Attached files

file filename
EX-3.2 - EX-3.2 - Summit Materials, Inc.d789569dex32.htm
EX-10.8 - EX-10.8 - Summit Materials, Inc.d789569dex108.htm
EX-21 - EX-21 - Summit Materials, Inc.d789569dex21.htm
EX-23.1 - EX-23.1 - Summit Materials, Inc.d789569dex231.htm
EX-10.3 - EX-10.3 - Summit Materials, Inc.d789569dex103.htm
EX-10.4 - EX-10.4 - Summit Materials, Inc.d789569dex104.htm
EX-3.1 - EX-3.1 - Summit Materials, Inc.d789569dex31.htm
EX-23.2 - EX-23.2 - Summit Materials, Inc.d789569dex232.htm
EX-23.3 - EX-23.3 - Summit Materials, Inc.d789569dex233.htm
EX-10.2 - EX-10.2 - Summit Materials, Inc.d789569dex102.htm
EX-4.8 - EX-4.8 - Summit Materials, Inc.d789569dex48.htm
EX-10.6 - EX-10.6 - Summit Materials, Inc.d789569dex106.htm
EX-10.7 - EX-10.7 - Summit Materials, Inc.d789569dex107.htm
EX-4.9 - EX-4.9 - Summit Materials, Inc.d789569dex49.htm
EX-10.9 - EX-10.9 - Summit Materials, Inc.d789569dex109.htm
EX-16 - EX-16 - Summit Materials, Inc.d789569dex16.htm
EX-10.1 - EX-10.1 - Summit Materials, Inc.d789569dex101.htm
EX-10.27 - EX-10.27 - Summit Materials, Inc.d789569dex1027.htm
Table of Contents

As filed with the Securities and Exchange Commission on January 9, 2015.

Registration No. 333-201058

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Summit Materials, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   1400   47-1984212

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

 

1550 Wynkoop Street, 3rd Floor

Denver, Colorado 80202

(303) 893-0012

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Anne Lee Benedict, Esq.

Chief Legal Officer

Summit Materials, Inc.

1550 Wynkoop Street, 3rd Floor

Denver, Colorado 80202

(303) 893-0012

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Edgar J. Lewandowski, Esq.

Edward P. Tolley III, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

 

Michael P. Kaplan, Esq.

Sophia Hudson, Esq.

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement is declared effective.

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed
Maximum
Aggregate

Offering Price(1)(2)

  Amount of
Registration Fee(3)

Class A common stock, par value $0.01 per share

  $100,000,000   $11,620

 

 

(1) Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes shares of Class A common stock subject to the underwriters’ option to purchase additional shares of Class A common stock.
(3) Previously paid.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated January 9, 2015

Preliminary Prospectus

                Shares

 

LOGO

Summit Materials, Inc.

Class A Common Stock

This is the initial public offering of shares of Class A common stock of Summit Materials, Inc. No public market currently exists for our Class A common stock. We are offering all of the             shares of Class A common stock that are being offered in this offering. We anticipate that the initial public offering price will be between $             and $             per share. We intend to apply to list our shares of Class A common stock on the New York Stock Exchange, or NYSE, under the symbol “SUM.”

After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of shares eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Exception.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Summary—Implications of Being an Emerging Growth Company.”

Investing in shares of our Class A common stock involves risks. See “Risk Factors” beginning on page 23 to read about factors you should consider before buying shares of our Class A common stock.

 

     Per Share      Total  

Initial public offering price

   $                        $                    

Underwriting discounts and commissions

   $         $     

Proceeds, before expenses, to us(1)

   $         $     

 

(1) See “Underwriting (Conflicts of Interest)” for a description of compensation payable to the underwriters.

To the extent that the underwriters sell more than             shares of our Class A common stock, the underwriters have the option to purchase up to an additional             shares of our Class A common stock from us at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of our Class A common stock against payment in New York, New York on or about             , 2015 (“T+2”).

 

 

 

Citigroup    Goldman, Sachs & Co.

BofA Merrill Lynch

  

Barclays

   Deutsche Bank Securities    RBC Capital Markets

 

 

 

Blackstone Capital Markets        
  BB&T Capital Markets      
    Stephens Inc.    
      Sterne Agee  
          Stifel   

The date of this prospectus is             , 2015.


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Summary

     1   

Risk Factors

     23   

Forward-Looking Statements

     41   

Market Data

     41   

Organizational Structure

     42   

Use of Proceeds

     49   

Dividend Policy

     50   

Capitalization

     51   

Dilution

     53   

Unaudited Pro Forma Condensed Consolidated Financial Information

     55   

Selected Historical Consolidated Financial Data

     61   

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

     63   

Business

     109   

Management

     131   
 

 

 

Neither we nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus or any free writing prospectus prepared by us or on our behalf. Neither we nor the underwriters take any responsibility for, or can provide any assurance as to the reliability of, any information other than the information in this prospectus or any free writing prospectus prepared by us or on our behalf. We and the underwriters are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted.

 

 

Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of the option to purchase up to an additional                 shares of Class A common stock from us and that the shares of Class A common stock to be sold in this offering are sold at $         per share of Class A common stock, which is the midpoint of the price range indicated on the front cover of this prospectus.

ABOUT THIS PROSPECTUS

Financial Statement Presentation

This prospectus includes certain historical consolidated financial and other data for Summit Materials Holdings L.P. (“Summit Holdings”). Summit Holdings will be considered our predecessor for financial reporting purposes. Summit Materials, Inc. will be the financial reporting entity following this offering of our Class A common stock. Summit Materials, LLC, an indirect wholly-owned subsidiary of Summit Holdings, is the financial reporting entity with respect to our outstanding 10 12% senior notes due 2020 (the “senior notes”). The historical consolidated financial information of Summit Holdings as of December 28, 2013 and December 29, 2012 and for the three years ended December 28, 2013, December 29, 2012 and December 31, 2011 has been derived from the audited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. We have derived the historical consolidated balance sheet data of Summit Holdings as of December 31, 2011 from Summit Holdings’ consolidated balance sheet as of December 31, 2011, which is not included in this prospectus. The historical consolidated financial information of Summit Holdings as of September 27, 2014 and for the nine months ended September 27, 2014 and September 28, 2013 was derived


Table of Contents

from the unaudited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. The unaudited consolidated financial statements of Summit Holdings have been prepared on the same basis as the audited consolidated financial statements and, in our opinion, have included all adjustments, which include normal recurring adjustments necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period.

This prospectus also includes an unaudited pro forma condensed consolidated balance sheet as of September 27, 2014 and unaudited pro forma condensed consolidated statements of income for the nine months ended September 27, 2014 and the year ended December 28, 2013, which present our consolidated financial position and results of operations to give pro forma effect to the issuance of shares of our Class A common stock offered by us in this offering and the other transactions described under “Unaudited Pro Forma Condensed Consolidated Financial Information.” The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results.

Our fiscal year is based on a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday.

You should read our selected historical consolidated financial data and unaudited pro forma condensed consolidated financial information and the accompanying notes in conjunction with, and each is qualified in their entirety by reference to, the consolidated historical financial statements and related notes included elsewhere in this prospectus and the financial and other information appearing elsewhere in this prospectus, including information contained in “Risk Factors,” “Use of Proceeds,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Other than the inception balance sheet, the financial statements of Summit Materials, Inc. have not been included in this prospectus as it is a newly incorporated entity, has no business transactions or activities to date, has no capitalization, and had no assets or liabilities during the periods presented in this prospectus.

Certain Definitions

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

 

    “We,” “our,” “us,” “the Company” and “Summit Materials” refer (1) prior to the consummation of the Offering Transactions described under “Organizational Structure—Offering Transactions,” to Summit Materials Holdings L.P. and its consolidated subsidiaries and (2) after the Offering Transactions described under “Organizational Structure—Offering Transactions,” to Summit Materials, Inc. and its consolidated subsidiaries. “Existing owners” and “pre-IPO owners” refer to the Sponsors and the other owners of Summit Holdings immediately prior to the Offering Transactions;

 

    “Summit Holdings” refers to Summit Materials Holdings L.P.;

 

    “Hamm” refers to Hamm, Inc., our inaugural acquisition;

 

    “Cornejo” refers collectively to Cornejo & Sons, L.L.C., C&S Group, Inc., Concrete Materials Company of Kansas, LLC and Cornejo Materials, Inc.;

 

    “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.;

 

    “Altaview Concrete” refers collectively to Altaview Concrete, LLC, Peak Construction Materials, LLC, Peak Management, L.C. and Wasatch Concrete Pumping, LLC;

 

ii


Table of Contents
    “RK Hall” refers collectively to R.K. Hall Construction, Ltd., RHMB Capital, L.L.C., Hall Materials, Ltd., B&H Contracting, L.P., RKH Capital, L.L.C. and SCS Materials, L.P.;

 

    “B&B” refers collectively to B&B Resources, Inc., Valley Ready Mix, Inc. and Salt Lake Sand & Gravel, Inc.;

 

    “Industrial Asphalt” refers collectively to Industrial Asphalt, LLC, Asphalt Paving Company of Austin, LLC, KBDJ, L.P. and all the assets of Apache Materials Transport, Inc.;

 

    “Ramming Paving” refers collectively to J.D. Ramming Paving Co., LLC, RTI Hot Mix, LLC, RTI Equipment Co., LLC and Ramming Transportation Co., LLC;

 

    “Norris” refers to Norris Quarries, LLC;

 

    “Kay & Kay” refers to certain assets of Kay & Kay Contracting, LLC;

 

    “Sandco” refers to certain assets of Sandco Inc.;

 

    “Lafarge” refers to Lafarge North America, Inc.;

 

    “Westroc” refers to Westroc, LLC;

 

    “Alleyton” refers collectively to Alleyton Resource Company, LLC, Alcomat, LLC and Alleyton Services Company, LLC, the surviving entities from the acquisition of Alleyton Resource Corporation, Colorado Gulf, LP and certain assets of Barten Shephard Investments, LP;

 

    “Troy Vines” refers to Troy Vines, Incorporated;

 

    “Buckhorn Materials” refers to Buckhorn Materials, LLC, which is the surviving entity from the acquisition of Buckhorn Materials LLC and Construction Materials Group LLC;

 

    “Canyon Redi-Mix” refers collectively to Canyon Redi-Mix, Inc. and CRM Mixers LP;

 

    “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.;

 

    “Southwest Ready Mix” refers to Southwest Ready Mix, LLC;

 

    “Colorado County S&G” refers to Colorado County Sand & Gravel Co., L.L.C., which is the surviving entity from the acquisition of Colorado County Sand & Gravel Co., L.L.C, M & M Gravel Sales, Inc., Marek Materials Co. Operating, Ltd. and Marek Materials Co., L.L.C.;

 

    “Concrete Supply” refers to Concrete Supply of Topeka, Inc., Penny’s Concrete and Ready Mix, L.L.C. and Builders Choice Concrete Company of Missouri, L.L.C.;

 

    “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.; and

 

    “Sponsors” refers to Blackstone and Silverhawk.

Defined terms above that relate to our completed acquisitions are in chronological order. See “Business—Acquisition History” for a table of acquisitions we have completed since August 2009.

 

iii


Table of Contents

SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in shares of our Class A common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and the financial statements and the related notes thereto included elsewhere in this prospectus, before you decide to invest in shares of our Class A common stock.

Our Company

We are one of the fastest growing heavy-side construction materials companies in the United States, with a 126% increase in revenue between the year ended December 31, 2010 and the year ended December 28, 2013, as compared to an average increase of approximately 17% in revenue reported by our competitors over the same period. Our materials include aggregates, which we supply across the country, with a focus on Texas, Kansas, Kentucky, Missouri and Utah, and cement, which we supply primarily in Missouri, Iowa and Illinois. Within our markets, we offer customers a single-source provider for heavy-side construction materials and related downstream products through our vertical integration. In addition to supplying aggregates to customers, we use our materials internally to produce ready-mixed concrete and asphalt paving mix, which may be sold externally or used in our paving and related services businesses. Our vertical integration creates opportunities to increase aggregates volumes and optimize margin at each stage of production and enables us to provide customers with efficiency gains, convenience and reliability, which we believe gives us a competitive advantage.

Since our first acquisition over five years ago, we have rapidly become a major participant in the U.S. heavy-side construction materials industry. We believe that, by volume, we are a top 10 aggregates supplier, a top 25 cement producer and a major producer of ready-mixed concrete and asphalt paving mix. Our revenue in 2013 and the first nine months of 2014 was $916.2 million and $870.1 million, respectively, with net losses for the same periods of $103.7 million and $10.8 million, respectively. Our proven and probable aggregates reserves were 2.1 billion tons as of September 27, 2014. In the twelve months ended September 27, 2014 we sold 22.1 million tons of aggregates, 1.0 million tons of cement, 2.3 million cubic yards of ready-mixed concrete and 4.2 million tons of asphalt paving mix across our more than 200 sites and plants.

The rapid growth we have achieved over the last five years has been due in large part to our acquisitions, which we funded with equity commitments that our Sponsors and certain other investors made to Summit Holdings together with debt financing. During this period, we witnessed a cyclical decline and slow recovery in the private construction market and nominal growth in public infrastructure spending. However, the private construction market is beginning to rebound, which we believe signals the outset of a strong growth period in our industry and end markets. We believe we are well positioned to capitalize on this anticipated recovery in order to grow our business and reduce our leverage over time. As of September 27, 2014, our total indebtedness was approximately $1,091.1 million, or $         million on a pro forma basis after giving effect to this offering and the application of the net proceeds.

The private construction market includes residential and nonresidential new construction and the repair and remodel market. According to the National Association of Home Builders, the number of total housing starts in the United States, a leading indicator for our residential business, is expected to grow 57% from 2013 to 2016. In addition, the Portland Cement Association (“PCA”) projects that spending in private nonresidential construction will grow 26% over the same period. The private construction market represented 53% of our revenue for the nine months ended September 27, 2014.

Public infrastructure, which includes spending by federal, state and local governments for roads, highways, bridges, airports and other public infrastructure projects, has been a relatively stable portion of government

 

 

1


Table of Contents

budgets providing consistent demand to our industry and is projected by the PCA to grow approximately 3% from 2013 to 2016. 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. Despite this projected growth, we do not believe it will be consistent across the United States, but will instead be concentrated in certain regions, like Texas, which represented 35% of our revenue for the nine months ended September 27, 2014 and has consistently shown more growth over the last few years than almost all other major markets. The public infrastructure market represented 47% of our revenue for the nine months ended September 27, 2014.

In addition to the anticipated growth in our end markets, we expect higher volume and pricing in our core product categories. The PCA estimates cement consumption will increase approximately 30% from 2013 to 2016, reflecting rising demand in the major end markets. At the same time, we believe that cement pricing will be driven higher by tightening production capacity in the United States, where the PCA projects consumption will exceed domestic cement capacity by 2017 driven by both increasing demand and by other capacity constraints arising from the U.S. Environmental Protection Agency’s (“EPA”) National Emission Standards for Hazardous Air Pollutants (“NESHAP”) regulation for Portland Cement Plants (“PC-MACT”), with which compliance is generally required in 2015. Favorable market dynamics can also be seen in aggregates, where volumes decreased from 3.1 billion tons in 2006 to an estimated 2.1 billion tons in 2013, a 34% decline that has been offset by growth in the average price per ton, which increased from $7.37 in 2006 to an estimated $8.94 in 2013, a 21% increase, according to the U.S. Geological Survey. Consistent with these market trends, our cement and aggregates average pricing increased 5% and 3%, respectively, from the year ended December 31, 2010 to the nine months ended September 27, 2014.

Historically, we have sought to supplement organic growth potential with acquisitions, by strategically targeting attractive, new markets or expanding in existing markets. We consider population trends, employment rates, competitive landscape, private construction outlook, public funding and various other factors prior to entering a new market. In addition to analyzing macroeconomic data, we seek to establish a top position in our local markets, which we believe supports our achieving sustainable organic growth and attractive returns. This positioning provides local economies of scale and synergies, which benefit our pricing, costs and profitability. We believe that each of our operating companies has a top three market share position in its local market.

Our acquisition strategy, to date, has helped us to achieve scale and rapid growth, and we believe that significant opportunities remain for growth through acquisition. We estimate that approximately 65% of the U.S. heavy-side construction materials market is privately owned. From this group, our senior management team maintains contact with over 300 private companies. These long-standing relationships, cultivated over decades, have been the primary source for our past acquisitions and, we believe, will be a key driver of our future growth. We believe the value proposition we offer to potential sellers has made us a buyer of choice and has enabled us to largely avoid competitive auctions and instead negotiate directly with sellers at attractive valuations.

Our Regional Platforms

We currently operate across 17 U.S. states and in Vancouver, Canada through our three regional platforms: West; Central; and East. Each of our operating businesses has its own management team that, in turn, reports to a regional president who is responsible for overseeing the operating businesses, developing growth opportunities, implementing best practices and integrating acquired businesses. Acquisitions are an important element of our strategy, as we seek to enhance value through increased scale and cost savings within local markets.

 

   

West Region: Our West region includes operations in Texas, the Mountain states of Utah, Colorado, Idaho and Wyoming and in Vancouver, Canada where we supply aggregates, ready-mixed concrete, asphalt paving mix and paving and related services. As of September 27, 2014, the West region

 

 

2


Table of Contents
 

controlled approximately 0.7 billion tons of proven and probable aggregates reserves and $363.9 million of net property, plant and equipment and inventories (“hard assets”). During the year ended December 28, 2013, approximately 47% of our revenue and approximately 25% of our Adjusted EBITDA, excluding corporate charges, were generated in the West region. In 2014, we continued to expand the West region, with significant growth in Texas through key acquisitions in Houston and the Permian Basin region of West Texas as well as the establishment of a new platform in Vancouver, Canada with our September acquisition of Mainland.

 

    Central Region: Our Central region extends across the Midwestern United States, most notably in Kansas, Missouri, Nebraska, Iowa and Illinois, where we supply aggregates, cement, ready-mixed concrete, asphalt paving mix and paving and related services. As of September 27, 2014, the Central region controlled approximately 0.9 billion tons of proven and probable aggregates reserves, approximately 0.4 billion of which serve its cement business, and $529.8 million of hard assets. During the year ended December 28, 2013, approximately 36%, of our revenue and approximately 63% of our Adjusted EBITDA, excluding corporate charges, was generated in the Central region.

Our cement plant, commissioned in 2008, is a highly efficient, technologically advanced, integrated manufacturing and distribution system strategically located near Hannibal, Missouri, 100 miles north of St. Louis along the Mississippi River. We utilize an on-site solid and liquid waste fuel processing facility, which can reduce the plant’s fuel costs by up to 50% and is one of only 12 facilities in the United States with such capabilities. Our cement business primarily serves markets in Missouri, Iowa and Illinois.

 

    East Region: Our East region serves markets in Kentucky, South Carolina, North Carolina, Tennessee and Virginia, where we supply aggregates, asphalt paving mix and paving and related services. As of September 27, 2014, the East region controlled approximately 0.5 billion tons of proven and probable aggregates reserves and $157.8 million of hard assets. During the year ended December 28, 2013, approximately 17% of our revenue and approximately 12% of our Adjusted EBITDA, excluding corporate charges, was generated in the East region.

Summary Regional Data

(as of October 3, 2014)

 

    West     Central     East     Total  

Aggregates Details:

       

Tonnage of Reserves (thousands of tons):

       

Hard Rock

    334,566        888,441        460,273        1,683,280   

Sand and Gravel

    349,880        53,442        7,216        410,538   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Tonnage of Reserves (thousands of tons)

    684,446        941,883        467,489        2,093,818   

Annual Production Capacity (thousands of tons)

    19,683        5,632        4,878        30,193   

Average Years Until Depletion(1)

    35        167        96        69   

Ownership Details:

       

Owned

    34     68     39     51

Leased

    66     32     61     49
       

 

 

3


Table of Contents
    West     Central     East     Total  

Aggregate Producing Sites

    48        61        24        133   

Ready-Mix Plants

    41        23        —         64   

Asphalt Plants

    20        5        14        39   
 

 

 

   

 

 

   

 

 

   

Primary States and Provinces:

    Texas        Kansas        Kentucky     
    Utah        Missouri        South Carolina     
    Colorado        Nebraska        North Carolina     
    Idaho        Iowa        Tennessee     
    Wyoming        Illinois        Virginia     
    British Columbia         
 

 

 

   

 

 

   

 

 

   

Primary Markets:

    Houston, TX        Wichita, KS        Lexington, KY     
    Austin, TX        Kansas City, KS        Louisville, KY     
    San Antonio, TX        Topeka, KS        Bowling Green, KY     
    Midland, TX        Manhattan, KS        Elizabethtown, KY     
    Dallas, TX        Lawrence, KY        Charlotte, NC     
    Amarillo, TX        Columbia, MO       
    Longview, TX        St. Louis, MO       
    Texarkana, TX        Davenport, IA       
    Denison, TX        Iowa City, IA       
    Salt Lake City, UT         
    Grand Junction, CO         
    Vancouver, Canada         
 

 

 

   

 

 

   

 

 

   

Products Produced:

    Aggregates        Aggregates        Aggregates     
    Ready-Mix        Cement        Asphalt     
    Asphalt        Ready-Mix       
      Asphalt       
 

 

 

   

 

 

   

 

 

   

Revenue by End Market for Nine Months ended September 27, 2014:

       

Residential and Nonresidential

    61     55     11                                 53

Public

    39     45     89     47

 

(1) Calculated based on total reserves divided by our average of 2012 and 2013 annual production.

Our Competitive Strengths

Leading market positions. We believe each of our operating companies has a top three market share position in its local market area achieved through their respective, extensive operating histories, averaging over 35 years. We believe we are a top 10 supplier of aggregates, a top 25 producer of cement and a major producer of ready-mixed concrete and asphalt paving mix in the United States by volume. We focus on acquiring companies that have leading local market positions in aggregates, which we seek to enhance by building scale with other local aggregates and downstream products and services. The heavy-side construction materials industry is highly local in nature due to transportation costs from the high weight-to-value ratio of the products. Given this dynamic, we believe achieving local market scale provides a competitive advantage that drives growth and profitability for our business. We believe that our ability to prudently acquire, improve and rapidly integrate multiple businesses has enabled, and will continue to enable, us to become market leaders.

Operations positioned to benefit from attractive industry fundamentals. We believe the heavy-side construction materials industry has attractive fundamentals, characterized by high barriers to entry and a stable

 

 

4


Table of Contents

competitive environment in the majority of markets. Barriers to entry are created by scarcity of raw material resources, limited efficient distribution range, asset intensity of equipment, land required for quarry operations and a time-consuming and complex regulatory and permitting process. According to the April 2014 U.S. Geological Survey, aggregates pricing in the United States had increased in 65 of the previous 70 years, with growth accelerating since 2002 as continuing resource scarcity in the industry has led companies to focus increasingly on improved pricing strategies. While aggregates volumes decreased 19% from 2.6 billion tons in 2008 to 2.1 billion tons in 2013, average price per ton of aggregates in the United States during this same time period increased 4% from $8.57 in 2008 to $8.95 in 2013. Pricing growth remained strong in 2013, despite volume declines in certain key end markets. Consistent with these market trends, our average aggregates and cement pricing increased 3% and 5%, respectively, from average prices for the year ended December 31, 2010 as compared to average prices for the nine months ended September 27, 2014.

One significant factor that allows for pricing growth in periods of volume declines is that aggregates and asphalt paving mix have significant exposure to public road construction, which has demonstrated growth over the past 30 years, even during times of broader economic weakness. The majority of public road construction spending is funded at the state level through the states’ respective departments of transportation. The five key states in which we operate (Texas, Kansas, Kentucky, Missouri and Utah) have funds with constitutionally-protected revenue sources dedicated for transportation projects. These dedicated, earmarked funding sources limit the negative effect current state deficits may have on public spending. As a result, we believe our business exhibits significantly more stability in profitability than witnessed in most other building product subsectors. We believe these business characteristics have helped mitigate the impact of the challenging economic environment on our profitability. Profits in the heavy-side construction materials industry are relatively stable throughout various economic cycles compared to other businesses in the construction industry, aided by favorable pricing dynamics with historically stable public infrastructure spending.

Vertically-integrated business model. We generate revenue across a spectrum of related products and services. We internally supply over approximately 80% of the aggregates used in the ready-mixed concrete and asphalt paving mixes that we produce and the asphalt paving mix that our paving crews lay. Our vertically-integrated business model enables us to operate as a single source provider of materials and paving and related services, creating cost, convenience and reliability advantages for our customers, while at the same time creating significant cross-marketing opportunities among our interrelated businesses. We believe this creates opportunities to increase aggregates volumes and optimize margin at each stage of production, fosters more stable demand for aggregates through a captive demand outlet, creates a competitive advantage through the efficiency gains, convenience and reliability provided to customers and enhances our acquisition strategy by allowing a greater range of target companies.

