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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 27, 2014

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 number 333-187556-38

 

 

CONTINENTAL CEMENT COMPANY, L.L.C.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		27-2594654
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
16100 Swingley Ridge Road, Suite 230 Chesterfield, Missouri		63017
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (636) 532-7440

 

 

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.    Yes  x    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).    Yes  x    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.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x  (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).    Yes  ¨    No  x

As of November 6, 2014, 100 Class A units and 100,000,000 Class B units of our membership interests were issued and outstanding.

Continental Cement Company, L.L.C. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

 

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (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 Continental Cement, L.L.C.’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013 (“Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).

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 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 otherwise required by law.

As used in this report, unless otherwise noted or the context otherwise requires: references to “Continental Cement,” “Company,” “we,” “us,” and “our” are to Continental Cement Company, L.L.C., a Delaware limited liability company, and its subsidiary; and references to “Summit Materials” are to Summit Materials, LLC and not to its subsidiaries. Continental Cement is a non-wholly owned indirect subsidiary of Summit Materials.

 

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CONTINENTAL CEMENT COMPANY, L.L.C.

FORM  10-Q

TABLE OF CONTENTS

 

				Page No.
		PART I—Financial Information
Item 1.		Financial Statements			4
		Consolidated Balance Sheets as of September 27, 2014 (Unaudited) and December 28, 2013			4
		Unaudited Consolidated Statements of Operations for the three and nine months ended September 27, 2014 and September 28, 2013			5
		Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 27, 2014 and September 28, 2013			6
		Unaudited Consolidated Statements of Cash Flows for the nine months ended September 27, 2014 and September 28, 2013			7
		Unaudited Consolidated Statements of Changes in Redeemable  Members’ Interest and Member’s Interest for the nine months ended September 27, 2014 and September 28, 2013			8
		Notes to Unaudited Consolidated Financial Statements			9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 4.		Controls and Procedures			17
		PART II—Other Information
Item 1.		Legal Proceedings			18
Item 1A.		Risk Factors			18
Item 4.		Mine Safety Disclosures			18
Item 5.		Other Information			18
Item 6.		Exhibits			19
SIGNATURES					20

 

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PART I—FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Consolidated Balance Sheets

(In thousands, except unit amounts)

 

		September 27, 2014				December 28, 2013
		(unaudited)				(audited)
Assets
Current assets:
Cash		$	3			$	9
Accounts receivable, net			15,959				7,353
Due from Summit Materials			—				2,990
Inventories			6,760				10,402
Other current assets			598				482
Total current assets			23,320				21,236
Property, plant and equipment, less accumulated depreciation and depletion (September 27, 2014 – $46,777 and December 28, 2013 – $36,700)			307,422				306,204
Goodwill			24,096				24,096
Other assets			14,047				12,576
Total assets		$	368,885			$	364,112
Liabilities, Redeemable Members’ Interest and Member’s Interest
Current liabilities:
Current portion of long-term debt due to Summit Materials		$	1,018			$	1,018
Accounts payable			8,267				10,165
Accrued expenses			7,242				9,997
Due to Summit Materials			10,369				—
Total current liabilities			26,896				21,180
Long-term debt due to Summit Materials			153,827				154,590
Pension and post-retirement benefit obligations			16,340				19,457
Other noncurrent liabilities			931				850
Total liabilities			197,994				196,077
Commitments and contingencies (see note 6)
Redeemable members’ interest (100,000,000 Class B units issued and authorized)			29,146				23,450
Member’s interest:
Member’s equity (100 Class A units issued and authorized)			135,227				135,180
Retained earnings			13,324				17,029
Accumulated other comprehensive loss			(6,806	)			(7,624	)
Total member’s interest			141,745				144,585
Total liabilities, redeemable members’ interest and member’s interest		$	368,885			$	364,112

See notes to unaudited consolidated financial statements.

 

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CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Unaudited Consolidated Statements of Operations

(In thousands)

 

		Three Months Ended								Nine Months Ended
		September 27, 2014				September 28, 2013				September 27, 2014				September 28, 2013
Revenue:
Revenue from third parties:
Product		$	28,106			$	23,370			$	55,256			$	49,190
Service			3,997				4,266				11,183				11,052
Revenue from related parties:
Product			6,065				6,519				14,179				13,498
Total revenue			38,168				34,155				80,618				73,740
Cost of revenue (excluding items shown separately below):
Product			23,273				15,970				46,236				39,359
Service			2,329				2,253				6,993				6,696
Total cost of revenue			25,602				18,223				53,229				46,055
General and administrative expenses			1,793				1,939				5,661				7,339
Depreciation, depletion, amortization and accretion			3,853				3,028				10,898				8,778
Operating income			6,920				10,965				10,830				11,568
Other expense (income), net			10				(7	)			(1	)			(79	)
Interest expense			2,946				2,815				8,840				8,450
Net income		$	3,964			$	8,157			$	1,991			$	3,197

See notes to unaudited consolidated financial statements.

