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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)

 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020
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)
(State or other jurisdiction of incorporation or organization)
1550 Wynkoop Street, 3rd Floor
Denver, Colorado
(Address of principal executive offices)
                            


 
47-1984212
26-4138486
(I.R.S. Employer Identification No.)
80202
(Zip Code)




Registrants’ telephone number, including area code: (303893-0012
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Class A Common Stock (par value $.01 per share)
 
SUM
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Summit Materials, Inc.
 
 
 
Yes
No
Summit Materials, LLC
 
 
 
Yes
No
Indicate by check mark whether the registrant has submitted electronically 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
No
Summit Materials, LLC
 
 
 
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Summit Materials, Inc.
 
 
 
 
 
 
 
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller reporting company
 

 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
Summit Materials, LLC
 
 
 
 
 
 
 
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller reporting company
 

 
 
 
Emerging growth company
 

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.
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Summit Materials, Inc.
 
 
 
Yes
No
Summit Materials, LLC
 
 
 
Yes
No
As of April 27, 2020, 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 114,110,597 and 99, respectively.
As of April 27, 2020, 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.



EXPLANATORY NOTE
 
This quarterly report on Form 10-Q (this “report”) is a combined quarterly report being filed separately by two registrants: Summit Materials, Inc. and Summit Materials, LLC. Each registrant hereto is filing on its own behalf all of the information contained in this report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. We believe that combining the quarterly reports on Form 10-Q of Summit Materials, Inc. and Summit Materials, LLC into this single report eliminates duplicative and potentially confusing disclosure and provides a more streamlined presentation since a substantial amount of the disclosure applies to both registrants.
 
Unless stated otherwise or the context requires otherwise, references to “Summit Inc.” mean Summit Materials, Inc., a Delaware corporation, and references to “Summit LLC” mean Summit Materials, LLC, a Delaware limited liability company. The references to Summit Inc. and Summit LLC are used in cases where it is important to distinguish between them. We use the terms “we,” “our,” “us” or “the Company” to refer to Summit Inc. and Summit LLC together with their respective subsidiaries, unless otherwise noted or the context otherwise requires.
 
Summit Inc. was formed on September 23, 2014 to be a holding company. As of March 28, 2020, its sole material asset was a 97.4% economic interest in Summit Materials Holdings L.P., a Delaware limited partnership (“Summit Holdings”). Summit Inc. has 100% of the voting rights of Summit Holdings, which is the indirect parent of Summit LLC. Summit LLC is a co-issuer of our outstanding 6 1/8% senior notes due 2023 (“2023 Notes”), our 5 1/8% senior notes due 2025 (“2025 Notes”) and our 6 1/2 % senior notes due 2027 (“2027 Notes” and collectively with the 2023 Notes and 2025 Notes, the “Senior Notes”). Summit Inc.’s only revenue for the three months ended March 28, 2020 was that generated by Summit LLC and its consolidated subsidiaries. Summit Inc. controls all of the business and affairs of Summit Holdings and, in turn, Summit LLC.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report includes “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “trends,” “plans,” “estimates,” “projects” or “anticipates” or similar expressions that concern our strategy, plans, expectations or intentions. All statements made relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, it is very difficult to predict the effect of known factors, and, of course, it is impossible to anticipate all factors that could affect our actual results. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be realized. Important factors could affect our results and could cause results to differ materially from those expressed in our forward-looking statements, including but not limited to the factors discussed in the section entitled “Risk Factors” in Summit Inc.’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”), the factors discussed in the section entitled “Risk Factors” of this report and the following:

the impact of the coronavirus (“COVID-19”) pandemic, or any similar crisis, on our business;
our dependence on the construction industry and the strength of the local economies in which we operate;
the cyclical nature of our business;
risks related to weather and seasonality;
risks associated with our capital-intensive business;
competition within our local markets;
our ability to execute on our acquisition strategy, successfully integrate acquisitions with our existing operations and retain key employees of acquired businesses;
our dependence on securing and permitting aggregate reserves in strategically located areas;



declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies;
our reliance on private investment in infrastructure, which may be adversely affected by periods of economic stagnation and recession;
environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;
costs associated with pending and future litigation;
rising prices for commodities, labor and other production and delivery costs as a result of inflation or otherwise;
conditions in the credit markets;
our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications;
cancellation of a significant number of contracts or our disqualification from bidding for new contracts;
special hazards related to our operations that may cause personal injury or property damage not covered by insurance;
unexpected factors affecting self-insurance claims and reserve estimates;
our substantial current level of indebtedness;
our dependence on senior management and other key personnel;
supply constraints or significant price fluctuations in the electricity and petroleum-based resources that we use, including diesel and liquid asphalt;
climate change and climate change legislation or regulations;
unexpected operational difficulties;
interruptions in our information technology systems and infrastructure; and
potential labor disputes.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
 