Attractive diversity, scale and product portfolio. Our three regional platforms operate across 17 U.S. states and Vancouver, Canada in 27 metropolitan statistical areas. Between the year ended December 31, 2010 and the twelve months ended September 27, 2014, we grew our revenue by 173% and brought substantial additional scale and geographic diversity to our operations. A combination of increased scale and vertical integration enabled us to improve profitability with Adjusted EBITDA margins increasing 330 basis points from 2010 to the twelve months ended September 27, 2014. In the twelve months ended September 27, 2014, 85.2% of EBITDA was derived from materials and products, with 52.5% coming from materials and 32.7% from products, and the remaining 14.8% of EBITDA being derived from services. We have approximately 2.1 billion tons of proven and probable aggregates reserves serving our aggregates and cement business. Assuming production rates in future years are equal to those in 2013, we estimate that the useful life of the proven and probable reserves for our aggregates and cement businesses are over 55 years and 300 years, respectively.

We own a dry process cement plant that was commissioned in 2008. This large capacity plant has technologically advanced manufacturing capabilities and favorable environmental performance compared to

 

 

5


Table of Contents

older facilities within the industry that will require upgrades to comply with stringent EPA standards coming into effect in the near term. According to PCA forecasts, consumption of cement in the United States is expected to exceed production capacity by the year 2017, creating opportunities for existing cement plants. In addition, our plant is strategically located on the Mississippi River. The U.S. cement industry is regional in nature, with customers typically purchasing material from local sources due to transportation costs. According to the PCA 2014 United States Cement Industry Annual Yearbook, approximately 98% of cement sold in the United States was shipped to customers by truck in 2012. However, in 2013, as a result of our plant’s strategic location on the Mississippi River, we shipped approximately 15% of our cement sold by barge, which is generally more cost-effective than truck transport.

Proven ability to incorporate new acquisitions and grow businesses. Since July 2009, we have acquired 34 companies, successfully integrating the businesses into three regions through the implementation of operational improvements, industry-proven information technology systems, a comprehensive safety program and best in class management programs. A typical acquisition generally involves retaining the local management team of the acquired business, maintaining operational decisions at the local level and providing strategic insights and leadership directed by our President and Chief Executive Officer, a 30-year industry veteran. These acquisitions have helped us achieve significant revenue growth, from $405.3 million in 2010 to $916.2 million in 2013.

Experienced and proven leadership driving organic growth and acquisition strategy. Our management team, led by Tom Hill, our President and Chief Executive Officer, has a proven track record of creating value. In addition to Mr. Hill, our management team, including corporate and regional operations managers, corporate development, finance executives and other heavy side industry operators, has extensive experience in the industry. Our management team has a track record of executing and successfully integrating acquisitions in the sector. Mr. Hill and his team successfully executed a similar consolidation strategy at another company in the industry, where Mr. Hill led the integration of numerous acquisitions, taking the business from less than $0.3 billion to $7.4 billion in sales from 1992 to 2008 through 173 acquisitions worth approximately $6.3 billion in the aggregate.

Our Business Strategy

Capitalize on expected recovery in U.S. economy and construction markets. The residential and nonresidential markets are starting to show positive growth signs in varying degrees across our markets. The National Association of Home Builders forecasts total housing starts to accelerate to 1.46 million in the United States by 2016, representing a compounded annual growth rate of 16.4% from 2013 to 2016. The American Institute of Architects’ Consensus Construction Forecast projects nonresidential construction to grow 8.1% in 2015. We believe that we have sufficient exposure to the residential and nonresidential end markets to benefit from a potential recovery in all of our markets. In 2013, approximately 85% of our revenue was derived from Texas, Kansas, Kentucky, Missouri and Utah—five key states with attractive construction and growth stories. Across these states, Department of Transportation (“DOT”) budgets grew a combined 12.9% from 2013 to 2014. Given the nation’s aging infrastructure and considering longstanding historical spending trends, we expect U.S. infrastructure investment to grow over time. We believe we are well positioned to capitalize on any such increase in investment.

Of our markets, Texas is currently experiencing the most active growth. According to the PCA’s October 2014 Regional Construction InVue, total construction spending in Texas increased 20.5% from September 2013 to September 2014 and public construction and nonresidential spending increased 8.2% and 22.6%, respectively, over this same period. We are capitalizing on the growth in the Texas market by significantly increasing our investment there through acquisitions in Houston and the Permian Basin region of west Texas in 2014.

Expand local positions in the most attractive markets through targeted capital investments and bolt-on acquisitions. We plan to expand our business through organic growth and bolt-on acquisitions in each of our local markets. Our acquisition strategy involves acquiring platforms that serve as the foundation for continued

 

 

6


Table of Contents

incremental and complementary growth via locally situated bolt-on acquisitions to these platforms. We believe that increased local market scale will drive profitable growth. Our existing platform of operations is expected to enable us to grow significantly as we expand in our existing markets. We believe that our balance sheet and liquidity position will support our growth strategy.

Drive profitable growth through strategic acquisitions. Our goal is to become a top-five U.S. heavy-side construction materials company through the successful execution of our acquisition strategy and implementation of best practices to drive organic growth. Based on aggregates sales, in volumes, we believe that we are currently a top-ten player, which we achieved within five years of our first acquisition. We believe that the relative fragmentation of our industry creates an environment in which we can continue to acquire companies at attractive valuations and increase scale and diversity over time through strategic acquisitions in markets adjacent to our existing markets within the states where we currently operate, as well as into additional states as market and competitive conditions support further growth.

Enhance margins and free cash flow generation through implementation of operational improvements. Our management team includes individuals with decades of experience in our industry and proven success in integrating acquired businesses and organically growing operations. This experience represents a significant source of value to us that has driven Adjusted EBITDA margins up 330 basis points from 2010 to the twelve months ended September 27, 2014. These margin improvements are accomplished through proven profit optimization plans, leveraging information technology and financial systems to control costs, managing working capital, achieving scale-driven purchasing synergies and fixed overhead control and reduction. Our regional presidents, supported by our central operations, risk management and finance and information technology teams, drive the implementation of detailed and thorough profit optimization plans for each acquisition post close, which typically includes, among other things, implementation of a systematic pricing strategy and an equipment utilization analysis that assesses repair and maintenance spending, the health of each piece of equipment and a utilization review to ensure we are maximizing productivity and selling any pieces of equipment that are not needed in the business.

Leverage vertically-integrated and strategically located operations for growth. We believe that our vertical integration of heavy-side construction materials, products and services is a significant competitive advantage that we will leverage to grow share in our existing markets and enter into new markets. A significant portion of materials used to produce our products and provide services to our customers is internally supplied, which enables us to operate as a single source provider of materials, products and paving and related services, creating cost, convenience and reliability advantages for our customers and enabling us to capture additional value throughout the supply chain, while at the same time creating significant cross-marketing opportunities among our interrelated businesses.

Our Industry

The U.S. heavy-side construction materials industry is composed of four primary sectors: aggregates; cement; ready-mixed concrete; and asphalt paving mix. Each of these materials is widely used in most forms of construction activity. Competition is constrained in part by the distance materials can be transported efficiently, resulting in predominantly local or regional operations. Participants in these sectors typically range from small, privately-held companies focused on a single material, product or market to multinational corporations that offer a wide array of construction materials, products and paving and related services. We estimate that approximately 65% of the aggregates in the United States are held by private companies.

Transportation infrastructure projects, driven by both federal and state funding programs, represent a significant share of the U.S. heavy-side construction materials market. In addition to federal funding, highway construction and maintenance funding is available through state, county and local agencies. Our five largest

 

 

7


Table of Contents

states by revenue (Texas, Kansas, Kentucky, Missouri and Utah, which represented approximately 25%, 20%, 17%, 12% and 11%, respectively, of our total revenue in 2013) have funds with constitutionally-protected revenue sources dedicated for transportation projects.

Aggregates. Aggregates are key material components used in the production of cement, ready-mixed concrete and asphalt paving mixes for the residential, nonresidential and public infrastructure markets and are also widely used for various applications and products, such as road and building foundations, railroad ballast, erosion control, filtration, roofing granules and in solutions for snow and ice control. Generally extracted from the earth using surface or underground mining methods, aggregates are produced from natural deposits of various materials such as limestone, sand and gravel, granite and trap rock.

Aggregates represent an attractive market with high profit margins, high barriers to entry and increasing resource scarcity, which, as compared to construction services, leads to relatively stable profitability through economic cycles. Production is moderately capital intensive and access to well-placed reserves is important given high transport costs and environmental permitting restrictions. Markets are typically local due to high transport costs and are generally fragmented, with numerous participants operating in localized markets. The top players controlled approximately 30% of the national market in 2013. According to the March 2014 U.S. Geological Survey, the U.S. market for these products was estimated at approximately 2.1 billion tons in 2013, at a total market value of $18.6 billion. Relative to other heavy-side construction materials, such as cement, aggregates consumption is more heavily weighted towards public infrastructure and maintenance and repair. However, the mix of end uses can vary widely by geographic location, based on the nature of construction activity in each market. Typically, three to six competitors comprise the majority market share of each local market because of the constraints around the availability of natural resources and transportation. Vertically-integrated players can have an advantage versus smaller, non-integrated producers by leveraging their aggregates for downstream operations, such as ready-mixed concrete, asphalt paving mix and paving and related services.

Cement. Portland cement, an industry term for the common cement in general use around the world, is the basic ingredient of concrete and is made from a combination of limestone, shale, clay, silica and iron ore. Together with water, cement creates the paste that binds the aggregates together when making concrete. Cement is an input for ready-mixed concrete and concrete products and commands significantly higher prices relative to aggregates, reflecting the more intensive capital investment required. Cement production in the United States is distributed among 98 production facilities located across 34 states and is a capital-intensive business with variable costs dominated by raw materials and energy required to fuel the kiln. Building new plants is challenging given the extensive permitting requirements and capital investment requirements. We estimate new plant construction costs in the United States to be approximately $250-300 per ton, not including costs for property or securing raw materials and the required distribution network. Assuming construction costs of $275 per ton, a 1.25 million ton facility, comparable to our cement plant’s potential annual capacity, would cost approximately $343.8 million to construct.

Ready-mixed concrete. Ready-mixed concrete is one of the most versatile and widely used materials in construction today. It is created through the combination of coarse and fine aggregates, which make up approximately 60 to 75% of the mix by volume, with water, various chemical admixtures and cement making up the remainder. Given the high weight-to-value ratio, delivery of ready-mixed concrete is typically limited to a one-hour haul from a production plant and is further limited by a 90 minute window in which newly-mixed concrete must be poured to maintain quality and performance. As a result of the transportation constraints, the ready-mixed concrete market is highly localized, with an estimated 5,500 ready-mixed concrete plants in the United States, according to the National Ready Mixed Concrete Association (the “NRMCA”). We participate selectively in ready-mixed concrete markets where we provide our own aggregates for production, which we believe provides us a competitive advantage.

Asphalt paving mix. Asphalt paving mix is the most common roadway material used today, covering 93% of the more than 2.6 million miles of paved roadways in the United States, according to the National Asphalt

 

 

8


Table of Contents

Pavement Association (“NAPA”). Major inputs include aggregates and liquid asphalt (the refined residue from the distillation process of crude oils by refineries). Given the significant aggregates component in asphalt paving mix (up to 95% by weight), local aggregates producers often participate in the asphalt paving mix business to secure captive demand for aggregates. Asphalt and paving is highly fragmented in the United States, with end markets skewed towards new road construction and maintenance and repair of roads. Barriers to entry include permit requirements, access to aggregates (where possible, asphalt plants are typically located at quarries) and access to liquid asphalt.

Our Structure

Following this offering, Summit Materials, Inc. will be a holding company, and its sole asset will be a controlling equity interest in Summit Holdings. Summit Materials, Inc. will operate and control all of the business and affairs and consolidate the financial results of Summit Holdings and its subsidiaries. Prior to the completion of this offering, the partnership agreement of Summit Holdings will be amended and restated to, among other things, modify its capital structure by reclassifying the interests currently held by our pre-IPO owners into a single new class of units that we refer to as “LP Units.” We and our pre-IPO owners will also enter into an exchange agreement under which they (or certain permitted transferees) will have the right, from and after the first anniversary of the date of the completion of this offering (subject to the terms of the exchange agreement), to exchange their LP Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Notwithstanding the foregoing, Blackstone is generally permitted to exchange LP Units at any time. See “Certain Relationships and Related Person Transactions—Exchange Agreement.”

Summit Owner Holdco LLC (“Summit Owner Holdco”), a Delaware limited liability company that will be owned by our pre-IPO owners and holders of Class B Units of Continental Cement Company, L.L.C. (“Continental Cement”), will initially hold all of the shares of our Class B common stock that will be outstanding upon consummation of this offering (the “IPO Date”). The Class B common stock will entitle (x) Summit Owner Holdco, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of LP Units held by all limited partners of Summit Holdings (excluding Summit Materials, Inc.) as of the IPO Date and their respective successors and assigns on or after the IPO Date (the “Initial LP Units”) less the aggregate number of such Initial LP Units that, after the IPO Date, have been transferred to Summit Materials, Inc. in accordance with the exchange agreement, are forfeited in accordance with agreements governing unvested Initial LP Units or are transferred to a holder other than Summit Owner Holdco together with a share of Class B common stock (or fraction thereof) and (y) any other future holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LP Units held by such holder. At the completion of this offering, our pre-IPO owners will comprise all of the limited partners of Summit Holdings. However, Summit Holdings may in the future admit additional limited partners, in connection with an acquisition or otherwise, that would not constitute pre-IPO owners. Limited partners of Summit Holdings are not entitled to shares of Class B common stock solely as a result of their admission as limited partners. However, we may in the future issue shares of Class B common stock to one or more limited partners to whom LP Units are also issued, for example in connection with the contribution of assets to us or Summit Holdings by such limited partner. Accordingly, as a holder of both LP Units and Class B common stock, any such holder of Class B common stock would be entitled to a number of votes equal to the number of LP Units held by it. If at any time the ratio at which LP Units are exchangeable for shares of our Class A common stock changes from one-for-one as described under “Certain Relationships and Related Person Transactions—Exchange Agreement,” for example, as a result of a conversion rate adjustment for stock splits, stock dividends or reclassifications, the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

 

 

9


Table of Contents

The diagram below depicts our organizational structure immediately following this offering. For additional detail, see “Organizational Structure.”

 

LOGO

 

 

10


Table of Contents

 

(1) The Class B common stock will entitle Summit Owner Holdco, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of Initial LP Units less the aggregate number of such Initial LP Units that, after the IPO Date, have been transferred to Summit Materials, Inc. in accordance with the exchange agreement, are forfeited in accordance with agreements governing unvested Initial LP Units or are transferred to a holder other than Summit Owner Holdco together with a share of Class B common stock (or fraction thereof) and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LP Units held by such holder. If Summit Owner Holdco were to transfer shares of Class B common stock to a holder of Initial LP Units, such holder of Initial LP Units and shares of Class B common stock would be entitled to a number of votes equal to the number of Initial LP Units held and the number of votes available to Summit Owner Holdco would decrease commensurately.
(2) As of the IPO Date,              of the LP Units, or approximately     % of the total LP Units outstanding, will be unvested and will be subject to certain time and performance vesting conditions. See “Executive and Director Compensation—Executive Compensation—Considerations Regarding 2014 NEO Compensation—Long-Term Incentives—Conversion of Class D Interests” on page 145.
(3) Pursuant to the terms of the Amended and Restated Limited Liability Company Agreement of Continental Cement, a non-wholly-owned indirect subsidiary of Summit Holdings, the holders of 100,000,000 Class B Units of Continental Cement (the “Class B Unitholders”) have the right to elect to rollover their interests in Continental Cement in connection with an initial public offering. In lieu of the Class B Unitholders electing to rollover their interests in connection with this offering, we have entered into a contribution and purchase agreement with the Class B Unitholders whereby, concurrently with the consummation of this offering (v) the Class B Unitholders will contribute 28,571,429 of the Class B Units of Continental Cement to Summit Owner Holdco in exchange for Series A Units of Summit Owner Holdco, (w) the existing general partner of Summit Holdings will contribute to Summit Owner Holdco its right to act as the general partner of Summit Holdings in exchange for Series B Units of Summit Owner Holdco, (x) Summit Owner Holdco will in turn contribute the Class B Units of Continental Cement to Summit Materials, Inc. in exchange for shares of Class A common stock and will contribute to Summit Materials, Inc. its right to act as the general partner of Summit Holdings in exchange for shares of Class B common stock, (y) Summit Materials, Inc. will in turn contribute the Class B Units of Continental Cement it receives to Summit Holdings in exchange for LP Units and (z) the Class B Unitholders will deliver the remaining 71,428,571 Class B Units of Continental Cement to Summit Holdings in exchange for a payment to be made by Summit Holdings in the amount of $35.0 million in cash and $15.0 million aggregate principal amount of non-interest bearing notes that will be payable in six aggregate annual installments, beginning on the first anniversary of the closing of this offering, of $2.5 million. The number of shares of Class A common stock to be held by Summit Owner Holdco as a result of the foregoing transactions will be equal to 1.469496% of the number of outstanding LP Units of Summit Holdings immediately prior to giving effect to the LP Units issued in connection with this offering. As a result of the foregoing transactions, Continental Cement will become a wholly-owned subsidiary of Summit Holdings. Based on              aggregate LP Units outstanding after the reclassification of Summit Holdings and prior to giving effect to this offering, Summit Owner Holdco would receive                  shares of Class A common stock and                 shares of Class B common stock (representing all outstanding shares of Class B common stock at the time of the consummation of this offering). As of September 27, 2014, Continental Cement had total assets of $368.9 million and for the year ended December 28, 2013 and nine months ended September 27, 2014 generated net income of $9.9 million and $2.0 million, respectively.

 

 

11


Table of Contents

Corporate Information

Summit Materials, Inc. was formed under the laws of the State of Delaware on September 23, 2014. Our principal executive office is located at 1550 Wynkoop Street, 3rd Floor, Denver, Colorado 80202. Through our predecessors, we commenced operations in 2009 when Summit Holdings was formed as an exempted limited partnership in the Cayman Islands. In December 2013, Summit Holdings was domesticated as a limited partnership in Delaware. Our telephone number is (303) 893-0012.

Our Sponsors

Blackstone. Blackstone is one of the world’s leading investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different investment businesses, as of September 30, 2014, Blackstone had total assets under management of approximately $284.4 billion.

Silverhawk. Silverhawk Capital Partners, LLC is a private equity firm with offices in Greenwich, Connecticut and Charlotte, North Carolina. The founding partners have invested as a team and operated businesses since 1989. Founded in 2005, Silverhawk’s investments are focused in the energy, manufacturing and business service sectors. As of September 30, 2014, Silverhawk had approximately $200.0 million under management.

Investment Risks

An investment in shares of our Class A common stock involves substantial risks and uncertainties that may adversely affect our business, financial condition and results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our company include, among other things, the following:

 

    Our business depends on activity within the construction industry and the strength of the local economies in which we operate.

 

    Our business is cyclical and requires significant working capital to fund operations.

 

    Weather can materially affect our business, and we are subject to seasonality.

 

    Our industry is capital intensive and we have significant fixed and semi-fixed costs. Therefore, our earnings are sensitive to changes in volume.

 

    Within our local markets, we operate in a highly competitive industry.

 

    The success of our business depends, in part, on our ability to execute on our acquisition strategy, to successfully integrate acquisitions and to retain key employees of our acquired businesses.

 

    A decline in public infrastructure construction and reductions in governmental funding could adversely affect our operations and results.

 

    Environmental, health and safety laws and regulations and any changes to, or liabilities arising under, such laws and regulations could have a material adverse effect on our business, financial condition, results of operations and liquidity.

 

 

12


Table of Contents
    If we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us, we may achieve lower than anticipated profits or incur contract losses.

 

    The cancellation of a significant number of contracts or our disqualification from bidding for new contracts could have a material adverse effect on our financial position, results of operations and liquidity.

 

    Our substantial leverage could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and pay our debts and could divert our cash flow from operations to debt payments.

 

    Blackstone and its affiliates control us and their interests may conflict with ours or yours in the future.

Please see “Risk Factors” for a discussion of these and other factors you should consider before making an investment in shares of our Class A common stock.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year as of the initial filing date of the registration statement of which this prospectus forms a part, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include:

 

    reduced disclosure about our executive compensation arrangements;

 

    no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (1) the end of the fiscal year following the fifth anniversary of this offering; (2) the last day of the first fiscal year during which our annual gross revenues were $1.0 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We have taken advantage of reduced disclosure regarding executive compensation arrangements in this prospectus, and we may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock.

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are generally applicable to public companies.

 

 

13


Table of Contents

Recent Developments

The data presented below reflects our preliminary financial results based upon information available to us as of the date of this prospectus, is not a comprehensive statement of our financial results for the fiscal year ended December 27, 2014 and has not been audited or reviewed by our independent registered public accounting firm. Our actual results may differ materially from this preliminary data. During the course of the preparation of our financial statements and related notes, additional adjustments to the preliminary financial information presented below may be identified. Any such adjustments may be material.

Based upon such preliminary financial results, we expect various key metrics as of and for the year ended December 27, 2014 to be between the ranges in the following table.

 

     Low    High

(in millions, except ratio information)

     

Revenue (1)

     

Cost of revenue (1)

     

General and administrative expenses

     

Operating income

     

Consolidated first lien net leverage ratio (2)

   x    x

Cash

     

Long term debt current portion

     

 

  (1) Included in our 2014 estimated revenue is between $             and $             of delivery and subcontract revenue, which is recognized gross in cost of revenue and revenue. This amount compares to $95.4 million in 2013.
  (2) Calculated in accordance with our senior secured credit facilities, which require us to maintain a consolidated first lien net leverage ratio below specified thresholds. We calculate our consolidated first lien net leverage ratio by dividing our consolidated first lien net debt as of the end of the period by our Further Adjusted EBITDA for such period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Long-Term Debt” on pages 94 and 95 for more information.

Relative to the fiscal year ended December 28, 2013, results for the year ended December 27, 2014 were affected by the completion and integration of eight acquisitions completed in 2014 and an overall increase in pricing and volumes. For comparative purposes, we are providing the following unaudited supplemental pro forma information as if the 2014 acquisitions had occurred on the first day of fiscal 2013. This supplemental pro forma information does not purport to be indicative of what would have occurred had the acquisitions been made on the first day of fiscal year 2013, nor is it indicative of any future results.

 

     Year Ended
December 27, 2014
     Low    High

(in millions)

     

Revenue

     

Net loss

     

 

 

14


Table of Contents

The Offering

 

Class A common stock offered by Summit Materials, Inc.

                shares (plus up to an additional                 shares at the option of the underwriters).

 

Class A common stock outstanding after giving effect to this offering

                shares (or                 shares if all outstanding LP Units held by the limited partners of Summit Holdings were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Voting power held by holders of Class A common stock after giving effect to this offering

        % (or 100% if all outstanding LP Units held by the limited partners of Summit Holdings were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Voting power held by Summit Owner Holdco as a holder of all outstanding shares of Class B common stock after giving effect to this offering

        % (or         % if all outstanding LP Units held by the limited partners of Summit Holdings were exchanged for newly-issued shares of Class A common stock on a one-for-one basis). If all outstanding LP Units held by the limited partners of Summit Holdings were exchanged for newly-issued shares of Class A common stock on a one-for-one basis and such shares continued to be held by such limited partners, our pre-IPO owners would hold         % of the outstanding shares of Class A common stock and an equivalent percentage of the voting power of our common stock eligible to vote in the election of our directors, and, as a result, we would still be a “controlled company” if such limited partners formed a group. See “Organizational Structure—Organizational Structure Following this Offering” and “Management—Controlled Company Exception.”

 

Voting rights

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.

 

  Summit Owner Holdco, an entity that will be owned by our pre-IPO owners and Class B Unitholders of Continental Cement, holds all of the outstanding shares of our Class B common stock. The Class B common stock will entitle Summit Owner Holdco to a number of votes that is equal to the aggregate number of Initial LP Units less the aggregate number of such Initial LP Units that, after the IPO Date, have been transferred to Summit Materials, Inc. in accordance with the exchange agreement, are forfeited in accordance with agreements governing unvested Initial LP Units or are transferred to a holder other than Summit Owner Holdco together with shares of Class B common stock. See “Description of Capital Stock—Common Stock—Class B Common Stock.”

 

 

15


Table of Contents
  Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

 

Use of proceeds

We estimate that the net proceeds to Summit Materials, Inc. from this offering, after deducting estimated underwriting discounts, will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Summit Holdings will bear or reimburse Summit Materials, Inc. for all of the expenses payable by it in this offering, which we estimate will be approximately $         million.

 

  We intend to use all of the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) to purchase a number of newly-issued LP Units from Summit Holdings that is equivalent to the number of shares of Class A common stock that we offer and sell in this offering, as described under “Organizational Structure—Offering Transactions.”

