compared to 2017 primarily as the increases in our costs of revenue as explained below, as well as increases in our general and administrative expenses and depreciation, depletion, amortization and accretion expense resulting from our acquisition program exceeded our pricing gains. Our depreciation, depletion, amortization and accretion increased $25.4 million largely due to acquisitions completed in 2018 and 2017.
 
For the year ended December 29, 2018, our operating margin percentage declined from 12.6% to 8.5% as compared to the year ended December 30, 2017, due to the items noted above. Adjusted EBITDA, as defined below, decreased by $29.5 million in the year ended December 29, 2018 as compared to the year ended December 30, 2017.
 
As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by line of business was as follows:
 
($ in thousands)
 
2018
 
2017
 
Variance
Revenue by product*:
 
 

 
 

 
 

 
 

Aggregates
 
$
489,200

 
$
415,873

 
$
73,327

 
17.6
 %
Cement
 
263,526

 
286,360

 
(22,834
)
 
(8.0
)%
Ready-mix concrete
 
584,630

 
493,089

 
91,541

 
18.6
 %
Asphalt
 
321,144

 
307,654

 
13,490

 
4.4
 %
Paving and related services
 
616,892

 
599,378

 
17,514

 
2.9
 %
Other
 
(174,390
)
 
(169,779
)
 
(4,611
)
 
(2.7
)%
Total revenue
 
$
2,101,002

 
$
1,932,575

 
$
168,427

 
8.7
 %
______________________
*        Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
 
Detail of our volumes and average selling prices by product for the years ended December 29, 2018 and December 30, 2017 were as follows:  
 

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2018
 
2017
 
 
 
 
 
 
Volume(1)
 
 
 
Volume(1)
 
 
 
Percentage Change in
 
 
(in thousands)
 
Pricing(2)
 
(in thousands)
 
Pricing(2)
 
Volume
 
Pricing
Aggregates
 
47,624

 
$
10.27

 
41,712

 
$
9.97

 
14.2
 %
 
3.0
%
Cement
 
2,329

 
113.14

 
2,547

 
112.42

 
(8.6
)%
 
0.6
%
Ready-mix concrete
 
5,433

 
107.61

 
4,680

 
105.37

 
16.1
 %
 
2.1
%
Asphalt
 
5,404

 
55.57

 
5,263

 
54.19

 
2.7
 %
 
2.5
%
______________________
(1)
Volumes are shown in tons for aggregates, cement and asphalt and in cubic yards for ready-mix concrete.
(2)
Pricing is shown on a per ton basis for aggregates, cement and asphalt and on a per cubic yard basis for ready-mix concrete.

Revenue from aggregates increased $73.3 million for the year ended December 29, 2018 as compared to the year ended December 30, 2017, primarily due to increased volumes from acquisitions, offset by the impact of weather conditions in 2018 as noted above. The increase in aggregate volumes was primarily attributable to our acquisition program as organic volumes were essentially flat in both the West and East segments. Aggregate pricing of $10.27 per ton increased 3.0% as compared to 2017, primarily due to pricing gains in the Intermountain West states.
 
Revenue from cement decreased $22.8 million in the year ended December 29, 2018 as compared to the year ended December 30, 2017, due primarily to volume declines as weather conditions in 2018 were less favorable than those experienced in 2017, as well as increased competitive conditions in 2018. Our cement volumes decreased 8.6% for the same reasons. During 2018, pricing for cement improved by 0.6% to $113.14 per ton as compared to the prior year, primarily resulting from price increases implemented in early 2018 which were subject to increased competition.

Revenue from ready-mix concrete increased $91.5 million for the year ended December 29, 2018 as compared to December 30, 2017, primarily from the acquisitions referred to above. Ready-mix concrete pricing of $107.61 per cubic yard in 2018 increased 2.1% as compared to 2017 levels.
 
Revenue from asphalt increased $13.5 million for the year ended December 29, 2018 as compared to the prior year. Our organic asphalt volumes decreased slightly with the balance of the increased revenue coming from our acquisition program.
 
