10-Q 1 sum-20160402x10q.htm 10-Q sum_Current Folio_10Q

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 April 2, 2016

 

OR

 

 

 

 

    

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

 

For the transition period from                      to                       

 

Commission file numbers:

001-36873 (Summit Materials, Inc.)

333-187556 (Summit Materials, LLC)


SUMMIT MATERIALS, INC.

SUMMIT MATERIALS, LLC

(Exact name of registrants as specified in their charters)


 

 

 

Delaware (Summit Materials, Inc.)

47-1984212

Delaware (Summit Materials, LLC)

26-4138486

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1550 Wynkoop Street, 3rd Floor

Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

 

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Summit Materials, Inc.

Yes  

    

No  

Summit Materials, LLC

Yes  

    

No  

 

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

 

Summit Materials, Inc.

Yes  

    

No  

Summit Materials, LLC

Yes  

    

No  

 

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

 

Summit Materials, Inc.

 

Large accelerated filer    

    

 

Accelerated filer

Non-accelerated filer      

 

(Do not check if a smaller reporting company)

Smaller reporting company

 

Summit Materials, LLC

 

Large accelerated filer    

    

 

Accelerated filer

Non-accelerated filer      

 

(Do not check if a smaller reporting company)

Smaller reporting company

 

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 May 3, 2016, 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 62,622,655 and 69,007,297, respectively.

 

As of April 27, 2016, 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 April 2, 2016, its sole material asset was a 49.7% 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”) and our 61/8% senior notes due 2023 (“2023 Notes” and collectively with the 2022 Notes, the "Senior Notes"). Summit Inc.’s only revenue for the three months ended April 2, 2016 was 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 consummated in connection with the initial public offering of its Class A common stock on March 11, 2015 (“IPO”).

 

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 January 2, 2016 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”), any factors discussed in the section entitled “Risk Factors” of this report, and the following:

 

·

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

 

·

the cyclical nature of our business;

 

·

risks related to weather and seasonality;

 

·

risks associated with our capital-intensive business;

 

·

competition within our local markets;

 


 

·

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 reductions in governmental funding, including the funding by transportation authorities and other state agencies;

 

·

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

 

·

conditions in the credit markets;

 

·

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

 

·

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

 

·

cancellation of a significant number of contracts or our disqualification from bidding for new contracts;

 

·

special hazards related to our operations that may cause personal injury or property damage not covered by insurance;

 

·

our substantial current level of indebtedness;

 

·

our dependence on senior management and other key personnel; and

 

·

interruptions in our information technology systems and infrastructure.

 

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

 

Any forward-looking statement that we make herein speaks only as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

 

CERTAIN DEFINITIONS

 

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

 

·

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

 

·

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

 

·

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

 

·

“Harper Contracting” refers collectively to substantially all the assets of Harper Contracting, Inc., Harper Sand and Gravel, Inc., Harper Excavating, Inc., Harper Ready Mix Company, Inc. and Harper Investments, Inc.;

 

·

“Lafarge” refers to Lafarge North America Inc.;

 


 

·

“Mainland” refers to Mainland Sand & Gravel ULC, which is the surviving entity from the acquisition of Rock Head Holdings Ltd., B.I.M Holdings Ltd., Carlson Ventures Ltd., Mainland Sand and Gravel Ltd. and Jamieson Quarries Ltd.; 

 

·

“Lewis & Lewis” refers to Lewis & Lewis, Inc.;

 

·

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

 

·

“LeGrand” refers to LeGrand Johnson Construction Co.;

 

·

“Pelican” refers to Pelican Asphalt Company, LLC;

 

·

“AMC" refers to American Materials Company;

 

·

“Boxley” refers to Boxley Materials Company;

 

·

Sierra refers to Sierra Ready Mix, LLC;

 

·

“Blackstone” refers to investment funds associated with or designated by The Blackstone Group L.P. and its affiliates;

 

·

“Silverhawk” refers to certain investment funds affiliated with Silverhawk Summit, L.P.;

 

·

“Sponsors” refers to Blackstone and Silverhawk; and

 

·

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

 


 

SUMMIT MATERIALS, INC.