Any forward-looking statement that we make herein speaks only as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

 CERTAIN DEFINITIONS
 
As used in this report, unless otherwise noted or the context otherwise requires:
 
“EBITDA” refers to net income (loss) before interest expense (income), income tax expense (benefit) and depreciation, depletion and amortization;
“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;  
“IPO” refers to the March 2015 initial public offering of Summit Inc.;
“LP Units” refers to the Class A limited partnership units of Summit Holdings; and
“TRA” refers to tax receivable agreement between Summit Inc. and certain current and former holders of LP Units and their permitted assignees.



Corporate Structure
The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of March 28, 2020. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.
403791568_corpstructurea18.jpg
                                                                                         
(1)
SEC registrant.
(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.


Table of Contents

SUMMIT MATERIALS, INC.
SUMMIT MATERIALS, LLC 
FORM 10-Q 
TABLE OF CONTENTS  
 
 
Page No.
PART I—Financial Information 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II — Other Information 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets 
(In thousands, except share and per share amounts)
 
March 28, 2020
 
December 28, 2019
 
(unaudited)
 
(audited)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
199,114

 
$
311,319

Accounts receivable, net
231,215

 
253,256

Costs and estimated earnings in excess of billings
11,319

 
13,088

Inventories
231,413

 
204,787

Other current assets
15,195

 
13,831

Total current assets
688,256

 
796,281

Property, plant and equipment, less accumulated depreciation, depletion and amortization (March 28, 2020 - $1,000,745 and December 28, 2019 - $955,815)
1,768,703

 
1,747,449

Goodwill
1,195,557

 
1,199,699

Intangible assets, less accumulated amortization (March 28, 2020 - $11,071 and December 28, 2019 - $10,366)
22,793

 
23,498

Deferred tax assets, less valuation allowance (March 28, 2020 - $1,675 and December 28, 2019 - $1,675)
237,922

 
212,333

Operating lease right-of-use assets
30,527

 
32,777

Other assets
48,510

 
55,519

Total assets
$
3,992,268

 
$
4,067,556

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of debt
$
7,942

 
$
7,942

Current portion of acquisition-related liabilities
30,923

 
32,700

Accounts payable
122,350

 
116,359

Accrued expenses
102,460

 
120,005

Current operating lease liabilities
8,131

 
8,427

Billings in excess of costs and estimated earnings
14,022

 
13,864

Total current liabilities
285,828

 
299,297

Long-term debt
1,850,289

 
1,851,057

Acquisition-related liabilities
13,024

 
19,801

Tax receivable agreement liability
327,957

 
326,965

Noncurrent operating lease liabilities
23,280

 
25,381

Other noncurrent liabilities
96,031

 
100,282

Total liabilities
2,596,409

 
2,622,783

Commitments and contingencies (see note 16)


 


Stockholders’ equity:
 
 
 
Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 114,110,597 and 113,309,385 shares issued and outstanding as of March 28, 2020 and December 28, 2019, respectively
1,142

 
1,134

Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 99 shares issued and outstanding as of March 28, 2020 and December 28, 2019

 

Additional paid-in capital
1,239,271

 
1,234,020

Accumulated earnings
143,826

 
188,805

Accumulated other comprehensive (loss) income
(2,645
)
 
3,448

Stockholders’ equity
1,381,594

 
1,427,407

Noncontrolling interest in Summit Holdings
14,265

 
17,366

Total stockholders’ equity
1,395,859

 
1,444,773

Total liabilities and stockholders’ equity
$
3,992,268

 
$
4,067,556

See notes to unaudited consolidated financial statements.

1

Table of Contents

SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except share and per share amounts) 
 
Three months ended
 
March 28, 2020
 
March 30, 2019
Revenue:
 
 
 
Product
$
305,307

 
$
271,641

Service
37,099

 
34,309

Net revenue
342,406

 
305,950

Delivery and subcontract revenue
24,784

 
26,689

Total revenue
367,190

 
332,639

Cost of revenue (excluding items shown separately below):
 
 
 
Product
232,504

 
213,726

Service
28,867

 
26,589

Net cost of revenue
261,371

 
240,315

Delivery and subcontract cost
24,784

 
26,689

Total cost of revenue
286,155

 
267,004

General and administrative expenses
70,224

 
67,610

Depreciation, depletion, amortization and accretion
51,778

 
55,388

Transaction costs
753

 
308

Operating loss
(41,720
)
 