 

  We intend to cause Summit Holdings to use these proceeds to repay indebtedness, to purchase a portion of the Class B Units of Continental Cement, to make a one-time payment to an affiliate of Blackstone in connection with the termination of our transaction and management fee agreement and for general corporate purposes. See “Use of Proceeds.”

 

Dividend policy

We have no current plans to pay dividends on our Class A common stock. The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of our board of directors and we may reduce or discontinue entirely the payment of any such dividends at any time.

 

  Summit Materials, Inc. is a holding company and will have no material assets other than its ownership of Summit Holdings. We intend to cause Summit Holdings to make distributions to us in an amount sufficient to cover cash dividends, if any, declared by us. If Summit Holdings makes such distributions to Summit Materials, Inc., the other holders of LP Units will be entitled to receive equivalent distributions.

 

  Our senior secured credit facilities and our senior notes contain a number of covenants that restrict, subject to certain exceptions, Summit Materials, LLC’s ability to pay dividends to us. See “Description of Certain Indebtedness.”

 

Exchange rights of holders of LP Units

Prior to the completion of this offering we will enter into an exchange agreement with our pre-IPO owners so that they may (subject to the

 

 

16


Table of Contents
 

terms of the exchange agreement) exchange their LP Units for shares of Class A common stock of Summit Materials, Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. See “Certain Relationships and Related Person Transactions—Exchange Agreement.”

 

Tax receivable agreement

Future exchanges of LP Units for shares of Class A common stock are expected to result in increases in the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Summit Materials, Inc. would otherwise be required to pay in the future. Prior to the completion of this offering, we will enter into a tax receivable agreement with the holders of LP Units and certain other indirect pre-IPO owners that hold interests in entities (the “Investor Entities”) that may be merged with or contributed to us in the future in accordance with the stockholders’ agreement we will enter into with Blackstone that provides for the payment by Summit Materials, Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Materials, Inc. is deemed to realize as a result of (i) these increases in tax basis and (ii) our utilization of certain net operating losses of the Investor Entities and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

 

Risk factors

See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.

 

Directed share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares of Class A common stock offered by this prospectus for sale to our directors, officers, team members and other individuals associated with us and members of their respective families. These sales will be made by an affiliate of Citigroup Global Markets Inc., an underwriter of this offering, through a directed share program. If these persons purchase reserved shares it will reduce the number of shares of Class A common stock available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus. Participants in the directed share program will be subject to a 180-day lock-up restriction with respect to any shares purchased through the directed share program, which restriction may be waived with the prior written consent of the representatives of the underwriters. See “Underwriting (Conflicts of Interest)—Directed Share Program.”

 

Proposed trading symbol

“SUM.”
 

 

 

17


Table of Contents

Conflicts of interest

Blackstone Advisory Partners L.P., which is deemed an affiliate of Blackstone and, therefore, our affiliate, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and an underwriter in this offering. Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of FINRA (“Rule 5121”). Pursuant to that rule, the appointment of a “qualified independent underwriter” is not required in connection with this offering as the members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any member that has a conflict of interest and meet the requirements of paragraph (f)(12)(E) of Rule 5121. Blackstone Advisory Partners L.P. will not confirm sales of the securities to any account over which it exercises discretionary authority without the specific written approval of the account holder. See “Underwriting (Conflicts of Interest).”

Material United States federal income and estate tax consequences to non-U.S. holders

For a discussion of certain material United States federal income and estate tax considerations that may be relevant to non-U.S. stockholders, see “Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders.”

In this prospectus, unless otherwise indicated, the number of shares of Class A common stock outstanding and the other information based thereon does not reflect:

 

                    shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares of Class A common stock from us;

 

                    shares of Class A common stock issuable upon exchange of                     LP Units that will be held by limited partners of Summit Holdings immediately following this offering; or

 

                    shares of Class A common stock that may be granted under the Summit Materials, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”), including                 shares of Class A common stock issuable upon the exercise of                     stock options which are expected to be granted under the Omnibus Incentive Plan at the time of this offering and up to                      stock options which are expected to be granted under the Omnibus Incentive Plan within six months of this offering, in each case assuming that the shares to be sold in this offering are sold at the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would decrease the number of stock options to be granted at the time of this offering and in the six months following this offering by                 and                , respectively, and a $1.00 decrease in the assumed initial public offering price would increase the number of stock options by              and             , respectively. See “Executive and Director Compensation—Summit Materials, Inc. 2015 Omnibus Incentive Plan.”

 

 

18


Table of Contents

Summary Historical Consolidated Financial and Other Data

The following summary historical consolidated financial and other data of Summit Holdings should be read together with “Organizational Structure,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus. Summit Holdings will be considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical financial statements following this offering. Under U.S. generally accepted accounting principles (“U.S. GAAP”), Summit Holdings is expected to meet the definition of a variable interest entity. Summit Materials, Inc. is expected to be the primary beneficiary of Summit Holdings as a result of its 100% voting power and control over Summit Holdings and as a result of its obligation to absorb losses and its right to receive benefits of Summit Holdings that could potentially be significant to Summit Holdings. Summit Materials, Inc. is expected to consolidate Summit Holdings on its consolidated financial statements and record a noncontrolling interest related to the LP Units held by our pre-IPO owners on its consolidated balance sheets and statements of condition, operations, and comprehensive income (loss).

The summary historical consolidated financial information of Summit Holdings as of December 28, 2013 and December 29, 2012 and for the three years ended December 28, 2013, December 29, 2012 and December 31, 2011 has been derived from the audited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. We have derived the summary historical audited consolidated balance sheet data of Summit Holdings as of December 31, 2011 from Summit Holdings’ consolidated balance sheet as of December 31, 2011, which is not included in this prospectus. The summary historical consolidated financial information of Summit Holdings as of September 27, 2014 and for the nine months ended September 27, 2014 and September 28, 2013 was derived from the unaudited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. The unaudited consolidated financial statements of Summit Holdings have been prepared on the same basis as the audited consolidated financial statements and, in our opinion, have included all adjustments, which include normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period.

The unaudited pro forma financial information has been prepared to reflect the issuance of shares of our Class A common stock offered by us in this offering and the other transactions described under “Unaudited Pro Forma Condensed Consolidated Financial Information.” The following unaudited summary pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results.

 

    Summit Materials, Inc.     Summit Holdings  
(in thousands)   Pro Forma
Nine Months
Ended
September 27, 2014
    Pro Forma
Year Ended
December 28,
2013
    Nine Months
Ended
September 27,
2014
    Nine Months
Ended
September 28,
2013
    Year Ended
December 28,
2013
    Year Ended
December 29,
2012
    Year Ended
December 31,
2011
 

Statement of Operations Data:

             

Total revenue

  $                   $                   $ 870,145      $ 677,934      $ 916,201      $ 926,254      $ 789,076   

Total cost of revenue (excluding items shown separately below)

        645,934        503,198        677,052        713,346        597,654   

General and administrative expenses

        105,872        107,219        142,000        127,215        95,826   

Goodwill impairment

        —         —         68,202        —         —    

 

 

19


Table of Contents
    Summit Materials, Inc.     Summit Holdings  
(in thousands)   Pro Forma
Nine Months
Ended
September 27, 2014
    Pro Forma
Year Ended
December 28,
2013
    Nine Months
Ended
September 27,
2014
    Nine Months
Ended
September 28,
2013
    Year Ended
December 28,
2013
    Year Ended
December 29,
2012
    Year Ended
December 31,
2011
 

Depreciation, depletion, amortization and accretion

        63,950        54,577        72,934        68,290        61,377   

Transaction costs

        7,737        3,175        3,990        1,988        9,120   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

        46,652        9,765        (47,977     15,415        25,099   

Other income, net

        (2,299     (988     (1,737     (1,182     (21,244

Loss on debt financings

        —         3,115        3,115        9,469        —    

Interest expense

        62,555        42,380        56,443        58,079        47,784   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before taxes

        (13,604     (34,742     (105,798     (50,951     (1,441

Income tax (benefit) expense

        (2,498     (1,782     (2,647     (3,920     3,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  $        $        $ (11,106   $ (32,960   $ (103,151   $ (47,031   $ (4,849
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow Data:

             

Net cash (used for) provided by:

             

Operating activities

  $        $        $ (10,836   $ 123      $ 66,412      $ 62,279      $ 23,253   

Investing activities

        (405,853     (105,930     (111,515     (85,340     (192,331

Financing activities

        408,501        97,583        32,589        7,702        146,775   

Balance Sheet Data (as of period end):

             

Cash

  $          $ 9,995        $ 18,183      $ 30,697      $ 46,056   

Total assets

        1,749,758          1,251,060        1,284,479        1,287,531   

Total debt (including current portion of long-term debt)

        1,091,108          688,987        639,843        608,981   

Capital leases

        28,395          8,026        3,092        3,158   

Total partners’ interest/stockholders’ equity

        294,080          286,817        385,694        439,638   

Redeemable noncontrolling interests

        31,820          24,767        22,850        21,300   

Other Financial Data:

             

Total hard assets(1)

      $ 1,058,117        $ 928,210      $ 906,584      $ 906,166   

Adjusted EBITDA(2)

      $ 112,901      $ 62,215      $ 91,781       

 

(1) Defined as the consolidated balance sheet book value as of period end of the sum of (a) net property, plant and equipment and (b) inventories.
(2)

EBITDA is defined by us as net loss before interest expense, income tax expense, depreciation, depletion and amortization expense. We evaluate our operating performance using a metric we refer to as “Adjusted EBITDA.” Adjusted EBITDA is defined as EBITDA, as adjusted to exclude accretion, goodwill impairment and loss from discontinued operations. In addition, we use a metric we refer to as “Further Adjusted EBITDA,” which we define as

 

 

20


Table of Contents
  Adjusted EBITDA plus certain non-cash or non-operating items and the EBITDA contribution of certain recent acquisitions, to measure our compliance with debt covenants and to evaluate flexibility under certain restrictive covenants. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Long-Term Debt” on pages 94 and 95 for more information.

We include EBITDA and Adjusted EBITDA in conjunction with our results according to U.S. GAAP because management believes they help to provide a more complete understanding of factors and trends affecting our business than U.S. GAAP measures alone. Management believes these non-U.S. GAAP measures assists our board of directors, management, lenders and investors in comparing our operating performance on a consistent basis because they remove where applicable, the impact of our capital structure, asset base, acquisition accounting, non-cash charges and non-operating items from our operations. In addition, management uses Adjusted EBITDA to evaluate our operational performance as a basis for strategic planning and as a performance evaluation metric.

Despite the importance of these measures in analyzing our business, evaluating our operating performance and determining covenant compliance, as well as the use of adjusted EBITDA measures by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA and Further Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP; nor are Adjusted EBITDA and Further Adjusted EBITDA intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of Adjusted EBITDA and Further Adjusted EBITDA are:

 

    they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

    they do not reflect changes in, or cash requirements for, our working capital needs;

 

    they do not reflect the interest expense, or the cash requirements to service interest or principal payments on our debt;

 

    they do not reflect income tax payments we are required to make; and

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA and Further Adjusted EBITDA do not reflect any cash requirements for such replacements.

To properly and prudently evaluate our business, we encourage you to review the financial statements included in this prospectus, and not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net income to Adjusted EBITDA set forth below and net income to Further Adjusted EBITDA on page 95. Adjusted EBITDA and Further Adjusted EBITDA, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies, because Adjusted EBITDA and Further Adjusted EBITDA are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations.

 

 

21


Table of Contents

The following table sets forth a reconciliation of net loss to EBITDA and Adjusted EBITDA for the periods indicated. All of the items included in the reconciliation from net loss to Adjusted EBITDA are either (i) non-cash items (such as depreciation, depletion, amortization and accretion and non-cash compensation expense) or (ii) items that management does not consider in assessing our on-going operating performance (such as income taxes and interest expense). In the case of the non-cash items, management believes that investors can better assess our comparative operating performance if the measures are presented without such items because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items, management believes that investors can better assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

 

(in thousands)   Twelve Months
Ended September 27,
2014(a)
    Nine Months Ended
September 27,
2014
    Nine Months Ended
September 28,
2013
    Year Ended
December 28,
2013
 

Net loss

  $ (81,212   $ (10,750   $ (33,217   $ (103,679

Interest expense

    76,618        62,555        42,380        56,443   

Income tax benefit

    (3,363     (2,498     (1,782     (2,647

Depreciation, depletion and amortization

    81,479        63,302        54,040        72,217   
 

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 73,255      $ 112,609      $ 61,421      $ 22,334   
 

 

 

   

 

 

   

 

 

   

 

 

 

Accretion

    828        648        537        717   

Goodwill impairment

    68,202        —          —          68,202   

Discontinued operations(b)

    (85     (356     257        528   

Adjusted EBITDA

  $ 142,467      $ 112,901      $ 62,215      $ 91,781   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) The statement of operations data for the twelve months ended September 27, 2014, which are unaudited, have been calculated by subtracting the data for the nine months ended September 28, 2013 from the data for the year ended December 28, 2013, and adding the data for the nine months ended September 27, 2014. This presentation is not in accordance with U.S. GAAP. However, we believe that this presentation provides useful information to investors regarding our recent financial performance and we view this presentation of the four most recently completed quarters as a key measurement period for investors to assess our historical results. In addition, our management uses trailing four quarter financial information to evaluate our financial performance for ongoing planning purposes, including a continuous assessment of our financial performance in comparison to budgets and internal projections. We also use trailing four quarter financial data to test compliance with covenants under our senior secured credit facilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Long-Term Debt.” This presentation has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.
  (b) Represents certain concrete paving operations and railroad construction and repair operations that we have exited.

 

 

22


Table of Contents

RISK FACTORS

An investment in shares of our Class A common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in shares of our Class A common stock.

Risks Related to Our Industry and Our Business

Industry Risks

Our business depends on activity within the construction industry and the strength of the local economies in which we operate.

We sell most of our construction materials and products and provide all of our paving and related services to the construction industry, so our results are significantly affected by the strength of the construction industry. Demand for our products, particularly in the residential and nonresidential construction markets, could decline if companies and consumers cannot obtain credit for construction projects or if the slow pace of economic activity results in delays or cancellations of capital projects. In addition, federal and state budget issues may continue to hurt the funding available for infrastructure spending, particularly highway construction, which constitutes a significant portion of our business.

Our earnings depend on the strength of the local economies in which we operate because of the high cost to transport our products relative to their price. In recent years, many states have reduced their construction spending due to budget shortfalls resulting from lower tax revenue as well as uncertainty relating to long-term federal highway funding. As a result, there has been a reduction in many states’ investment in infrastructure spending. If economic and construction activity diminishes in one or more areas, particularly in our top revenue-generating markets of Texas, Kansas, Kentucky, Missouri and Utah, our results of operations and liquidity may be materially adversely affected, and there is no assurance that reduced levels of construction activity will not continue to affect our business in the future.

Our business is cyclical and requires significant working capital to fund operations.

Our business is cyclical and requires that we maintain significant working capital to fund our operations. Our ability to generate sufficient cash flow depends on future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash to operate our business and service our outstanding debt and other obligations, we may be required, among other things, to further reduce or delay planned capital or operating expenditures, sell assets or take other measures, including the restructuring of all or a portion of our debt, which may only be available, if at all, on unsatisfactory terms.

Weather can materially affect our business, and we are subject to seasonality.

Nearly all of the products we sell and the services we provide are used or performed outdoors. Therefore, seasonal changes and other weather-related conditions can adversely affect our business and operations through a decline in both the use and production of our products and demand for our services. Adverse weather conditions such as extended rainy and cold weather in the spring and fall can reduce demand for our products and reduce sales or render our contracting operations less efficient. Major weather events such as hurricanes, tornadoes, tropical storms and heavy snows with quick rainy melts adversely could affect sales in the near term.

Heavy-side construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters. The first quarter of our fiscal year has typically lower levels of activity due to the weather conditions. Our second quarter varies greatly with spring rains and wide temperature variations. A cool wet spring increases drying time on projects, which can delay sales in the second quarter, while a warm dry spring may enable earlier project startup.

 

23


Table of Contents

Our industry is capital intensive and we have significant fixed and semi-fixed costs. Therefore, our earnings are sensitive to changes in volume.

The property and machinery needed to produce our products can be very expensive. Therefore, we need to spend a substantial amount of capital to purchase and maintain the equipment necessary to operate our business. Although we believe that our current cash balance, along with our projected internal cash flows and our available financing resources, will provide sufficient cash to support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to purchase and maintain the property and machinery necessary to operate our business, we may be required to reduce or delay planned capital expenditures or incur additional debt. In addition, given the level of fixed and semi-fixed costs within our business, particularly at our cement production facility, decreases in volumes can negatively affect our financial position, results of operations and liquidity.

Within our local markets, we operate in a highly competitive industry.

The U.S. construction aggregates industry is highly fragmented with a large number of independent local producers in a number of our markets. Additionally, in most markets, we compete against large private and public infrastructure companies, some of which are also vertically-integrated. Therefore, there is intense competition in a number of the markets in which we operate. This significant competition could lead to lower prices, lower sales volumes and higher costs in some markets, negatively affecting our financial position, results of operations and liquidity. Further, the lack of availability of skilled labor, such as truck drivers, may require us to increase compensation or reduce deliveries, which could negatively affect our financial position, results of operations and liquidity.

Growth Risks

The success of our business depends, in part, on our ability to execute on our acquisition strategy, to successfully integrate acquisitions and to retain key employees of our acquired businesses.

A significant portion of our historical growth has occurred through acquisitions and we will likely enter into acquisitions in the future. We have evaluated and expect to continue to evaluate possible acquisition transactions on an ongoing basis. At any time we may be engaged in discussions or negotiations with respect to several possible acquisitions. From time to time we enter into letters of intent to allow us to conduct due diligence on a confidential basis. At any given time, we may be in preliminary discussions with several potential acquisition targets. There can be no assurance that we will enter into definitive agreements with respect to any contemplated transactions or that they will be completed. Our growth has placed, and will continue to place, significant demands on our management and operational and financial resources. Acquisitions involve risks that the businesses acquired will not perform as expected and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect.

Acquisitions may require integration of the acquired companies’ sales and marketing, distribution, engineering, purchasing, finance and administrative organizations. We may not be able to integrate successfully any business we may acquire or have acquired into our existing business and any acquired businesses may not be profitable or as profitable as we had expected. Our inability to complete the integration of new businesses in a timely and orderly manner could increase costs and lower profits. Factors affecting the successful integration of acquired businesses include, but are not limited to, the following:

 

    We may become liable for certain liabilities of any acquired business, whether or not known to us. These risks could include, among others, tax liabilities, product liabilities, environmental liabilities and liabilities for employment practices, and they could be significant.

 

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

 

    We may not effectively utilize new equipment that we acquire through acquisitions or otherwise at utilization and rental rates consistent with that of our existing equipment.

 

24


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

 

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

We cannot assure you that we will achieve synergies and cost savings in connection with acquisitions. In addition, many of the businesses that we have acquired and will acquire have unaudited financial statements that have been prepared by the management of such companies and have not been independently reviewed or audited. We cannot assure you that the financial statements of companies we have acquired or will acquire would not be materially different if such statements were audited. Finally, we cannot assure you that we will continue to acquire businesses at valuations consistent with our prior acquisitions or that we will complete future acquisitions at all. We cannot assure you that there will be attractive acquisition opportunities at reasonable prices, that financing will be available or that we can successfully integrate such acquired businesses into our existing operations. In addition, our results of operations from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill, or other long-lived assets, particularly if economic conditions worsen unexpectedly. These changes could materially negatively affect our results of operations, financial condition or liquidity.

Our long-term success is dependent upon securing and permitting aggregate reserves in strategically located areas. The inability to secure and permit such reserves could negatively affect our earnings in the future.

Aggregates are bulky and heavy and therefore difficult to transport efficiently. Because of the nature of the products, the freight costs can quickly surpass production costs. Therefore, except for geographic regions that do not possess commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for our products tend to be very localized around our quarry sites and are served by truck. New quarry sites often take a number of years to develop. Our strategic planning and new site development must stay ahead of actual growth. Additionally, in a number of urban and suburban areas in which we operate, it is increasingly difficult to permit new sites or expand existing sites due to community resistance. Therefore, our future success is dependent, in part, on our ability to accurately forecast future areas of high growth in order to locate optimal facility sites and on our ability to either acquire existing quarries or secure operating and environmental permits to open new quarries. If we are unable to accurately forecast areas of future growth, acquire existing quarries or secure the necessary permits to open new quarries, our financial condition, results of operations and liquidity may be materially adversely affected.

Economic Risks

Our business relies on private investment in infrastructure, and a slower than expected recovery may adversely affect our results.

A significant portion of our sales are for projects with non-public owners. Construction spending is affected by developers’ ability to finance projects. The credit environment has negatively affected the U.S. economy and demand for our products in recent years. Residential and nonresidential construction could decline if companies and consumers are unable to finance construction projects or if an economic recovery is stalled, which could result in delays or cancellations of capital projects. If housing starts and nonresidential projects do not rise steadily with the economic recovery as they historically have when recessions end, sale of our construction materials, downstream products and paving and related services may decline and our financial position, results of operations and liquidity may be materially adversely affected.

 

25


Table of Contents

A decline in public infrastructure construction and reductions in governmental funding could adversely affect our operations and results.

A significant portion of our revenue is generated from publicly-funded construction projects. As a result, if publicly-funded construction decreases due to reduced federal or state funding or otherwise, our results of operations and liquidity could be negatively affected.

In January 2011, the U.S. House of Representatives passed a new rules package that repealed a transportation law dating back to 1998, which protected annual funding levels from amendments that could reduce such funding. This rule change subjects funding for highways to yearly appropriation reviews. The change in the funding mechanism increases the uncertainty of many state departments of transportation regarding funds for highway projects. This uncertainty could result in states being reluctant to undertake large multi-year highway projects which could, in turn, negatively affect our sales. Moving Ahead for Progress in the 21st Century (“MAP-21”), the existing federal transportation funding program, expired on September 30, 2014, and we are uncertain as to the size and term of the transportation funding program that will follow.

As a result of the foregoing and other factors, we cannot be assured of the existence, amount and timing of appropriations for spending on federal, state or local projects. Federal support for the cost of highway maintenance and construction is dependent on congressional action. In addition, each state funds its infrastructure spending from specially allocated amounts collected from various taxes, typically gasoline taxes and vehicle fees, along with voter-approved bond programs. Shortages in state tax revenues can reduce the amounts spent on state infrastructure projects, even below amounts awarded under legislative bills. In recent years, nearly all states have experienced state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. Delays or cancellations of state infrastructure spending could negatively affect our financial position, results of operations and liquidity because a significant portion of our business is dependent on state infrastructure spending.

Environmental, health and safety laws and regulations and any changes to, or liabilities arising under, such laws and regulations could have a material adverse effect on our business, financial condition, results of operations and liquidity.

We are subject to a variety of federal, state and local laws and regulations relating to, among other things: (i) the release or discharge of materials into the environment; (ii) the management, use, generation, treatment, processing, handling, storage, transport or disposal of hazardous materials, including the management of hazardous waste used as a fuel substitute at our cement kiln in Hannibal, Missouri; and (iii) the protection of public and employee health and safety and the environment. These laws and regulations impose strict liability in some cases without regard to negligence or fault and expose us to liability for the environmental condition of our currently or formerly owned or operated facilities or third-party waste disposal sites, and may expose us to liability for the conduct of others or for our actions, even if such actions complied with all applicable laws at the time these actions were taken. In particular, we may incur remediation costs and other related expenses because our facilities were constructed and operated before the adoption of current environmental laws and the institution of compliance practices or because certain of our processes are regulated. These laws and regulations may also expose us to liability for claims of personal injury or property or natural resource damage related to alleged exposure to, or releases of, regulated or hazardous materials. The existence of contamination at properties we own, lease or operate could also result in increased operational costs or restrictions on our ability to use those properties as intended, including for purposes of mining.

Despite our compliance efforts, there is an inherent risk of liability in the operation of our business, especially from an environmental standpoint, or from time to time, we may be in noncompliance with environmental, health and safety laws and regulations. These potential liabilities or noncompliances could have an adverse effect on our operations and profitability. In many instances, we must have government approvals, certificates, permits or licenses in order to conduct our business, which often require us to make significant capital, operating and maintenance expenditures to comply with environmental, health and safety laws and

 

26


Table of Contents

regulations. Our failure to obtain and maintain required approvals, certificates, permits or licenses or to comply with applicable governmental requirements could result in sanctions, including substantial fines or possible revocation of our authority to conduct some or all of our operations. Governmental requirements that affect our operations also include those relating to air and water quality, waste management, asset reclamation, the operation and closure of municipal waste and construction and demolition debris landfills, remediation of contaminated sites and worker health and safety. These requirements are complex and subject to frequent change. Stricter laws and regulations, more stringent interpretations of existing laws or regulations or the future discovery of environmental conditions may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment or impede our opening new or expanding existing plants or facilities. We have incurred, and may in the future incur, significant capital and operating expenditures to comply with such laws and regulations. The cost of complying with such laws could have a material adverse effect on our business, financial condition, results of operations and liquidity. In addition, we have recorded liabilities in connection with our reclamation and landfill closure obligations, but there can be no assurances that the costs of our obligations will not exceed our accruals.

