Stock-Based Compensation

12 Months Ended

Dec. 30, 2017

Company Information

Stock-Based Compensation

(13) Stock-Based Compensation

Prior to the IPO and related Reorganization, the capital structure of Summit Holdings consisted of six different classes of limited partnership units, each of which was subject to unique distribution rights. In connection with the IPO and the related Reorganization, the limited partnership agreement of Summit Holdings was amended and restated to, among other things, modify its capital structure by creating LP Units (“the Reclassification”).  Immediately after the Reclassification, 69.0 million LP Units were outstanding, of which 575,256 time vesting interests had not yet vested, and 2.4 million of performance vesting interests had not yet vested. As of December 30, 2017, approximately 40,000 of the time-vesting units remained outstanding and unvested.

Further in 2015, warrants to purchase 160,333 shares of Class A common stock were issued to holders of Class C interests, and options to purchase 4.4 million shares of Class A common stock were issued to holders of Class D interests as leverage restoration options. The exercise price of the warrants and the leverage restoration options is $18.00 per share. In connection with the Reclassification of the equity-based awards, we recognized $14.5 million modification charge in general and administrative expenses in the year ended January 2, 2016.

The leverage restoration options were granted under the Summit Materials, Inc. 2015 Omnibus Incentive Plan (the “Plan”), and would vest when both the applicable return multiple is achieved and a four year time-vesting condition is satisfied. Subsequently, in August 2016, the Board of Directors determined that it was in the best interest of the Company to waive the 3.0 times threshold on the remaining unvested performance-based LP Units and leverage restoration options. This waiver was accounted for as a modification of both interests. The fair value of the LP Units was based on the closing stock price of Summit Inc.’s shares of Class A common stock on the modification date and the fair value of the leverage restoration options was determined using the Black-Scholes, Merton model. The Company recognized $37.7 million in general and administrative expenses in the year ended December 31, 2016 related to the vesting of these performance-based awards. In addition, as of December 30, 2017, we have $2.3 million of unamortized deferred compensation related to the LP Units and unvested leverage restoration options, which will be amortized through March 2019.

In connection with the IPO, we granted 240,000 options to purchase Class A common stock under the Plan to certain employees. These options vest subject to continuous employment over a four year service period, and are exercisable at $18.00 per share.

Omnibus Incentive Plan

In 2015, our Board of Directors and stockholders adopted a long-term incentive plan in connection with our IPO under the Plan, which allows for grants of equity-based awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units, performance units, and other stock-based awards. The Plan authorizes the issuance of up to 13,500,000 shares of Class A common stock in the form of restricted stock units and stock options, of which 8.6 million shares were available for future grants as of December 30, 2017.

Restricted Stock

Restricted Stock with Service-Based Vesting—Under the Plan, the Compensation Committee of the Board of Directors (“the Compensation Committee”) has granted restricted stock to members of the Board of Directors, executive officers and other key employees. These awards contain service conditions associated with continued employment or service. The terms of the restricted stock provide voting and regular dividend rights to holders of the awards. Upon vesting, the restrictions on the restricted stock lapse and the shares are considered issued and outstanding for accounting purposes.

In 2017 and 2016, the Compensation Committee granted restricted stock to executives and key employees under the Plan as part of our annual equity award program, which vest over a three year period, subject to continued employment or service.  From time to time, the Compensation Committee grants restricted stock to newly hired or promoted employees or other employees or consultants who have achieved extraordinary personal performance objectives.

In 2017 and 2016, the Compensation Committee granted 34,928 and 28,140 shares, respectively, to non-employee members of the Board of Directors for their annual service as directors. These restricted stock grants vest over a one year period.

In measuring compensation expense associated with the grant of restricted stock, we use the fair value of the award, determined as the closing stock price for our common stock on the date of grant. Compensation expense is recorded monthly over the vesting period of the award.

Restricted stock with Service- and Market-Condition-Based Vesting—In 2017 and 2016, the Compensation Committee granted restricted stock to certain members of our executive team as part of their annual compensation package. The restricted stock vest at the end of a three year performance period, based on our total stock return (“TSR”) ranking relative to companies in the S&P Building & Construction Select Industry Index, subject to continued employment.

In measuring compensation expense associated with these grants, we use the fair value of the award at the date of grant, determined using a Monte Carlo simulation model.  Compensation expense is recorded monthly over the vesting period of the awards. The following table summarizes information for the equity awards granted in 2017:

	Options			Restricted Stock Units			Performance Stock Units			Warrants
		Weighted			Weighted			Weighted			Weighted
		average grant-		Number of	average grant-		Number of	average grant-		Number of	average grant-
	Number of	date fair value		restricted	date fair value		performance	date fair value		performance	date fair value
	options	per unit		stock units	per unit		stock units	per unit		stock units	per unit
Beginning balance—December 31, 2016	4,990,443	$	8.95	352,602	$	17.77	130,691	$	18.71	160,333	$	18.00
Granted	377,630		12.13	307,905		24.01	85,530		31.58	—		—
Forfeited	(11,339)		10.91	(6,109)		20.37	(4,766)		18.71	—		—
Exercised	(1,203,121)		8.90	—		—	—		—	(57,555)		18.00
Vested	—		—	(145,812)		17.68	—		—	—		—
Balance—December 30, 2017	4,153,613	$	9.13	508,586	$	20.14	211,455	$	23.69	102,778	$	18.00