(57,671
)
Interest expense
27,818

 
30,105

Loss on debt financings

 
14,565

Other loss (income), net
89

 
(2,803
)
Loss from operations before taxes
(69,627
)
 
(99,538
)
Income tax benefit
(22,901
)
 
(28,037
)
Net loss
(46,726
)
 
(71,501
)
Net loss attributable to Summit Holdings
(1,747
)
 
(2,729
)
Net loss attributable to Summit Inc.
$
(44,979
)
 
$
(68,772
)
Loss per share of Class A common stock:
 
 
 
Basic
$
(0.40
)
 
$
(0.62
)
Diluted
$
(0.40
)
 
$
(0.62
)
Weighted average shares of Class A common stock:
 
 
 
Basic
113,602,110

 
111,811,679

Diluted
113,602,110

 
111,811,679


See notes to unaudited consolidated financial statements.

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
(In thousands) 
 
Three months ended
 
March 28, 2020
 
March 30, 2019
Net loss
$
(46,726
)
 
$
(71,501
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(8,359
)
 
2,358

Income (loss) on cash flow hedges

 
(166
)
Less tax effect of other comprehensive income (loss) items
2,046

 
(542
)
Other comprehensive (loss) income
(6,313
)
 
1,650

Comprehensive loss
(53,039
)
 
(69,851
)
Less comprehensive loss attributable to Summit Holdings
(1,967
)
 
(2,663
)
Comprehensive loss attributable to Summit Inc.
$
(51,072
)
 
$
(67,188
)

See notes to unaudited consolidated financial statements.

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands) 
 
Three months ended
 
March 28, 2020
 
March 30, 2019
Cash flow from operating activities:
 
 
 
Net loss
$
(46,726
)
 
$
(71,501
)
Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation, depletion, amortization and accretion
55,278

 
57,039

Share-based compensation expense
4,905

 
5,906

Net gain on asset disposals
(1,933
)
 
(1,735
)
Non-cash loss on debt financings

 
2,850

Change in deferred tax asset, net
(24,194
)
 
(28,028
)
Other
1,611

 
47

Decrease (increase) in operating assets, net of acquisitions and dispositions:
 
 
 
Accounts receivable, net
19,939

 
20,118

Inventories
(26,979
)
 
(705
)
Costs and estimated earnings in excess of billings
1,710

 
1,541

Other current assets
(2,519
)
 
(3,447
)
Other assets
5,543

 
2,576

(Decrease) increase in operating liabilities, net of acquisitions and dispositions:
 
 
 
Accounts payable
(2,712
)
 
(5,431
)
Accrued expenses
(20,776
)
 
(6,963
)
Billings in excess of costs and estimated earnings
245

 
(1,195
)
Tax receivable agreement liability
993

 
59

Other liabilities
(3,316
)
 
(1,807
)
Net cash used in operating activities
(38,931
)
 
(30,676
)
Cash flow from investing activities:
 
 
 
Acquisitions, net of cash acquired

 
(2,842
)
Purchases of property, plant and equipment
(61,829
)
 
(62,188
)
Proceeds from the sale of property, plant and equipment
3,160

 
2,797

Other
1,801

 
(178
)
Net cash used for investing activities
(56,868
)
 
(62,411
)
Cash flow from financing activities:
 
 
 
Proceeds from debt issuances

 
300,000

Debt issuance costs

 
(5,774
)
Payments on debt
(5,493
)
 
(256,333
)
Payments on acquisition-related liabilities
(9,515
)
 
(8,933
)
Proceeds from stock option exercises
310

 
766

Other
(908
)
 
(501
)
Net cash (used in) provided by financing activities
(15,606
)
 
29,225

Impact of foreign currency on cash
(800
)
 
191

Net decrease in cash
(112,205
)
 
(63,671
)
Cash and cash equivalents—beginning of period
311,319

 
128,508

Cash and cash equivalents—end of period
$
199,114

 
$
64,837

See notes to unaudited consolidated financial statements.