 

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CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

 

		Three Months Ended								Nine Months Ended
		September 27, 2014				September 28, 2013				September 27, 2014				September 28, 2013
Net income		$	3,964			$	8,157			$	1,991			$	3,197
Other comprehensive (loss) income:
Postretirement curtailment adjustment			—				—				(1,346	)			—
Postretirement liability adjustment			—				—				2,164				—
Other comprehensive income			—				—				818				—
Comprehensive income		$	3,964			$	8,157			$	2,809			$	3,197

See notes to unaudited consolidated financial statements.

 

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CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

		Nine Months Ended
		September 27, 2014				September 28, 2013
Cash flows from operating activities:
Net income		$	1,991			$	3,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion			10,898				8,778
Other			1,121				575
(Increase) decrease in operating assets:
Accounts receivable, net			(8,878	)			(5,174	)
Inventories			3,642				333
Other current assets			(116	)			224
Other assets			(1,584	)			(584	)
(Decrease) increase in operating liabilities:
Accounts payable			(198	)			(141	)
Accrued expenses			(3,024	)			(2,278	)
Other liabilities			(2,300	)			(1,408	)
Net cash provided by operating activities			1,552				3,522
Cash flows from investing activities:
Purchase of property, plant and equipment			(13,996	)			(20,944	)
Net cash used for investing activities			(13,996	)			(20,944	)
Cash flows from financing activities:
Principal payments on long-term debt			(764	)			(496	)
Book overdraft			272				114
Net borrowings from Summit Materials			12,930				17,214
Net cash provided by financing activities			12,438				16,832
Net decrease in cash			(6	)			(590	)
Cash – beginning of period			9				599
Cash – end of period		$	3			$	9
Supplemental disclosures of cash flow information
Cash interest paid during the period		$	10,471			$	10,230

See notes to unaudited consolidated financial statements.

 

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CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Unaudited Consolidated Statements of Changes in Redeemable Members’ Interest and Member’s Interest

(In thousands)

 

		Member’s equity				Retained earnings				Accumulated other comprehensive loss				Total member’s interest				Redeemable members’ interest
Balance – December 28, 2013		$	135,180			$	17,029			$	(7,624	)		$	144,585			$	23,450
Accretion			—				(5,696	)			—				(5,696	)			5,696
Net income			—				1,991				—				1,991				—
Other comprehensive income			—				—				818				818				—
Share-based compensation			47				—				—				47				—
Balance – September 27, 2014		$	135,227			$	13,324			$	(6,806	)		$	141,745			$	29,146
Balance – December 31, 2012		$	135,118			$	7,764			$	(12,031	)		$	130,851			$	22,850
Accretion			—				(450	)			—				(450	)			450
Net income			—				3,197				—				3,197				—
Share-based compensation			47				—				—				47				—
Balance – September 28, 2013		$	135,165			$	10,511			$	(12,031	)		$	133,645			$	23,300

See notes to unaudited consolidated financial statements.

 

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CONTINENTAL CEMENT COMPANY, L.L.C. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

(Tables in thousands)

 

(1)	Summary of Organization and Significant Accounting Policies

Continental Cement Company, L.L.C. (“Continental Cement”) produces portland cement at its plant located in Hannibal, Missouri. Cement distribution terminals are maintained in Hannibal and St. Louis, Missouri and Bettendorf, Iowa. The Company’s primary customers are ready-mixed concrete and concrete products producers and contractors located in the Midwestern United States.

Green America Recycling, L.L.C. (“GAR”), a wholly-owned subsidiary of Continental Cement, is engaged in the business of securing, processing and blending hazardous and nonhazardous waste materials primarily for use as supplemental fuels in the cement manufacturing process. GAR’s primary customers are commercial transportation disposal facilities and petroleum and chemical manufacturers located in the continental United States. Continental Cement and GAR collectively are referred to as the “Company.”

Continental Cement, a Delaware limited liability company, is governed by an amended and restated limited liability company agreement, as amended (the “LLC Agreement”). As such, liability of its members is generally limited to the amount of their net investment in Continental Cement. Continental Cement is an indirect non-wholly owned subsidiary of Summit Materials, LLC (“Summit Materials”).