SUMMIT MATERIALS, LLC

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page No.

PART I—Financial Information 

 

 

 

 

Item 1. 

Financial Statements for Summit Materials, Inc.

 

 

 

 

Consolidated Balance Sheets as of April 2, 2016 (unaudited) and January 2, 2016

 

 

 

 

Unaudited Consolidated Statements of Operations for the three months ended April 2, 2016 and March 28, 2015

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the three months ended April 2, 2016 and March 28, 2015

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended April 2, 2016 and March 28, 2015

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders Equity and Redeemable Noncontrolling Interest for the three months ended April 2, 2016 and March 28, 2015

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

 

 

 

Financial Statements for Summit Materials, LLC

21 

 

 

 

Item 2. 

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

22 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

38 

 

 

 

Item 4. 

Controls and Procedures

38 

 

 

 

PART II — Other Information 

 

 

 

 

Item 1. 

Legal Proceedings

40 

 

 

 

Item 1A. 

Risk Factors

40 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

40 

 

 

 

Item 3. 

Defaults Upon Senior Securities

40 

 

 

 

Item 4. 

Mine Safety Disclosures

40 

 

 

 

Item 5. 

Other Information

40 

 

 

 

Item 6. 

Exhibits

41 

 

 

SIGNATURES 

43 

 

 

 


 

PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets 

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

    

April 2,

 

January 2,

 

 

 

2016

    

2016

 

 

 

(unaudited)

 

(audited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

92,244

 

$

186,405

 

Accounts receivable, net

 

 

132,513

 

 

145,544

 

Costs and estimated earnings in excess of billings

 

 

7,797

 

 

5,690

 

Inventories

 

 

171,991

 

 

130,082

 

Other current assets

 

 

15,003

 

 

4,807

 

Total current assets

 

 

419,548

 

 

472,528

 

Property, plant and equipment, less accumulated depreciation, depletion and amortization (April 2, 2016 - $395,192 and January 2, 2016 - $366,505)

 

 

1,397,702

 

 

1,269,006

 

Goodwill

 

 

735,746

 

 

596,397

 

Intangible assets, less accumulated amortization (April 2, 2016 - $5,871 and January 2, 2016 - $5,237)

 

 

14,521

 

 

15,005

 

Other assets

 

 

46,531

 

 

43,243

 

Total assets

 

$

2,614,048

 

$

2,396,179

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

 

$

6,500

 

$

6,500

 

Current portion of acquisition-related liabilities

 

 

17,797

 

 

20,584

 

Accounts payable

 

 

91,560

 

 

81,397

 

Accrued expenses

 

 

78,963

 

 

92,942

 

Billings in excess of costs and estimated earnings

 

 

10,667

 

 

13,081

 

Total current liabilities

 

 

205,487

 

 

214,504

 

Long-term debt

 

 

1,517,680

 

 

1,273,652

 

Acquisition-related liabilities

 

 

32,175

 

 

39,977

 

Other noncurrent liabilities

 

 

129,050

 

 

100,186

 

Total liabilities

 

 

1,884,392

 

 

1,628,319

 

Commitments and contingencies (see note 11)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 49,746,982 and 49,745,944 shares issued and outstanding as of April 2, 2016 and January 2, 2016, respectively

 

 

498

 

 

497

 

Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 69,007,297 shares issued and outstanding as of April 2, 2016 and January 2, 2016

 

 

690

 

 

690

 

Additional paid-in capital

 

 

622,608

 

 

619,003

 

Accumulated (deficit) earnings

 

 

(11,932)

 

 

10,870

 

Accumulated other comprehensive loss

 

 

(1,597)

 

 

(2,795)

 

Stockholders’ equity

 

 

610,267

 

 

628,265

 

Noncontrolling interest in consolidated subsidiaries

 

 

1,283

 

 

1,362

 

Noncontrolling interest in Summit Materials, Inc.