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share amounts) 
 
Summit Materials, Inc.
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Class A
 
Class B
 
Additional
 
Noncontrolling
 
Total
 
Accumulated
 
Comprehensive
 
Common Stock
 
Common Stock
 
Paid-in
 
Interest in
 
Stockholders’
 
Earnings
 
(loss) income
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Summit Holdings
 
Equity
Balance — December 28, 2019
$
188,805

 
$
3,448

 
113,309,385

 
$
1,134

 
99

 
$

 
$
1,234,020

 
$
17,366

 
$
1,444,773

Net loss
(44,979
)
 

 

 

 

 

 

 
(1,747
)
 
(46,726
)
LP Unit exchanges

 

 
196,542

 
2

 

 

 
1,132

 
(1,134
)
 

Other comprehensive income, net of tax

 
(6,093
)
 

 

 

 

 

 
(220
)
 
(6,313
)
Stock option exercises

 

 
13,335

 

 

 

 
310

 

 
310

Share-based compensation

 

 

 

 

 

 
4,905

 

 
4,905

Shares redeemed to settle taxes and other

 

 
591,335

 
6

 

 

 
(1,096
)
 

 
(1,090
)
Balance - March 28, 2020
$
143,826

 
$
(2,645
)
 
114,110,597

 
$
1,142

 
99

 
$

 
$
1,239,271

 
$
14,265

 
$
1,395,859

 
Summit Materials, Inc.
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Class A
 
Class B
 
Additional
 
Noncontrolling
 
Total
 
Accumulated
 
Comprehensive
 
Common Stock
 
Common Stock
 
Paid-in
 
Interest in
 
Stockholders’
 
Earnings
 
(loss) income
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Summit Holdings
 
Equity
Balance — December 29, 2018
$
129,739

 
$
2,681

 
111,658,927

 
$
1,117

 
99

 
$

 
$
1,194,204

 
$
14,404

 
$
1,342,145

Net loss
(68,772
)
 

 

 

 

 

 

 
(2,729
)
 
(71,501
)
LP Unit exchanges

 

 
17,500

 

 

 

 
122

 
(122
)
 

Other comprehensive loss, net of tax

 
1,584

 

 

 

 

 

 
66

 
1,650

Stock option exercises

 

 
43,142

 
1

 

 

 
766

 

 
767

Share-based compensation

 

 

 

 

 

 
5,906

 

 
5,906

Shares redeemed to settle taxes and other

 

 
347,962

 
3

 

 

 
(495
)
 

 
(492
)
Balance — March 30, 2019
$
60,967

 
$
4,265

 
112,067,531

 
$
1,121

 
99

 
$

 
$
1,200,503

 
$
11,619

 
$
1,278,475


See notes to unaudited consolidated financial statements.

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SUMMIT MATERIALS, INC.
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
(Dollars in tables in thousands, except per share amounts or otherwise noted)
 
1.
SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Summit Materials, Inc. (“Summit Inc.” and, together with its subsidiaries, “Summit,” “we,” “us,” “our” or the “Company”) is a vertically-integrated construction materials company. The Company is engaged in the production and sale of aggregates, cement, ready-mix concrete, asphalt paving mix and concrete products and owns and operates quarries, sand and gravel pits, two cement plants, cement distribution terminals, ready-mix concrete plants, asphalt plants and landfill sites. It is also engaged in paving and related services. The Company’s three operating and reporting segments are the West, East and Cement segments.
 
Substantially all of the Company’s construction materials, products and services are produced, consumed and performed outdoors, primarily in the spring, summer and fall. Seasonal changes and other weather-related conditions can affect the production and sales volumes of its products and delivery of services. Therefore, the financial results for any interim period are typically not indicative of the results expected for the full year. Furthermore, the Company’s sales and earnings are sensitive to national, regional and local economic conditions, weather conditions and to cyclical changes in construction spending, among other factors.
 
Summit Inc. is a holding corporation operating and controlling all of the business and affairs of Summit Materials Holdings L.P. (“Summit Holdings”) and its subsidiaries and, through Summit Holdings, conducts its business. Summit Inc. owns the majority of the partnership interests of Summit Holdings (see Note 9, Stockholders’ Equity). Summit Materials, LLC (“Summit LLC”) an indirect wholly owned subsidiary of Summit Holdings, conducts the majority of our operations. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of Summit LLC, has jointly issued our Senior Notes as described below.
 
Basis of Presentation—These unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto as of and for the year ended December 28, 2019. The Company continues to follow the accounting policies set forth in those audited consolidated financial statements.
 
Management believes that these consolidated interim financial statements include all adjustments, normal and recurring in nature, that are necessary to present fairly the financial position of the Company as of March 28, 2020, the results of operations for the three months ended March 28, 2020 and March 30, 2019 and cash flows for the three months ended March 28, 2020 and March 30, 2019.
 
Principles of Consolidation—The consolidated financial statements include the accounts of Summit Inc. and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated.
 
For a summary of the changes in Summit Inc.’s ownership of Summit Holdings, see Note 9, Stockholders’ Equity.