Financial Risks

Difficult and volatile conditions in the credit markets could affect our financial position, results of operations and liquidity.

Demand for our products is primarily dependent on the overall health of the economy, and federal, state and local public infrastructure funding levels. A stagnant or declining economy tends to produce less tax revenue for public infrastructure agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements, which constitute a significant part of our business.

With the slow pace of economic recovery, there is also a likelihood that we will not be able to collect on certain of our accounts receivable from our customers. Although we are protected in part by payment bonds posted by some of our customers, we have experienced payment delays and defaults from some of our customers during the recent economic downturn and subsequent slow recovery. Such delays and defaults could have a material effect on our financial position, results of operations or liquidity.

If we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us, we may achieve lower than anticipated profits or incur contract losses.

Even though the majority of our governmental contracts contain certain raw material escalators to protect us from certain price increases, a portion or all of the contracts are often on a fixed cost basis. Pricing on a contract with a fixed unit price is based on approved quantities irrespective of our actual costs and contracts with a fixed total price require that the total amount of work be performed for a single price irrespective of our actual costs. We realize a profit on our contracts only if our revenue exceeds actual costs, which requires that we successfully estimate our costs and then successfully control actual costs and avoid cost overruns. If our cost estimates for a contract are inadequate, or if we do not execute the contract within our cost estimates, then cost overruns may cause us to incur a loss or cause the contract not to be as profitable as we expected. The costs incurred and gross profit realized, if any, on our contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:

 

    failure to include materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract;

 

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

 

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

 

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

 

27


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

 

    availability and skill level of workers;

 

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

 

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

 

    mechanical problems with our machinery or equipment;

 

    citations issued by any governmental authority, including the Occupational Safety and Health Administration (“OSHA”) and Mine Safety and Health Administration (“MSHA”);

 

    difficulties in obtaining required governmental permits or approvals;

 

    changes in applicable laws and regulations;

 

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

 

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

These factors, as well as others, may cause us to incur losses, which could negatively affect our financial position, results of operations and liquidity.

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

We provide our customers with products designed to meet building code or other regulatory requirements and contractual specifications for measurements such as durability, compressive strength, weight-bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be damaged. Additionally, if a significant uninsured, non-indemnified or product-related claim is resolved against us in the future, that resolution could have a material adverse effect on our financial condition, results of operations and liquidity.

The cancellation of a significant number of contracts or our disqualification from bidding for new contracts could have a material adverse effect on our financial position, results of operations and liquidity.

Contracts that we enter into with governmental entities can usually be canceled at any time by them with payment only for the work already completed. In addition, we could be prohibited from bidding on certain governmental contracts if we fail to maintain qualifications required by those entities. A cancellation of an unfinished contract or our disqualification from the bidding process could result in lost revenue and cause our equipment to be idled for a significant period of time until other comparable work becomes available, which could have a material adverse effect on our financial condition, results of operations and liquidity.

Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses which may not be covered by insurance.

Operating hazards inherent in our business, some of which may be outside our control, can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts are accrued based upon our estimates of the ultimate liability for claims incurred and an estimate of

 

28


Table of Contents

claims incurred but not reported. However, liabilities subject to insurance are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims rather than using working capital to maintain or expand our operations.

Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect our business.

We use a combination of third-party insurance and self-insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and medical benefit claims. Although we believe we have minimized our exposure on individual claims, for the benefit of costs savings we have accepted the risk of a large amount of independent multiple material claims arising, which could have a significant effect on our earnings. We estimate the projected losses and liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Any such matters could have a material adverse effect on our financial condition, results of operations and liquidity.

Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and pay our debts and could divert our cash flow from operations to debt payments.

We are highly leveraged. As of September 27, 2014 our total debt was approximately $1,091.1 million. Our high degree of leverage could have important consequences, including:

 

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

 

    increasing our vulnerability to general economic and industry conditions;

 

    exposing us to the risk of increased interest rates as our borrowings under our senior secured credit facilities are at variable rates of interest;

 

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

 

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

 

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

We are a holding company, and our consolidated assets are owned by, and our business is conducted through, our subsidiaries. Revenues from these subsidiaries are our primary source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions to us, that may impair our ability to meet our debt service obligations or otherwise fund our operations. Moreover, there may be restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits. As a result, although a subsidiary of ours may have cash, we may not be able to obtain that cash to satisfy our obligation to service our outstanding debt or fund our operations.

 

29


Table of Contents

Certain of our debt agreements impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The indenture that governs our senior notes and the credit agreement that governs our senior secured credit facilities impose significant operating and financial restrictions on us. These restrictions will limit our ability and/or the ability of our subsidiaries to, among other things:

 

    incur or guarantee additional debt or issue disqualified stock or preferred stock;

 

    pay dividends (including to us) and make other distributions on, or redeem or repurchase, capital stock;

 

    make certain investments;

 

    incur certain liens;

 

    enter into transactions with affiliates;

 

    merge or consolidate;

 

    enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the issuers;

 

    designate restricted subsidiaries as unrestricted subsidiaries; and

 

    transfer or sell assets.

As a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as other terms of our other indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these borrowings, our results of operations and financial condition could be adversely affected.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives.

Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.

We may be able to incur significant additional indebtedness in the future. Although the indenture governing our senior notes and the credit agreement governing our senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness in compliance with these restrictions. If we incur any

 

30


Table of Contents

additional indebtedness that ranks equally with the notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our company. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. Our senior secured credit facilities include an uncommitted incremental facility that will allow us the option to increase the amount available under the term loan facility and/or the senior secured revolving credit facility by (i) $135.0 million plus (ii) an additional amount so long as we are in pro forma compliance with a consolidated first lien net leverage ratio. Availability of such incremental facilities will be subject to, among other conditions, the absence of an event of default and pro forma compliance with the financial covenants under our credit agreement and the receipt of commitments by existing or additional financial institutions.

Other Risks

Our success is dependent on our Chief Executive Officer and other key personnel.

Our success depends on the continuing services of our Chief Executive Officer, Mr. Tom Hill, and other key personnel. We believe that Mr. Hill possesses valuable knowledge and skills that are crucial to our success and would be very difficult to replicate. Our senior management team was assembled under the leadership of Mr. Hill. The team was assembled with a view towards substantial growth, and the size and aggregate compensation of the team increased substantially. The associated significant increase in overhead expense could decrease our margins if we fail to grow substantially. Not all of our senior management team resides near or works at our headquarters. The geographic distance of the members of our senior management team may impede the team’s ability to work together effectively. Our success will depend, in part, on the efforts and abilities of our senior management and their ability to work together. We cannot assure you that they will be able to do so.

Over time, our success will depend on attracting and retaining qualified personnel. Competition for senior management is intense, and we may not be able to retain our management team or attract additional qualified personnel. The loss of a member of senior management would require our remaining senior officers to divert immediate attention, which could be substantial or require costly external resources in the short term to fulfilling. The inability to adequately fill vacancies in our senior executive positions on a timely basis could negatively affect our ability to implement our business strategy, which could adversely affect our results of operations and prospects.

We use large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources that are subject to potential reliability issues, supply constraints and significant price fluctuation, which could affect our financial position, operating results and liquidity.

In our production and distribution processes, we consume significant amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources. The availability and pricing of these resources are subject to market forces that are beyond our control. Furthermore, we are vulnerable to any reliability issues experienced by our suppliers, which also are beyond our control. Our suppliers contract separately for the purchase of such resources and our sources of supply could be interrupted should our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability. Variability in the supply and prices of these resources could materially affect our financial position, results of operations and liquidity from period to period.

Climate change and climate change legislation or regulations may adversely affect our business.

A number of governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the potential effects of climate change. Such legislation or regulation has and potentially could include provisions for a “cap and trade” system of allowances and credits, among other provisions. The EPA promulgated a mandatory reporting rule covering greenhouse gas emissions from sources considered to be large emitters. The EPA has also promulgated a greenhouse gas emissions permitting rule, referred to as the “Tailoring

 

31


Table of Contents

Rule” which sets forth criteria for determining which facilities are required to obtain permits for greenhouse gas (“GHG”) emissions pursuant to the U.S. Clean Air Act’s Prevention of Significant Deterioration (“PSD”) and Title V operating permit programs. The U.S. Supreme Court ruled in June 2014 that the EPA exceeded its statutory authority in issuing the Tailoring Rule but upheld the Best Available Control Technology (“BACT”) requirements for GHGs emitted by sources already subject to PSD requirements for other pollutants. Our cement plant and one of our landfills hold Title V Permits. If future modifications to our facilities require PSD review for other pollutants, GHG BACT requirements may also be triggered, which could require significant additional costs.

Other potential effects of climate change include physical effects such as disruption in production and product distribution as a result of major storm events and shifts in regional weather patterns and intensities. There is also a potential for climate change legislation and regulation to adversely affect the cost of purchased energy and electricity.

The effects of climate change on our operations are highly uncertain and difficult to estimate. However, because a chemical reaction inherent to the manufacture of Portland cement releases carbon dioxide, a GHG, cement kiln operations may be disproportionately affected by future regulation of GHGs. Climate change and legislation and regulation concerning GHGs could have a material adverse effect on our financial condition, results of operations and liquidity.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We will cease to be an emerging growth company upon the earliest of: (1) the end of the fiscal year following the fifth anniversary of this offering; (2) the last day of the first fiscal year during which our annual gross revenues were $1.0 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

For so long as we remain an “emerging growth company,” we will not be required to, among other things:

 

    comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s reporting providing additional information about the audit and the financial statements (auditor discussion and analysis);

 

    submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and

 

    include detailed compensation discussion and analysis in our filings with the Securities and Exchange Commission (the “SEC”) and instead may provide a reduced level of disclosure concerning executive compensation.

We have not taken advantage of all of these reduced reporting burdens in this prospectus, although we may do so in future filings with the SEC. The specific implications for us of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may cease to satisfy the conditions of an “emerging growth company.” We are currently evaluating and monitoring developments with respect to these new rules and we cannot assure you that we will be able to take advantage of all of the benefits from the JOBS Act.

 

32


Table of Contents

In addition, as an “emerging growth company,” we may elect to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

We are dependent on information technology. Our systems and infrastructure face certain risks, including cyber security risks and data leakage risks.

We are dependent on information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively affect operations. There is also a risk that we could experience a business interruption, theft of information or reputational damage as a result of a cyber attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. While we have invested in the protection of our data and information technology to reduce these risks and periodically test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our financial condition, results of operations and liquidity.

Labor disputes could disrupt operations of our businesses.

As of September 27, 2014, labor unions represented approximately 5.5% of our total employees, substantially all at Continental Cement. Our collective bargaining agreements for employees generally expire between 2015 and 2018. Although we believe we have good relations with our employees and unions, disputes with our trade unions, or the inability to renew our labor agreements, could lead to strikes or other actions that could disrupt our operations, raise costs, and reduce revenue and earnings in the affected locations.

Risks Related to Our Organizational Structure

Summit Materials, Inc.’s only material asset after completion of this offering will be its interest in Summit Holdings, and it is accordingly dependent upon distributions from Summit Holdings to pay taxes, make payments under the tax receivable agreement and pay dividends.

Summit Materials, Inc. will be a holding company and will have no material assets other than its ownership of LP Units. Summit Materials has no independent means of generating revenue. Summit Materials, Inc. intends to cause Summit Holdings to make distributions to holders of LP Units in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the tax receivable agreement and dividends, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of Summit Holdings and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that Summit Materials, Inc. needs funds, and Summit Holdings is restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

Payments of dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. Any financing arrangement that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Summit Holdings is generally prohibited under Delaware law from making a distribution to a limited partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Summit Holdings (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Summit Holdings are generally subject to similar legal limitations on their ability to make distributions to Summit Holdings.

 

33


Table of Contents

Summit Materials, Inc. will be required to pay exchanging holders of LP Units and certain other indirect pre-IPO owners for most of the benefits relating to any additional tax depreciation or amortization deductions that we may claim as a result of the tax basis step-up we receive in connection with sales or exchanges of LP Units and related transactions and our utilization of certain net operating losses of the Investor Entities.

Holders of LP Units (other than Summit Materials, Inc.) may, subject to the vesting and minimum retained ownership requirements and transfer restrictions applicable to such holders as set forth in the limited partnership agreement of Summit Holdings, from and after the first anniversary of the date of the completion of this offering (subject to the terms of the exchange agreement), exchange their LP Units for Class A common stock on a one-for-one basis. Notwithstanding the foregoing, Blackstone is generally permitted to exchange LP Units at any time. The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Summit Materials, Inc. would otherwise be required to pay in the future, although the Internal Revenue Service (the “IRS”) may challenge all or part of the tax basis increase, and a court could sustain such a challenge.

Prior to the completion of this offering, we will enter into a tax receivable agreement with the holders of LP Units that provides for the payment by Summit Materials, Inc. to exchanging holders of LP Units and certain other indirect pre-IPO owners of 85% of the benefits, if any, that Summit Materials, Inc. is deemed to realize as a result of (i) the increases in tax basis described above and (ii) our utilization of certain net operating losses of the Investor Entities and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. This payment obligation is an obligation of Summit Materials, Inc. and not of Summit Holdings. While the actual increase in tax basis and the actual amount and utilization of net operating losses, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the tangible and intangible assets of Summit Holdings and our possible utilization of net operating losses, the payments that Summit Materials, Inc. may make under the tax receivable agreement will be substantial. The payments under the tax receivable agreement are not conditioned upon continued ownership of us by the holders of LP Units. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

In certain cases, payments under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits Summit Materials, Inc. realizes in respect of the tax attributes subject to the tax receivable agreement.

The tax receivable agreement provides that upon certain changes of control, or if, at any time, Summit Materials, Inc. elects an early termination of the tax receivable agreement, Summit Materials, Inc.’s obligations under the tax receivable agreement would be calculated by reference to the present value (at a discount rate equal to one year LIBOR plus 100 basis points) of all future payments that holders of LP Units or other recipients would have been entitled to receive under the tax receivable agreement using certain valuation assumptions, including that Summit Materials, Inc. will have sufficient taxable income to fully utilize the deductions arising from the tax deductions, tax basis and other tax attributes subject to the tax receivable agreement and sufficient taxable income to fully utilize any remaining net operating losses subject to the tax receivable agreement on a straight line basis over the shorter of the statutory expiration period for such net operating losses or the five-year period after the early termination or change of control. In the case of an early termination election by Summit Materials, Inc., such payments will be calculated assuming that all unexchanged LP units were exchanged at the time of such election. Our obligations under the tax receivable agreement in such circumstance, in the case of a change of control, applies to previously exchanged or acquired LP Units and in the case of an early termination election, to all LP Units. In addition, holders of LP Units will not reimburse us for any payments previously made under the tax receivable agreement if such tax basis increase and our utilization of certain net operating

 

34


Table of Contents

losses is successfully challenged by the IRS (although any such detriment would be taken into account in calculating future payments under the tax receivable agreement). Summit Materials, Inc.’s ability to achieve benefits from any tax basis increase or net operating losses, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing and amount of our future income. As a result, even in the absence of a change of control or an election to terminate the tax receivable agreement payments under the tax receivable agreement could be in excess of 85% of Summit Materials, Inc.’s actual cash tax savings.

Accordingly, it is possible that, with respect to a particular year, the actual cash tax savings realized by Summit Materials, Inc. may be less than the corresponding tax receivable agreement payments or that payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits. Depending on our ability to take such detriments into account in making future payments, there may be a material negative effect on our liquidity if the payments under the tax receivable agreement exceed the actual cash tax savings that Summit Materials realizes in respect of the tax attributes subject to the tax receivable agreement and/or distributions to Summit Materials, Inc. by Summit Holdings are not sufficient to permit Summit Materials, Inc. to make payments under the tax receivable agreement after it has paid taxes and other expenses. Based upon certain assumptions described in greater detail below under “Certain Relationships and Related Person Transactions—Tax Receivable Agreement,” we estimate that if Summit Materials, Inc. were to exercise its termination right immediately following this offering, the aggregate amount of these termination payments would be approximately $         million. The foregoing number is merely an estimate and the actual payments could differ materially. We may need to incur debt to finance payments under the tax receivable agreement to the extent our cash resources are insufficient to meet our obligations under the tax receivable agreement as a result of timing discrepancies or otherwise.

Risks Related to this Offering and Ownership of Our Class A Common Stock

Blackstone and its affiliates control us and their interests may conflict with ours or yours in the future.

Immediately following this offering, Blackstone and its affiliates will hold         % of the combined voting power of our Class A and Class B common stock (or         % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Moreover, under our bylaws and the stockholders’ agreement with Blackstone and its affiliates that will be in effect by the completion of this offering, for so long as our existing owners and their affiliates retain significant ownership of us, we will agree to nominate to our board individuals designated by Blackstone, whom we refer to as the “Sponsor Directors.” Even when Blackstone and its affiliates cease to own shares of our stock representing a majority of the total voting power, for so long as Blackstone continues to own a significant percentage of our stock Blackstone will still be able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval through its voting power. Accordingly, for such period of time, Blackstone will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as Blackstone continues to own a significant percentage of our stock, Blackstone will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of our company and ultimately might affect the market price of our Class A common stock.

Blackstone and its affiliates engage in a broad spectrum of activities. In the ordinary course of their business activities, Blackstone and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our amended and restated certificate of incorporation will provide that none of Blackstone, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In

 

35


Table of Contents

addition, Blackstone may have an interest in us pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you.

Upon the listing of our shares of Class A common stock on the NYSE, we will be a “controlled company” within the meaning of NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, affiliates of Blackstone will continue to control a majority of the combined voting power of all classes of our stock entitled to vote generally in the election of directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our Class A common stock:

 

    we have a board that is composed of a majority of “independent directors,” as defined under the rules of such exchange;

 

    we have a compensation committee that is composed entirely of independent directors; and

 

    we have a corporate governance and nominating committee that is composed entirely of independent directors.

Following this offering, we intend to utilize these exemptions. As a result, we do not expect that a majority of the directors on our board will be independent upon completion of this offering. In addition, we do not expect that any of the committees of the board will consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.

As a public company, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and related rules implemented by the SEC and the NYSE. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock may be negatively affected.

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on

 

36


Table of Contents

Form 10-K, we expect we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm is not required to express an opinion as to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, however, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

The process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an “emerging growth company,” investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

There may not be an active trading market for shares of our Class A common stock, which may cause shares of our Class A common stock to trade at a discount from the initial offering price and make it difficult to sell the shares of Class A common stock you purchase.

Prior to this offering, there has not been a public trading market for shares of our Class A common stock. It is possible that after this offering, an active trading market will not develop or continue or, if developed, that any market will not be sustained, which would make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price per share of Class A common stock was determined by agreement among us and the representatives of the underwriters, and may not be indicative of the price at which shares of our Class A common stock will trade in the public market after this offering.

The market price of shares of our Class A common stock may be volatile, which could cause the value of your investment to decline.

Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our Class A common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly. You may be unable to resell your shares of Class A common stock at or above the initial public offering price.

In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

37


Table of Contents

Because we have no current plans to pay cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

We have no current plans to pay any cash dividends. The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by our senior secured credit facility and our senior notes and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future. As a result, you may not receive any return on an investment in our Class A common stock unless you sell our Class A common stock for a price greater than that which you paid for it.

Investors in this offering will experience immediate and substantial dilution.

The initial public offering price per share of Class A common stock will be substantially higher than our pro forma net tangible book deficit per share immediately after this offering. As a result, you will pay a price per share of Class A common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of Class A common stock than the amounts paid for the LP Units by our pre-IPO owners. Assuming an offering price of $         per share of Class A common stock, which is the midpoint of the range on the front cover of this prospectus, you will incur immediate and substantial dilution in an amount of $         per share of Class A common stock. See “Dilution.”

You may be diluted by the future issuance of additional Class A common stock in connection with our incentive plans, acquisitions or otherwise.

After this offering we will have approximately             shares of Class A common stock authorized but unissued, including approximately             shares of Class A common stock issuance upon exchange of LP units that will be held by limited partners of Summit Holdings. Our amended and restated certificate of incorporation to become effective immediately prior to the consummation of this offering authorizes us to issue these shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. Similarly, the limited partnership agreement of Summit Holdings permits Summit Holdings to issue an unlimited number of additional limited partnership interests of Summit Holdings with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the LP Units, and which may be exchangeable for shares of our Class A common stock. Additionally, we have reserved an aggregate of             shares of Class A common stock and LP Units for issuance under our Omnibus Incentive Plan. See “Executive and Director Compensation—Summit Materials, Inc. 2015 Omnibus Incentive Plan.” Any Class A common stock that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.

If we or our existing investors sell additional shares of our Class A common stock after this offering, the market price of our Class A common stock could decline.

The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Upon completion of this offering we will have a total of             shares of our Class A common stock outstanding. Of the outstanding shares,

 

38


Table of Contents

the             shares sold in this offering (or             shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The remaining outstanding             shares of Class A common stock held by our existing owners and management after this offering (or             shares if the underwriters exercise in full their option to purchase additional shares) will be subject to certain restrictions on resale. We, our officers, directors and holders of certain of our outstanding shares of Class A common stock immediately prior to this offering, including Blackstone, that collectively will own             shares of Class A common stock following this offering (or             shares of Class A common stock if the underwriters exercise their option to purchase additional shares in full), will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock held by them for 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. The representatives of the underwriters may, in their sole discretion, release all or any portion of the shares of Class A common stock subject to lock-up agreements. Participants in the directed share program, which provides for the sale of up to 5% of the shares of Class A common stock offered by this prospectus, have agreed to similar restrictions for 180 days following the date of this prospectus, which restrictions may be waived with the prior written consent of the representatives of the underwriters. See “Underwriting (Conflicts of Interest)—Directed Share Program.” See “Underwriting (Conflicts of Interest)” for a description of these lock-up agreements. Upon the expiration of the lock-up agreements, all of such shares will be eligible for resale in a public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. We expect that Blackstone will be considered an affiliate 180 days after this offering based on their expected share ownership, as well as their board nomination rights. Certain other of our stockholders may also be considered affiliates at that time. However, commencing 180 days following this offering, the holders of these shares of Class A common stock will have the right, subject to certain exceptions and conditions, to require us to register their shares of Class A common stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of Class A common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our Class A common stock or securities convertible into or exchangeable for shares of our Class A common stock issued pursuant to our Omnibus Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover             shares of our Class A common stock.

As restrictions on resale end, the market price of our shares of Class A common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of Class A common stock or other securities.

Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.

Our amended and restated certificate of incorporation and amended and restated bylaws to become effective immediately prior to the consummation of this offering will contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things, these provisions:

 

   

would allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which

 

39


Table of Contents
 

may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of Class A common stock;

 

    prohibit stockholder action by written consent from and after the date on which the parties to our stockholders’ agreement cease to beneficially own at least 30% of the total voting power of all then outstanding shares of our capital stock unless such action is recommended by all directors then in office;

 

    provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 66 23% or more in voting power of all outstanding shares of our capital stock, if Blackstone and its affiliates beneficially own less than 30% in voting power of our stock entitled to vote generally in the election of directors; and

 

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

Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

 

40


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors include but are not limited to those described under “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

MARKET DATA

This prospectus includes market and industry data and forecasts that we have derived from independent consultant reports, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.

Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources.

 

41


Table of Contents

ORGANIZATIONAL STRUCTURE

Existing Organizational Structure

The diagram below depicts our current organizational structure:

 

LOGO

 

42


Table of Contents

 

(1) Guarantor under our senior secured credit facilities, but not our senior notes.

 

(2) Summit Materials, LLC and Summit Materials Finance Corp. are the issuers of our senior notes and Summit Materials, LLC is the borrower under our senior secured credit facilities. Summit Materials Finance Corp. was formed in December 2011 solely to act as co-issuer of the senior notes and other indebtedness, has no assets and does not conduct any operations.

 

(3) Guarantor under our senior notes and guarantor under our senior secured credit facilities.