 

 

118,106

 

 

138,233

 

Total stockholders’ equity

 

 

729,656

 

 

767,860

 

Total liabilities and stockholders’ equity

 

$

2,614,048

 

$

2,396,179

 

 

See notes to unaudited consolidated financial statements.

 

1


 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations 

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

April 2,

 

March 28,

 

 

 

2016

 

2015

 

Revenue:

 

 

 

 

 

 

 

Product

 

$

180,102

 

$

148,920

 

Service

 

 

27,937

 

 

26,219

 

Net revenue

 

 

208,039

 

 

175,139

 

Delivery and subcontract revenue

 

 

20,340

 

 

18,848

 

Total revenue

 

 

228,379

 

 

193,987

 

Cost of revenue (excluding items shown separately below):

 

 

 

 

 

 

 

Product

 

 

132,494

 

 

119,791

 

Service

 

 

24,054

 

 

19,630

 

Net cost of revenue

 

 

156,548

 

 

139,421

 

Delivery and subcontract cost

 

 

20,340

 

 

18,848

 

Total cost of revenue

 

 

176,888

 

 

158,269

 

General and administrative expenses

 

 

45,370

 

 

67,234

 

Depreciation, depletion, amortization and accretion

 

 

32,360

 

 

26,126

 

Transaction costs

 

 

3,316

 

 

1,364

 

Operating loss

 

 

(29,555)

 

 

(59,006)

 

Other (income) expense, net

 

 

(432)

 

 

391

 

Loss on debt financings

 

 

 —

 

 

799

 

Interest expense

 

 

21,577

 

 

24,109

 

Loss from operations before taxes

 

 

(50,700)

 

 

(84,305)

 

Income tax benefit

 

 

(8,166)

 

 

(4,468)

 

Net loss

 

 

(42,534)

 

 

(79,837)

 

Net loss attributable to noncontrolling interest in subsidiaries

 

 

(79)

 

 

(1,982)

 

Net loss attributable to Summit Holdings

 

 

(21,337)

 

 

(67,704)

 

Net loss attributable to Summit Materials, Inc.

 

$

(21,118)

 

$

(10,151)

 

Net loss per share of Class A common stock:

 

 

 

 

 

 

 

Basic

 

$

(0.42)

 

$

(0.37)

 

Diluted

 

$

(0.42)

 

$

(0.37)

 

Weighted average shares of Class A common stock:

 

 

 

 

 

 

 

Basic

 

 

49,746,971

 

 

27,319,846

 

Diluted

 

 

49,746,971

 

 

27,319,846

 

 

See notes to unaudited consolidated financial statements.

 

2


 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Loss

(In thousands)

 

 

 

 

 

 

 

 

 

Three months ended

 

 

April 2,

 

March 28,

 

 

2016

 

2015

 

Net loss

$

(42,534)

 

$

(79,837)

 

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustment

 

4,642

 

 

(6,299)

 

Loss on cash flow hedges

 

(2,234)

 

 

 —

 

Other comprehensive income (loss)

 

2,408

 

 

(6,299)

 

Comprehensive loss

 

(40,126)

 

 

(86,136)

 

Less comprehensive loss attributable to the noncontrolling interest in consolidated subsidiaries

 

(79)

 

 

(1,982)

 

Less comprehensive loss attributable to Summit Holdings

 

(20,127)

 

 

(72,953)

 

Comprehensive loss attributable to Summit Materials, Inc.

$

(19,920)

 

$

(11,201)

 

 

See notes to unaudited consolidated financial statements.