Other Financial Information
 
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. Among other things, the TCJA, beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the TCJA prescribes the application of net operating loss carryforwards generated in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years.  As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets in the fourth quarter of 2017 by $216.9 million to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. The TCJA contains many provisions which continue to be clarified through new regulations. As permitted by Staff Accounting Bulletin 118 ("SAB118") issued by the SEC on December 22, 2017, we completed our accounting of the impacts of the TCJA. We completed our analysis within 2018 consistent with the guidance of SAB 118 and any adjustments during the measurement period have been included in net earnings from continuing operations as an adjustment to income tax expense. The additional tax expense of $17.6 million resulting from the IRS interpretative guidance of TCJA and was recorded during the fourth quarter of 2018.

 
Tax Receivable Agreement (Benefit) Expense
 
Our TRA benefit for the year ended December 29, 2018 was $22.7 million as compared to TRA expense of $271.0 million in the year ended December 30, 2017.  When payments are made under the TRA, we expect the amount that is characterized as imputed interest will be limited under the proposed IRS regulations, and therefore we will not benefit from that deduction. Further, in 2018, we updated our estimate of the state income tax rate that will be in effect at the date the TRA payments are made. As a result of the updated state income tax rate, and the imputed interest limitation noted above, we have reduced our TRA liability by $22.7 million as of December 29, 2018. In the third quarter of 2017, based on a release of the

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valuation allowance related to the TRA deferred tax assets discussed below, we determined payment of those benefits had become probable under our TRA agreement.  As a result, in the third quarter of 2017, we recorded $501.8 million of TRA expense as our estimate of the realization of our deferred tax assets subject to the TRA had become more likely than not. In the fourth quarter of 2017, after the enactment of the TCJA and other exchanges and adjustments, our estimated liability under the TRA was reduced by $216.9 million primarily due to a decrease in the federal corporate tax rate. This reduction in our TRA liability was recorded as a reduction in our TRA expense during the fourth quarter 2017.
 
Income Tax Expense (Benefit)
 
Our income tax expense was $59.7 million for the year ended December 29, 2018 as compared to income tax benefit of $284.0 million for the year ended December 30, 2017. Our effective income tax rate in 2018 was impacted by the IRS interpretative guidance of TCJA, a change in state tax rates and a reduction in the amount of our TRA liability. We recorded an income tax benefit in fiscal 2017, primarily related to the release of the valuation allowance as discussed below, partially offset by charge related to the decrease in the federal statutory corporate tax rate. Our effective income tax rate in 2017 was higher as compared to 2016, primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change referred to below and depletion in excess of U.S. GAAP depletion recognized in 2017. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) changes in unrecognized tax benefits, (4) deductions related to our TRA, (5) tax depletion expense in excess of the expense recorded under U.S. GAAP, (6) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (7) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.
 
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that begin to expire in 2030. Due to our limited operating history as of December 31, 2016, during which we incurred only a small amount of pre-tax income over the previous three years, as well as our acquisitive business strategy, after considering both positive and negative evidence, we concluded that it was not more likely than not that we would fully realize those deferred tax assets, and therefore recorded a partial valuation allowance against those deferred tax assets as of December 31, 2016. However, the amount of cumulative income increased significantly during the year ended December 30, 2017. As a result of this significant positive evidence, we determined that the deferred tax assets had become more likely than not of becoming realizable and therefore released the majority of the valuation allowance in the third quarter of 2017. The Company updated the analysis as of December 30, 2018, and adjusted the valuation allowance for interest expense carryforwards limited under TCJA. 