Use of Estimates—Preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, valuation of deferred tax assets, goodwill, intangibles and other long-lived assets, the tax receivable agreement ("TRA") liability, pension and other postretirement obligations and asset retirement obligations. Estimates also include revenue earned on contracts and costs to complete contracts. Most of the Company’s paving and related services are performed under fixed unit-price contracts with state and local governmental entities. Management regularly evaluates its estimates and assumptions based on historical experience and other factors, including the current economic environment. As future events and their effects cannot be determined with precision, actual results can differ significantly from estimates made. Changes in estimates, including

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those resulting from continuing changes in the economic environment, are reflected in the Company’s consolidated financial statements when the change in estimate occurs.
 
Business and Credit Concentrations—The Company’s operations are conducted primarily across 23 U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, Kansas, Utah and Missouri. The Company’s accounts receivable consist primarily of amounts due from customers within these areas. Therefore, collection of these accounts is dependent on the economic conditions in the aforementioned states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been granted to many customers, and management does not believe that a significant concentration of credit exists with respect to any individual customer or group of customers. No single customer accounted for more than 10% of the Company’s total revenue in the three months ended March 28, 2020 or March 30, 2019.

Revenue Recognition—We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products, and from the provision of services, which are primarily paving and related services.
Products: Revenue for product sales is recognized when evidence of an arrangement exists and when control passes, which generally is when the product is shipped. 
Services: We earn revenue from the provision of services, which are primarily paving and related services, which are typically calculated using monthly progress based on the percentage of completion or a customer’s engineer review of progress.
The majority of our construction service contracts are completed within one year, but may occasionally extend beyond this time frame. The majority of our construction service contracts are for work that occurs mostly during the spring, summer and fall. We generally measure progress toward completion on long-term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion.
The percentage of completion method of accounting involves the use of various estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications or other disputes.
 
Earnings per Share—The Company computes basic earnings per share attributable to stockholders by dividing income attributable to Summit Inc. by the weighted-average shares of Class A common stock outstanding. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in the Company’s earnings. Since the Class B common stock has no economic value, those shares are not included in the weighted-average common share amount for basic or diluted earnings per share. In addition, as the shares of Class A common stock are issued by Summit Inc., the earnings and equity interests of noncontrolling interests are not included in basic earnings per share.
 
Tax Receivable Agreement— When Class A limited partnership units of Summit Holdings (“LP Units”) are exchanged for shares of Class A common stock of Summit Inc. or Summit Inc. purchases LP Units for cash, this results in increases in Summit Inc.’s share of the tax basis of the tangible and intangible assets, which increases the tax depreciation and amortization deductions that otherwise would not have been available to Summit Inc. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. Prior to our initial public offering (“IPO”), we entered into a TRA with the pre-IPO owners that requires us to pay the pre-IPO owners or their permitted assignees 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize as a result of these exchanges. These benefits include (1) increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, (2) tax benefits attributable to payments under the TRA, or (3) under certain circumstances such as an early termination of the TRA, we are deemed to realize, as a result of the increases in tax basis in connection with exchanges by the pre-IPO owners described above and certain other tax benefits attributable to payments under the TRA.
 
We periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common stock. If the deferred tax assets are determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability equal to 85% of such deferred tax assets, and the remaining 15% as an increase to additional paid-in capital. If a deferred tax asset subject to the TRA is determined not to be realizable and therefore subject to a valuation allowance, we do not record a TRA liability for such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets subject to the TRA. Should we determine

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a deferred tax asset with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies.
 
The measurement of the TRA liability is accounted for as a contingent liability. Therefore, once we determine that a payment to a pre-IPO owner has become probable and can be estimated, the estimate of payment will be accrued.
 
New Accounting Standards — 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which reduces the accounting complexity of implementing a cloud computing service arrangement. The ASU aligns the capitalization of implementation costs among hosting arrangements and costs incurred to develop internal-use software. We adopted this ASU in the first quarter of 2020 and the adoption of this ASU did not have a material impact on the consolidated financial statements.

2.
GOODWILL AND INTANGIBLES
 
The Company has completed numerous acquisitions since its formation, which have been financed through a combination of debt and equity funding. The operations of each acquisition have been included in the Company’s consolidated results of operations since the respective closing dates of the acquisitions. The Company measures all assets acquired and liabilities assumed at their acquisition-date fair value.
 