 

3


 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

 

 

 

 

 

 

 

    

Three months ended

 

 

 

April 2,

 

March 28,

 

 

 

2016

 

2015

 

Cash flow from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(42,534)

 

$

(79,837)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

36,817

 

 

27,358

 

Share-based compensation expense

 

 

2,036

 

 

15,217

 

Deferred income tax benefit

 

 

(17)

 

 

 —

 

Net gain on asset disposals

 

 

(1,683)

 

 

(1,834)

 

Net gain on debt financings

 

 

 —

 

 

688

 

Other

 

 

130

 

 

780

 

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

 

 

 

 

 

 

 

Accounts receivable, net

 

 

22,281

 

 

30,309

 

Inventories

 

 

(25,612)

 

 

(21,413)

 

Costs and estimated earnings in excess of billings

 

 

(1,981)

 

 

(1,662)

 

Other current assets

 

 

(9,583)

 

 

(303)

 

Other assets

 

 

351

 

 

755

 

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

 

 

 

 

 

 

 

Accounts payable

 

 

(618)

 

 

(10,045)

 

Accrued expenses

 

 

(17,890)

 

 

(20,467)

 

Billings in excess of costs and estimated earnings

 

 

(2,552)

 

 

(649)

 

Other liabilities

 

 

(1,103)

 

 

(203)

 

Net cash used in operating activities

 

 

(41,958)

 

 

(61,306)

 

Cash flow from investing activities:

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(249,111)

 

 

 —

 

Purchases of property, plant and equipment

 

 

(39,125)

 

 

(17,708)

 

Proceeds from the sale of property, plant and equipment

 

 

6,019

 

 

2,741

 

Other

 

 

 —

 

 

(276)

 

Net cash used for investing activities

 

 

(282,217)

 

 

(15,243)

 

Cash flow from financing activities:

 

 

 

 

 

 

 

Proceeds from equity offerings

 

 

 —

 

 

460,000

 

Capital issuance costs

 

 

 —

 

 

(35,956)

 

Proceeds from debt issuances

 

 

250,000

 

 

104,000

 

Debt issuance costs

 

 

(5,001)

 

 

(4,055)

 

Payments on debt

 

 

(3,458)

 

 

(106,441)

 

Purchase of noncontrolling interests

 

 

 —

 

 

(35,000)

 

Payments on acquisition-related liabilities

 

 

(11,973)

 

 

(4,032)

 

Net cash provided by financing activities

 

 

229,568

 

 

378,516

 

Impact of foreign currency on cash

 

 

446

 

 

(202)

 

Net (decrease) increase in cash

 

 

(94,161)

 

 

301,765

 

Cash and cash equivalents—beginning of period

 

 

186,405

 

 

13,215

 

Cash and cash equivalents—end of period

 

$

92,244

 

$

314,980

 

 

See notes to unaudited consolidated financial statements.

 

 

4


 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Noncontrolling Interest

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

 

Redeemable

 

 

 

 

Noncontrolling

 

 

 

 

Other

 

Class A

 

Class B

 

Additional

 

Noncontrolling

 

Equity/

 

 

 

Noncontrolling

 

Partners’

 

Interest in

 

Accumulated

 

Comprehensive

 

Common Stock

 

Common Stock

 

Paid-in

 

Interest in

 

Partners’

 

 

    

Interest

    

Interest

    

Subsidiaries

    

Earnings

    

Loss

    

Shares

    

Dollars

 

Shares

    

Dollars

    

Capital

    

Summit Inc.

    

Interest

 

Balance — January 2, 2016

 

$

 —

 

$

 —

 

$

1,362

 

$

10,870

 

$

(2,795)

 

    

49,745,944

 

$

497

 

    

69,007,297

 

$

690

 

$

619,003

 

$

138,233

 

$

767,860

 

Net loss

 

 

 —

 

 

 —

 

 

(79)

 

 

(21,118)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,337)

 

 

(42,534)

 

Issuance of Class A Shares

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,038

 

 

1

 

 

 —

 

 

 —

 

 

(115)

 

 

 —

 

 

(114)

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,198

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,210

 

 

2,408

 

Share-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

(1,684)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,720

 

 

 —

 