 

(4) Pursuant to the terms of the Amended and Restated Limited Liability Company Agreement of Continental Cement, in the absence of a dissolution or liquidation of Continental Cement, Summit Materials Holdings II, LLC (“Summit II”), which holds Class A Units of Continental Cement, and the holders of the Class B Units of Continental Cement are each entitled to receive a percentage of the distributions on a pari passu basis. The percentage received by the holders of the Class B Units relative to Summit II adjusts based on the time period that the Class A Units have been outstanding and whether Summit II has received a certain return on the capital contributions it made to purchase the Class A Units it holds. Summit II’s sharing percentage is generally between 70% and 80%. The holders of the Class B Units collectively share in the remaining distributions not allocated to Summit II. In connection with a dissolution or liquidation of Continental Cement, distributions are made either in the manner set forth above or, if it provides a greater return to Summit II with respect to the Class A Units, Summit II will receive a priority distribution ahead of the Class B Units up to an amount equal to the capital contributions made by Summit II in respect of the Class A Units, plus interest on such capital contributions of 11%, accruing daily and compounding annually from the date of issuance of the Class A Units. Any excess amount to be distributed after the priority payment to Summit II is then made to the holders of the Class B Units. Subject to certain exceptions and conditions, Summit II has the right to require Continental Cement to purchase all, but not less than all, of the Class B Units at any time after May 27, 2016. In addition, subject to certain exceptions and conditions, holders of the Class B Units have the right to require Continental Cement to purchase all, but not less than all, of the Class B Units at a strike price that approximates fair value, including in the event of a change of control of Summit Holdings prior to May 27, 2016, or at any time thereafter. Holders of Class B Units also have certain rights that allow them to rollover their interests in connection with an initial public offering. Upon consummation of this offering, we expect to acquire all of the Class B Units of Continental Cement and that Continental Cement will become a wholly-owned indirect subsidiary of Summit Holdings. See footnote (2) to the diagram included under “—Organizational Structure Following this Offering” below for additional details.

Organizational Structure Following this Offering

Immediately following this offering, Summit Materials, Inc. is expected to be a holding company, and its sole material asset is expected to be a controlling equity interest in Summit Holdings. As the general partner of Summit Holdings, Summit Materials, Inc. is expected to operate and control all of the business and affairs of Summit Holdings and, through Summit Holdings and its subsidiaries, conduct our business. Under U.S. GAAP, Summit Holdings is expected to meet the definition of a variable interest entity since the voting rights of its investors is not expected to be proportional to their obligations to absorb the expected losses of Summit Holdings. That is, Summit Materials, Inc. is expected to hold 100% of the voting power in Summit Holdings but is expected to initially own less than 50% of the LP Units and our pre-IPO owners are expected to hold no voting rights in Summit Holdings but initially own more than 50% of the LP Units. Summit Materials, Inc. is expected to be the primary beneficiary of Summit Holdings as a result of its 100% voting power and control over Summit Holdings and as a result of its obligation to absorb losses and its right to receive benefits of Summit Holdings that could potentially be significant to Summit Holdings. Summit Materials, Inc. is expected to consolidate Summit Holdings on its consolidated financial statements and record a noncontrolling interest related to the LP Units held by our pre-IPO owners on its consolidated statements of condition, operations, and comprehensive income.

 

43


Table of Contents

Summit Owner Holdco, an entity that will be owned by our pre-IPO owners and Class B Unitholders of Continental Cement, will initially hold all of the shares of our Class B common stock that will be outstanding upon consummation of this offering. The Class B common stock will entitle (x) Summit Owner Holdco, without

regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of Initial LP Units less the aggregate number of such Initial LP Units that, after the IPO Date, have been transferred to Summit Materials, Inc. in accordance with the exchange agreement, are forfeited in accordance with agreements governing unvested Initial LP Units or are transferred to a holder other than Summit Owner Holdco together with a share of Class B common stock (or fraction thereof) and (y) any other future holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LP Units held by such other holder. At the completion of this offering, our pre-IPO owners will comprise all of the limited partners of Summit Holdings. However, Summit Holdings may in the future admit additional limited partners, in connection with an acquisition or otherwise, that would not constitute pre-IPO owners. Limited partners of Summit Holdings are not entitled to shares of Class B common stock solely as a result of their admission as limited partners. However, we may in the future issue shares of Class B common stock to one or more limited partners to whom LP Units are also issued, for example in connection with the contribution of assets to us or Summit Holdings by such limited partner. Accordingly, as a holder of both LP Units and Class B common stock, any such holder of Class B common stock would be entitled to a number of votes equal to the number of LP Units held by it. If at any time the ratio at which LP Units are exchangeable for shares of our Class A common stock changes from one-for-one as described under “Certain Relationships and Related Person Transactions—Exchange Agreement,” for example, as a result of conversion rate adjustments for stock splits, stock dividends or reclassifications, the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

 

44


Table of Contents

The diagram below depicts our organizational structure immediately following this offering:

 

LOGO

 

45


Table of Contents

 

(1) The Class B common stock will entitle Summit Owner Holdco, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of Initial LP Units less the aggregate number of such Initial LP Units that, after the IPO Date, have been transferred to Summit Materials, Inc. in accordance with the exchange agreement, are forfeited in accordance with agreements governing unvested Initial LP Units or are transferred to a holder other than Summit Owner Holdco together with a share of Class B common stock (or fraction thereof) and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LP Units held by such holder. If Summit Owner Holdco were to transfer shares of Class B common stock to a holder of Initial LP Units, such holder of Initial LP Units and shares of Class B common stock would be entitled to a number of votes equal to the number of Initial LP Units held and the number of votes available to Summit Owner Holdco would decrease commensurately.
(2) As of the IPO Date,              of the LP Units, or approximately     % of the total LP Units outstanding will be unvested and will be subject to certain time and performance vesting conditions. See “Executive and Director Compensation—Executive Compensation—Considerations Regarding 2014 NEO Compensation—Long-Term Incentives—Conversion of Class D Interests” on page 145.
(3) Pursuant to the terms of the Amended and Restated Limited Liability Company Agreement of Continental Cement, a non-wholly-owned indirect subsidiary of Summit Holdings, the Class B Unitholders have the right to elect to rollover their interests in Continental Cement in connection with an initial public offering. In lieu of the Class B Unitholders electing to rollover their interests in connection with this offering, we have entered into a contribution and purchase agreement with the Class B Unitholders whereby, concurrently with the consummation of this offering (v) the Class B Unitholders will contribute 28,571,429 of the Class B Units of Continental Cement to Summit Owner Holdco in exchange for Series A Units of Summit Owner Holdco, (w) the existing general partner of Summit Holdings will contribute to Summit Owner Holdco its right to act as the general partner of Summit Holdings in exchange for Series B Units of Summit Owner Holdco, (x) Summit Owner Holdco will in turn contribute the Class B Units of Continental Cement to Summit Materials, Inc. in exchange for shares of Class A common stock and will contribute to Summit Materials, Inc. its right to act as the general partner of Summit Holdings in exchange for shares of Class B common stock, (y) Summit Materials, Inc. will in turn contribute the Class B Units of Continental Cement it receives to Summit Holdings in exchange for LP Units and (z) the Class B Unitholders will deliver the remaining 71,428,571 Class B Units of Continental Cement to Summit Holdings in exchange for a payment to be made by Summit Holdings in the amount of $35.0 million in cash and $15.0 million aggregate principal amount of non-interest bearing notes that will be payable in six aggregate annual installments beginning on the first anniversary of the closing of this offering, of $2.5 million. The number of shares of Class A common stock to be held by Summit Owner Holdco as a result of the foregoing transactions will be equal to 1.469496% of the number of outstanding LP Units of Summit Holdings immediately prior to giving effect to the LP Units issued in connection with this offering. As a result of the foregoing transactions, Continental Cement will become a wholly-owned subsidiary of Summit Holdings. Based on                  aggregate LP Units outstanding after the reclassification of Summit Holdings and prior to giving effect to this offering, Summit Owner Holdco would receive                  shares of Class A common stock and                  shares of Class B common stock (representing all outstanding shares of Class B common stock at the time of the consummation of this offering). As of September 27, 2014, Continental Cement had total assets of $368.9 million and for the year ended December 28, 2013 and nine months ended September 27, 2014 generated net income of $9.9 million and $2.0 million, respectively.

Incorporation of Summit Materials

Summit Materials, Inc. was incorporated as a Delaware corporation on September 23, 2014. Summit Materials, Inc. has not engaged in any business or other activities except in connection with its formation. The certificate of incorporation of Summit Materials authorizes two classes of common stock, Class A common stock and Class B common stock, each having the terms described in “Description of Capital Stock.”

 

46


Table of Contents

Reclassification and Amendment and Restatement of Limited Partnership Agreement of Summit Materials Holdings L.P.

The capital structure of Summit Holdings currently consists 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 has different amounts of aggregate distributions above which its holders would share in distributions. Prior to the completion of this offering, the limited partnership agreement of Summit Holdings will be amended and restated to, among other things, modify its capital structure by creating a single new class of units that we refer to as “LP Units.” We refer to this as the “Reclassification.” Immediately following the Reclassification and the issuance of LP Units in connection with the contribution and purchase agreement described above, but prior to the Offering Transactions described below, there will be             LP Units issued and outstanding.

Pursuant to the limited partnership agreement of Summit Holdings, Summit Materials, Inc. will be the sole general partner of Summit Holdings upon consummation of this offering. Accordingly, Summit Materials, Inc. will have the right to determine when distributions will be made to the holders of LP Units and the amount of any such distributions. If Summit Materials, Inc., as sole general partner, authorizes a distribution, such distribution will be made to holders of LP Units pro rata in accordance with the percentages of their respective limited partnership interests.

The holders of LP Units, including Summit Materials, Inc., will incur U.S. federal, state and local income taxes on their proportionate share of any taxable income of Summit Holdings. Net profits and net losses of Summit Holdings will generally be allocated to its holders (including Summit Materials, Inc.) pro rata in accordance with the percentages of their respective limited partnership interests, except as otherwise required by law. The limited partnership agreement of Summit Holdings provides for cash distributions to the holders of the LP Units if Summit Materials, Inc. determines that the taxable income of Summit Holdings will give rise to taxable income for the holders of LP Units. In accordance with the limited partnership agreement, we intend to cause Summit Holdings to make pro rata cash distributions to the holders of LP Units for purposes of funding their tax obligations in respect of the income of Summit Holdings that is allocated to them. These distributions will only be paid to the extent that other distributions made by Summit Holdings were otherwise insufficient to cover the tax liabilities of holders of LP Units. Generally, these distributions will be computed based on our estimate of the net taxable income of Summit Holdings multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate applicable to an individual resident in New York, New York. See “Certain Relationships and Related Person Transactions—Summit Materials Holdings L.P. Amended and Restated Limited Partnership Agreement.”

Exchange Agreement

We and the holders of outstanding LP Units will enter into an exchange agreement at the time of this offering under which they (or certain of their permitted transferees) will have the right, from and after the first anniversary of the date of the completion of this offering (subject to the terms of the exchange agreement), to exchange their LP Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. The exchange agreement will also provide that a holder of LP Units will not have the right to exchange LP Units if Summit Materials, Inc. determines that such exchange would be prohibited by law or regulation or would violate other agreements with Summit Materials, Inc. or its subsidiaries to which the holder of LP Units may be subject. Summit Materials, Inc. may impose additional restrictions on exchange that it determines to be necessary or advisable so that Summit Holdings is not treated as a “publicly traded partnership” for U.S. federal income tax purposes. As a holder exchanges LP Units for shares of Class A common stock, the number of LP Units held by Summit Materials, Inc. is correspondingly increased as it acquires the exchanged LP Units. Notwithstanding the foregoing, Blackstone is generally permitted to exchange LP Units at any time. See “Certain Relationships and Related Person Transactions—Exchange Agreement.”

 

47


Table of Contents

Offering Transactions

At the time of the consummation of this offering, Summit Materials, Inc. intends to purchase, for cash, newly-issued LP Units from Summit Holdings at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts. At the time of this offering, Summit Materials, Inc. will purchase from Summit Holdings             newly-issued LP Units for an aggregate of $         million (or             LP Units for an aggregate of $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The issuance and sale of such newly-issued LP Units by Summit Holdings to Summit Materials, Inc. will correspondingly dilute the ownership interests of our pre-IPO owners in Summit Holdings. Accordingly, following this offering Summit Materials, Inc. will hold a number of LP Units that is equal to the number of shares of Class A common stock that it has issued, as a result a single share of Class A common stock will represent (albeit indirectly) the same percentage equity interest in Summit Holdings as a single LP Unit.

Holders of LP Units (other than Summit Materials, Inc.) may, subject to certain conditions and transfer restrictions applicable to such holders as set forth in the limited partnership agreement of Summit Holdings (subject to the terms of the exchange agreement), exchange their LP Units for Class A common stock on a one-for-one basis. The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Summit Materials, Inc. would otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge. Prior to the completion of this offering, we will enter into a tax receivable agreement with the holders of LP Units that provides for the payment by Summit Materials, Inc. to exchanging holders of LP Units and certain other indirect pre-IPO owners of 85% of the benefits, if any, that Summit Materials, Inc. is deemed to realize as a result of (i) these increases in tax basis and (ii) our utilization of certain net operating losses of the Investor Entities and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. This payment obligation is an obligation of Summit Materials, Inc. and not of Summit Holdings. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

We refer to the foregoing transactions as the “Offering Transactions.”

As a result of the transactions described above:

 

    the investors in this offering will collectively own             shares of our Class A common stock (or             shares of Class A common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and Summit Materials, Inc. will hold             LP Units (or             LP Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

    our pre-IPO owners will hold             LP Units;

 

    the investors in this offering will collectively have         % of the voting power in Summit Materials, Inc. (or         % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

    Summit Owner Holdco, an entity owned by our pre-IPO owners and the Class B Unitholders of Continental Cement, will initially hold all of the shares of Class B common stock that will be outstanding upon consummation of this offering, and will have         % of the voting power in Summit Materials, Inc. (or         % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

48


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to Summit Materials, Inc. from this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions, will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease, as applicable, the net proceeds to Summit Materials, Inc. from this offering by approximately $         million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions. Summit Holdings will bear or reimburse Summit Materials, Inc. for all of the expenses payable by it in this offering, which we estimate will be approximately $         million.

We intend to use all of the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) to purchase a number of newly-issued LP Units from Summit Holdings that is equivalent to the number of shares of Class A common stock that we offer and sell in this offering, as described under “Organizational Structure—Offering Transactions.”

We intend to cause Summit Holdings to use these proceeds as follows: (i) to redeem $         million in aggregate principal amount of the senior notes at a redemption price of 110.5% pursuant to a provision in the indenture governing the senior notes that permits us to redeem up to 35% of the aggregate principal amount of the senior notes with the net cash proceeds of certain equity offerings, plus accrued interest; (ii) to redeem $        million in aggregate principal amount of the senior notes at a redemption price of 100%, plus accrued interest and an applicable premium thereon; (iii) to purchase 71,428,571 Class B Units of Continental Cement; (iv) to pay a one-time termination fee of $         million to an affiliate of Blackstone in connection with the termination of a transaction and management fee agreement; and (v) for general corporate purposes. As of September 27, 2014, $625.0 million aggregate principal amount of the senior notes was outstanding. The senior notes mature on January 31, 2020 and have an interest rate of 10.5% per annum. As of September 27, 2014, the applicable interest rate on our senior secured term loan facility, which matures on January 30, 2019, was 5.00%. See “Description of Certain Indebtedness—Senior Notes,” and “Certain Relationships and Related Person Transactions—Transaction and Management Fee Agreement.”

 

49


Table of Contents

DIVIDEND POLICY

We have no current plans to pay dividends on our Class A common stock. The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of our board of directors and we may reduce or discontinue entirely the payment of any such dividends at any time. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

Summit Materials, Inc. is a holding company and will have no material assets other than its ownership of LP Units in Summit Holdings. We intend to cause Summit Holdings to make distributions to us in an amount sufficient to cover cash dividends, if any, declared by us. If Summit Holdings makes such distributions to Summit Materials, Inc., the other holders of LP Units will also be entitled to receive distributions pro rata in accordance with the percentages of their respective limited partnership interests.

The agreements governing our senior secured credit facilities and senior notes contain a number of covenants that restrict, subject to certain exceptions, Summit Materials, LLC’s ability to pay dividends to us. See “Description of Certain Indebtedness.”

Any financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Summit Holdings is generally prohibited under Delaware law from making a distribution to a limited partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Summit Holdings (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Summit Holdings are generally subject to similar legal limitations on their ability to make distributions to Summit Holdings.

Because Summit Materials, Inc. must pay taxes and make payments under the tax receivable agreement, any amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less than the amounts distributed by Summit Holdings to its partners on a per LP Unit basis.

 

50


Table of Contents

CAPITALIZATION

The following table sets forth our consolidated cash and capitalization as of September 27, 2014 for:

 

    Summit Materials Holdings L.P., on an unaudited historical basis; and

 

    Summit Materials, Inc., on a pro forma basis to give effect to:

 

    the sale by us of             shares of Class A common stock in this offering, at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

    the application of net proceeds from this offering as described under “Use of Proceeds,” as if this offering and the application of the net proceeds of this offering had occurred on September 27, 2014; and

 

    the other transactions described under “Unaudited Pro Forma Condensed Consolidated Financial Information.”

The information below is illustrative only and our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Cash is not a component of our total capitalization. You should read this table together with the information contained in this prospectus, including “Organizational Structure,” “Use of Proceeds,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus.

 

     September 27, 2014  
(in thousands, except shares and per share data)    Historical
Summit
Holdings
    Pro Forma
Summit
Materials, Inc.
 

Cash

   $ 9,995      $                
  

 

 

   

 

 

 

Debt:

    

Senior secured credit facilities(1)

   $ 440,692      $     

Capital leases and other

     28,395     

10 12% senior notes due 2020(2)

     625,000     
  

 

 

   

 

 

 

Total debt

   $ 1,094,087      $     
  

 

 

   

 

 

 

Equity:

    

Partners’ interest

     288,232     

Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized,             shares issued and outstanding, as adjusted

     —       

Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, shares             issued and outstanding, as adjusted

     —       

Preferred stock, par value $0.01 per share; 250,000,000 shares authorized,
             shares issued and outstanding, as adjusted

     —       

Additional paid-in capital

     11,796     

Accumulated other comprehensive loss

     (7,236  

Accumulated deficit

     (218,128  
  

 

 

   

 

 

 

Total stockholders’ equity(3)

     292,792     

Noncontrolling interests

     1,288     
  

 

 

   

 

 

 

Total equity

     294,080     
  

 

 

   

 

 

 

Total capitalization(3)

   $ 1,388,167      $     
  

 

 

   

 

 

 

 

51


Table of Contents

 

(1) The senior secured credit facilities provide senior secured financing in an amount of $572.0 million, consisting of a $150.0 million five-year revolving credit facility and a $422.0 million seven-year term loan facility. In connection with this offering we anticipate entering into an amendment that will, among other things, increase the revolving credit commitments from $150.0 million to $235.0 million. See “Description of Certain Indebtedness—Senior Secured Credit Facilities.” Amount shown represents the principal amount of loans without giving effect to original issue discount.
(2) Represents the aggregate principal amount of senior notes, without giving effect to original issuance discounts or premium to par or commissions to the initial purchasers.
(3) To the extent we change the number of shares of Class A common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the $         per share assumed initial public offering price, representing the midpoint of the price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of total stockholders’ equity and total capitalization by approximately $         million. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our total stockholders’ equity and total capitalization by approximately $         million. If the underwriters’ option to purchase additional shares is exercised in full, the pro forma amount of each of cash, total cash, additional paid-in capital, total stockholders’ equity, total equity and total capitalization would increase by approximately $         million, after deducting underwriting discounts, and we would have             shares of our Class A common stock issued and outstanding, as adjusted.

 

52


Table of Contents

DILUTION

If you invest in shares of our Class A common stock, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the shares of Class A common stock is substantially in excess of the pro forma net tangible book value per share attributable to our pre-IPO owners.

Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per share of Class A common stock represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Offering Transactions and assuming that all of the holders of LP Units in Summit Holdings (other than Summit Materials, Inc.) exchanged their LP Units for newly-issued shares of Class A common stock on a one-for-one basis. Our pro forma net tangible book value as of September 27, 2014, was approximately $         million, or $         per share of Class A common stock.

After giving effect to the sale of             shares of Class A common stock in this offering at the initial public offering price per share of $         and the other transactions described under “Organizational Structure” and “Unaudited Pro Forma Condensed Consolidated Financial Information” and assuming that all of the pre-IPO owners exchanged their LP Units for newly-issued shares of Class A common stock on a one-for-one basis, our pro forma as adjusted net tangible book value as of September 27, 2014, would have been $         million, or $         per share of Class A common stock. This represents an immediate increase in net tangible book value of $         per share of Class A common stock to our pre-IPO owners and an immediate dilution in net tangible book value of $         per share of Class A common stock to investors in this offering.

The following table illustrates this dilution on a per share of Class A common stock basis assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock:

 

Assumed initial public offering price per share of Class A common stock

      $               

Pro forma net tangible book value per share of Class A common stock as of September 27, 2014

   $       

Increase in pro forma net tangible book value per share of Class A common stock attributable to the Offering Transactions

   $       
  

 

 

    

Pro forma net tangible book value per share of Class A common stock as of September 27, 2014 after giving effect to this offering and the application of the net proceeds

      $    
     

 

 

 

Dilution in pro forma net tangible book value per share of Class A common stock to investors in this offering

      $    
     

 

 

 

The pro forma information discussed above is for illustrative purposes only. Our net tangible book value following the completion of the offering is subject to adjustment based on the actual offering price of our Class A common stock and other terms of this offering determined at pricing.

 

53


Table of Contents

The following table summarizes, on the same pro forma basis as of September 27, 2014, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us and the average price per share of Class A common stock paid by our pre-IPO owners, the Class B Unitholders and by new investors purchasing shares of Class A common stock in this offering, assuming that all of the pre-IPO owners exchanged their LP Units for newly-issued shares of Class A common stock on a one-for-one basis.

 

     Shares of Class A
Common Stock
Purchased
    Total
Consideration
    Average
Price per
Share
of Class A

Common
Stock
 

(amounts in thousands, except per share amounts)

   Number    Percent     Amount      Percent    

Pre-IPO owners

                   $                                 $               

Class B Unitholders(1)

                   $                      $    

Investors in this offering

                   $                      $    
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100.0   $           100.0   $    
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) Represents a number of shares of Class A common stock that is equal to 1.469496% of the number of outstanding LP Units of Summit Holdings immediately prior to giving effect to the LP units issued to Summit Materials, Inc. in connection with this offering. See “Organizational Structure—Organizational Structure Following this Offering.”

If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of Class A common stock held by pre-IPO owners would be                 , or         %, and the number of shares of Class A common stock held by new investors would increase to                 , or         %, of the total number of shares of our Class A common stock outstanding after this offering, respectively.

 

54


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information has been derived by applying pro forma adjustments to our historical financial statements included elsewhere in this prospectus.

The pro forma adjustments are based on currently available information, accounting judgments and assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated statements of operations and balance sheet are presented for illustrative purposes only and do not purport to represent our results of operations or balance sheet that would actually have occurred had the transactions referred to below been consummated on December 30, 2012 for the unaudited pro forma condensed consolidated statement of operations, as applicable, and on September 27, 2014 for the unaudited pro forma condensed consolidated balance sheet, or to project our results of operations or financial position for any future date or period. The adjustments are described in the notes to the unaudited pro forma condensed consolidated financial information.

The unaudited pro forma condensed consolidated balance sheet as of September 27, 2014 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 28, 2013 and for the nine months ended September 27, 2014 are presented on a pro forma adjusted basis to give effect to the following items:

 

    the sale of             shares of our Class A common stock by us in this offering at the initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), and the application of $         million of the net proceeds to redeem a portion of the outstanding senior notes;

 

    the consummation of the transactions involving Continental Cement described in “Organizational Structure—Organizational Structure Following this Offering”; and

 

    the consummation of the Offering Transactions described in “Organizational Structure—Offering Transactions”.

Following the Offering Transactions described in “Organizational Structure—Offering Transactions,” Summit Materials, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes with respect to its allocable share of any taxable income of Summit Holdings. However, given cumulative losses in recent years, we expect to record a valuation allowance on net deferred tax assets. Accordingly, we have not recorded any tax impact in the pro forma statement of operations upon becoming subject to income taxes, and we have not recorded any incremental tax impacts related to the tax impact of other pro forma adjustments.

The unaudited pro forma condensed consolidated financial information presented assumes no exercise by the underwriters of the option to purchase up to an additional                 shares of Class A common stock from us.

As described in greater detail under “Certain Relationships and Related Person Transactions—Tax Receivable Agreement,” prior to the completion of this offering, we will enter into a tax receivable agreement with the holders of LP Units and certain other indirect pre-IPO owners that provides for the payment by Summit Materials, Inc. to exchanging holders of LP Units of 85% of the cash savings in income tax, if any, that Summit Materials, Inc. realizes as a result of (i) increases in tax basis described in “Certain Relationships and Related Person Transactions—Tax Receivable Agreement” and (ii) our utilization of certain net operating losses of the Investor Entities and certain other benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. No such exchanges or other tax benefits have been assumed in the unaudited pro forma financial information and therefore no pro forma adjustment is necessary.