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 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, 2013. 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 September 27, 2014 and the results of operations for the three and nine months ended September 27, 2014 and September 28, 2013 and cash flows for the nine months ended September 27, 2014 and September 28, 2013.

In 2013, the Company changed its fiscal year from a calendar year to a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday, consistent with that of Summit Materials. The 53-week year occurs approximately once every seven years. The additional week in the 53-week year is included in the fourth quarter. The Company’s nine months ended September 27, 2014 included a full 39 weeks, or 273 days, of results compared to the nine months ended September 28, 2013, which included 271 days. The effect of this change to the Company’s financial position and results of operations was immaterial.

Substantially all of the Company’s products are consumed outdoors, primarily in the spring, summer and fall. Seasonal changes and other weather-related conditions can affect the sales volumes of its products. Therefore, the financial results for any interim period are not necessarily 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.

Principles of Consolidation – The consolidated financial statements of the Company include the accounts of Continental Cement and GAR. All significant intercompany balances and transactions have been eliminated.

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 and the disclosures about contingent assets and liabilities. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible and other long-lived assets, pension and other postretirement obligations, asset retirement obligations and redeemable members’ interest. 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 could differ significantly from estimates made. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the Company’s consolidated financial statements when the change in estimate occurs.

Business and Credit Concentrations – The majority of the Company’s customers are located in Missouri, Iowa and Illinois. The Company’s accounts receivable consist primarily of accounts of ready-mixed concrete and concrete products producers and

 

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contractors located within these states. Therefore, collection of these accounts is dependent on the economic conditions therein. Management does not believe that there are significant concentrations of credit with respect to individual customers or groups of customers, as credit has been granted to many customers within the Company’s markets.

Approximately 14% and 16% of cement sales were made to companies owned by a noncontrolling member of the Company during the three and nine months ended September 27, 2014, respectively, and 16% during the each of three and nine months ended September 28, 2013. The Company has historically had no collection issues with the noncontrolling member, and management expects full collection on all outstanding accounts receivable due from the noncontrolling member.

Redeemable Members’ Interest — Continental Cement’s Class B Units represent a 30% economic interest. The holders of the Class B Units have a put option that allows them to put the Class B Units to Continental Cement’s parent company, a wholly-owned subsidiary of Summit Materials, at a strike price that approximates fair value. The put option is exercisable upon a sale of Summit Materials Holdings L.P. or at any time after May 2016. As a consequence of the put option, the Class B Units are classified in temporary equity. The initial redemption value of the Class B Units was based upon the estimated fair value of Continental Cement at the date the Class A Units were indirectly acquired by Summit Materials (May 2010). At that time, the Company elected to accrete changes in the redemption value from the date of issuance to the earliest anticipated redemption date, which is assumed to be May 2016. The accretion is recognized through an adjustment to retained earnings and increased in the third quarter of 2014 consistent with the redemption value increase to an estimated $65.1 million. During the third quarter of 2014, the Company performed an indirect valuation of the Class B Units. The valuation was based on unobservable, or Level 3, inputs, including an assumption on the timing of settlement and projected cash flows. A significant change in these inputs could result in a material increase, or decrease, in the redemption value of the Class B Units.

 

(2)	Accounts Receivable, net

Accounts receivable, net consisted of the following as of September 27, 2014 and December 28, 2013:

 

		September 27, 2014				December 28, 2013
Trade accounts receivable from unaffiliated entities		$	14,136			$	6,961
Trade accounts receivable from related parties			2,125				422
Accounts receivable			16,261				7,383
Less: allowance for doubtful accounts			(302	)			(30	)
Accounts receivable, net		$	15,959			$	7,353

 

(3)	Inventories

Inventories consisted of the following as of September 27, 2014 and December 28, 2013:

 

		September 27, 2014				December 28, 2013
Raw materials		$	927			$	972
Work-in-process			2,214				2,623
Finished goods			3,619				6,807
Total inventories		$	6,760			$	10,402

 

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(4)	Accrued Expenses

Accrued expenses consisted of the following as of September 27, 2014 and December 28, 2013:

 

		September 27, 2014				December 28, 2013
Interest due to Summit Materials		$	2,220			$	3,848
Postretirement benefits other than pensions			1,268				1,268
Bonus			540				884
Payroll, insurance and benefits			877				758
Interest due to noncontrolling member			—				723
Professional fees			225				340
Costs to remove barge from waterway			380				880
Other			1,732				1,296
Total		$	7,242			$	9,997

 

(5)	Long-Term Debt

Long-term debt due to Summit Materials, including the current portion of long-term debt, was $154.8 million and $155.6 million as of September 27, 2014 and December 28, 2013, respectively. Interest costs incurred on the long-term debt were $2.8 million and $8.3 million for the three and nine months ended September 27, 2014, respectively, and $2.8 million and $8.3 million for the three and nine months ended September 28, 2013, respectively. The interest rate in effect at September 27, 2014 was 3.7%.