 

2,036

 

Balance — April 2, 2016

 

$

 —

 

$

 —

 

$

1,283

 

$

(11,932)

 

$

(1,597)

 

 

49,746,982

 

$

498

 

 

69,007,297

 

$

690

 

$

622,608

 

$

118,106

 

$

729,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 27, 2014

 

$

33,740

 

$

285,685

 

$

1,298

 

$

 —

 

$

 —

 

 

 —

 

$

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

$

286,983

 

Accretion/ redemption value adjustment

 

 

32,252

 

 

(32,252)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(32,252)

 

Net loss

 

 

(1,890)

 

 

(41,338)

 

 

(77)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(41,415)

 

Other comprehensive income

 

 

 —

 

 

(5,249)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,249)

 

Share-based compensation

 

 

 —

 

 

424

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

424

 

Balance — March 11, 2015

 

$

64,102

 

$

207,270

 

$

1,221

 

$

 —

 

$

 —

 

 

 —

 

$

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

$

208,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recording of noncontrolling interest upon reorganization

 

 

 —

 

 

(207,270)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

207,270

 

 

 —

 

Net loss

 

 

 —

 

 

 —

 

 

(15)

 

 

(10,151)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(26,366)

 

 

(36,532)

 

Issuance of Class A Shares

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

25,555,555

 

 

256

 

 

 —

 

 

 —

 

 

423,788

 

 

 —

 

 

424,044

 

Issuance of Class B Shares

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

69,007,397

 

 

690

 

 

(690)

 

 

 —

 

 

 —

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,050)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,050)

 

Share repurchase

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(100)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Purchase of redeemable noncontrolling interest

 

 

(64,102)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,029,183

 

 

10

 

 

 —

 

 

 —

 

 

18,515

 

 

 —

 

 

18,525

 

Share-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14,793

 

 

 —

 

 

14,793

 

Balance — March 28, 2015

 

$

 —

 

$

 —

 

$

1,206

 

$

(10,151)

 

$

(1,050)

 

 

26,584,738

 

$

266

 

 

69,007,297

 

$

690

 

 

456,406

 

$

180,904

 

$

628,271

 

 

See notes to unaudited consolidated financial statements.

 

 

5


 

SUMMIT MATERIALS, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(Tables in thousands, except share amounts)

 

1.SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

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

 

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

 

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

 

Equity Offerings—Summit Inc. commenced operations on March 11, 2015 upon the pricing of the initial public offering of its Class A common stock (“IPO”). Summit Inc. raised $433.0 million, net of underwriting discounts, through the issuance of 25,555,555 shares of Class A common stock at a public offering price of $18.00 per share. Summit Inc. used the offering proceeds to purchase a number of newly-issued Class A Units (“LP Units”) from Summit Holdings equal to the number of shares of Class A common stock issued to the public. Summit Inc. caused Summit Holdings to use these proceeds: (i) to redeem $288.2 million in aggregate principal amount of outstanding 10 1/2% senior notes due January 31, 2020 (“2020 Notes”); (ii) to purchase 71,428,571 Class B Units of Continental Cement Company, L.L.C. (“Continental Cement”); (iii) to pay a one-time termination fee of $13.8 million primarily to affiliates of the Sponsors in connection with the termination of a transaction and management fee agreement; and (iv) for general corporate purposes. The $288.2 million redemption of 2020 Notes was completed in the second quarter of 2015 at a redemption price equal to par plus an applicable premium of $38.2 million plus $5.2 million of accrued and unpaid interest.

 

On August 11, 2015, Summit Inc. raised $555.8 million, net of underwriting discounts, through the issuance of 22,425,000 shares of Class A common stock at a public offering price of $25.75 per share ("follow-on offering"). Summit Inc. used these proceeds to purchase 3,750,000 newly-issued LP Units from Summit Holdings and 18,675,000 LP Units from certain of our pre-IPO owners, at a purchase price per LP Unit equal to the public offering price per share of Class A common stock, less underwriting discounts and commissions. Summit Holdings used the proceeds from the 3,750,000 newly-issued LP Units to pay the deferred purchase price of $80.0 million related to the July 17, 2015 acquisition of a cement plant and a quarry in Davenport, Iowa, and seven cement terminals along the Mississippi River (the “Davenport Assets”) and for general corporate purposes.