On December 22, 2017, the TCJA was enacted. Among other things, the TCJA, beginning January 1, 2018, reduced the federal statutory rate from 35% to 21% and extended bonus depreciation provisions. In addition, the TCJA prescribes the application of net operating loss carryforwards generated in 2018 and beyond will be limited, 100% asset expensing will be allowed through 2022 and begin to phase out in 2023, and the amount of interest expense we are able deduct may also be limited in future years.  As a result of the enactment of TCJA and other state effective rate changes, we reduced the carrying value of our net deferred tax assets in the fourth quarter of 2017 by $216.9 million to reflect the revised federal statutory rate and other state statutory rates which will be in effect at the time those deferred tax assets are expected to be realized. The TCJA contains many provisions which continue to be clarified through new regulations. As permitted by SAB 118 issued by the SEC on December 22, 2017, we completed our accounting of the impacts of the TCJA. We completed our analysis within 2018 consistent with the guidance of SAB 118 and any adjustments during the measurement period have been included in net earnings from continuing operations as an adjustment to income tax expense. We recorded additional tax expense of $17.6 million resulting from the IRS interpretative guidance of TCJA during the fourth quarter of 2018.

As mentioned above, we recorded an income tax benefit of $498.3 million in the third quarter of 2017, primarily related to the release of the valuation allowance against our deferred tax assets offset by the decreased federal corporate tax rate as enacted by the TCJA and other state effective rate changes. Our effective income tax rate was higher in 2018 as compared to 2017 primarily due to the benefit associated with the release of the valuation allowance discussed below, the accrual of the TRA expense, the statutory rate change resulting from the TCJA and depletion in excess of U.S. GAAP depletion recognized for the year ended December 30, 2017. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) the change in valuation allowance, (2) changes in statutory tax rates, (3) changes in unrecognized tax benefits, (4) deductions related to our TRA, (5) tax depletion expense in excess of the expense recorded under U.S. GAAP, (6) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (7) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.

      

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As of December 29, 2018 and December 30, 2017, Summit Inc. had a valuation allowance of $19.4 million and $1.7 million against our deferred tax assets, respectively.

Segment Results of Operations
 
West Segment
($ in thousands)
 
2018
 
2017
 
Variance
Net revenue
 
$
1,011,155

 
$
899,992

 
$
111,163

    
12.4
 %
Operating income
 
92,068

 
130,334

 
(38,266
)
 
(29.4
)%
Operating margin percentage
 
9.1
%
 
14.5
%
 
 
 
 
Adjusted EBITDA (1)
 
$
188,999

 
$
203,590

 
$
(14,591
)
 
(7.2
)%
______________________
(1)
Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure below.

Net revenue in the West segment increased $111.2 million for the year ended December 29, 2018 as compared to December 30, 2017, primarily due to incremental revenue from acquisitions. Net revenue growth from acquisitions in 2018 increased $101.5 million as compared to the year ended December 30, 2017, with the balance attributable to organic operations.
 
The West segment’s operating income decreased $38.3 million in 2018 as compared to 2017 as increases in labor costs and hydrocarbon costs included in cost of revenue and, increases in general and administrative expenses, exceeded our revenue gains, as well as higher levels of depreciation and amortization from acquisitions made in 2017 and 2018. Further, wetter weather conditions in our Texas markets had a negative effect on our operational efficiencies during 2018. Adjusted EBITDA decreased $14.6 million in 2018 as compared to 2017 due to increased costs of revenue noted above, coupled with tighter construction margins in our Texas, Utah and Vancouver markets, which were only partially offset by improved organic volume and organic average sales price increases for aggregates and ready-mix concrete. The operating margin percentage in the West segment decreased in 2018 to 9.1% as compared to 14.5% in 2017 due to increased labor costs, depreciation and amortization, as well as increases in general and administrative expenses resulting from acquisitions that occurred in 2017 and 2018.
 
Gross revenue by product/ service was as follows:   
($ in thousands)
 
2018
 
2017
 
Variance
Revenue by product*:
 
 
 
 
 
 
 
 
Aggregates
 
$
219,149

 
$
191,851

 
$
27,298

 
14.2
 %
Ready-mix concrete
 
447,136

 
362,042

 
85,094

 
23.5
 %
Asphalt
 
214,800

 
214,561

 
239

 
0.1
 %
Paving and related services
 
381,323

 
375,036

 
6,287

 
1.7
 %
Other
 
(145,342
)
 
(144,647
)
 
(695
)
 
(0.5
)%
Total revenue
 
$
1,117,066

 
$
998,843

 
$
118,223

 
11.8
 %
______________________
*        Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.