Continental Cement is named as a guarantor of Summit Materials’ debt, for which Continental Cement pledged substantially all of its assets as collateral. Continental Cement provides a joint and several, full and unconditional guarantee of borrowings under Summit Materials’ senior secured credit facility (“Credit Facility”). As of September 27, 2014 and December 28, 2013, Summit Materials’ debt included $625 million and $250 million, respectively, of senior notes due January 31, 2020 (“Senior Notes”) and borrowings under the senior secured credit facilities composed of $422.0 million in term loans that mature January 30, 2019 and a $150.0 million revolving credit facility that matures January 30, 2017.

Summit Materials is and has been current on all required principal and interest payments. As of September 27, 2014, approximately $94.5 million and $60.3 million of the Company’s long-term debt due to Summit Materials represented the amount of Summit Materials’ debt that has been allocated to the Company under the senior secured credit facilities and Senior Notes, respectively, compared to $95.3 million and $60.3 million, respectively, as of December 28, 2013. The terms of Summit Materials’ debt limit certain transactions of its subsidiaries, including those of Continental Cement. Continental Cement’s ability to incur additional indebtedness or issue certain preferred shares, pay dividends to the noncontrolling members, 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 or enter into certain transactions with affiliates are limited by the terms of Summit Materials’ debt agreements.

 

(6)	Commitments and Contingencies

The Company is party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all pending or threatened claims and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or liquidity. The Company’s policy is to record legal fees as incurred.

Litigation and Claims – In February 2011, the Company incurred a property loss related to a sunken barge with cement product aboard. During the nine months ended September 28, 2013, the Company recognized a $1.8 million charge for costs to remove the barge from the waterway. As of September 27, 2014 and December 28, 2013, the Company had $0.4 million and $0.9 million, respectively, included in accrued expenses as management’s best estimate of the remaining costs to remove the barge.

Environmental Remediation – The Company’s operations are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. These operations require environmental operating permits, which are subject to modification, renewal and revocation. The Company regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation of the Company’s business, as it is with other companies engaged in similar businesses, and there can be no assurance that environmental liabilities will not have a material adverse effect on the Company’s financial position, results of operations or liquidity in the future.

 

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Other – In the ordinary course of business, the Company is obligated under various firm purchase commitments for certain raw materials and services. The terms of the purchase commitments are generally less than one year. Management does not expect any significant changes in the market value of these goods and services during the commitment period that would have a material adverse effect on the financial position, results of operations or liquidity of the Company.

 

(7)	Related Party Transactions

Cement sales to companies owned by a certain non-controlling member of Continental Cement were approximately $4.7 million and $10.9 million for the three and nine months ended September 27, 2014, respectively, and $4.9 million and $10.0 million for the three and nine months ended September 28, 2013, respectively, and accounts receivables due from this party was approximately $1.7 million and $0.2 million as of September 27, 2014 and December 28, 2013, respectively.

Cement sales to companies owned by Summit Materials were approximately $1.4 million and $3.3 million for the three and nine months ended September 27, 2014, respectively, and $1.6 million and $3.5 million for the three and nine months ended September 28, 2013, respectively. Accounts receivables due from these parties were approximately $0.5 million and $0.2 million as of September 27, 2014 and December 28, 2013, respectively.

As of December 28, 2013, the Company had accrued interest payments of $0.7 million due to a certain noncontrolling member for a related party note, which was paid in the first quarter of 2014. The principal balance on the note was repaid in January 2012.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in the Company’s results of operations and financial condition. Historical results may not be indicative of future performance. Forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section entitled “Risk Factors” in the Form 10-K and any factors discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and the related notes and other information included in this report.