 

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. Certain information and

6


 

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 January 2, 2016. The Company continues to follow the accounting policies set forth in those consolidated financial statements.

 

Management believes that these consolidated interim financial statements include all adjustments, normal and recurring in nature, that are necessary to present fairly the financial position of the Company as of April 2, 2016 and the results of operations and cash flows for the three months ended April 2, 2016 and March 28, 2015. All significant intercompany balances and transactions have been eliminated.

 

The Company’s fiscal year is based on a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday. The 53-week year occurs approximately once every seven years and occurred in 2015. The additional week in the 53-week year was included in the fourth quarter of 2015.

 

Principles of Consolidation—The consolidated financial statements include the accounts of Summit Inc. and its majority owned subsidiaries. As a result of the Reorganization, Summit Holdings became a variable interest entity. Summit Inc. is the primary beneficiary of Summit Holdings as a result of its 100% voting power and control over Summit Holdings and its obligation to absorb losses and its right to receive benefits of Summit Holdings and thus consolidates Summit Holdings in its consolidated financial statements with a corresponding noncontrolling interest elimination of 50.3% between January 2, 2016 and April 2, 2016 and 72.2% between March 11, 2015 and March 28, 2015. Collectively, Summit Inc.’s August 2015 follow-on offering and its December 2015 stock dividend decreased the noncontrolling interest’s economic interest from 72.2% to 50.3%.

 

Noncontrolling interests in consolidated subsidiaries represent a 20% ownership in Ohio Valley Asphalt, LLC and, prior to the IPO and concurrent purchase of the noncontrolling interests of Continental Cement, a 30% redeemable ownership in Continental Cement. All intercompany balances and transactions have been eliminated. The Company attributes consolidated stockholders’ equity and net income separately to the controlling and noncontrolling interests. The Company accounts for investments in entities for which it has an ownership of 20% to 50% using the equity method of accounting.

 

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

 

Business and Credit Concentrations—The Company’s operations are conducted primarily across 22 U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, Kansas, Utah, Missouri and Kentucky. 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 April 2, 2016.

 

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.

7


 

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 or diluted earnings per share.

 

Fair Value Measurements—Certain acquisitions made by the Company require the payment of contingent amounts of purchase consideration. These payments are contingent on specified operating results being achieved in periods subsequent to the acquisition and will only be made if earn-out thresholds are achieved. Contingent consideration obligations are measured at fair value each reporting period. Any adjustments to fair value are recognized in earnings in the period identified.

 

The Company has entered into interest rate derivatives on $200.0 million of its term loan borrowings to add stability to interest expense and to manage its exposure to interest rate movements. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and will be subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The fair value of contingent consideration and derivatives as of April 2, 2016 and January 2, 2016 was:

 

 

 

 

 

 

 

 

 

 

 

    

April 2,

    

January 2,

 

    

 

 

2016

 

2016

 

 

Current portion of acquisition-related liabilities and Accrued expenses:

 

 

 

 

 

 

 

 

Contingent consideration

 

$

5,057

 

$

4,918

 

 

Cash flow hedges

 

 

457

 

 

224

 

 

Acquisition-related liabilities and Other noncurrent liabilities

 

 

 

 

 

 

 

 

Contingent consideration

 

$

1,844

 

$

2,475

 

 

Cash flow hedges

 

 

2,654

 

 

681

 

 

 

The fair value of contingent consideration was based on unobservable, or Level 3, inputs, including projected probability-weighted cash payments and an 11.0% discount rate, which reflects a market discount rate. Changes in fair value may occur as a result of a change in actual or projected cash payments, the probability weightings applied by the Company to projected payments or a change in the discount rate. Significant increases or decreases in any of these inputs in isolation could result in a lower, or higher, fair value measurement. The fair value of the cash flow hedges are based on observable, or Level 2, inputs such as interest rates, bond yields and prices in inactive markets. There were no material valuation adjustments in the three months ended April 2, 2016 or March 28, 2015.