Changes in the carrying amount of goodwill, by reportable segment, from December 28, 2019 to March 28, 2020 are summarized as follows: 
 
West
 
East
 
Cement
 
Total  
Balance—December 28, 2019
$
584,617

 
$
410,426

 
$
204,656

 
$
1,199,699

Foreign currency translation adjustments
(4,142
)
 

 

 
(4,142
)
Balance—March 28, 2020
$
580,475

 
$
410,426

 
$
204,656

 
$
1,195,557


The Company’s intangible assets are primarily composed of goodwill, mineral lease agreements and reserve rights. The assets related to mineral lease agreements reflect the submarket royalty rates paid under agreements, primarily for extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but does not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases. The following table shows intangible assets by type and in total:
 
March 28, 2020
 
December 28, 2019
 
Gross
 Carrying
 Amount
 
Accumulated
 Amortization
 
Net
 Carrying
 Amount
 
Gross
 Carrying
 Amount
 
Accumulated
 Amortization
 
Net
 Carrying
 Amount
Mineral leases
$
19,064

 
$
(6,690
)
 
$
12,374

 
$
19,064

 
$
(6,408
)
 
$
12,656

Reserve rights
6,234

 
(2,323
)
 
3,911

 
6,234

 
(2,248
)
 
3,986

Trade names
1,000

 
(983
)
 
17

 
1,000

 
(958
)
 
42

Other
7,566

 
(1,075
)
 
6,491

 
7,566

 
(752
)
 
6,814

Total intangible assets
$
33,864

 
$
(11,071
)
 
$
22,793

 
$
33,864

 
$
(10,366
)
 
$
23,498


 
Amortization expense totaled $0.7 million and $0.4 million for the three months ended March 28, 2020 and March 30, 2019, respectively. The estimated amortization expense for the intangible assets for each of the five years subsequent to March 28, 2020 is as follows:

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2020 (nine months)
$
1,823

2021
2,147

2022
2,142

2023
2,009

2024
1,914

2025
1,869

Thereafter
10,889

Total
$
22,793



3.
REVENUE RECOGNITION
 
We derive our revenue predominantly by selling construction materials, products and providing paving and related services. Construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related service revenue is generated primarily from the asphalt paving services that we provide.
 
Revenue by product for the three months ended March 28, 2020 and March 30, 2019 is as follows:
 
Three months ended
 
March 28, 2020
 
March 30, 2019
Revenue by product*:
 
 
 
Aggregates
$
96,161

 
$
87,872

Cement
32,863

 
32,499

Ready-mix concrete
141,704

 
117,320

Asphalt
23,206

 
23,038

Paving and related services
33,426

 
34,345

Other
39,830

 
37,565

Total revenue
$
367,190

 
$
332,639

                                                                                         
*Revenue from liquid asphalt terminals is included in asphalt revenue.
 
Accounts receivable, net consisted of the following as of March 28, 2020 and December 28, 2019
 
March 28, 2020
 
December 28, 2019
Trade accounts receivable
$
195,623

 
$
191,672

Construction contract receivables
22,074

 
47,966

Retention receivables
18,141

 
17,808

Receivables from related parties
1,585

 
1,596

Accounts receivable
237,423

 
259,042

Less: Allowance for doubtful accounts
(6,208
)
 
(5,786
)
Accounts receivable, net
$
231,215

 
$
253,256


 
Retention receivables are amounts earned by the Company but held by customers until paving and related service contracts and projects are near completion or fully completed. Amounts are generally billed and collected within one year.

4.
INVENTORIES
 
Inventories consisted of the following as of March 28, 2020 and December 28, 2019
 
March 28, 2020
 
December 28, 2019
Aggregate stockpiles
$
152,238

 
$
140,461

Finished goods
44,357

 
33,023

Work in process
7,628

 
7,664

Raw materials
27,190

 
23,639

Total
$
231,413

 
$
204,787



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5.
ACCRUED EXPENSES
 
Accrued expenses consisted of the following as of March 28, 2020 and December 28, 2019:
 
March 28, 2020
 
December 28, 2019
Interest
$
15,852

 
$
26,892

Payroll and benefits
18,797

 
29,356

Finance lease obligations
20,724

 
16,007

Insurance
13,870

 
14,968

Non-income taxes
10,377

 
7,666

Professional fees
1,189

 
902

Other (1)
21,651

 
24,214

Total
$
102,460

 
$
120,005

                                                                                         
(1)
Consists primarily of subcontractor and working capital settlement accruals.