Following the offering, we will incur costs associated with being a U.S. publicly traded company. Such costs will include new or increased expenses for such items as insurance, directors’ fees, accounting work, legal advice and compliance with applicable U.S. regulatory and stock exchange requirements, including costs

 

55


Table of Contents

associated with compliance with the Sarbanes-Oxley Act and periodic or current reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). No pro forma adjustments have been made to reflect such costs due to the fact that they currently are not objectively determinable.

The unaudited pro forma condensed consolidated financial information is included for informational purposes only and does not purport to reflect our results of operations or financial condition that would have occurred had we operated as a public company during the periods presented. You should read this unaudited pro forma condensed consolidated financial information together with the other information contained in this prospectus, including “Organizational Structure,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto.

 

56


Table of Contents

Summit Materials, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 27, 2014

(in thousands, except per share data)

 

    Summit
Holdings
Historical
     Pro Forma
Adjustments
     Summit
Materials, Inc.
Pro Forma
 
Assets        

Current assets:

       

Cash

  $ 9,995       $                    $                

Accounts receivable, net

    179,328         

Costs and estimated earnings in excess of billings

    26,542         

Inventories

    111,137         

Other current assets

    16,157         
 

 

 

    

 

 

    

 

 

 

Total current assets

    343,159         

Property, plant and equipment, less accumulated depreciation, depletion and amortization

    946,980         

Goodwill

    390,338         

Intangible assets, less accumulated amortization

    18,026         

Other assets

    51,255                      (b)(c)    
 

 

 

    

 

 

    

 

 

 

Total assets

  $ 1,749,758       $         $     
 

 

 

    

 

 

    

 

 

 

Liabilities, Redeemable Noncontrolling Interest and Partners’ Interest

       

Current liabilities:

       

Current portion of debt

  $ 28,187       $                    $     

Current portion of acquisition-related liabilities

    20,571                      (d)    

Accounts payable

    87,604         

Accrued expenses

    87,513         

Billings in excess of costs and estimated earnings

    9,533         
 

 

 

    

 

 

    

 

 

 

Total current liabilities

    233,408         

Long-term debt

    1,062,921                      (a)    

Acquisition-related liabilities

    41,287                      (d)    

Other noncurrent liabilities

    86,242         
 

 

 

    

 

 

    

 

 

 

Total liabilities

    1,423,858         
 

 

 

    

 

 

    

 

 

 

Redeemable noncontrolling interest

    31,820                      (d)    

Partners’ interests/stockholders’ equity:

       

Partners’ interests

    518,156                      (b)    

Accumulated deficit

    (218,128                   (a)(c)(d)    

Accumulated other comprehensive loss

    (7,236      
 

 

 

    

 

 

    

 

 

 

Partners’ interests

    292,792         

Noncontrolling interest

    1,288                      (b)    

Class A common stock, par value $0.01 per share

    —                        (b)    

Class B common stock, par value $0.01 per share

    —                        (b)    

Additional paid-in capital

    —                        (b)(d)    
 

 

 

    

 

 

    

 

 

 

Total equity

    294,080         
 

 

 

    

 

 

    

 

 

 

Total liabilities, redeemable noncontrolling interest and partners’ interests/stockholders’ equity

    $1,749,758       $ —         $ —     
 

 

 

    

 

 

    

 

 

 

 

(a) Reflects the net effect of the application of $         million of the net offering proceeds to redeem a portion of the outstanding senior notes recorded as long-term debt and a $             million reduction in the premium on debt. The premium reduction is also reflected in accumulated deficit.

 

57


Table of Contents
(b) Represents an adjustment to stockholders’ equity reflecting (i) par value for Class A and Class B common stock to be outstanding following this offering, (ii) an increase of $         million of additional paid-in capital as a result of net proceeds from this offering, (iii) the elimination of partners’ capital of $518.2 million upon consolidation and (iv) transaction costs incurred through September 27, 2014 of $             million.
(c) Represents adjustments to the accumulated deficit of $         million and $         million for the redemption fees and the write off of deferred financing fees, respectively, as a result of the $         million redemption of the outstanding senior notes. This also reflects the charge of approximately $             million relating to the termination of our transaction and management fee agreement with Blackstone Management Partners L.L.C. to provide monitoring, advisory and consulting services.
(d) Represents the purchase of the outstanding redeemable noncontrolling interest of Continental Cement that reduces redeemable noncontrolling interest balance by $         million. See “Organizational Structure—Organizational Structure Following this Offering.” Other accounts impacted by such transaction include current portion of acquisition-related liabilities and acquisition-related liabilities for $             million and $             million, respectively, for the deferred payments, accumulated deficit of $             million for the net increase to the fair value of the redeemable noncontrolling interest, and additional paid-in capital of $             million for consideration in the purchase of the outstanding redeemable noncontrolling interest of Continental Cement.

 

58


Table of Contents

Summit Materials, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Nine Months Ended September 27, 2014

(in thousands, except per share data)

 

     Summit
Holdings
Historical
    Pro Forma
Adjustments
    Summit
Materials, Inc.
Pro Forma
 

Revenue

   $ 870,145      $                   $            

Cost of revenue

     645,934       

General and administrative expenses

     105,872       

Depreciation, depletion, amortization and accretion

     63,950       

Transaction costs

     7,737       
  

 

 

   

 

 

   

 

 

 

Operating income

     46,652       

Other income, net

     (2,299    

Interest expense

     62,555                     (a)   
  

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before taxes

     (13,604    

Income tax benefit

     (2,498                  (d)   
  

 

 

   

 

 

   

 

 

 

Net (loss) income

     (11,106    

Net income attributable to noncontrolling interests

     —                       (b)   
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Summit Materials, Inc.

   $ (11,106   $                   $     
  

 

 

   

 

 

   

 

 

 

Weighted average shares of Class A common stock outstanding

      

Basic and diluted net income per share of Class A common stock outstanding

           (c) 

 

(a) Reflects reduction in interest expense and related amortization of deferred financing fees and net original issuance premium of $         million as a result of the $         million redemption of the outstanding senior notes.
(b) Reflects an adjustment to record the         % noncontrolling interests that partners of Summit Holdings (other than Summit Materials, Inc.) own in Summit Holdings relating to their         LP Units. After this offering,             shares of Class A common stock will be outstanding and         LP Units will be held by limited partners of Summit Holdings (excluding Summit Materials, Inc.).
(c) Reflects net income attributable to Class A common stockholders divided by weighted average Class A common stock outstanding. The stock options we expect to grant at the time of this offering and unvested LP Units would have an antidilutive effect on net income attributable to Class A common stock and therefore basic and diluted net income per share attributable to Class A common stock are the same.
(d) Following the Offering Transactions described in “Organizational Structure—Offering Transactions,” Summit Materials, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes with respect to its allocable share of any taxable income of Summit Holdings. However, given cumulative losses in recent years, we expect to record a valuation allowance on net deferred tax assets. Accordingly, we have not recorded any tax impact in the pro forma statement of operations upon becoming subject to income taxes, and we have not recorded any incremental tax impacts related to the tax impact of other pro forma adjustments.

 

59


Table of Contents

Summit Materials, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ended December 28, 2013

(in thousands, except per share data)

 

     Summit
Holdings
Historical
    Pro Forma
Adjustments
    Summit
Materials, Inc.
Pro Forma
 

Revenue

   $ 916,201      $                   $                

Cost of revenue

     677,052       

General and administrative expenses

     142,000                     (e)   

Goodwill impairment

     68,202       

Depreciation, depletion, amortization and accretion

     72,934       

Transaction costs

     3,990       
  

 

 

   

 

 

   

 

 

 

Operating loss

     (47,977    

Other income, net

     (1,737    

Loss on debt financings

     3,115       

Interest expense

     56,443                     (a)   
  

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before taxes

     (105,798    

Income tax benefit

     (2,647                  (d)   
  

 

 

   

 

 

   

 

 

 

Net (loss) income

     (103,151    

Loss attributable to noncontrolling interests

     —                       (b)   
  

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Summit Materials

   $ (103,151   $        $     
  

 

 

   

 

 

   

 

 

 

Weighted average shares of Class A common stock outstanding

     —         

Basic and diluted net (loss) per share of Class A common stock outstanding

     —                         (c) 

 

(a) Reflects the net reduction in interest expense and related amortization of deferred financing fees and original issuance discount of $         million as a result of the $         million redemption of the outstanding senior notes. There will be a one-time charge of approximately $         million for write off of deferred financing fees, the original issue discount and the expected fees associated with the senior notes redemption.
(b) Reflects an adjustment to record the         % noncontrolling interests that partners of Summit Holdings (other than Summit Materials, Inc.) own in Summit Holdings relating to their          LP Units. After this offering,             shares of Class A common stock will be outstanding and         LP Units will be held by limited partners of Summit Holdings (excluding Summit Materials, Inc.).
(c) Reflects net loss attributable to Class A common stockholders divided by weighted average Class A common stock outstanding. The stock options we expect to grant at the time of this offering and unvested LP Units would have an antidilutive effect on net loss attributable to Class A common stock and therefore basic and diluted net loss per share attributable to Class A common stock are the same.
(d) Following the Offering Transactions described in “Organizational Structure—Offering Transactions,” Summit Materials, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes with respect to its allocable share of any taxable income of Summit Holdings. However, given cumulative losses in recent years, we expect to record a valuation allowance on net deferred tax assets. Accordingly, we have not recorded any tax impact in the pro forma statement of operations upon becoming subject to income taxes, and we have not recorded any incremental tax impacts related to the tax impact of other pro forma adjustments.
(e) In connection with the formation of Summit Holdings, Summit Holdings entered into a transaction and management fee agreement with Blackstone Management Partners L.L.C. to provide monitoring, advisory and consulting services. There is a one-time termination charge of approximately $             million that has not been reflected in this statement as it is not a recurring expense.

 

60


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data of Summit Holdings should be read together with “Organizational Structure,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus. Summit Holdings, which commenced operations on August 26, 2009, will be considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical financial statements following this offering. Under U.S. GAAP, Summit Holdings is expected to meet the definition of a variable interest entity.

The selected successor statements of operations data for the three years ended December 28, 2013, December 29, 2012 and December 31, 2011 and the selected balance sheet data as of December 28, 2013 and December 29, 2012 are derived from the audited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. The selected successor balance sheet data as of December 31, 2011 are derived from the audited consolidated financial statements of Summit Holdings not included in this prospectus. The selected statements of operations data for the year ended December 31, 2010 and for the period from August 26, 2009 to December 31, 2009 and the selected balance sheet data as of December 31, 2010 and December 31, 2009 are derived from the unaudited consolidated financial statements of Summit Holdings not included in this prospectus.

The selected historical consolidated financial data as of September 27, 2014 and for the nine months ended September 27, 2014 and September 28, 2013 were derived from the unaudited consolidated financial statements of Summit Holdings included elsewhere in this prospectus. We have prepared our unaudited consolidated financial statements on the same basis as our audited consolidated financial statements and, in our opinion, have included all adjustments, which include normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period.

In 2011, we adopted a fiscal year based on a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday.

 

61


Table of Contents

You should read the following information together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.

 

(in thousands)   Nine Months
Ended
September 27,
2014
    Nine Months
Ended
September 28,
2013
    Year Ended
December 28,
2013
    Year Ended
December 29,
2012
    Year Ended
December 31,
2011
    Year Ended
December 31,
2010
    Period from
August 26,
2009 to
December 31,
2009
 

Statement of Operations Data:

             

Total revenue

  $ 870,145      $ 677,934      $ 916,201      $ 926,254      $ 789,076      $ 405,297      $ 29,348   

Total cost of revenue (excluding items shown separately below)

    645,934        503,198        677,052        713,346        597,654        284,336        21,582   

General and administrative expenses

    105,877        107,219        142,000        127,215        95,826        48,557        4,210   

Goodwill impairment

    —          —          68,202        —          —          —          —     

Depreciation, depletion, amortization and accretion

    63,950        54,577        72,934        68,290        61,377        33,870        3,148   

Transaction costs

    7,737        3,175        3,990        1,988        9,120        22,268        4,682   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    46,652        9,765        (47,977)        15,415        25,099        16,266        (4,274)   

Other (income) expense, net

    (2,299)        (988)        (1,737)        (1,182)        (21,244)        1,583        192   

Loss on debt financings

    —          3,115        3,115        9,469        —          9,975        —     

Interest expense

    62,555        42,380        56,443        58,079        47,784        25,430        574   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before taxes

    (13,604)        (34,742)        (105,798)        (50,951)        (1,441)        (20,722)        (5,040)   

Income tax (benefit) expense

    (2,498)        (1,782)        (2,647)        (3,920)        3,408        2,363        216   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  $ (11,106)      $ (32,960)      $ (103,151)      $ (47,031)      $ (4,849)      $ (23,085)      $ (5,256)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow Data:

             

Net cash (used for) provided by:

             

Operating activities

  $ (10,836)      $ 123      $ 66,412      $ 62,279      $ 23,253      $ (20,529)      $ 3,897   

Investing activities

    (405,853)        (105,930)        (111,515)        (85,340)        (192,331)        (500,854)        (48,914)   

Financing activities

    408,501        97,583        32,589        7,702        146,775        578,855        55,896   

Balance Sheet Data (as of period end):

             

Cash

  $ 9,995        $ 18,183      $ 30,697      $ 46,056      $ 68,359      $ 10,877   

Total assets

    1,749,758          1,251,060        1,284,479        1,287,531        1,104,847        113,048   

Total debt (including current portion of long-term debt)

    1,091,108          688,987        639,843        608,981        559,980        28,750   

Capital leases

    28,395          8,026        3,092        3,158        3,217        —     

Total partners’ interest

    294,080          286,817        385,694        439,638        349,259        37,700   

Redeemable noncontrolling interests

    31,820          24,767        22,850        21,300        21,300        —     

Other Financial Data (as of period end):

             

Total hard assets(1)

  $ 1,058,117        $ 928,210      $ 906,584      $ 906,166      $ 775,457      $ 92,309   

 

(1) Defined as the sum of (a) net property, plant and equipment and (b) inventories.

 

62


Table of Contents

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

You should read the following discussion of our results of operations and financial condition with the “Selected Historical Consolidated Financial Data” section of this prospectus and our audited and unaudited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Our actual results may differ materially from those contained in any forward-looking statements.

The historical consolidated financial information discussed below reflects the historical results of operations and financial position of Summit Holdings and its subsidiaries. The historical consolidated financial information discussed below does not give effect to this offering or the Offering Transactions. See “Organizational Structure” and “Unaudited Pro Forma Condensed Consolidated Financial Information” included elsewhere in this prospectus.

Overview

We are one of the fastest growing heavy-side construction materials companies in the United States, with a 126% increase in revenue between the year ended December 31, 2010 and the year ended December 28, 2013, as compared to an average increase of approximately 17% in revenue reported by our competitors over the same period. Our materials include aggregates, which we supply across the country, with a focus on Texas, Kansas, Kentucky, Missouri and Utah, and cement, which we supply primarily in Missouri, Iowa and Illinois. Within our markets, we offer customers a single-source provider for heavy-side construction materials and related downstream products through our vertical integration. In addition to supplying aggregates to customers, we use our materials internally to produce ready-mixed concrete and asphalt paving mix, which may be sold externally or used in our paving and related services businesses. Our vertical integration creates opportunities to increase aggregates volumes and optimize margin at each stage of production and enables us to provide customers with efficiency gains, convenience and reliability, which we believe gives us a competitive advantage.

Since our first acquisition five years ago, we have received equity commitments of $798.1 million, of which $467.5 million has been deployed. Through the deployed equity and debt financings, we have completed 34 acquisitions, which are organized into eleven operating companies that make up our three distinct operating segments—West, Central and East regions—spanning 17 U.S. states and Vancouver, Canada and 27 metropolitan statistical areas. We believe each of our operating companies has a top three market share position in its local market area achieved through their respective, extensive operating history, averaging over 35 years. Our highly experienced management team, led by our President and Chief Executive Officer, Tom Hill, a 30-year industry veteran, has successfully enhanced the operations of acquired companies by focusing on scale advantages, cost efficiencies and pricing discipline to improve profitability and cash flow.

 

63


Table of Contents

Our proven and probable aggregates reserves were 2.1 billion tons and 1.6 billion tons as of September 27, 2014 and December 28, 2013, respectively. From time to time, in connection with certain acquisitions, we engage a third party engineering firm to perform an aggregates reserves audit, but we do not perform annual reserve audits. By segment, our estimate of proven and probable reserves for which we have permits for extraction and that we consider to be recoverable aggregates of suitable quality for economic extraction, including the underground mine that was substantially completed in 2014 to support our cement plant, are shown in the table below along with average annual production.

 

     Aggregate
producing
sites
     Tonnage of reserves for
each general type of
aggregate
     Annual
production(1)
     Average years
until depletion
at current
production
     Percent of
reserves owned and
percent leased
 

Segment

      Hard rock(1)      Sand and
gravel(1)
           Owned     Leased(2)  

West

     48         334,566         349,880         19,683         35         34     66

Central

     61         888,441         53,442         5,632         167         68     32

East

     24         460,273         7,216         4,878         96         39     61
  

 

 

    

 

 

    

 

 

    

 

 

         

Total

     133         1,683,280         410,538         30,193           
  

 

 

    

 

 

    

 

 

    

 

 

         

 

(1) Hard rock, sand and gravel and annual production tons are shown in thousands.
(2) Lease terms range from monthly to on-going with an average lease expiry of 2020.

We operate in 17 U.S. states and Vancouver, Canada, and we currently have assets in 15 states and Vancouver, Canada across our three geographic regions. The map below illustrates our geographic footprint:

 

LOGO

For the nine months ended September 27, 2014 and the year ended December 28, 2013, approximately 53% and 42%, respectively, of our revenue related to residential and nonresidential construction and approximately

 

64


Table of Contents

47% and 58%, respectively, related to public infrastructure projects. In general, our aggregates, asphalt paving mix and paving businesses are weighted towards public infrastructure projects. Our cement and ready-mixed concrete businesses serve both the private construction and public infrastructure markets.

Private construction includes both residential and nonresidential new construction and the repair and remodel markets. From a macroeconomic view, we see positive indicators for the construction sector, including upward trends in housing starts and construction employment and highway obligations. All of these factors should result in increased construction activity in the private sector. However, we do not expect this recovery to be consistent across the United States. Certain markets, such as Texas, are showing greater, more rapid signs of recovery than other markets.

Public infrastructure includes spending by federal, state and local governments for roads, highways, bridges, airports and other public infrastructure projects. Public infrastructure projects have historically been a relatively stable portion of state and federal budgets. Our acquisitions to date have been primarily focused in states with constitutionally-protected transportation funding sources, which we believe limits our exposure to state and local budgetary uncertainties. Funding for the existing federal transportation funding program, 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.

Business Trends and Conditions

The U.S. heavy-side construction materials industry is composed of four primary sectors: aggregates; cement; ready-mixed concrete; and asphalt paving mix. Each of these materials is widely used in most forms of construction activity. Competition is limited in part by the distance materials can be transported efficiently, resulting in predominantly local or regional operations. Participants in these sectors typically range from small, privately-held companies focused on a single material, product or market to multinational companies that offer a wide array of paving and related materials, products and construction services. We estimate that approximately 65% of the aggregates in the United States are held by private companies.

Our revenue is derived from multiple end-use markets including private residential and nonresidential construction, as well as public infrastructure construction. Residential and nonresidential construction consists of new construction and repair and remodel markets. The construction sectors in the local economies in which we operate have begun to show signs of recovery. However, we could still be affected by any economic stagnation or decline, which could vary by local region and market. Our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical changes in construction spending, especially in the private sector. From a macroeconomic view, we see positive indicators for the construction sector, including upward trends in housing starts, construction employment and highway obligations. All of these factors should result in increased construction activity in the private sector. However, we do not expect this recovery to be consistent across the United States. Certain markets, such as Texas, are showing greater, more rapid signs of recovery. Increased construction activity in the private sector could lead to increased public infrastructure spending in the relatively near future. Public infrastructure includes spending by federal, state and local governments for roads, highways, bridges, airports and other infrastructure projects. Public infrastructure projects have historically been a relatively stable portion of state and federal budgets. Our acquisitions to date have been primarily focused in states with constitutionally-protected transportation funding sources, which we believe limits our exposure to state and local budgetary uncertainties.

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 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

 

65


Table of Contents

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. Our five largest states by revenue (Texas, Kansas, Kentucky, Missouri and Utah, which represented approximately 25%, 20%, 17%, 12% and 11%, respectively, of our total revenue in 2013) each have funds whose revenue sources are constitutionally protected and are dedicated for transportation projects.

 

    Texas Department of Transportation’s budget from 2014 to 2016 is $25.3 billion.

 

    Kansas has a 10-year $8.2 billion highway bill that was passed in May 2010.

 

    Kentucky’s biennial highway construction plan has funding of $3.6 billion from July 2014 to June 2016.

 

    Missouri has an estimated $0.7 billion in annual construction funding committed to essential road and bridge programs through 2017.

 

    Utah’s transportation investment fund has $3.5 billion committed through 2018.

Within many of our markets, state and local governments have taken actions to maintain or grow highway funding during a time of uncertainty with respect to federal funding. For example:

 

    The Texas legislature recently passed the largest two-year budget in the history of the Texas Department of Transportation (with growth in both new construction and maintenance). In addition, increased energy sector activity in parts of Texas has driven an increase in private construction demand, which we expect to continue. In particular, Austin and Houston, Texas have seen rapid residential demand expansion, which we expect to provide a stimulus for nonresidential and public infrastructure demand, as job growth has drawn new residents. On November 4, 2014, voters in Texas passed a proposition that is expected to provide between $1.2 billion and $1.7 billion of incremental funding annually to the Texas Department of Transportation. The funds must be used for construction, maintenance, rehabilitation and acquiring right-of-way for public roads.

 

    Increases in heavy truck registration fees, dedicated sales tax revenue and bond issuances have enabled Kansas to maintain stability in public infrastructure spending.

 

    We believe that public infrastructure spending in Kentucky, which comprises the majority of our revenue in the state, will remain consistent in the upcoming years.

 

    We expect primarily maintenance-related public demand in Missouri and Utah, both of which have recently completed large spending programs.

The table below sets forth additional details regarding the five states our operations focus on, including growth rates as compared to comparable U.S. growth rates:

 

   

 

    Revenue by End Market (1)(2)     Projected Industry Growth by End Market
2013 to 2018(3)
 
    Percentage of
Our Total
Revenue(1)
    Residential and
Nonresidential
Construction
    Public
Infrastructure
Construction
    Residential
Construction
    Nonresidential
Construction
    Public
Infrastructure
Construction
 

State

                                   

Texas

    35     61     39     8.9     6.8     6.1

Kansas

    18     41     59     11.6     5.8     3.4

Kentucky

    12     11     89     12.2     5.7     7.2

Utah

    10     84     16     7.5     6.0     5.8

Missouri

    10     72     28     10.9     5.8     2.8
       

 

 

   

 

 

   

 

 

 

Weighted average(4)

          10.0     6.2     5.3

United States(3)

          9.1     5.2     4.5

 

(1) Percentages based on our revenue for the nine months ended September 27, 2014.

 

66


Table of Contents
(2) Percentages based on our revenue by state the nine months ended September 27, 2014 and management’s estimates as to end markets.
(3) Source: FMI Management Consulting.
(4) Calculated using weighted average based on each state’s percentage contribution to our total revenue.

In addition to being subject to cyclical changes in the economy, our business is seasonal in nature. Substantially all of our products and services are produced, consumed and performed outdoors. Severe weather, seasonal changes and other weather-related conditions can significantly affect the production and sales volumes of our products. Typically, the highest sales and earnings are in the second and third quarters, and the lowest are in the first and fourth quarters. Winter weather months are generally periods of lower sales as we, and our customers, generally cannot cost-effectively mobilize and demobilize equipment and manpower under adverse weather conditions. Periods of heavy rainfall also adversely affect our work patterns and demand for our products. Our working capital may vary greatly during peak periods, but generally returns to average levels as our operating cycle is completed each fiscal year.

We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates, cement, ready-mixed concrete and asphalt paving mix production, natural gas for hot mix asphalt production and diesel fuel for distribution vehicles and production related mobile equipment. Liquid asphalt escalator provisions in most of our private and commercial contracts limit our exposure to price fluctuations in this commodity. We often obtain similar escalators on public infrastructure contracts. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials. As a result of the contract escalation clauses and effective use of the firm purchase commitments, commodity prices did not have a material effect on our results of operations in the nine months ended September 27, 2014 as compared to the nine months ended September 28, 2013 or in 2013, as compared to 2012.