 

Financial Instruments—The Company’s financial instruments include debt and certain acquisition-related liabilities (deferred consideration and noncompete obligations). The carrying value and fair value of these financial instruments as of April 2, 2016 and January 2, 2016 was:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 2, 2016

 

January 2, 2016

 

 

 

Fair Value

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Level 2

    

 

    

    

 

    

    

 

    

    

 

    

 

Long-term debt(1)

 

$

1,517,706

 

$

1,540,410

 

$

1,283,799

 

$

1,291,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred consideration and noncompete obligations(2)

 

 

12,740

 

 

12,740

 

 

15,666

 

 

15,666

 

Long term portion of deferred consideration and noncompete obligations(3)

 

 

30,331

 

 

30,331

 

 

37,502

 

 

37,502

 


(1)

$6.5 million included in current portion of debt as of April 2, 2016 and January 2, 2016. Capitalized loan costs of $16.2 million and $11.7 million are excluded, respectively.

8


 

(2)

Included in current portion of acquisition-related liabilities on the balance sheet.

(3)

Included in acquisition-related liabilities on the balance sheet.

 

The fair value of debt was determined based on observable, or Level 2, inputs, such as interest rates, bond yields and quoted prices in inactive markets. The fair values of the deferred consideration and noncompete obligations were determined based on unobservable, or Level 3, inputs, including the cash payment terms in the purchase agreements and a discount rate reflecting the Company’s credit risk.

 

Redeemable Noncontrolling Interest — On March 17, 2015, upon the consummation of the IPO and the transactions contemplated by a contribution and purchase agreement entered into with the holders of all of the outstanding Class B Units of Continental Cement, Continental Cement became a wholly-owned indirect subsidiary of Summit Inc. The noncontrolling interests of Continental Cement were acquired for aggregate consideration of $64.1 million, consisting of $35.0 million of cash, 1,029,183 shares of Summit Inc.’s Class A common stock and $15.0 million aggregate principal amount of non-interest bearing notes payable in six annual installments of $2.5 million, beginning on March 17, 2016.

 

New Accounting Standards — In March 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard with targeted amendments to the accounting for employee share-based payments. Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, requires that the income tax effect of share-based awards be recognized in the income statement and allows entities to elect an accounting method to recognize forfeitures as they occur or to estimate forfeitures, as is currently required. The ASU is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and interim periods within those years. However, the Company early adopted this ASU as of the beginning of fiscal year 2016 and made an election to recognize forfeitures as they occur. The ASU adoption was applied using a modified retrospective method by means of a $1.7 million cumulative-effect adjustment to equity as of the beginning of the fiscal year.

 

In February 2016, the FASB issued new accounting guidance to the standard of lease accounting, ASU No. 2016-02, Leases, which will result in lessees recognizing most leases on-balance sheet. Lessees are required to disclose more quantitative and qualitative information about their leases than current U.S. GAAP requires. They are also required to apply the new guidance at the beginning of the earliest period presented in the financial statements when they first apply the new standard. The new standard must be adopted by December 15, 2018. Early adoption is permitted. Management is currently assessing the effect that the adoption of this ASU will have on the consolidated financial statements.

 

In May 2014, the FASB issued a new accounting standard to improve and converge the financial reporting requirements for revenue from contracts with customers. ASU No. 2014-09, Revenue from Contracts with Customers, prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAP and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. Early adoption is permitted, but no earlier than 2017. Management is currently assessing the effect that the adoption of this standard will have on the consolidated financial statements.