6.
DEBT
 
Debt consisted of the following as of March 28, 2020 and December 28, 2019
 
March 28, 2020
 
December 28, 2019
Term Loan, due 2024:
 
 
 
$622.7 million and $624.3 million, net of $1.1 million discount at March 28, 2020 and December 28, 2019, respectively
$
621,608

 
$
623,140

618% Senior Notes, due 2023:
 
 
 
$650.0 million, net of $0.8 million and $0.9 million discount at March 28, 2020 and December 28, 2019, respectively
649,194

 
649,133

518% Senior Notes, due 2025
300,000

 
300,000

612% Senior Notes, due 2027
300,000

 
300,000

Total
1,870,802

 
1,872,273

Current portion of long-term debt
7,942

 
7,942

Long-term debt
$
1,862,860

 
$
1,864,331


 
The contractual payments of long-term debt, including current maturities, for the five years subsequent to March 28, 2020, are as follows: 

2020 (nine months)
$
6,354

2021
6,353

2022
6,354

2023
656,354

2024
597,253

2025
300,000

Thereafter
300,000

Total
1,872,668

Less: Original issue net discount
(1,866
)
Less: Capitalized loan costs
(12,571
)
Total debt
$
1,858,231


 
Senior Notes—On March 15, 2019, Summit LLC and Summit Finance (together, the “Issuers”) issued $300.0 million in aggregate principal amount of 6.500% senior notes due March 15, 2027 (the “2027 Notes”). The 2027 Notes were issued at 100.0% of their par value with proceeds of $296.3 million, net of related fees and expenses. The 2027 Notes were issued under an indenture dated March 25, 2019 (the "2019 Indenture"). The 2019 Indenture contains covenants limiting, among other things, Summit LLC and its restricted subsidiaries’ ability to incur additional indebtedness or issue certain preferred shares, pay dividends, redeem stock or make other distributions, make certain investments, sell or transfer certain assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into certain

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transactions with affiliates, and designate subsidiaries as unrestricted subsidiaries. The 2019 Indenture also contains customary events of default. Interest on the 2027 Notes is payable semi-annually on March 15 and September 15 of each year commencing on September 15, 2019.

In March 2019, using the proceeds from the 2027 Notes, all of the outstanding $250.0 million 8.500% senior notes due 2022 (the “2022 Notes”) were redeemed at a price equal to par plus an applicable premium and the indenture under which the 2022 Notes were issued was satisfied and discharged. As a result of the extinguishment, charges of $14.6 million were recognized in the quarter ended March 30, 2019, which included charges of $11.7 million for the applicable redemption premium and $2.9 million for the write-off of deferred financing fees.

In 2017, the Issuers issued $300.0 million of 5.125% senior notes due June 1, 2025 (the “2025 Notes”). The 2025 Notes were issued at 100.0% of their par value with proceeds of $295.4 million, net of related fees and expenses. The 2025 Notes were issued under an indenture dated June 1, 2017, the terms of which are generally consistent with the 2019 Indenture. Interest on the 2025 Notes is payable semi-annually on June 1 and December 1 of each year commencing on December 1, 2017.
 
In 2015, the Issuers issued $650.0 million of 6.125% senior notes due July 2023 (the “2023 Notes” and collectively with the 2025 Notes and the 2027 Notes, the “Senior Notes”). Of the aggregate $650.0 million of 2023 Notes, $350.0 million were issued at par and $300.0 million were issued at 99.375% of par. The 2023 Notes were issued under an indenture dated July 8, 2015, the terms of which are generally consistent with the 2019 Indenture. Interest on the 2023 Notes is payable semi-annually in arrears on January 15 and July 15 of each year.

As of March 28, 2020 and December 28, 2019, the Company was in compliance with all financial covenants under the applicable indentures.
 
Senior Secured Credit Facilities— Summit LLC has credit facilities that provide for term loans in an aggregate amount of $650.0 million and revolving credit commitments in an aggregate amount of $345.0 million (the “Senior Secured Credit Facilities”). Under the Senior Secured Credit Facilities, required principal repayments of 0.25% of the refinanced aggregate amount of term debt are due on the last business day of each March, June, September and December commencing with the March 2018 payment. The unpaid principal balance is due in full on the maturity date, which is November 21, 2024.

On February 25, 2019, Summit LLC entered into Incremental Amendment No. 4 to the credit agreement governing the Senior Secured Credit Facilities (the “Credit Agreement”) which, among other things, increased the total amount available under the revolving credit facility to $345.0 million and extended the maturity date of the Credit Agreement with respect to the revolving credit commitments to February 25, 2024. During 2018 and 2017, Summit LLC entered into three different amendments to the Credit Agreement, which among other things, reduced the applicable margin in respect to the outstanding principal amount at the time of the respective amendments.
 