The West segment’s percent changes in sales volumes and pricing comparing 2018 to 2017 were as follows: 
 
 
Percentage Change in
 
 
Volume
 
Pricing
Aggregates
 
9.1
%
 
4.7
 %
Ready-mix concrete
 
20.7
%
 
2.3
 %
Asphalt
 
3.6
%
 
(1.2
)%
 
Gross revenue from aggregates in the West segment increased $27.3 million in 2018 over 2017, primarily due to an increase in volumes. Aggregates volume increased in 2018 mainly due to acquisitions in our Northern Texas markets and growth in our Vancouver markets. Aggregates pricing in 2018 increased 4.7% when compared to 2017.
 

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Revenue from ready-mix concrete in the West segment increased $85.1 million in 2018 over 2017, primarily due to our acquisition program and to a lesser extent, organic growth.
 
Revenue from asphalt in the West segment increased $0.2 million in 2018, primarily due to acquisition volumes offset by lower average sales prices primarily in our northeast Texas markets. Revenue for paving and related services in the West segment increased by $6.3 million in 2018 primarily due to acquisitions.
 
Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue for the year ended December 29, 2018 was approximately $98.0 million and $14.6 million, respectively.
 
Our Austin operation operates a liquid asphalt terminal in the Houston area which was damaged by Hurricane Harvey in 2017. The terminal commenced limited operations in the third quarter of 2018 and is now operational. We have settled our insurance claim for damaged property, plant and equipment, and are still negotiating our claim under our business interruption policy. For the year ended December 29, 2018, we received $4.4 million under our property and casualty claim related to damaged or destroyed equipment. Additionally, for the year ended December 29, 2018, we received $3.8 million related to our business interruption claims, based on claims from our Austin and Houston operations.

In addition to the financial impact of Hurricane Harvey, our operations in Austin continue to be pressured by aggressive competition, which has further impacted volumes and pricing. We expect the Austin market to continue to grow, and Texas Department of Transportation to invest in infrastructure projects in that area. The Austin reporting unit has approximately $18 million of goodwill as of December 29, 2018, which we continue to believe is realizable. The key assumptions around the realizability analysis are revenue growth, as well as the discount rate of 10%. Our discount rate came under pressure in the fourth quarter of 2018 due to decreases in the market price of our Class A common stock. We will continue to monitor whether an event indicates the carrying value of the Austin based reporting unit may be impaired.
 
East Segment 
($ in thousands)
 
2018
 
2017
 
Variance
Net revenue
 
$
617,314

 
$
548,604

 
$
68,710

 
12.5
 %
Operating income
 
59,554

 
67,739

 
(8,185
)
 
(12.1
)%
Operating margin percentage
 
9.6
%
 
12.3
%
 
 
 
 
Adjusted EBITDA (1)
 
$
138,032

 
$
139,108

 
$
(1,076
)
 
(0.8
)%
______________________
(1)
Adjusted EBITDA is a non-GAAP measure that we find helpful in monitoring the performance of our business. See the reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, below.

Net revenue in the East segment increased $68.7 million in 2018 over 2017, primarily due to acquisitions contributing $56.4 million and organic growth of $12.3 million.
 
Operating income decreased $8.2 million and Adjusted EBITDA decreased $1.1 million in 2018 over 2017, due to increases in the cost of revenue as noted above.
 
Operating margin percentage in 2018 decreased to 9.6% from 12.3% in 2017, as the increases in our costs of revenue outgrew our increased average sales prices.

Gross revenue by product/ service was as follows:   
($ in thousands)
 
2018
 
2017
 
Variance
Revenue by product*:
 
 
 
 
 
 
 
 
Aggregates
 
$
270,051

 
$
224,022

 
$
46,029

 
20.5
 %
Ready-mix concrete
 
137,494

 
131,047

 
6,447

 
4.9
 %
Asphalt
 
106,344

 
93,093

 
13,251

 
14.2
 %
Paving and related services
 
235,569

 
224,342

 
11,227

 
5.0