Overview

Continental Cement produces portland cement at its highly-efficient, state-of-the-art, dry cement manufacturing plant located in Hannibal, Missouri and has distribution terminals in Hannibal and St. Louis, Missouri and Bettendorf, Iowa. Continental Cement’s primary customers are ready-mixed concrete and concrete products producers and contractors located in the Midwestern United States. In addition to producing cement, the Company secures, processes and blends hazardous and nonhazardous waste materials primarily for use as supplemental fuels in the cement manufacturing process. The Company’s primary customers for this service are commercial transportation disposal facilities and petroleum and chemical manufacturers located in the continental United States.

Continental Cement’s products serve a variety of end uses in its market, including residential and non-residential, agricultural and public infrastructure projects and is used in most forms of construction activities. Continental Cement believes exposure to various end use markets and geographic markets in the Midwestern United States affords greater stability through economic cycles and positions it to capitalize on upside opportunities when recoveries in residential and non-residential construction occur. Continental Cement believes it is a top 25 producer of cement in the United States by volume and the primary supplier within its local market.

Business Trends and Conditions

Continental Cement’s sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical changes in construction spending, especially in the private sector. From a macroeconomic view, the Company sees positive indicators for the construction sector, including upward trends in housing starts, construction employment and highway obligations. All of these factors are expected to result in increased construction activity in the relatively near future as compared to the recently preceding years.

Public infrastructure projects, driven by both federal and state funding programs, represent a significant share of the U.S. construction materials market. Transportation infrastructure projects, driven by both federal and state funding programs, represent a significant share of the U.S. heavy-side construction materials market. Funding for the existing federal transportation funding program, Moving Ahead for Progress in the 21st Century (“MAP-21”), expired on September 30, 2014, and any additional funding or successor programs have yet to be approved. We also continue to monitor the status of the Highway Trust Fund. On August 1, 2014, a Highway Trust Fund extension bill was enacted. The bill provides approximately $10.8 billion of funding, which is expected to last until May 2015. With the nation’s infrastructure aging, we expect U.S. infrastructure spending to grow over the long term, and we believe we are well positioned to capitalize on any such increase.

In addition to federal funding, highway construction and maintenance funding is also available through state, county and local agencies. The Company generated approximately 50% of its revenue in Missouri in the first nine months of 2014. Missouri’s annual construction funding committed to essential road and bridge programs is approximately $700.0 million. The state’s transportation funds are constitutionally protected and therefore may only be spent on transportation projects.

In addition to being subject to cyclical changes in the economy, Continental Cement’s business is seasonal in nature; its products are consumed outdoors. Severe weather, seasonal changes and other weather-related conditions can significantly affect the sales volumes of Continental Cement’s products. Winter weather months are generally periods of lower sales as Continental Cement’s customers have fewer active projects. Typically, the highest sales and earnings are in the second and third quarters and the lowest are in the first and fourth quarters. Periods of heavy rainfall also adversely affect customers’ work patterns and demand for the Company’s products. Freezing or flooding of the Mississippi River can adversely affect the Company’s barge distribution channel resulting in lower sales volumes and higher freight costs during the affected period. The Company’s working capital may vary greatly during peak periods, but generally returns to comparable levels as its operating cycle is completed each fiscal year.

 

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Results of Operations

The following discussion of Continental Cement’s results of operations is focused on the material financial measures management uses to evaluate the performance of its business. Operating income and margins are discussed in terms of changes in volume, pricing and customer mix. Continental Cement’s product revenue reflects cement sales, and its service revenue reflects revenue from the acceptance of waste fuels.

In 2013, the Company changed its fiscal year from a calendar year to a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday, consistent with that of Summit Materials. The 53-week year occurs approximately once every seven years. The additional week in the 53-week year will be included in the fourth quarter. Continental Cement’s nine months ended September 27, 2014 included a full 39 weeks, or 273 days, of results compared to the nine months ended September 28, 2013, which included 271 days. The effect of this change to Continental Cement’s financial position and results of operations was immaterial.

Non-GAAP Performance Measures

Continental Cement evaluates the performance of its business and allocates its resources based on several factors, including a measure it calls Adjusted EBITDA. Continental Cement defines Adjusted EBITDA as net income before interest expense and depreciation, depletion, amortization and accretion. Accretion is recognized on asset retirement obligations and reflects the time value of money. Since accretion is similar in nature to interest expense, it is treated consistently with interest expense and is excluded from Adjusted EBITDA.

Adjusted EBITDA reflects an additional way of viewing aspects of Continental Cement’s business that, when viewed with Continental Cement’s results determined in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the accompanying reconciliations to U.S. GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting Continental Cement’s business. However, it should not be construed as being more important than other comparable U.S. GAAP measures and must be considered in conjunction with U.S. GAAP measures. In addition, non-GAAP financial measures are not standardized; therefore it may not be possible to compare such financial measures with other companies’ non-GAAP financial measures having the same or similar names. Continental Cement strongly encourages investors to review its consolidated financial statements in their entirety and not rely on any single financial measure.

Reconciliation of Net Income to Adjusted EBITDA

 

		Three Months Ended								Nine Months Ended
(in thousands)		September 27, 2014				September 28, 2013				September 27, 2014				September 28, 2013
Net income		$	3,964			$	8,157			$	1,991			$	3,197
Interest expense			2,946				2,815				8,840				8,450
Depreciation, depletion and amortization			3,826				3,008				10,817				8,718
Accretion			27				20				81				60
Adjusted EBITDA		$	10,763			$	14,000			$	21,729			$	20,425

Consolidated Results of Operations

The tables below set forth Continental Cement’s consolidated results for each of the periods indicated.

 

		Three Months Ended								Nine Months Ended
(in thousands)		September 27, 2014				September 28, 2013				September 27, 2014				September 28, 2013
Revenue		$	38,168			$	34,155			$	80,618			$	73,740
Cost of revenue (excluding items shown separately below)			25,602				18,223				53,229				46,055
General and administrative expenses			1,793				1,939				5,661				7,339
Depreciation, depletion, amortization and accretion			3,853				3,028				10,898				8,778
Operating income			6,920				10,965				10,830				11,568
Other expense (income), net			10				(7	)			(1	)			(79	)
Interest expense			2,946				2,815				8,840				8,450
Net income		$	3,964			$	8,157			$	1,991			$	3,197

 

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Three and nine months ended September 27, 2014 compared to the three and nine months ended September 28, 2013

 

		Three Months Ended												Nine Months Ended
($ in thousands)		September 27, 2014				September 28, 2013				Variance				September 27, 2014				September 28, 2013				Variance
Revenue		$	38,168			$	34,155				11.7	%		$	80,618			$	73,740				9.3	%
Operating income		$	6,920			$	10,965				(36.9	)%		$	10,830			$	11,568				(6.4	)%
Operating margin			18.1	%			32.1	%							13.4	%			15.7	%
Adjusted EBITDA		$	10,763			$	14,000				(23.1	)%		$	21,729			$	20,425				6.4	%

Continental Cement’s revenue increased 11.7% and 9.3% in the three and nine months ended September 27, 2014, respectively. The revenue growth was primarily driven by an 8.5% improvement in pricing due to overall price improvements and a change in cement customer mix away from high-volume sales.

In the third quarter of 2014, operating income and operating margin, which Continental Cement defines as operating income as a percentage of revenue, decreased 36.9% and 14.0%, respectively, and Adjusted EBITDA declined $3.2 million, or 23.1%. During the quarter, the Company incurred an additional $2.1 million of repair and maintenance expense and costs due to the plant operating for fewer days in the third quarter of 2014, as compared to the third quarter of 2013 and a $0.8 million impairment charge on inventory. In addition, depreciation, depletion, amortization and accretion increased $0.8 million as a result of the continued investment in the business, including the development of an underground mine, for which the Company began recognizing depreciation in 2014.

In the nine months ended September 27, 2014 operating income and operating margin decreased 6.4% and 2.3%, respectively, and Adjusted EBITDA improved $1.3 million, or 6.4%. The decline in operating income and margin was attributable to an increase in repair and maintenance and costs resulting from the plant operating for fewer days in 2014 than in 2013 and a $0.8 million impairment charge on inventory. These charges were partially offset by a $1.3 million curtailment benefit related to the postretirement healthcare plan and a $1.8 million charge recorded in the nine months ended September 28, 2013 for costs to remove a sunken barge from the waterway. Depreciation expense increased $2.1 million in the nine months ended September 27, 2014 resulting in Adjusted EBITDA growth despite the decrease in operating income. The Company substantially completed development of an underground mine and began recognizing depreciation expense on it in 2014, which was the primary cause of the increase in depreciation expense.

Liquidity and Capital Resources

Continental Cement’s primary sources of liquidity include cash provided by its operations and amounts available for borrowing from Summit Materials. Continental Cement participates in Summit Material’s centralized treasury function, through which excess funds are swept to and shortfalls are funded by Summit Materials. As a result, Continental Cement’s cash balance is nominal. Continental Cement believes it has sufficient financial resources from its liquidity sources to fund its business and operations, including contractual obligations, capital expenditures and debt service obligations for at least the next twelve months.

Given the seasonality of its business, Continental Cement typically experiences significant fluctuations in working capital needs and balances throughout the year. Sales peak in the summer and fall months, but cement production occurs throughout the year with the exception of scheduled plant maintenance during non-peak months. Working capital requirements generally increase during the first half of the year as management focuses on repair and maintenance and builds up inventory for the upcoming construction season.

 

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Cash Flows

The following table summarizes Continental Cement’s net cash provided by or used for operating, investing and financing activities and Continental Cement’s capital expenditures for the periods indicated:

 

		Nine Months Ended
(in thousands)		September 27, 2014				September 28, 2013
Net cash provided by (used for):
Operating activities		$	1,552			$	3,522
Investing activities			(13,996	)			(20,944	)
Financing activities			12,438				16,832
Cash paid for capital expenditures		$	(13,996	)		$	(20,944	)

Operating activities

For the nine months ended September 27, 2014, cash provided by operating activities was $1.6 million as a result of:

 

•

Net income of $2.0 million, adjusted for non-cash expenses of $12.0 million, which were primarily attributable to depreciation, depletion, amortization and accretion expense.

 

•

Cash utilized for working capital needs approximated $12.5 million, which was primarily composed of $5.2 million in increased accounts receivable and the build-up of inventories and a $5.3 million reduction in accounts payable and other liabilities. As Continental Cement’s products are used outdoors, sales in the spring and summer months exceed those in winter months. As a result, uncollected receivables are typically greater at the end of the second and third quarters until those amounts are converted to cash as the operating cycle is completed each fiscal year. The cash expenditures related to inventory reflect the build-up of inventory levels to prepare the business for increased sales volumes in the summer and fall. Also affecting working capital was $10.4 million of interest payments in 2014.

For the nine months ended September 28, 2013, cash provided by operating activities was $3.5 million as a result of:

 

•

Net income of $3.2 million, with non-cash expenses of $9.4 million, which was primarily depreciation, depletion, amortization and accretion expense.

 

•

Cash utilized for working capital needs approximated $9.0 million, which was primarily as a result of $5.2 million used for accounts receivable and $2.4 million for accounts payable and accrued expenses consistent with the seasonality of the Company’s business. Also affecting working capital needs was $10.2 million of interest payments in 2013.

Investing activities

For the nine months ended September 27, 2014, cash used for investing activities was $14.0 million, which was used for capital investments. The capital expenditures included enhancement costs incurred during the cement plant’s annual scheduled winter shutdown, as well as continued development of the underground mine ($5.0 million).

For the nine month period ended September 28, 2013, cash used for investing activities was $20.9 million, which was used for capital investments. The capital expenditures were primarily enhancement costs incurred during the cement plant’s annual scheduled winter shutdown, continued development of the underground mine ($11.4 million) and a storage terminal in St. Louis, Missouri ($2.8 million) used to store cement product.

Financing activities

For the nine months ended September 27, 2014 and September 28, 2013, cash provided by financing activities was $12.4 million and $16.8 million, respectively, primarily driven by $12.9 million and $17.2 million, respectively, of net borrowings from Summit Materials to fund working capital requirements and capital investments.

Cash paid for capital expenditures

Continental Cement estimates that it will incur between $17.0 million and $20.0 million in capital expenditures in 2014, which it has funded or expects to fund through cash on hand, cash from operations and available borrowings under Summit Materials’ senior secured credit facilities. A portion of Continental Cement’s anticipated capital expenditures in 2014 relate to the continued development of the underground mine, which was substantially completed in the first quarter of 2014. Continental Cement expects to spend approximately $5.9 million during 2014 on this project, of which $5.0 million was spent during the nine months ended September 27, 2014. Production of the underground mine was sufficiently advanced such that Continental Cement began recognizing depreciation on it in 2014. The underground mine is expected to provide Continental Cement with access to over 200 years of proven and probable limestone reserves.

 

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Commitments and Contingencies

Continental Cement is party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current, pending or threatened claims and litigation will not have a material effect on Continental Cement’s consolidated results of operations, financial position or liquidity.

In February 2011, Continental Cement incurred a property loss related to a sunken barge with cement product aboard. During the nine months ended September 28, 2013, Continental Cement recorded a $1.8 million charge for costs to remove the barge from the waterway. As of September 27, 2014 and December 28, 2013, the Company had $0.4 million and $0.9 million, respectively, included in accrued expenses as management’s best estimate of the remaining costs to remove the barge.

In the ordinary course of business, the Company is obligated under various firm purchase commitments for certain raw materials and services. The terms of the purchase commitments are generally less than one year. Management does not expect any significant changes in the market value of these goods and services during the commitment period that would have a material adverse effect on Continental Cement’s financial position, results of operations or liquidity.

Off-Balance Sheet Arrangements

As of September 27, 2014, Continental Cement had no material off-balance sheet arrangements.

New Accounting Standards

In May 2014, the FASB issued a new accounting standard to improve and converge the financial reporting requirements for revenue from contracts with customers. Accounting Standards Update (“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 and will become effective for the Company in the first quarter of 2017. Early adoption is prohibited. Management is currently assessing the effect that the adoption of this standard will have on the consolidated financial statements.

 

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Continental Cement maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Continental Cement’s reports under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Continental Cement’s management, including Continental Cement’s Principal Executive Officer and Continental Cement’s Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Continental Cement’s management, with the participation of Continental Cement’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of Continental Cement’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 27, 2014. Based upon that evaluation, Continental Cement’s Principal Executive Officer and Principal Financial Officer concluded that, as of September 27, 2014, Continental Cement’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in Continental Cement’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during Continental Cement’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Continental Cement’s internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

Continental Cement is party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current pending or threatened claims and litigation will not have a material effect on Continental Cement’s consolidated results of operations, financial position or liquidity.

 

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in the Form 10-K, which could materially affect Continental Cement’s business, financial condition, results of operations or liquidity. The risks described in the Form 10-K are not the only risks facing Continental Cement. Additional risks and uncertainties not currently known to Continental Cement or that it currently deems to be immaterial also may materially adversely affect its business, financial condition, results of operations or liquidity. There have been no material changes to the risk factors disclosed in the Form 10-K.

 

ITEM 4.

MINE SAFETY DISCLOSURES

The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this report.

 

ITEM 5.

OTHER INFORMATION

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), which added Section 13(r) of the Exchange Act, the Company hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed and/or provided to The Blackstone Group L.P., an affiliate of certain investment funds that indirectly own a majority of the equity interests of the Company, by Travelport Limited, which may be considered the Company’s affiliate.

The Company is not presently aware that it and its subsidiaries knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the quarter ended September 27, 2014.

 

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ITEM 6.

EXHIBITS

 

3.1		Certificate of Formation of Continental Cement Company, L.L.C., as amended (incorporated by reference to Exhibit 3.7 to the Registration Statement on Form S-4, filed on March 27, 2013 (File No. 333-187556)).
3.2		Amended and Restated Limited Liability Company Agreement of Continental Cement Company, L.L.C. (incorporated by reference to Exhibit 3.8 to the Registration Statement on Form S-4, filed on March 27, 2013 (File No. 333-187556)).
3.3		First Amendment to Amended and Restated Limited Liability Company Agreement of Continental Cement Company, L.L.C. (incorporated by reference to Exhibit 3.9 to the Registration Statement on Form S-4, filed on March 27, 2013 (File No. 333-187556)).
4.1		Fourth Supplemental Indenture, dated as of July 30, 2014, among Buckhorn Materials, LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q, filed on August 6, 2014 (File No. 333-187556-38)).
4.2		Fifth Supplemental Indenture, dated as of September 2, 2014, by and among Summit Materials, LLC, Summit Materials Finance Corp., the subsidiary guarantors named on the signature pages thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, filed on September 9, 2014 (File No. 333-187556-38)).
4.3		Sixth Supplemental Indenture, dated as of September 8, 2014, by and among Summit Materials, LLC, Summit Materials Finance Corp., the subsidiary guarantors named on the signature pages thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K, filed on September 9, 2014 (File No. 333-187556-38)).
4.4		Registration Rights Agreement, dated as of September 8, 2014, among the registrant, Summit Materials Finance Corp., the guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the several other initial purchasers (incorporated by reference to Exhibit 4.5 to the Current Report on Form 8-K, filed on September 9, 2014 (File No. 333-187556-38)).
31.1*		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95.1*		Mine Safety Disclosures.
99.1*		Section 13(r) Disclosure.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

*	Filed herewith

**	Furnished herewith

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		CONTINENTAL CEMENT COMPANY, L.L.C.
Date: November 6, 2014		By:		/s/ Thomas Beck
				Thomas Beck
				President (Principal Executive Officer)
Date: November 6, 2014		By:		/s/ Mark Strieker
				Mark Strieker
				Vice President of Finance and Administration (Principal Financial and Accounting Officer)

 

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