The revolving credit facility bears interest per annum equal to, at Summit LLC’s option, either (i) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) LIBOR plus 1.00%, plus an applicable margin of 2.00% for base rate loans or (ii) a LIBOR rate determined by reference to Reuters prior to the interest period relevant to such borrowing adjusted for certain additional costs plus an applicable margin of 3.00% for LIBOR rate loans.
 
There were no outstanding borrowings under the revolving credit facility as of March 28, 2020 and December 28, 2019, with borrowing capacity of $329.0 million remaining as of March 28, 2020, which is net of $16.0 million of outstanding letters of credit. The outstanding letters of credit are renewed annually and support required bonding on construction projects, large leases, workers compensation claims and the Company’s insurance liabilities.
 
Summit LLC’s Consolidated First Lien Net Leverage Ratio, as such term is defined in the Credit Agreement, should be no greater than 4.75:1.0 as of each quarter-end. As of March 28, 2020 and December 28, 2019, Summit LLC was in compliance with all financial covenants.
 
Summit LLC’s wholly-owned domestic subsidiary companies, subject to certain exclusions and exceptions, are named as subsidiary guarantors of the Senior Notes and the Senior Secured Credit Facilities. In addition, Summit LLC has pledged substantially all of its assets as collateral, subject to certain exclusions and exceptions, for the Senior Secured Credit Facilities.

11

Table of Contents

The following table presents the activity for the deferred financing fees for the three months ended March 28, 2020 and March 30, 2019:
 
Deferred financing fees
Balance—December 28, 2019
$
15,436

Amortization
(833
)
Balance—March 28, 2020
$
14,603

 
 
 
 
Balance—December 29, 2018
$
15,475

Loan origination fees
5,774

Amortization
(998
)
Write off of deferred financing fees
(2,851
)
Balance—March 30, 2019
$
17,400

 
Other—On January 15, 2015, the Company’s wholly-owned subsidiary in British Columbia, Canada entered into an agreement with HSBC Bank Canada for a (i) $6.0 million Canadian dollar (“CAD”) revolving credit commitment to be used for operating activities that bears interest per annum equal to the bank’s prime rate plus 0.20%, (ii) $0.5 million CAD revolving credit commitment to be used for capital equipment that bears interest per annum at the bank’s prime rate plus 0.90% and (iii) $0.3 million CAD revolving credit commitment to provide guarantees on behalf of that subsidiary. There were no amounts outstanding under this agreement as of March 28, 2020 or December 28, 2019.

7.
INCOME TAXES
 
Summit Inc.’s tax provision includes its proportional share of Summit Holdings’ tax attributes. Summit Holdings’ subsidiaries are primarily limited liability companies but do include certain entities organized as C corporations and a Canadian subsidiary. The tax attributes related to the limited liability companies are passed on to Summit Holdings and then to its partners, including Summit Inc. The tax attributes associated with the C corporation and Canadian subsidiaries are fully reflected in the Company’s accounts.
 
Our income tax benefit was $(22.9) million and $(28.0) million in the three months ended March 28, 2020 and March 30, 2019, respectively. The effective tax rate for Summit Inc. differs from the federal rate primarily due to (1) unrecognized tax benefits, (2) state taxes, (3) tax depletion expense in excess of the expense recorded under U.S. GAAP, (4) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (5) various other items such as limitations on meals and entertainment, certain stock compensation and other costs. In the three months ended March 28, 2020, the increase in the Company's effective tax rate, and related income tax expense, over the prior year is in response to provisions of the Coronavirus Aid, Relief and Economic Stability Act ("CARES Act") enacted into law in late March 2020. Among other things, the CARES Act temporarily amended provisions of the Tax Cuts and Jobs Act of 2017 ("TCJA") related to limitations on the deductibility of interest expense. The Company’s income tax provision is calculated under the provisions of the proposed TCJA regulations, as amended by the CARES Act, which will limit our ability to deduct interest expense in calculating our taxable income. Once the final regulations are issued, the Company will adjust its calculations, if necessary.
  
As of March 28, 2020 and December 28, 2019, Summit Inc. had a valuation allowance of $1.7 million, which relates to certain deferred tax assets in taxable entities where realization is not more likely than not.

In the three months ended March 28, 2020, we adjusted our unrecognized tax benefits previously reported for provisions in the CARES Act enacted in March 2020. We did not recognize interest or penalties related to this amount as it is offset by other attributes. No material interest or penalties were recognized in income tax expense during the three months ended March 28, 2020 and March 30, 2019.

Tax Receivable Agreement—The Company is party to a TRA with certain current and former 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. actually realizes (or, under certain circumstances such as an early termination of the TRA, is deemed to realize) as a result of increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. 
 
In the three months ended March 28, 2020, 196,542<