 

 

Reclassifications — Certain amounts in the prior year have been reclassified to conform to the current period’s presentation.  

 

 

 

 

2.REORGANIZATION

 

Prior to the IPO and Reorganization, the capital structure of Summit Holdings consisted of six different classes of limited partnership interests (Class A-1, Class A-2, Class B-1, Class C, Class D-1 and Class D-2), each of which

9


 

was subject to unique distribution rights. There were no outstanding Class A-2 interests. In connection with the IPO and the Reorganization, the limited partnership agreement of Summit Holdings was amended and restated to, among other things, modify its capital structure by creating the LP Units, referred to as the “Reclassification.” Immediately following the Reclassification, 69,007,297 LP Units were outstanding. In addition, in substitution for part of the economic benefit of the Class C and Class D interests that was not reflected in the conversion of such interests to LP Units, warrants were issued to holders of Class C interests to purchase an aggregate of 160,333 shares of Class A common stock, and options were issued to holders of Class D interests to purchase an aggregate of 4,358,842 shares of Class A common stock (“leverage restoration options”). The exercise price of the warrants and leverage restoration options is the IPO price of $18.00 per share. In conjunction with the Reclassification of the equity-based awards, the Company recognized a $14.5 million modification charge in general and administrative costs in the three months ended March 28, 2015.

 

The leverage restoration options were granted under the Summit Materials, Inc. 2015 Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The leverage restoration options that correlate to time-vesting interests vest over four years, beginning on the Reclassification date and the leverage restoration options that correlate to performance-vesting interests vest only when both the relevant return multiple is achieved and a four year time-vesting condition is satisfied. The time-based vesting condition for both the time-vesting and performance-vesting interests will be satisfied with respect to 25% of the performance-vesting options on each of the first four anniversaries of the Reclassification date, subject to the employee’s continued employment through the applicable vesting date.

 

The Company also granted 240,000 options to purchase shares of Class A common stock under the Omnibus Incentive Plan to certain employees some of whom had not previously been granted equity-based interests. These stock options have an exercise price of $18.00 per share, the IPO price, and are subject to a time-based vesting condition that will be satisfied with respect to 25% of the award on each of the first four anniversaries of the grant date, subject to the employee’s continued employment through the applicable vesting date.

 

3.INTANGIBLE ASSETS

 

The Company’s intangible assets are primarily composed of goodwill, lease agreements and reserve rights. The assets related to lease agreements reflect the submarket royalty rates paid under agreements, primarily, for extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but do not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases.

 

Changes in the carrying amount of goodwill, by reportable segment, from January 2, 2016 to April 2, 2016 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

West

    

East

    

Cement

    

Total  

 

Balance, January 2, 2016

 

$

303,926

 

$

98,308

 

$

194,163

 

$

596,397

 

Acquisitions(1)

 

 

1,724

 

 

134,774

 

 

 —

 

 

136,498

 

Foreign currency translation adjustments

 

 

2,851

 

 

 —

 

 

 —

 

 

2,851

 

Balance, April 2, 2016

 

$

308,501

 

$

233,082

 

$

194,163

 

$

735,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated impairment losses as of April 2, 2016 and January 2, 2016

 

$

(53,264)

 

$

(14,938)

 

$

 —

 

$

(68,202)

 


(1)

Includes goodwill from the East segment’s acquisitions of Boxley Materials Company (“Boxley”) and American Materials Company (“AMC”) in the three months ended April 2, 2016. Boxley is a vertically-integrated materials-based company serving Roanoke, Virginia and surrounding areas. AMC is an aggregates and ready-mixed concrete business serving the Carolinas. The purchase price allocation for the 2015 and 2016 acquisitions, primarily related to the valuation of property, plant and equipment, has not yet been finalized due to the recent timing of the acquisitions. Included in the West segment’s goodwill are certain working capital adjustments related to 2015 acquisitions.

10


 

 

The following table shows intangible assets by type and in total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 2, 2016

 

January 2, 2016