The fair value of the time-vesting options granted in 2017, 2016 and 2015 was estimated as of the grant date using the Black-Scholes-Merton model, which requires the input of subjective assumptions, including the expected volatility and the expected term. The fair value of the performance stock units granted in 2017 and 2016 was estimated as of the grant date using Monte Carlo simulations, which requires the input of subjective assumptions, including the expected volatility and the expected term. The following table presents the weighted average assumptions used to estimate the fair value of grants in 2017, 2016 and 2015:

	Options			Performance Stock Units
	2017	2016	2015	2017	2016
Risk-free interest rate	2.06% - 2.31%	1.75% - 1.97%	1.68% - 1.92%	1.45%	0.88%
Dividend yield	None	None	None	None	None
Volatility	47%	48%	50%	39%	37%
Expected term	7 Years	10 Years	7 - 10 years	3 Years	3 Years

The risk-free rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the expected term. As Summit Holdings has not historically and does not plan to issue regular dividends, a dividend yield of zero was used. The volatility assumption is based on reported data of a peer group of publically traded companies for which historical information was available adjusted for the Company’s capital structure. The expected term is based on expectations about future exercises and represents the period of time that the units granted are expected to be outstanding.

Compensation expense for time-vesting interests granted is based on the grant date fair value. The Company recognizes compensation costs on a straight-line basis over the service period, which is generally the vesting period of the award. Forfeitures are recognized as they occur. Share-based compensation expense, which is recognized in general and administrative expenses, totaled $21.1 million, $49.9 million and $19.9 million in the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. As of December 30, 2017, unrecognized compensation cost totaled $23.7 million. The weighted average remaining contractual term over which the unrecognized compensation cost is to be recognized is 1.6 years as of year-end 2017.

As of December 30, 2017, the intrinsic value of outstanding options, restricted stock units and performance stock units was $53.9 million, $16.0 million and $6.6 million, respectively, and the remaining contractual term was 7.5 years, 8.8 years and 8.6 years, respectively. The weighted average strike price of stock options outstanding as of December 30, 2017 was $18.46 per share. The intrinsic value of 1.2 million exercisable stock options as of December 30, 2017 was $16.8 million with a weighted average strike price of $17.92 and a weighted average remaining vesting period of 7.3 years.

Summit Materials, LLC

Company Information

Stock-Based Compensation

(12) Stock-Based Compensation

Prior to the IPO and related Reorganization, the capital structure of Summit Holdings consisted of six different classes of limited partnership units, each of which was subject to unique distribution rights. In connection with the IPO and the related Reorganization, the limited partnership agreement of Summit Holdings was amended and restated to, among other things, modify its capital structure by creating LP Units (“the Reclassification”).  Immediately after the Reclassification, 69.0 million LP Units were outstanding, of which 575,256 time vesting interests had not yet vested, and 2.4 million of performance vesting interests had not yet vested. As of December 30, 2017, approximately 40,000 of the time-vesting units remained outstanding and unvested.

Further in 2015, warrants to purchase 160,333 shares of Class A common stock were issued to holders of Class C interests, and options to purchase 4.4 million shares of Class A common stock were issued to holders of Class D interests as leverage restoration options. The exercise price of the warrants and the leverage restoration options is $18.00 per share. In connection with the Reclassification of the equity-based awards, we recognized $14.5 million modification charge in general and administrative expenses in the year ended January 2, 2016.

The leverage restoration options were granted under the Summit Materials, Inc. 2015 Omnibus Incentive Plan (the “Plan”), and would vest when both the applicable return multiple is achieved and a four year time-vesting condition is satisfied. Subsequently, in August 2016, the Board of Directors determined that it was in the best interest of the Company to waive the 3.0 times threshold on the remaining unvested performance-based LP Units and leverage restoration options. This waiver was accounted for as a modification of both interests. The fair value of the LP Units was based on the closing stock price of Summit Inc.’s shares of class A common stock on the modification date and the fair value of the leverage restoration options was determined using the Black-Scholes, Merton model. The Company recognized $37.7 million in general and administrative expenses in the year ended December 31, 2016 related to the vesting of these performance-based awards. In addition, as of December 30, 2017, we have $2.3 million of unamortized deferred compensation related to the LP Units and unvested leverage restoration options, which will be amortized through March 2019.

In connection with the IPO, we granted 240,000 options to purchase Class A common stock under the Plan to certain employees. These options vest subject to continuous employment over a four year service period, and are exercisable at $18.00 per share.

Omnibus Incentive Plan

In 2015, our Board of Directors and stockholders adopted a long-term incentive plan in connection with our IPO under the Plan, which allows for grants of equity-based awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units, performance units, and other stock-based awards. The Plan authorizes the issuance of up to 13,500,000 shares of Class A common stock in the form of restricted stock units and stock options, of which 8.6 million shares were available for future grants as of December 30, 2017.

Restricted Stock

Restricted Stock with Service-Based Vesting—Under the Plan, the Compensation Committee of the Board of Directors (“the Compensation Committee”) has granted restricted stock to members of the Board of Directors, executive officers and other key employees. These awards contain service conditions associated with continued employment or service. The terms of the restricted stock provide voting and regular dividend rights to holders of the awards. Upon vesting, the restrictions on the restricted stock lapse and the shares are considered issued and outstanding for accounting purposes.

In 2017 and 2016, the Compensation Committee granted restricted stock to executives and key employees under the Plan as part of our annual equity award program, which vest over a three year period, subject to continued employment or service. From time to time, the Compensation Committee grants restricted stock to newly hired or promoted employees or other employees or consultants who have achieved extraordinary personal performance objectives.

In 2017 and 2016, the Compensation Committee granted 34,928 and 28,140 shares, respectively, to non-employee members of the Board of Directors for their annual service as directors. These restricted stock grants vest over a one year period.

In measuring compensation expense associated with the grant of restricted stock, we use the fair value of the award, determined as the closing stock price for our common stock on the date of grant. Compensation expense is recorded monthly over the vesting period of the award.

Restricted stock with Service- and Market-Condition-Based Vesting—in 2017 and 2016, the Compensation Committee granted restricted stock to certain members of our executive team as part of their annual compensation package. The restricted stock vest at the end of a three year performance period, based on our total stock return (“TSR”) ranking relative to companies in the S&P Building & Construction Select Industry Index, subject to continued employment.

In measuring compensation expense associated with these grants, we use the fair value of the award at the date of grant, determined using a Monte Carlo simulation model.  Compensation expense is recorded monthly over the vesting period of the awards. The following table summarizes information for the equity awards granted in 2017:

	Options			Restricted Stock Units			Performance Stock Units			Warrants
		Weighted			Weighted			Weighted			Weighted
		average grant-		Number of	average grant-		Number of	average grant-		Number of	average grant-
	Number of	date fair value		restricted	date fair value		performance	date fair value		performance	date fair value
	options	per unit		stock units	per unit		stock units	per unit		stock units	per unit
Beginning balance—December 31, 2016	4,990,443	$	8.95	352,602	$	17.77	130,691	$	18.71	160,333	$	18.00
Granted	377,630		12.13	307,905		24.01	85,530		31.58	—		—
Forfeited	(11,339)		10.91	(6,109)		20.37	(4,766)		18.71	—		—
Exercised	(1,203,121)		8.90	—		—	—		—	(57,555)		18.00
Vested	—		—	(145,812)		17.68	—		—	—		—
Balance—December 30, 2017	4,153,613	$	9.13	508,586	$	20.14	211,455	$	23.69	102,778	$	18.00

The fair value of the time-vesting options granted in 2017, 2016 and 2015 was estimated as of the grant date using the Black-Scholes-Merton model, which requires the input of subjective assumptions, including the expected volatility and the expected term. The fair value of the performance stock units granted in 2017 and 2016 was estimated as of the grant date using Monte Carlo simulations, which requires the input of subjective assumptions, including the expected volatility and the expected term. The following table presents the weighted average assumptions used to estimate the fair value of grants in 2017, 2016 and 2015:

	Options			Performance Stock Units
	2017	2016	2015	2017	2016
Risk-free interest rate	2.06% - 2.31%	1.75% - 1.97%	1.68% - 1.92%	1.45%	0.88%
Dividend yield	None	None	None	None	None
Volatility	47%	48%	50%	39%	37%
Expected term	7 Years	10 Years	7 - 10 years	3 Years	3 Years

The risk-free rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the expected term. As Summit Holdings has not historically and does not plan to issue regular dividends, a dividend yield of zero was used. The volatility assumption is based on reported data of a peer group of publically traded companies for which historical information was available adjusted for the Company’s capital structure. The expected term is based on expectations about future exercises and represents the period of time that the units granted are expected to be outstanding.

Compensation expense for time-vesting interests granted is based on the grant date fair value. The Company recognizes compensation costs on a straight-line basis over the service period, which is generally the vesting period of the award. Forfeitures are recognized as they occur. Share-based compensation expense, which is recognized in general and administrative expenses, totaled $21.1 million, $49.9 million and $19.9 million in the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. As of December 30, 2017, unrecognized compensation cost totaled $23.7 million. The weighted average remaining contractual term over which the unrecognized compensation cost is to be recognized is 1.6 years as of year-end 2017.

As of December 30, 2017, the intrinsic value of outstanding options, restricted stock units and performance stock units was $53.9 million, $16.0 million and $6.6 million, respectively, and the remaining contractual term was 7.5 years, 8.8 years and 8.6 years, respectively. The weighted average strike price of stock options outstanding as of December 30, 2017 was $18.46 per share. The intrinsic value of 1.2 million exercisable stock options as of December 30, 2017 was $16.8 million with a weighted average strike price of $17.92 and a weighted average remaining vesting period of 7.3 years.