Our acquisition strategy requires capital contributions or debt financings. As of September 27, 2014 and December 28, 2013, our long-term borrowings, including the current portion, totaled $1,041.7 million and $695.9 million, respectively, and we incurred $62.6 million and $56.4 million of interest expense in the nine months ended September 27, 2014 and the year ended December 28, 2013, respectively. Although the amounts borrowed and related interest expense are relatively material to us, we have been in compliance with our debt covenants and have made all required principal and interest payments. In addition, our cash flows provided by operating activities were $66.4 million and $62.3 million in the years ended December 28, 2013 and December 29, 2012, respectively, which is net of interest payments. Our senior secured revolving credit facility provides us with up to $150.0 million of borrowings, which has been adequate to fund our seasonal working capital needs and certain acquisitions. As of September 27, 2014, our outstanding borrowings under our senior secured revolving credit facility were $24.0 million. When we have made additional issuances of senior notes to fund acquisitions, we have complied with the incurrence tests in the indenture governing our senior notes. To the extent that a portion of the net proceeds from the offering described herein is used to pay down debt, our interest payments will correspondingly decrease, which will further increase our cash flow provided by operating activities and amounts available for operations and acquisitions.

Financial Highlights—Nine Months Ended September 27, 2014

The principal factors in evaluating our financial condition and operating results for the nine months ended September 27, 2014, as compared to the nine months ended September 28, 2013, are:

 

    Revenue increased $192.2 million in the nine months ended September 27, 2014 as a result of pricing and volume increases across our product lines, which includes volume contributions from acquisitions.

 

    Our operating earnings improved $36.9 million in the nine months ended September 27, 2014. This improvement in earnings was largely driven by price increases in aggregates, cement and asphalt and volume increases in aggregates, ready-mixed concrete and asphalt.

 

67


Table of Contents
    In 2014, we increased our long-term debt by $375.0 million with the issuance of additional 10 12% senior notes due 2020.

Financial Highlights—Year Ended December 28, 2013

The principal factors in evaluating our financial condition and operating results for the year ended December 28, 2013, as compared to the year ended December 29, 2012, are:

 

    Product revenue increased $4.8 million in 2013 as a result of pricing increases across our product lines, somewhat offset by declines in cement and asphalt volumes. In 2013, we increased our focus on higher-margin, low-volume paving projects, which resulted in increased operating margin, which we define as operating income as a percentage of revenue, but a decrease in asphalt volumes. The following table presents volume and average selling price changes by product:

 

     Volume in 2013
Compared to 2012
    Average Selling Prices in 2013
Compared to 2012
 

Aggregate

     5     7

Cement

     (4 %)      3

Ready-mixed concrete

     9     4

Asphalt

     (14 %)      5

 

    Service revenue declined $14.9 million in 2013 as a result of the increased focus on higher-margin, lower-volume projects.

 

    Our operating earnings declined $63.4 million to a loss of $48.0 million in 2013 from income of $15.4 million in 2012. In 2013, we recognized goodwill impairment charges of $68.2 million as a result of uncertainties in the timing of a sustained recovery in the Utah and Kentucky construction markets.

 

    Our operating earnings improved $4.8 million in 2013 excluding the $68.2 million goodwill impairment recognized in 2013. This improvement in earnings was predominantly driven by the price increases discussed above and higher margins on our paving and related services businesses in 2013.

 

    Cash provided by operations improved to $66.4 million in 2013, compared to $62.3 million in 2012, as a result of the increase in operating earnings (excluding the goodwill impairment).

Acquisitions

In addition to our organic growth, we continued to grow our business through acquisitions in 2014 and 2013, completing the following transactions:

 

    On October 3, 2014, we purchased Concrete Supply, which included 10 ready-mixed concrete plants and two sand and gravel sites in Topeka and northeast Kansas, and a ready-mixed concrete plant in western Missouri.

 

    On September 30, 2014, we acquired all of the outstanding ownership interests in Colorado County Sand & Gravel Co., L.L.C., a Texas limited liability company, M & M Gravel Sales, Inc., a Texas corporation, Marek Materials Co. Operating, Ltd., a Texas limited partnership, and Marek Materials Co., L.L.C., a Texas limited liability company, which collectively supply aggregates to the west Houston, Texas markets.

 

    On September 19, 2014, we acquired all of the membership interests of Southwest Ready Mix, LLC, which included two ready-mixed concrete plants and serves the downtown and southwest Houston, Texas markets.

 

    On September 4, 2014, we acquired all of the issued and outstanding shares and certain shareholder notes of Rock Head Holdings Ltd. and B.I.M. Holdings Ltd., which collectively indirectly own all the shares of Mainland Sand and Gravel Ltd., a supplier of construction aggregates to the Vancouver metropolitan area based in Surrey, British Columbia.

 

68


Table of Contents
    On July 29, 2014, we acquired all of the assets of Canyon Redi-Mix, Inc., and CRM Mixers LP. The acquired assets include two ready-mixed concrete plants, which serve the Permian Basin region of West Texas.

 

    On June 9, 2014, we acquired all of the membership interests of Buckhorn Materials, LLC, an aggregates quarry in South Carolina, and Construction Materials Group LLC, a sand pit in South Carolina.

 

    On March 31, 2014, we acquired all of the stock of Troy Vines, Incorporated, an integrated aggregates and ready-mixed concrete business headquartered in Midland, Texas, which serves the Permian Basin region of West Texas.

 

    On January 17, 2014, we acquired certain aggregates and ready-mixed concrete assets of Alleyton in Houston, Texas, which expands our presence in the Texas market.

 

    On April 1, 2013, we acquired certain aggregates, ready-mixed concrete and asphalt assets of Lafarge in and around Wichita, Kansas, which expanded our footprint in the Wichita market across our lines of business.

 

    On April 1, 2013, we acquired the membership interests of Westroc in Utah. The Westroc acquisition expanded our market coverage for aggregates and ready-mixed concrete in Utah.

Components of Operating Results

Total Revenue

We derive our revenue predominantly by selling heavy-side construction materials and products and providing paving and related services. Heavy-side construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mixed concrete, asphalt paying mix and concrete products. Paving and related services that we provide are primarily asphalt paving and related services.

Revenue derived from construction materials sales are recognized when risks associated with ownership have passed to unaffiliated customers. Typically this occurs when products are shipped. Product revenue generally includes sales of aggregates, cement and related downstream products and other materials to customers, net of discounts or allowances and taxes, if any.

Revenue derived from paving and related services are recognized on the percentage-of-completion basis, measured by the cost incurred to date compared to estimated total cost of each project. This method is used because management considers cost incurred to be the best available measure of progress on these contracts. Due to the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change over the life of the contract.

Operating Costs and Expenses

The key components of our operating costs and expenses consist of the following:

Cost of Revenue (excluding items shown separately)

Cost of revenue consists of all production and delivery costs and primarily includes labor, repair and maintenance, utilities, raw materials, fuel, transportation, subcontractor costs, royalties and other direct costs incurred in the production and delivery of our products and services. Our cost of revenue is directly affected by fluctuations in commodity energy prices, primarily diesel fuel, liquid asphalt and other petroleum-based resources. As a result, our operating profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue. We attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when

 

69


Table of Contents

appropriate. In addition, we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs. These provisions are in place for most of our public infrastructure contracts, and we aggressively seek to include similar price adjustment provisions in our private contracts.

Goodwill Impairment

Goodwill impairment charges consist of the amount by which the carrying value of a reporting unit exceeds its fair value, as determined in an annual two-step impairment test. See “—Critical Accounting Policies—Goodwill and Goodwill Impairment.”

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel costs for our sales and marketing, administration, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, rental costs, property taxes and other corporate and overhead expenses.

Transaction Costs

Transaction costs consist primarily of third party accounting, legal, valuation and financial advisory fees incurred in connection with acquisitions.

Depreciation, Depletion, Amortization and Accretion

Our business is capital intensive. We carry property, plant and equipment on our balance sheet at cost, net of applicable depreciation, depletion and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset. The general range of depreciable lives by category, excluding mineral reserves, which are depleted based on the units of production method on a site-by-site basis, is as follows:

 

Buildings and improvements

     7 - 40 years   

Plant, machinery and equipment

     3 - 40 years   

Truck and auto fleet

     3 - 10 years   

Mobile equipment and barges

     3 - 20 years   

Landfill airspace and improvements

     5 - 60 years   

Other

     2 - 10 years   

Amortization expense is the periodic expense related to leasehold improvements and intangible assets, which were primarily acquired with certain acquisitions. The intangible assets are generally amortized on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.

Accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method.

Results of Operations

The following discussion of our results of operations is focused on the key financial measures we use to evaluate the performance of our business from both a consolidated and operating segment perspective. Operating income and margins are discussed in terms of changes in volume, pricing and mix of revenue source (i.e., type of product sales or service revenue). We focus on operating margin, which we define as operating income as a percentage of revenue, as a key metric when assessing the performance of the business, as we believe that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining costs in isolation.

 

70


Table of Contents

Operating income reflects our profit from continuing operations after taking into consideration cost of revenue, general and administrative expenses, depreciation, depletion, amortization and accretion and transaction costs. Cost of revenue generally increases ratably with revenue, as labor, transportation costs and subcontractor costs are recorded in cost of revenue. General and administrative costs as a percentage of revenue vary throughout the year due to the seasonality of our business. Considering the percentage of our historic growth that was derived from acquisitions and our focus on infrastructure development (finance, information technology, legal and human resources), annual general and administrative costs historically grew ratably with revenue. However, we expect the growth in general and administrative costs to stabilize in fiscal 2014 and beyond. Also as a result of our revenue growth occurring primarily through acquisitions, depreciation, depletion, amortization and accretion have generally grown ratably with revenue. As volumes increase, we expect these costs, as a percentage of revenue, to decrease. Our transaction costs fluctuate with the number and size of acquisitions consummated each year.

The table below includes revenue and operating income (loss) by segment for the periods indicated. Operating income (loss) by segment is computed as earnings before interest, taxes and other income / expense.

 

     Nine months ended     Year ended  
     September 27, 2014     September 28, 2013     December 28, 2013     December 29, 2012     December 31, 2011  
(in thousands)    Total
Revenue
     Operating
income
(loss)
    Total
Revenue
     Operating
income
(loss)
    Total
Revenue
     Operating
income
(loss)
    Total
Revenue
     Operating
income
(loss)
    Total
Revenue
     Operating
income
(loss)
 

West

   $ 478,432       $ 47,658      $ 322,640       $ 2,312      $ 426,195       $ (47,476   $ 484,922       $ (6,625   $ 362,577       $ (455

Central

     283,541         30,433        244,207         25,093        329,621         39,246        302,113         37,560        264,008         38,105   

East

     108,172         (1,925     111,087         669        160,385         (14,207     139,219         (245     162,491         2,687   

Corporate(1)

     —           (29,514     —           (18,309     —           (25,540     —           (15,275     —           (15,238
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 870,145       $ 46,652      $ 677,934       $ 9,765      $ 916,201       $ (47,977   $ 926,254       $ 15,415      $ 789,076       $ 25,099   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Corporate results primarily consist of compensation and office expenses for employees included in our headquarters. The increase in cost is primarily attributable to the strengthening of our infrastructure with respect to finance, information technology, legal and human resources functions and relocation of the headquarters to Denver, Colorado in August 2013.

Non-U.S. GAAP Performance Measures

We evaluate our operating performance using a metric that we refer to as “Adjusted EBITDA” which is not defined by U.S. GAAP and should not be considered as an alternative to earnings measures defined by U.S. GAAP. We define Adjusted EBITDA as net loss before interest expense, income tax expense, depreciation, depletion and amortization, accretion, goodwill impairment and (income) loss from discontinued operations. We present this metric for the convenience of investment professionals who use such metrics in their analyses. The investment community often uses this metric as an indicator of a company’s ability to incur and service debt, to assess the operating performance of a company’s business and to provide a more consistent comparison of performance from period to period. We use Adjusted EBITDA, among other metrics, to assess the operating performance of our individual segments and the consolidated company. In addition, we use a metric we refer to as “Further Adjusted EBITDA,” which we define as Adjusted EBITDA plus certain non-cash or non-operating items and the EBITDA contribution of certain recent acquisitions, to measure our compliance with debt covenants and to evaluate flexibility under certain restrictive covenants. See “—Liquidity and Capital Resources—Our Long-Term Debt” on pages 94 and 95 for more information.

Adjusted EBITDA is used for certain items to provide a more consistent comparison of performance from period to period. We do not use these metrics as a measure to allocate resources. In addition, non-U.S. GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies’ non-U.S. GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated interim and audited financial statements in their entirety and not rely on any single financial measure.

 

71


Table of Contents

The tables below reconcile our net loss to Adjusted EBITDA and present Adjusted EBITDA by segment for the periods indicated:

 

    Nine months ended     Year ended  
    September 27,
2014
    September 28,
2013
    December 28,
2013
    December 29,
2012
    December 31,
2011
 

Reconciliation of Net Loss to Adjusted EBITDA

         

(in thousands)

         

Net loss

  $ (10,750 )   $ (33,217 )   $ (103,679   $ (50,577   $ (10,050

Income tax (benefit) expense

    (2,498 )     (1,782 )     (2,647     (3,920     3,408   

Interest expense

    62,555        42,380        56,443        58,079        47,784   

Depreciation, depletion and amortization

    63,302        54,040        72,217        67,665        60,687   

Accretion

    648        537        717        625        690   

Goodwill impairment

    —          —          68,202        —          —     

(Income) loss from discontinued operations

    (356 )     257        528        3,546        5,201   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 112,901      $ 62,215      $ 91,781      $ 75,418      $ 107,720   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA by Segment

         

(in thousands)

         

West

  $ 71,646      $ 19,260      $ 28,607      $ 14,429      $ 36,442   

Central

    59,220        49,892        72,918        65,767        65,651   

East

    10,462        10,790        15,134        10,782        15,504   

Corporate(1)

    (28,427 )     (17,727 )     (24,878     (15,560     (9,877
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 112,901      $ 62,215      $ 91,781      $ 75,418      $ 107,720   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The decrease in Corporate EBITDA in the nine months ended September 27, 2014 is due to a $3.4 million increase in transaction fees from the increase in 2014 acquisitions, a $3.3 million increase in monitoring fees paid to our Sponsors, which are based on a percentage of earnings and were allocated as a regional expense in 2013, and an increase in labor costs from the infrastructure development in the prior year.

 

72


Table of Contents

Consolidated Results of Operations

The table below sets forth our consolidated results of operations for the periods indicated:

 

    Nine months ended     Year ended  
(in thousands)   September 27,
2014
    September 28,
2013
    December 28,
2013
    December 29,
2012
    December 31,
2011
 

Total revenue

  $ 870,145      $ 677,934      $ 916,201      $ 926,254      $ 789,076   

Total cost of revenue (excluding items shown separately below)

    645,934        503,198        677,052        713,346        597,654   

General and administrative expenses

    105,872        107,219        142,000        127,215        95,826   

Goodwill impairment

    —          —          68,202        —          —     

Depreciation, depletion, amortization and accretion

    63,950        54,577        72,934        68,290        61,377   

Transaction costs

    7,737        3,175        3,990        1,988        9,120   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    46,652        9,765        (47,977     15,415        25,099   

Other income, net

    (2,299 )     (988 )     (1,737     (1,182     (21,244

Loss on debt financings

    —          3,115        3,115        9,469        —     

Interest expense

    62,555        42,380        56,443        58,079        47,784   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before taxes

    (13,604 )     (34,742 )     (105,798     (50,951     (1,441

Income tax (benefit) expense

    (2,498 )     (1,782 )     (2,647     (3,920     3,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

    (11,106 )     (32,960 )     (103,151     (47,031     (4,849

(Income) loss from discontinued operations

    (356 )     257        528        3,546        5,201   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (10,750 )     (33,217 )     (103,679     (50,577     (10,050

Net income attributable to noncontrolling interest

    674        1,105        3,112        1,919        695   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to partners of Summit Holdings.

  $ (11,424 )   $ (34,322 )   $ (106,791   $ (52,496   $ (10,745
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine months ended September 27, 2014 compared to the nine months ended September 28, 2013

 

     Nine months ended     Variance  
($ in thousands)    September 27,
2014
    September 28,
2013
   

Revenue

   $ 870,145      $ 677,934        28.4 %

Operating income

     46,652        9,765        377.7 %

Operating margin

     5.4     1.4  

Adjusted EBITDA

   $ 112,901      $ 62,215        81.5 %

Revenue increased $192.2 million in the nine months ended September 27, 2014, of which $128.7 million resulted from acquisitions and $63.5 million was organic growth.

 

73


Table of Contents

Of the total $192.2 million revenue increase, $147.5 million was attributable to increased product revenue and $44.7 million was attributable to increased service revenue, which is primarily paving and related services, but also includes certain other revenues earned. Service revenue in the nine months ended September 27, 2014 and September 28, 2013 included $93.6 million and $65.7 million, respectively, of delivery and subcontract revenue, which is recorded gross in revenue and cost of revenue. Revenue that was not derived from acquisitions during the period or the prior year period (“organic revenue”) increased 9.4% in the nine months ended September 27, 2014. Detail of consolidated percent changes in sales volumes and pricing in the nine months ended September 27, 2014 from the nine months ended September 28, 2013 were as follows:

 

     Percentage Change in  
     Volume     Pricing  

Aggregates

     35.1     2.0 %

Cement

     2.1     8.5 %

Ready-mixed concrete

     122.9     3.2 %

Asphalt

     8.7     (0.8 )%

Aggregates and ready-mixed concrete volumes were positively affected by the 2014 and 2013 acquisitions. However, the increase in ready-mixed concrete pricing was constrained by different pricing structures in our new markets. The majority of the increase in volumes occurred in Texas, where we have lower average selling prices than we have in our operations outside of Texas. Our cement volumes increased 2.1% due primarily to a shift in customer mix. Cement pricing improved from an overall market increase and from the customer mix shift. Asphalt volume increased 8.7%, while average asphalt pricing declined 0.8%, primarily as a result of product mix despite an increase in underlying prices. Asphalt product mix in 2014 included a higher percentage of base materials, which typically is the lowest priced of our asphalt products.

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately $165.0 million and $30.8 million, respectively. Revenue for paving and related services increased by $47.1 million, primarily as a result of increased demand for our services in Utah, Texas and Kansas. Revenue changes by product/service were as follows:

 

     Nine months ended  
(in thousands)    September 27,
2014
    September 28,
2013
    Variance  

Revenue by product:*

      

Aggregates

   $ 160,362      $ 119,757      $ 40,605   

Cement

     66,116        59,160        6,956   

Ready-mixed concrete

     189,198        82,447        106,751   

Asphalt

     203,944        162,485        41,459   

Paving and related services

     390,469        343,346        47,123   

Other

     (139,944     (89,261     (50,683
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 870,145      $ 677,934      $ 192,211   
  

 

 

   

 

 

   

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

 

74


Table of Contents

In the nine months ended September 27, 2014, operating income increased $36.9 million and Adjusted EBITDA increased $50.7 million as a result of increased revenue and a 400 basis point increase in operating margin. The increase in operating margin was primarily attributable to the following:

 

Operating margin - September 28, 2013

            1.4

General and administrative costs (“G&A”) reduction(1)

    3.6

Depreciation, depletion, amortization and accretion(2)

    0.8

2014 curtailment benefit(3)

    0.1

2013 charge to remove barge from waterway(4)

    0.2

Transaction costs(5)

    (0.5 )% 

Other

    (0.2 )% 
 

 

 

 

Operating margin - September 27, 2014

    5.4
 

 

 

 

 

(1) G&A, as a percentage of revenue, declined from 15.8% to 12.2% in the nine months ended September 27, 2014. During 2013, we invested in our infrastructure (finance, information technology, legal and human resources) and expect the decline in G&A, as a percentage of revenue, to stabilize in 2014 and beyond.
(2) The reduction in depreciation, depletion, amortization and accretion, as a percentage of revenue, contributed a 0.8% increase in operating margin in the nine months ended September 27, 2014. Increased investments in depreciable assets through either capital expenditures or business acquisitions generally increase depreciation expense, while assets being fully depreciated or disposed generally decrease depreciation expense. In the nine months ended September 27, 2014, approximately 67% of our revenue growth was attributable to acquisitions, which exceeded the percentage increase in depreciation expense recognized from the acquisitions. As a result, depreciation, depletion, amortization and accretion, as a percentage of revenue, decreased from the nine months ended September 28, 2013 despite an overall increase in depreciable assets.
(3) A $1.3 million curtailment benefit recognized in the nine months ended September 27, 2014 related to a retiree postretirement benefit plan maintained for certain union employees at our cement plant, which was amended to eliminate all future retiree health and life coverage for the remaining union employees, effective January 1, 2014.
(4) A $1.8 million charge was recognized in the nine months ended September 28, 2013 to remove a sunken barge from the Mississippi River. No charges for the barge removal were recognized in 2014.
(5) Partially offsetting these profit improvements were $4.5 million of increased transaction costs in the nine months ended September 27, 2014, as a result of the six acquisitions made in 2014.

In addition to the items discussed above, approximately $3.1 million of the improvement in Adjusted EBITDA was attributable to the loss on debt financings recognized in the nine months ended September 28, 2013 related to the February 2013 debt repricing.

Other Financial Information

Loss on debt financings

In February 2013, we completed a repricing of our credit facilities, which provide for term loans in an aggregate amount of $422.0 million and revolving credit commitments in an aggregate amount of $150.0 million. The repricing reduced our stated term-loan interest rate by 1.0% and provided additional borrowing capacity of $25.0 million. As a result of the repricing, we recognized a loss of $3.1 million for related bank fees in 2013. Fees associated with the $375.0 million of 10 ½% senior notes issued in 2014 were deferred in other non-current assets and are being amortized over the term of the debt as a charge to interest expense.

Interest expense

Interest expense increased $20.2 million in the nine months ended September 27, 2014 from the comparable period in 2013, due to the additional $375.0 million of 10 ½% senior notes issued in 2014, which were outstanding for a weighted average of 6.1 months during the nine months ended September 27, 2014.

 

75


Table of Contents

Segment results of operations

West Region

 

     Nine months ended     Variance  

($ in thousands)

   September 27,
2014
    September 28,
2013
   

Revenue

   $ 478,432      $ 322,640        48.3 %

Operating income

     47,658        2,312        1,961.3 %

Operating margin

     10.0 %     0.7 %  

Adjusted EBITDA

   $ 71,646      $ 19,260        272.0 %

Revenue in the West region increased $155.8 million, or 48%, in the nine months ended September 27, 2014, of which $121.2 million resulted from acquisitions and $34.6 million was organic growth.

Of the total $155.8 million revenue increase, $130.1 million was attributable to product revenue and $25.7 million was attributable to increased service revenue, which is primarily paving and related services, but also includes certain other revenues earned. Organic revenue increased 10.7% in the nine months ended September 27, 2014.

In the nine months ended September 27, 2014, the West region’s aggregates, ready-mixed concrete and asphalt volumes increased and aggregates pricing improved. Ready-mixed concrete pricing declined as a result of the 2014 acquisitions in Texas, as ready-mixed concrete prices in the Texas markets are generally lower than in our markets outside of Texas. Average asphalt pricing declined primarily as a result of product mix, with 2014 volumes including a higher percentage of low-priced base materials, although prices grew. The West region’s percent changes in sales volumes and pricing in the nine months ended September 27, 2014 from the nine months ended September 28, 2013 were as follows:

 

     Percentage Change in  
     Volume     Pricing  

Aggregates

     99.0     5.3 %

Ready-mixed concrete

     230.6     (0.1 )%

Asphalt

     5.9     (1.0 )%

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately $154.4 million and $0.6 million, respectively. Revenue for paving and related services increased by $26.6 million primarily as a result of increased demand for our services in Texas and Utah. Total revenue in Texas and in our Utah-based operations, which includes Idaho, Wyoming and Colorado, increased 73% and 20%, respectively, in the nine months ended September 27, 2014. Revenue changes by product/service were as follows:

 

     Nine months ended  
(in thousands)    September 27,
2014
    September 28,
2013
    Variance  

Revenue by product:*

      

Aggregates

   $ 69,184      $ 34,266      $ 34,918   

Ready-mixed concrete

     148,444        45,142        103,302   

Asphalt

     125,988        109,212        16,776   

Paving and related services

     220,304        193,660        26,644   

Other

     (85,488     (59,640     (25,848
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 478,432      $ 322,640      $ 155,792   
  

 

 

   

 

 

   

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

 

76


Table of Contents

In the nine months ended September 27, 2014, the West region’s operating income increased $45.3 million and Adjusted EBITDA increased $52.4 million as a result of increased revenue and an increase in operating margins from 0.7% to 10.0%. The profit improvement was primarily driven by the 2014 acquisitions in the Houston and Midland/Odessa, Texas markets, which contributed $26.3 million of operating income in the nine months ended September 27, 2014, higher aggregates pricing and organic volume growth. The increase in operating margin was primarily attributable to the following:

 

Operating margin - September 28, 2013

     0.7

G&A reduction(1)

     5.5

Depreciation, depletion, amortization and accretion(2)

     0.8

Other(3)

     3.0
  

 

 

 

Operating margin - September 27, 2014

     10.0
  

 

 

 

 

(1) G&A, as a percentage of revenue, declined from 14.9% to 9.4% in the nine months ended September 27, 2014. The improvement in G&A, as a percentage of revenue, was partially attributable to a $8.8 million decrease at our Utah-based operations from a headcount reduction of 36 employees, which was 20% of the Utah operations’ G&A headcount, and a $4.4 million loss on the disposition of certain assets in Colorado that was recognized in the nine months ended September 28, 2013.
(2) The reduction in depreciation, depletion, amortization and accretion, as a percentage of revenue, contributed a 0.8% increase in operating margin in the nine months ended September 27, 2014. In the nine months ended September 27, 2014, approximately 78% of the West region’s revenue growth was attributable to acquisitions, which exceeded the percentage increase in depreciation expense recognized from the acquisitions. As a result, depreciation, depletion, amortization and accretion, as a percentage of revenue, decreased from the nine months ended September 28, 2013 despite an overall increase in depreciable assets.
(3) The 2014 acquisitions, which were aggregates and ready-mixed concrete businesses, shifted the West region’s product mix significantly from the lower margin services operations to sales of products and materials, which contributed to the increase in operating margin from the nine months ended September 28, 2013. Revenue from paving and related services was 60.0% of the West region’s revenue in the nine months ended September 28, 2013 compared to 46.0% in the nine months ended September 27, 2014. Aggregates and ready-mixed concrete were 14.5% and 31.0%, respectively, of revenue in the nine months ended September 27, 2014 compared to 10.6% and 14.0%, respectively, in the nine months ended September 28, 2013.

In addition to the items discussed above, approximately $1.6 million of the improvement in Adjusted EBITDA was attributable to the loss on debt financings allocated to the West region in the nine months ended September 28, 2013 related to the February 2013 debt repricing.

Central Region

 

     Nine months ended        
($ in thousands)    September 27,
2014
    September 28,
2013
    Variance  

Revenue

   $ 283,541      $ 244,207        16.1 %

Operating income

     30,433        25,093        21.3 %

Operating margin

     10.7     10.3 %  

Adjusted EBITDA

   $ 59,220      $ 49,892        18.7 %

Revenue in the Central region increased $39.3 million, or 16.1%, in the nine months ended September 27, 2014, of which $4.9 million resulted from acquisitions and $34.4 million was organic growth.

 

77


Table of Contents

Of the total $39.3 million revenue increase, $21.1 million was attributable to increased product revenue and $18.2 million was attributable to increased service revenue, which is primarily paving and related services, but also includes certain other revenues earned. Organic revenue increased 7.0% in the nine months ended September 27, 2014.

In the nine months ended September 27, 2014, volumes increased among all of the Central region’s product lines. The increase in aggregates and asphalt volumes are due to strong, primarily organic, demand in our Kansas markets. Cement volumes increased 2.1% and prices increased 8.5% due to overall price improvements and a shift in customer mix. Cement sales in 2014 included a greater percentage of low volume, or retail, sales, which generally are sold at a higher price than sales to high-volume customers. Customer mix varies each year based on demand in the applicable markets. Overall, product pricing increased, while average asphalt pricing declined despite an increase in underlying prices, due to a change in product mix to lower-priced products.

The Central region’s percent changes in sales volumes and pricing in the nine months ended September 27, 2014 from the nine months ended September 28, 2013 were as follows:

 

     Percentage Change in  
     Volume     Pricing  

Aggregates

     8.2     5.5 %

Cement

     2.1     8.5 %

Ready-mixed concrete

     1.4     7.7 %

Asphalt

     40.0     (2.3 )%

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately $13.8 million and $10.8 million, respectively. Revenue for paving and related services increased by $20.6 million primarily as a result of increased demand for our services in Kansas. Revenue changes by product/service were as follows:

 

     Nine months ended  
(in thousands)    September 27,
2014
    September 28,
2013
     Variance  

Revenue by product:*

       

Aggregates

   $ 60,535      $ 54,453       $ 6,082   

Cement

     66,116        59,160         6,956   

Ready-mixed concrete

     40,754        37,305         3,449   

Asphalt

     26,989        18,845         8,144   

Paving and related services

     93,670        73,072         20,598   

Other

     (4,523     1,372         (5,895
  

 

 

   

 

 

    

 

 

 

Total revenue

   $ 283,541      $ 244,207       $ 39,334   
  

 

 

   

 

 

    

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

 

78


Table of Contents

In the nine months ended September 27, 2014, the Central region’s operating income increased $5.3 million and Adjusted EBITDA increased $9.3 million as a result of increased revenue and a 40 basis point increase in operating margins. The increase in operating margin was primarily attributable to the following:

 

Operating margin - September 28, 2013

     10.3

2014 curtailment benefit(1)

     0.5

2013 charge to remove barge from waterway(2).

     0.6

2014 inventory impairment charge(3).

     (0.3 )% 

Other

     (0.4 )% 
  

 

 

 

Operating margin - September 27, 2014

     10.7
  

 

 

 

 

(1) A $1.3 million curtailment benefit was recognized in the nine months ended September 27, 2014 related to a retiree postretirement benefit plan maintained for certain union employees at our cement plant, which was amended to eliminate all future retiree health and life coverage for the remaining union employees, effective January 1, 2014.
(2) A $1.8 million charge was recognized in the nine months ended September 28, 2013 to remove a sunken barge from the Mississippi River. No charges for the barge removal were recognized in 2014.
(3) A $0.8 million impairment charge on inventory was recognized in the nine months ended September 27, 2014.

In addition to the items discussed above, approximately $0.6 million of the improvement in Adjusted EBITDA was attributable to the loss on debt financings allocated to the Central region in the nine months ended September 28, 2013 related to the February 2013 debt repricing.

East Region

 

     Nine months ended        
($ in thousands)    September 27,
2014
    September 28,
2013
    Variance  

Revenue

   $ 108,172      $ 111,087        (2.6 )%

Operating (loss) income

     (1,925     669        (387.7 )%

Operating margin

     (1.8 )%      0.6 %  

Adjusted EBITDA

   $ 10,462      $ 10,790        (3.0 )%

Revenue in the East region decreased $2.9 million, or 2.6%, in the nine months ended September 27, 2014. Of the total $2.9 million revenue decrease, $3.7 million was from decreased product revenue offset by a $0.8 million increase in service revenue, which is primarily paving and related services, but also includes certain other revenues earned.

Aggregate volumes and pricing and asphalt volumes were stable and asphalt volumes declined slightly. The East region’s percent changes in sales volumes and pricing in the nine months ended September 27, 2014 from the nine months ended September 28, 2013 were as follows:

 

     Percentage Change in  
     Volume     Average Selling
Pricing
 

Aggregates

     0.0     0.9 %

Asphalt

     (0.5 )%      1.7 %

 

79


Table of Contents

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately ($3.2) million and $19.4 million, respectively. Revenue for paving and related services decreased by $0.1 million primarily as a result of a slight decrease in demand for our services in Kentucky. Revenue changes by product/service were as follows:

 

     Nine months ended  
(in thousands)    September 27,
2014
    September 28,
2013
    Variance  

Revenue by product:*

      

Aggregates

   $ 30,643      $ 31,038      $ (395

Asphalt

     50,967        34,428        16,539   

Paving and related services

     76,495        76,614        (119

Other

     (49,933     (30,993     (18,940
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 108,172        111,087      $ (2,915
  

 

 

   

 

 

   

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

In the nine months ended September 27, 2014, the East region’s operating income (loss) and decreased $2.6 million and Adjusted EBITDA decreased $0.3 million as a result of decreased revenue and a 240 basis point decrease in operating margins. The decrease in operating margin was primarily attributable to the following:

 

Operating margin - September 28, 2013

     0.6

Depreciation, depletion, amortization and accretion

     0.6

Transaction costs(1)

     (2.9 )% 

Other

     (0.1 )% 
  

 

 

 

Operating margin - September 27, 2014

     (1.8 )% 
  

 

 

 

 

(1) Approximately $1.3 million of transaction costs were recognized in the nine months ended September 27, 2014 related to the 2014 acquisition of Buckhorn Materials.

We intend to reduce certain operating costs, including G&A, with the objective of generating operating income in the East region in 2015.

Fiscal Year 2013 Compared to 2012

 

(in thousands)    2013     2012     Variance  

Total revenue

   $ 916,201      $ 926,254      $ (10,053     (1.1 )% 

Operating (loss) income

     (47,977     15,415        (63,392     (411.2 )% 

Operating margin

     (5.2 )%      1.7    

Adjusted EBITDA

   $ 91,781      $ 75,418      $ 16,363        21.7

Revenue decreased $10.1 million in 2013 due to a $14.9 million decline in service revenue, partially offset by a $4.8 million increase in product revenue. The $14.9 million decrease in service revenue, which is primarily paving and related services, but also includes certain other revenues earned, was a result of an increased focus on higher-margin, lower-volume paving projects and completion of low-margin projects, such as grading and structural work. In 2012, we completed certain construction projects that provided significant revenue, but at below-average margins, including a project in Austin, Texas that contributed $47.5 million of revenue in 2012. The decreased service revenue primarily occurred in our Utah and Texas operations.

Aggregates and ready-mixed concrete volumes were positively affected from the April 1, 2013 acquisitions of the Lafarge-Wichita assets and Westroc near Salt Lake City, Utah. Our cement volumes decreased 4.1% due

 

80


Table of Contents

primarily to lower volumes in the fourth quarter of 2013, as compared to the fourth quarter of 2012. Adverse weather in 2013, compared to much dryer weather in 2012, and an increased focus on higher-margin, lower-volume paving projects largely offset the effect of the acquisitions and drove the decline in asphalt volumes.

Detail of consolidated percent changes in sales volumes and pricing from 2012 to 2013 were as follows:

 

     Percentage
Change in
 
     Volume     Average
Selling
Price
 

Aggregate

     4.5     7.4

Cement

     (4.1 %)      3.4

Ready-mixed concrete

     9.2     3.6

Asphalt

     (13.8 %)      4.8

 

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately ($33.1) million and $32.9 million, respectively. Revenue for paving and related services decreased by $26.9 million primarily as a result of the completion of certain construction projects, primarily in Texas, which provided significant revenue, but at below-average margins. Revenue changes by product/service were as follows:

 

(in thousands)    2013     2012     Variance  

Revenue by product:*

      

Aggregates

   $ 159,019      $ 146,991      $ 12,028   

Cement

     76,211        77,676        (1,465

Ready-mixed concrete

     112,878        100,941        11,937   

Asphalt

     219,811        242,458        (22,647

Paving and related services

     478,280        505,189        (26,909

Other

     (129,998     (147,001     17,003   
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 916,201      $ 926,254      $ (10,053
  

 

 

   

 

 

   

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

In 2013, operating (loss) income decreased $63.4 million and Adjusted EBITDA increased $16.3 million as a result of a 690 basis point decrease in operating margin. The decrease in operating profit and margin was primarily attributable to goodwill impairment charges recognized in 2013. The decrease in operating margin was primarily attributable to the following:

 

Operating margin — 2012

     1.7

Goodwill impairment(1)

     (7.4 )% 

2013 charge to remove barge from waterway(2)

     (0.1 )% 

Transaction costs(3)

     (0.2 )% 

2012 loss on indemnification agreement(4)

     0.9

Other

     (0.1 )% 
  

 

 

 

Operating margin — 2013

     (5.2 )% 
  

 

 

 

 

(1)

In 2013, we recognized $68.2 million of goodwill impairment charges. Approximately $53.3 million and $14.9 million of the goodwill impairments charges were recognized in our West (Utah) and East (Kentucky)

 

81


Table of Contents
  regions, respectively. The goodwill impairment was a result of a decline in the estimated fair value of certain reporting units caused by uncertainties in the timing of a sustained recovery in the Utah and Kentucky construction markets.

Revenue generated from the Utah-based operations declined 7.2% from $204.1 million in 2012 to $189.4 million in 2013, compared to $215.1 million, or a 5.4% increase, adjusted for acquisitions, that was assumed in the 2012 goodwill impairment analysis. The Utah operations incurred an operating loss of $4.5 million, excluding the goodwill impairment charge, and $13.3 million in 2013 and 2012, respectively, demonstrating an improvement in operating loss, but not yet earning operating income. The fair value estimates used in this assessment were dependent upon assumptions and estimates about the future profitability and other financial metrics of our reporting units, as well as relevant financial data, recent transactions and market valuations of comparable public companies. The increase in cash flows from 2012 to 2013 projected in the 2012 goodwill analysis assumed that an increase in housing permits and infrastructure spending in Utah would result in increased revenue for our operations. However, our revenue, and the private construction and public infrastructure spending, did not increase as projected. In the 2013 goodwill analysis, we assumed that an economic recovery in this market would be delayed beyond 2014, which resulted in a decrease in the overall valuation of the Utah operations. Subsequent to the 2013 goodwill analysis, management determined that certain cost savings measures would be required for 2014, including a reduction in G&A. Any benefits from such cost reductions were not assumed in the 2013 goodwill analysis, as they had not been fully quantified when it was completed. Through the nine months ended September 27, 2014, the Utah-based operations’s earnings have exceeded the 2014 full year earnings that were forecast in the 2013 goodwill analysis. This earnings improvement was driven by $8.8 million of G&A reductions, which was primarily a result of a 20% headcount reduction of Utah’s G&A operations, and a $4.4 million loss on the disposition of certain assets in Colorado that was recognized in the nine months ended September 28, 2013. We believe that the risk of additional impairment of the $36.6 million of the Utah operation’s remaining goodwill is low given that the 2013 analysis assumed a delayed market recovery and did not take into consideration cost cutting measures that could be, and were, implemented in 2014.

The operating loss in the East region, which is the Kentucky reporting unit, improved from a loss of $0.2 million in 2012 to approximately break-even in 2013, excluding the goodwill impairment charge. An operating loss was incurred despite a 15.2% increase in revenue. We had expected revenue growth from public infrastructure projects to exceed that which has been realized and is expected in the near term. We also had expected operating income improvements at a greater rate than was projected at the time the 2013 goodwill analysis was performed.

After recognizing these impairment charges, the goodwill attributable to the Utah and Kentucky reporting units was $36.6 million and zero, respectively. We do not believe material uncertainty that could result in an additional impairment charge exists in these reporting units.

 

(2) In 2013, a $0.8 million charge was recognized to remove a sunken barge from the Mississippi River.
(3) Transaction costs increased $2.0 million in 2013 as a result of the April 1, 2013 Lafarge-Wichita and Westroc acquisitions and costs incurred in advance of the January 17, 2014 Alleyton acquisition.
(4) In 2012, we recognized a $8.0 million loss on an indemnification agreement.

In addition to the items discussed above, approximately $6.4 million of the improvement in Adjusted EBITDA was attributable to a decrease in the loss on debt financings. In 2013, we recognized a $3.1 million loss related to the February 2013 debt repricing and recognized a $9.5 million loss in 2012 related to the January 2012 financing transactions.

Other Financial Information

Loss on Debt Financings

In February 2013, we completed a repricing of our credit facilities, which provide for term loans in an aggregate amount of $422.0 million and revolving credit commitments in an aggregate amount of $150.0 million (the “senior secured credit facilities”), which reduced our stated term-loan interest rate by 1.0% and provided

 

82


Table of Contents

additional borrowing capacity of $25.0 million. As a result of the repricing, we recognized a loss of $3.1 million for related bank fees. In January 2012, we refinanced our debt existing at that time, resulting in a net loss of $9.5 million. Both the repricing and the refinancing were accounted for as partial extinguishments.

Discontinued Operations

As part of our strategy to focus on our core business as a heavy-side construction materials company, we have exited certain activities, including certain concrete paving operations, our railroad construction and maintenance operations (the “railroad business”), which involved building and repairing railroad sidings, and our environmental remediation operations (the “environmental remediation business”), which primarily involved the repair of retaining walls along highways in Kentucky and the removal and remediation of underground fuel storage tanks. The concrete paving operations were wound down in the second quarter of 2013, and all assets have been sold. The railroad and environmental remediation businesses were sold in 2012 in separate transactions for aggregate proceeds of $3.1 million.

The results of these operations have been removed from the results of continuing operations for all periods presented. Prior to recognition as discontinued operations, all of these businesses were included in the East region’s operations. Revenue from these discontinued operations was $3.9 million in 2013 and $50.2 million in 2012. The loss from discontinued operations was $0.5 million in 2013 and $3.5 million in 2012.

Segment Results of Operations

West Region

 

(in thousands)    2013     2012     Variance  

Total revenue

   $ 426,195      $ 484,922      $ (58,727     (12.1 )% 

Operating loss

     (47,476     (6,625     (40,851     616.6

Operating margin

     (11.1 )%      (1.4 )%     

Adjusted EBITDA

   $ 28,607      $ 14,429      $ 14,178        98.3

Revenue in the West region decreased $58.7 million in 2013 due to a $6.2 million decline in product revenue and a $52.5 million decline in service revenue, which is primarily paving and related services, but also includes certain other revenues earned. The $52.5 million decrease in paving and related services was a result of an increased focus on higher-margin, lower-volume paving projects and completion of low-margin projects, such as grading and structural work. In 2012, we completed certain construction projects that provided significant revenue, but at below-average margins, including a project in Austin, Texas that contributed $47.5 million of revenue in 2012.

The effect on revenue from the decrease in asphalt volumes was partially offset by improved pricing across our products lines and increased aggregate and ready-mixed concrete volumes from the April 1, 2013 Westroc acquisition. The West region’s percent changes in sales volumes and pricing from 2012 to 2013 were as follows:

 

     Percentage
Change in
 
     Volume     Average
Selling
Price
 

Aggregate

     2.8     9.5

Ready-mixed concrete

     12.7     5.8

Asphalt

     (24.5 %)      7.8

 

83


Table of Contents

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately ($44.6) million and $26.3 million, respectively. Revenue for paving and related services decreased by $69.6 million primarily as a result of completing certain construction projects which provided significant revenue, but at below-average margins, including a project in Austin, Texas that contributed $47.5 million of revenue in 2012. Revenue changes by product/service were as follows:

 

(in thousands)    2013     2012     Variance  

Revenue by product:*

      

Aggregates

   $ 46,645      $ 41,409      $ 5,236   

Ready-mixed concrete

     61,780        52,982        8,798   

Asphalt

     141,271        173,571        (32,300

Paving and related services

     259,630        329,268        (69,638

Other

     (83,131     (112,308     (29,177
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 426,195      $ 484,922      $ (58,727
  

 

 

   

 

 

   

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

In 2013, the West region’s operating loss increased $40.9 million and Adjusted EBITDA increased $14.2 million as a result of a decrease in operating margin from (1.4)% in 2012 to (11.1)% in 2013. The decrease in operating profit and margin was primarily attributable to a goodwill impairment charge recognized in 2013. The decrease in operating margin was primarily attributable to the following:

 

Operating margin – 2012

     (1.4 )% 

Goodwill impairment(1)

     (12.5 )% 

Disposition of certain Colorado assets(2)

     (1.0 )% 

2012 loss on indemnification agreement(3)

     1.9

Other(4)

     1.9
  

 

 

 

Operating margin – 2013

     (11.1 )% 
  

 

 

 

 

(1) A $53.3 million goodwill impairment charge from a decline in the estimated fair value of our reporting unit based in Utah caused by uncertainties in the timing of a sustained recovery in the Utah construction market. Excluding the goodwill impairment charge, operating earnings improved $12.4 million, and operating margin improved 280 basis points in 2013 from 2012.
(2) A $4.4 million loss in 2013 on the disposition of certain assets in Colorado.
(3) These charges were partially offset by an $8.0 million loss on an indemnification agreement in 2012.
(4) The remaining margin improvement was primarily a result of a shift in product and customer mix. In 2013, we increased our focus on higher margin, lower-volume paving projects and completed certain low-margin projects, such as grading and structural work. In 2012, we completed certain construction projects that provided significant revenue, but at below-average margins, including a project in Austin, Texas that contributed $47.5 million of revenue in 2012. As shown in the table above, revenue from paving and related services was 67.9% of the West region’s revenue in 2012 compared to 60.9% in 2013. Aggregates and ready-mixed concrete were 10.9% and 14.5%, respectively, of 2013 revenue compared to 8.5% and 10.9%, respectively, in 2012.

In addition to the items discussed above, approximately $1.7 million of the improvement in Adjusted EBITDA was attributable to a reduction in the loss on debt financings allocated to the West region.

 

84


Table of Contents

Central Region

 

(in thousands)    2013     2012     Variance  

Total revenue

   $ 329,621      $ 302,113      $ 27,508         9.1

Operating income

     39,246        37,560        1,686         4.5

Operating margin

     11.9     12.4     

Adjusted EBITDA

   $ 72,918      $ 65,767      $ 7,151         10.9

Revenue in the Central region increased $27.5 million in 2013 due to an $8.1 million increase in product revenue and a $19.4 million increase in service revenue, which is primarily paving and related services, but also includes certain other revenues earned.

The acquisition of the Lafarge assets in and around Wichita, Kansas contributed to the increases in aggregates, ready-mixed concrete and asphalt volumes. Asphalt prices decreased 1.9% from 2012 due to a concentration of higher grade asphalt mixes in 2012, which commanded a higher price due to higher material input cost. Cement volumes decreased 4.1% with a 3.4% price increase. Price and volume variances across the Central region’s products increased revenue by $6.4 million and $10.2 million in 2013, respectively. The remaining revenue increase in 2013 was primarily due to paving and related projects.

The Central region’s percent changes in sales volumes and pricing from 2012 to 2013 were as follows:

 

     Percentage
Change in
 
     Volume     Average
Selling
Price
 

Aggregate

     7.9     5.5

Cement

     (4.1 %)      3.4

Ready-mixed concrete

     5.6     1.0

Asphalt

     25.9     (1.9 %) 

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately $6.9 million and $4.3 million, respectively. The $21.7 million increase in paving and related services was driven by increased demand for our services in Kansas. Revenue changes by product/service were as follows:

 

(in thousands)    2013     2012      Variance  

Revenue by product:*

       

Aggregates

   $ 72,130      $ 67,895       $ 4,235   

Cement

     76,211        77,676         (1,465

Ready-mixed concrete

     51,098        47,959         3,139   

Asphalt

     28,004        22,697         5,307   

Paving and related services

     102,542        80,882         21,660   

Other

     (364     5,004         (5,368
  

 

 

   

 

 

    

 

 

 

Total revenue

   $ 329,621        302,113       $ 27,508   
  

 

 

   

 

 

    

 

 

 

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

 

85


Table of Contents

In 2013, the Central region’s operating income increased $1.6 million and Adjusted EBITDA increased $7.2 million as a result of increased revenue, partially offset by a 50 basis point decrease in operating margin. The decrease in operating margin was primarily attributable to the following:

 

Operating margin — 2012

     12.4

2013 charge to remove barge from waterway(1)

     (0.2 )% 

Other

     (0.3 )% 
  

 

 

 

Operating margin — 2013

     11.9
  

 

 

 

 

(1) A $0.8 million charge was recognized in 2013 to remove a sunken barge from the Mississippi River.

In addition to the items discussed above, approximately $1.5 million of the improvement in Adjusted EBITDA was attributable to a reduction in the loss on debt financings allocated to the Central region.

East Region

 

(in thousands)    2013     2012     Variance  

Total revenue

   $ 160,385      $ 139,219      $ 21,166        15.2

Operating loss

     (14,207     (245     (13,962     5,698.8

Operating margin

     (8.9 )%      (0.2 )%     

Adjusted EBITDA

   $ 15,134      $ 10,782      $ 4,352        40.4

Revenue in the East region increased $21.1 million in 2013 due to a $2.9 million increase in product revenue and an $18.2 million increase in service revenue, which is primarily paving and related services, but also includes certain other revenues earned.

The East region’s percent changes in sales volumes and pricing from 2012 to 2013 were as follows:

 

     Percentage
Change in
 
     Volume     Average
Selling
Price
 

Aggregate

     1.2     8.0

Asphalt

     9.3     (1.4 %) 

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. These intercompany transactions are eliminated in the consolidated financial statements. Prior to eliminations, the net effect of the volume and pricing changes on revenue was approximately $4.6 million and $2.3 million, respectively. The $21.1 million increase in paving and related services was driven by increased demand for our services in Kentucky. Revenue changes by product/service were as follows:

 

(in thousands)    2013     2012     Variance  

Revenue by product:*

      

Aggregates

   $ 40,244      $ 37,687      $ 2,557   

Asphalt

     50,536        46,190        4,346   

Paving and related services

     116,108        95,039        21,069   

Other

     (46,503     (39,697     (6,806
  

 

 

   

 

 

   

 

 

 

Total revenue

   $ 160,385        139,219      $ 21,166   
  

 

 

   

 

 

   

 

 

 

 

86


Table of Contents

 

* Revenue by product includes intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other.

In 2013, the East region’s operating loss increased $14.0 million and Adjusted EBITDA increased $4.4 million as a result of a decrease in operating margin from (0.2)% in 2012 to (8.9)% in 2013. The decrease in operating margin was primarily attributable to the following: