Form 10-K Summit Materials, LLC For: Dec 31 Filed by: Summit Materials, Inc.

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

 

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

 

On September 23, 2014, Summit Inc. was formed as a Delaware corporation to be a holding company. Its sole material asset is a controlling equity interest in Summit Materials Holdings L.P. (“Summit Holdings”). Pursuant to a reorganization into a holding company structure (the “Reorganization”) consummated in connection with Summit Inc.’s March 2015 initial public offering ("IPO"), Summit Inc. became a holding corporation operating and controlling all of the business and affairs of Summit Holdings and its subsidiaries. Summit Inc. owns the majority of the partnership interests of Summit Holdings (see note 11, Stockholders’ Equity).  Summit Materials, LLC (“Summit LLC”) an indirect wholly owned subsidiary of Summit Holdings, conducts the majority of our operations. Continental Cement Company, L.L.C. (“Continental Cement”) is also a wholly owned subsidiary of Summit LLC. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of Summit LLC, has jointly issued our Senior Notes as described below.

 

Principles of Consolidation—The consolidated financial statements include the accounts of Summit Inc. and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated. As a result of the Reorganization, Summit Holdings became a variable interest entity over which Summit Inc. has 100% voting power and control and for which Summit Inc. has the obligation to absorb losses and the right to receive benefits.

 

The Company’s fiscal year is based on a 52-53 week year with each quarter composed of 13 weeks ending on a Saturday. The year ended January 2, 2021 was a 53-week year.

 

For a summary of the changes in Summit Inc.’s ownership of Summit Holdings, see Note 11, Stockholders’ Equity.

 

The Company attributes consolidated stockholders’ equity and net income separately to the controlling and noncontrolling interests. The Company accounted for investments in entities for which it has an ownership of 20% to 50% using the equity method of accounting.

 

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

 

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Business and Credit Concentrations—The Company’s operations are conducted primarily across 22 U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, Utah, Kansas and Missouri. The Company’s accounts receivable consist primarily of amounts due from customers within these areas. Therefore, collection of these accounts is dependent on the economic conditions in the aforementioned states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been granted to many customers and management does not believe that a significant concentration of credit exists with respect to any individual customer or group of customers. No single customer accounted for more than 10% of the Company’s total revenue in 2022, 2021 or 2020.

 

Accounts Receivable—Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the collectability of individual accounts. In establishing the allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, the current receivables aging and current payment terms. Balances that remain outstanding after reasonable collection efforts are exercised are written off through a charge to the valuation allowance.

 

The balances billed but not paid by customers, pursuant to retainage provisions included in contracts, are generally due upon completion of the contracts.

 

Revenue Recognition—We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products and plastics components, and from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants.

Products 

We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products, net of discounts or allowances, if any, and freight and delivery charges billed to customers. Revenue for product sales is recognized when the performance obligation is satisfied, which generally is when the product is shipped. 

Aggregates and cement products are sold point-of-sale through purchase orders. When the product is sold on account, collectability typically occurs 30 to 60 days after the sale.  Revenue is recognized when cash is received from the customer at the point of sale or when the products are delivered or collected on site. There are no other timing implications that will create a contract asset or liability, and contract modifications are unlikely given the timing and nature of the transaction. Material sales are likely to have multiple performance obligations if the product is sold with delivery. In these instances, delivery most often occurs on the same day as the control of the product transfers to the customer. As a result, even in the case of multiple performance obligations, the performance obligations are satisfied concurrently and revenue is recognized simultaneously. 

Services

We earn revenue from the provision of services, which are primarily paving and related services, but also include landfill operations and the receipt and disposal of waste that is converted to fuel for use in our cement plants. Revenue from the receipt of waste fuels is recognized when the waste is accepted and a corresponding liability is recognized for the costs to process the waste into fuel for the manufacturing of cement or to ship the waste offsite for disposal in accordance with applicable regulations.

Collectability of service contracts is due reasonably after certain milestones in the contract are performed. Milestones vary by project, but are typically calculated using monthly progress based on a percentage of completion or a customer’s engineer review of progress. The majority of the time, collection occurs within 90 days of billing and cash is received within the same fiscal year as services performed. On most projects, the customer will withhold a portion of the invoice for retainage, which may last longer than a year depending on the job. 

Revenue derived from paving and related services is recognized over time based on the proportion of costs incurred to date relative to the total estimated costs at completion, which approximates progress towards completion. Under this method, we recognize paving and related services revenue as services are rendered. The majority of our construction service contracts are completed within one year, but may occasionally extend beyond this time frame. The majority of our construction service contracts, and therefore, revenue, are opened and completed within one year, with most activity during the spring, summer and fall. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on input measures. We generally measure progress toward completion on long-

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term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion. We include revisions of revenue on contracts in earnings under the cumulative catch-up method, under which the effect of revisions in estimates is recognized immediately. If a revised estimate of contract profitability reveals an anticipated loss on the contract, we recognize the loss in the period it is identified. 

The actual cost to total estimated cost method of accounting involves the use of various estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications or other disputes. Contract estimates involve various assumptions and projections relative to the outcome of future events over multiple periods, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the effect of delayed performance, and the availability and timing of funding from the customer. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts. We review our contract estimates regularly to assess revisions in contract values and estimated costs at completion. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. No material adjustments to a contract were recognized in the year ended December 31, 2022.

We recognize claims when the amount of the claim can be estimated reliably and it is legally enforceable. In evaluating these criteria, we consider the contractual basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim.

When the contract includes variable consideration, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. The amount of estimated variable consideration included in the transaction price is the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Types of variable consideration include, but are not limited to, liquidated damages and other performance penalties and production and placement bonuses. 

The majority of contract modifications relate to the original contract and are often an extension of the original performance obligation. Predominately, modifications are not distinct from the terms in the original contract; therefore, they are considered part of a single performance obligation. We account for the modification using a cumulative catch-up adjustment. However, there are instances where goods or services in a modification are distinct from those transferred prior to the modification. In these situations, we account for the modifications as either a separate contract or prospectively depending on the facts and circumstances of the modification. 

Generally, construction contracts contain mobilization costs which are categorized as costs to fulfill a contract. These costs are excluded from any measure of progress toward contract fulfillment. These costs do not result in the transfer of control of a good or service to the customer and are amortized over the life of the contract. 

Costs and estimated earnings in excess of billings are composed principally of revenue recognized on contracts on a method similar to the percentage of completion method for which billings had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, the unbilled receivables at the balance sheet date are expected to be billed in following periods. Billings in excess of costs and estimated earnings represent billings in excess of revenue recognized.

Inventories—Inventories consist of stone that has been removed from quarries and processed for future sale, cement, raw materials and finished concrete blocks. Inventories are valued at the lower of cost or net realizable value and are accounted for on a first-in first-out basis or an average cost basis. If items become obsolete or otherwise unusable or if quantities exceed what is projected to be sold within a reasonable period of time, they will be charged to costs of revenue in the period that the items are designated as obsolete or excess inventory. Stripping costs are costs of removing overburden and waste material to access aggregate materials and are expensed as incurred.

 

Property, Plant and Equipment, net—Property, plant and equipment are recorded at cost, less accumulated depreciation, depletion and amortization. Expenditures for additions and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Repair and maintenance costs that do not substantially expand productive capacity or extend the life of property, plant and equipment are expensed as incurred.

 

Landfill airspace is included in property, plant and equipment at cost and is amortized based on the portion of the airspace used during the period compared to the gross estimated value of available airspace, which is updated periodically as circumstances dictate. Management reassesses the landfill airspace capacity with any changes in value recorded in cost of

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revenue. Capitalized landfill costs include expenditures for the acquisition of land and related airspace, engineering and permitting costs, cell construction costs and direct site improvement costs.

 

Upon disposal of an asset, the cost and related accumulated depreciation are removed from the Company’s accounts and any gain or loss is included in general and administrative expenses.

 

The Company reviews the carrying value of property, plant and equipment for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Such indicators may include, among others, deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows or a trend of negative or declining cash flows over multiple periods.

 

Property, plant and equipment is tested for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, the property, plant and equipment impairment test is at a significantly lower level than the level at which goodwill is tested for impairment. In markets where the Company does not produce downstream products, such as ready-mix concrete, asphalt paving mix and paving and related services, the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market or the cement operations. Conversely, in vertically-integrated markets, the cash flows of the downstream and upstream businesses are not largely independently identifiable and the vertically-integrated operations are considered the lowest level of largely independent identifiable cash flows.

Aggregates mineral bearing land and interests are included in property, plant and equipment. When leased mineral interests are acquired during a business combination, they are valued using an excess earnings approach for the life of the proven and probable reserves. Depletion expense is recorded using a units of production methodology.

 

Accrued Mining and Landfill Reclamation—The mining reclamation reserve and financial commitments for landfill closure and post-closure activities are based on management’s estimate of future cost requirements to reclaim property at both currently operating and closed sites. Estimates of these obligations have been developed based on management’s interpretation of current requirements and proposed regulatory changes and are intended to approximate fair value. Costs are estimated in current dollars, inflated until the expected time of payment, and then discounted back to present value using a credit-adjusted risk-free rate on obligations of similar maturity, adjusted to reflect the Company’s credit rating. Changes in the credit-adjusted risk-free rate do not change recorded liabilities. However, subsequent increases in the recognized obligations are measured using a current credit-adjusted risk-free rate. Decreases in the recognized obligations are measured at the initial credit-adjusted risk-free rate.

 

Significant changes in inflation rates, or the amount or, timing of future cost estimates typically result in both (1) a current adjustment to the recorded liability (and corresponding adjustment to the asset) and (2) a change in accretion of the liability and depreciation of the asset to be recorded prospectively over the remaining capacity of the unmined quarry or landfill.

 

Goodwill—Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill recorded in connection with the Company’s acquisitions is primarily attributable to the expected profitability, assembled workforces of the acquired businesses and the synergies expected to arise after the Company’s acquisition of those businesses. Goodwill is not amortized, but is tested annually for impairment as of the first day of the fourth quarter and at any time that events or circumstances indicate that goodwill may be impaired. A qualitative approach may first be applied to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If, as a result of the qualitative assessment, it is determined that an impairment is more likely than not, a Step-1 approach is performed to quantitatively compare each reporting unit’s fair value to its carrying value. The Step-1 analysis fails when a reporting unit's carrying value is in excess of its fair value, resulting in an impairment loss.

 

Income Taxes—Summit Inc. is a corporation subject to income taxes in the United States. Certain subsidiaries, including Summit Holdings, or subsidiary groups of the Company are taxable separate from Summit Inc. The provision for income taxes, or Summit Inc.’s proportional share of the provision, are included in the Company’s consolidated financial statements.

 

The Company’s deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future. The computed deferred balances are based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred

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tax assets will not be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines it would be able to realize its deferred tax assets for which a valuation allowance had been recorded then an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

The Company evaluates the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense (benefit).

 

Tax Receivable Agreement—When Class A limited partnership units of Summit Holdings (“LP Units”) are exchanged for shares of Class A common stock of Summit Inc. or Summit Inc. purchases LP Units for cash, this results in increases in Summit Inc.’s share of the tax basis of the tangible and intangible assets, which increases the tax depreciation and amortization deductions that otherwise would not have been available to Summit Inc.  These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. Prior to our IPO, we entered into a TRA with the pre-IPO owners that requires us to pay the pre-IPO owners or their permitted assignees 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize as a result of these exchanges.  These benefits include (1) increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, (2) tax benefits attributable to payments under the TRA, or (3) under certain circumstances such as an early termination of the TRA, we are deemed to realize, as a result of the increases in tax basis in connection with exchanges by the pre-IPO owners described above and certain other tax benefits attributable to payments under the TRA.

As noted above, we periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common stock. If the deferred tax assets are determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability equal to 85% of such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets subject to the TRA. Should we determine a deferred tax asset with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies.

 

The measurement of the TRA liability is accounted for as a contingent liability. Therefore, once we determine that a payment to a pre-IPO owner has become probable and can be estimated, the estimate of payment will be accrued.

 

Earnings per Share—The Company computes basic earnings per share attributable to stockholders by dividing income attributable to Summit Inc. by the weighted-average shares of Class A common stock outstanding. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in the Company’s earnings. Since the Class B common stock has no economic value, those shares are not included in the weighted-average common share amount for basic or diluted earnings per share. In addition, as the shares of Class A common stock are issued by Summit Inc., the earnings and equity interests of noncontrolling interests are not included in basic earnings per share.

 

Prior Year Reclassifications—We reclassified $1.2 million of other current assets to current assets held for sale for the year ended January 1, 2022 to be consistent with the current year presentation.

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

In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework Changes to The Disclosure Requirements for Defined Benefits Plans, which

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The Company has completed numerous acquisitions since its formation. The operations of each acquisition have been included in the Company’s consolidated results of operations since the respective closing dates of the acquisitions. The Company measures all assets acquired and liabilities assumed at their acquisition-date fair value. Goodwill acquired during a business combination has an indefinite life and is not amortized. The following table summarizes the Company’s acquisitions by region and period:

 

						2022						2021						2020
West						—						—						2
East						2						3						1

    

The purchase price allocation, primarily the valuation of property, plant and equipment for the acquisitions completed during the year end ended 2022 have not yet been finalized due to the recent timing of the acquisitions, status of the valuation of property, plant and equipment and finalization of related tax returns. The following table summarizes aggregated information regarding the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:

						2022						2021
Financial assets						$	297					$	—
Inventories						161						2,406
Property, plant and equipment						30,041						19,668
Intangible assets						—						702
Other assets						1,116						98
Financial liabilities						(1,120)						(1,742)
Other long-term liabilities						(1,589)						(470)
Net assets acquired						28,906						20,662
Goodwill						—						—
Purchase price						28,906						20,662
Acquisition-related liabilities						(6,176)						(1,149)
Other						—						—
Net cash paid for acquisitions						$	22,730					$	19,513

Acquisition-Related Liabilities—A number of acquisition-related liabilities have been recorded subject to terms in the relevant purchase agreements, including deferred consideration and noncompete payments. Noncompete payments have been accrued where certain former owners of newly acquired companies have entered into standard noncompete arrangements. Subject to terms and conditions stated in these noncompete agreements, payments are generally made over a five-year period. Deferred consideration is purchase price consideration paid in the future as agreed to in the purchase agreement and is not contingent on future events. Deferred consideration is generally scheduled to be paid in years ranging from 5 to 20 years in annual installments. The remaining payments due under these noncompete and deferred consideration agreements are as follows:

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2023			$	13,551
2024			7,289
2025			7,390
2026			6,143
2027			4,645
Thereafter			6,196
Total scheduled payments			45,214
Present value adjustments			(7,762)
Total noncompete obligations and deferred consideration			$	37,452

Accretion on the deferred consideration and noncompete obligations is recorded in interest expense.

During 2022, as part of the Company's Elevate Summit strategy to rationalize assets, the Company sold three businesses in the East segment, resulting in total cash proceeds of $373.1 million and a net gain on disposition of business of $172.4 million.

 

As of December 31, 2022, the Company had 10 reporting units with goodwill for which the annual goodwill impairment test was completed. We perform the annual impairment test on the first day of the fourth quarter each year. In 2022, we performed a Step-1 analysis on all of our reporting units. Based on this analysis, it was determined that the reporting units’ fair values were greater than their carrying values and no impairment charges were recognized in 2022.

 

These estimates of a reporting unit’s fair value involve significant management estimates and assumptions, including but not limited to sales prices of similar assets, assumptions related to future profitability, cash flows, and discount rates. These estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential. Developing discounted future cash flow estimates in applying the income approach required management to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates about revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows required the selection of risk premiums, which can materially affect the present value of estimated future cash flows.

 

The following table presents goodwill by reportable segments and in total:

 

						West						East						Cement						Total
Balance—January 2, 2021						$	586,209					$	410,426					$	204,656					$	1,201,291
Dispositions (1)						(16,222)						(21,841)						—						(38,063)
Foreign currency translation adjustments						522						—						—						522
Balance—January 1, 2022						$	570,509					$	388,585					$	204,656					$	1,163,750
Dispositions (1)						—						(27,084)						—						(27,084)
Foreign currency translation adjustments						(4,120)						—						—						(4,120)
Balance—December 31, 2022						$	566,389					$	361,501					$	204,656					$	1,132,546

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(1)Reflects goodwill derecognition from dispositions completed during 2021 and 2022, respectively.

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Revenue by product for the years ended December 31, 2022, January 1, 2022 and January 2, 2021 consisted of the following:

						2022						2021						2020
Revenue by product*:
Aggregates						$	583,993					$	573,157					$	498,007
Cement						332,518						282,081						257,629
Ready-mix concrete						687,950						702,062						668,060
Asphalt						270,444						311,046						349,350
Paving and related services						315,065						337,311						381,430
Other						222,552						204,012						177,975
Total revenue						$	2,412,522					$	2,409,669					$	2,332,451

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 *       Revenue from the liquid asphalt terminals is included in asphalt revenue.

The following table outlines the significant changes in contract assets and contract liability balances from January 1, 2022 to December 31, 2022. Also included in the table is the net change in the estimate as a percentage of aggregate revenue for such contracts:

			Costs and estimated						Billings in excess
			earnings in						of costs and
			excess of billings						estimated earnings
Balance—January 1, 2022			$	7,600					$	7,401
Changes in revenue billed, contract price or cost estimates			4,960						(768)
Divestitures			(5,926)						(844)
Other			(124)						(50)
Balance—December 31, 2022			$	6,510					$	5,739

Accounts receivable, net consisted of the following as of December 31, 2022 and January 1, 2022:

						2022						2021
Trade accounts receivable						$	215,766					$	230,714
Construction contract receivables						37,067						47,054
Retention receivables						11,048						13,094
Receivables from related parties						—						292
Accounts receivable						263,881						291,154
Less: Allowance for doubtful accounts						(7,212)						(3,928)
Accounts receivable, net						$	256,669					$	287,226

 

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

 

Inventories consisted of the following as of December 31, 2022 and January 1, 2022:

						2022						2021
Aggregate stockpiles						$	148,347					$	130,640
Finished goods						33,622						22,690
Work in process						8,191						8,277
Raw materials						22,331						19,153
Total						$	212,491					$	180,760

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Property, plant and equipment, net consisted of the following as of December 31, 2022 and January 1, 2022: 

						2022						2021
Mineral bearing land and leased interests						$	515,153					$	535,198
Land (non-mineral bearing)						183,926						196,843
Buildings and improvements						213,056						185,472
Plants, machinery and equipment						1,380,886						1,405,694
Mobile equipment and barges						555,119						560,515
Truck and auto fleet						38,717						54,700
Landfill airspace and improvements						55,027						52,258
Office equipment						49,336						47,389
Construction in progress						90,039						71,352
Property, plant and equipment						3,081,259						3,109,421
Less accumulated depreciation, depletion and amortization						(1,267,557)						(1,266,513)
Property, plant and equipment, net						$	1,813,702					$	1,842,908

 

Depreciation on property, plant and equipment, including assets subject to capital leases, is generally computed on a straight-line basis. Depletion of mineral reserves and leased mineral interests are computed based on the portion of the reserves used during the period compared to the gross estimated value of proven and probable reserves, which is updated periodically as circumstances dictate. Leasehold improvements are amortized on a straight-line basis over the lesser of the asset’s useful life or the remaining lease term. The estimated useful lives are generally as follows:

Buildings and improvements			10 - 30			years
Plant, machinery and equipment			7 - 20			years
Office equipment			3 - 7			years
Truck and auto fleet			5 - 8			years
Mobile equipment and barges			6 - 8			years
Landfill airspace and improvements			10 - 30			years
Other			4 - 20			years

 

Depreciation, depletion and amortization expense of property, plant and equipment was $184.3 million, $195.1 million and $195.3 million in the years ended December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

 

Property, plant and equipment at December 31, 2022 and January 1, 2022 included $32.1 million and $69.0 million, respectively, of finance leases for certain equipment and a building with accumulated amortization of $15.0 million and $31.4 million, respectively. The equipment leases generally have terms of less than five years and the building lease had an original term of 30 years. Approximately $7.0 million and $17.6 million of the future obligations associated with the finance leases are included in accrued expenses as of December 31, 2022 and January 1, 2022, respectively, and the present value of the remaining finance lease payments, $7.2 million and $15.0 million, respectively, is included in other noncurrent liabilities on the consolidated balance sheets. Future minimum rental commitments under long-term finance leases are $7.4 million, $2.8 million, $2.4 million, $1.0 million, and $0.8 million for the years ended 2023, 2024, 2025, 2026 and 2027, respectively.

 

Assets are assessed for impairment charges when identified for disposition. No material impairment charges have been recognized on assets held for use in fiscal 2022, 2021 or 2020.

    

Intangible Assets—The Company’s intangible assets subject to amortization are primarily composed of operating permits, mineral lease agreements and reserve rights. Operating permits relate to permitting and zoning rights acquired outside of a business combination. The assets related to mineral lease agreements reflect the submarket royalty rates paid under agreements, primarily for extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but does not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases or permits, or computed based on the portion of the reserves used during the period compared to the gross estimated value of proven and probable reserves. The following table shows intangible assets by type and in total: 

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						December 31, 2022																		January 1, 2022
						Gross												Net						Gross												Net
						Carrying						Accumulated						Carrying						Carrying						Accumulated						Carrying
						Amount						Amortization						Amount						Amount						Amortization						Amount
Operating permits						$	38,677					$	(4,109)					$	34,568					$	33,671					$	(2,467)					$	31,204
Mineral leases						18,091						(7,056)						11,035						19,927						(8,922)						11,005
Reserve rights						25,242						(3,872)						21,370						25,586						(3,329)						22,257
Other						4,877						(466)						4,411						5,481						(551)						4,930
Total intangible assets						$	86,887					$	(15,503)					$	71,384					$	84,665					$	(15,269)					$	69,396

 

Amortization expense in fiscal 2022, 2021 and 2020 was $3.5 million, $3.7 million and $2.7 million, respectively. The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows:

 

2023			$	4,010
2024			3,985
2025			3,944
2026			3,895
2027			3,883
Thereafter			51,667
Total			$	71,384

 

Accrued expenses consisted of the following as of December 31, 2022 and January 1, 2022:

						2022						2021
Interest						$	24,625					$	22,762
Payroll and benefits						34,485						38,894
Finance lease obligations						6,959						17,624
Insurance						18,127						20,480
Non-income taxes						4,360						19,409
Deferred asset purchase payments						5,131						4,912
Professional fees						924						1,524
Other (1)						25,356						21,871
Total						$	119,967					$	147,476

______________________

(1)Consists primarily of current portion of asset retirement obligations and miscellaneous accruals.

Debt consisted of the following as of December 31, 2022 and January 1, 2022: 

						2022						2021
Term Loan, due 2027:
$509.6 million and $610.0 million, net of $5.0 million and $0.7 million discount at December 31, 2022 and January 1, 2022, respectively						$	504,549					$	609,298
6 1⁄2% Senior Notes, due 2027						300,000						300,000
5 1⁄4% Senior Notes, due 2029						700,000						700,000
Total						1,504,549						1,609,298
Current portion of long-term debt						5,096						6,354
Long-term debt						$	1,499,453					$	1,602,944

 

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The contractual payments of long-term debt, including current maturities, for the five years subsequent to December 31, 2022, are as follows:

2023			$	5,096
2024			3,822
2025			6,369
2026			5,096
2027			789,177
Thereafter			700,000
Total			1,509,560
Less: Original issue net discount			(5,011)
Less: Capitalized loan costs			(10,884)
Total debt			$	1,493,665

 

Senior Notes—On September 27, 2021, Summit LLC and Summit Finance (together, the “Issuers”) redeemed all $300.0 million in aggregate principal amount of their 5.125% senior notes due June 1, 2025 (the "2025 Notes") using existing cash on hand at a price equal to par plus an applicable premium and the indenture under which the 2025 Notes were issued was satisfied and discharged. As a result of the redemption, charges of $6.0 million were recognized in the quarter ended October 2, 2021, which included charges of $3.9 million for the applicable redemption premium and $2.1 million for the write-off of the deferred financing fees.

On August 11, 2020, the Issuers issued $700.0 million in aggregate principal amount of 5.250% senior notes due January 15, 2029 (the “2029 Notes”). The 2029 Notes were issued at 100.0% of their par value with proceeds of $690.4 million, net of related fees and expenses. The 2029 Notes were issued under an indenture dated August 11, 2020 (the "2020 Indenture"). The 2020 Indenture contains covenants limiting, among other things, Summit LLC and its restricted subsidiaries’ ability to incur additional indebtedness or issue certain preferred shares, pay dividends, redeem stock or make other distributions, make certain investments, sell or transfer certain assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into certain transactions with affiliates, and designate subsidiaries as unrestricted subsidiaries. The 2020 Indenture also contains customary events of default. Interest on the 2029 Notes is payable semi-annually on January 15 and July 15 of each year commencing on January 15, 2021.

In August 2020, using the proceeds from the 2029 Notes, all of the outstanding $650.0 million 6.125% senior notes due 2023 (the “2023 Notes”) were redeemed at a price equal to par and the indenture under which the 2023 Notes were issued was satisfied and discharged. As a result of the extinguishment, charges of $4.1 million were recognized in the quarter ended September 26, 2020, which included charges of $0.8 million for the write-off of original issue discount and $3.3 million for the write-off of deferred financing fees.

On March 15, 2019, the Issuers issued $300.0 million in aggregate principal amount of 6.500% senior notes due March 15, 2027 (the “2027 Notes”). The 2027 Notes were issued at 100.0% of their par value with proceeds of $296.3 million, net of related fees and expenses. The 2027 Notes were issued under an indenture dated March 25, 2019, the terms of which are generally consistent with the 2020 Indenture. Interest on the 2027 Notes is payable semi-annually on March 15 and September 15 of each year commencing on September 15, 2019.

As of December 31, 2022 and January 1, 2022, the Company was in compliance with all covenants under the applicable indentures.

 

Senior Secured Credit Facilities— Summit LLC has credit facilities that provide for term loans in an aggregate amount of $509.6 million and revolving credit commitments in an aggregate amount of $345.0 million (the “Senior Secured Credit Facilities”). Under the Senior Secured Credit Facilities, required principal repayments of 0.25% of the refinanced aggregate amount of term debt are due on the last business day of each March, June, September and December, commencing with the March 2023 payment. The interest rate on the term loan is variable, and was 7.61% as of December 31, 2022. In 2022, the Company repaid $95.6 million of its term loan under provisions related to divestitures of businesses. The unpaid principal balance is due in full on the maturity date, which is December 14, 2027.

 

On December 14, 2022, Summit Materials, LLC entered into Amendment No. 5 to the credit agreement governing the Senior Secured Credit Facilities (the “Credit Agreement”), which among other things, (a) refinanced the existing $509.6 million of existing term loans with new term loans under the Term Loan Facility bearing interest, at Summit LLC’s option, based on

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either the base rate or Term SOFR rate and an applicable margin of (i) 2.00% per annum with respect to base rate borrowings and a floor of 1.00% per annum or (ii) 3.00% per annum with respect to Term SOFR borrowings, with a SOFR adjustment of 0.10% per annum and a floor of zero, and (b) extended the maturity date to December 14, 2027.

On January 10, 2023, Summit Materials, LLC entered into Amendment No. 6 to the Credit Agreement, which among other things, increased the maximum amount available to $395.0 million and extended the maturity date to January 10, 2028. The revolving credit agreement bears interest per annum equal to a Term SOFR Rate with a SOFR adjustment of 0.10% per annum and a floor of zero.

As of December 31, 2022, the revolving credit facility bears interest per annum equal to, at Summit LLC’s option, either (i) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) LIBOR plus 1.00%, plus an applicable margin of 2.00% for base rate loans or (ii) a LIBOR rate determined by reference to Reuters prior to the interest period relevant to such borrowing adjusted for certain additional costs plus an applicable margin of 3.00% for LIBOR rate loans.

There were no outstanding borrowings under the revolving credit facility as of December 31, 2022 or January 1, 2022. As of December 31, 2022, we had remaining borrowing capacity of $325.2 million under the revolving credit facility, which is net of $19.8 million of outstanding letters of credit. The outstanding letters of credit are renewed annually and support required bonding on construction projects and the Company’s insurance liabilities.

 

Summit LLC’s Consolidated First Lien Net Leverage Ratio, as such term is defined in the Credit Agreement, should be no greater than 4.75:1.0 as of each quarter-end. As of December 31, 2022 and January 1, 2022, Summit LLC was in compliance with all financial covenants under the Credit Agreement.

 

Summit LLC’s wholly-owned domestic subsidiary companies, subject to certain exclusions and exceptions, are named as subsidiary guarantors of the Senior Notes and the Senior Secured Credit Facilities. In addition, Summit LLC has pledged substantially all of its assets as collateral, subject to certain exclusions and exceptions, for the Senior Secured Credit Facilities.

The following table presents the activity for the deferred financing fees for the years ended December 31, 2022 and January 1, 2022:

			Deferred financing fees
Balance—January 2, 2021			$	18,367
Amortization			(3,202)
Write off of deferred financing fees			(2,116)
Balance—January 1, 2022			$	13,049
Loan origination fees			1,557
Amortization			(2,655)
Write off of deferred financing fees			(462)
Balance—December 31, 2022			$	11,489

 

Other—On January 15, 2015, the Company’s wholly-owned subsidiary in British Columbia, Canada entered into an agreement with HSBC, which was amended on November 30, 2020, for a (i) $6.0 million Canadian dollar (“CAD”) revolving credit commitment to be used for operating activities that bears interest per annum equal to the bank’s prime rate plus 0.20%, (ii) $0.5 million CAD revolving credit commitment to be used for capital equipment that bears interest per annum at the bank’s prime rate plus 0.20%, (iii) $1.5 million CAD revolving credit commitment to provide guarantees on behalf of that subsidiary and (iv) $10.0 million CAD revolving foreign exchange facility available to purchase foreign exchange forward contracts. There were no amounts outstanding under this agreement as of December 31, 2022 or January 1, 2022.

 

Summit Inc.’s tax provision includes its proportional share of Summit Holdings’ tax attributes. Summit Holdings’ subsidiaries are primarily limited liability companies, but do include certain entities organized as C corporations and a Canadian subsidiary. The tax attributes related to the limited liability companies are passed on to Summit Holdings and then to its partners, including Summit Inc. The tax attributes associated with the C corporation and Canadian subsidiaries are fully reflected in the Company’s consolidated financial statements. For the years ended December 31, 2022, January 1, 2022 and January 2, 2021, income taxes consisted of the following:

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						2022						2021						2020
Provision for income taxes:
Current						$	15,654					$	8,030					$	3,827
Deferred						69,891						36,326						(16,012)
Income tax expense (benefit)						$	85,545					$	44,356					$	(12,185)

 

The effective tax rate on pre-tax income differs from the U.S. statutory rate of 21% for 2022, 2021 and 2020, respectively, due to the following:

						2022						2021						2020
Income tax expense (benefit) at federal statutory tax rate						$	75,862					$	41,273					$	27,100
Less: Income tax benefit at federal statutory tax rate for LLC entities						(754)						(459)						(593)
State and local income taxes						12,703						7,287						5,067
Permanent differences						(7,039)						(5,493)						(3,345)
Effective tax rate change						(710)						2,317						4,257
Basis differences from divestitures						3,314						3,766						—
Unrecognized tax benefits						—						—						(41,548)
Tax receivable agreement (benefit) expense						218						28						(6)
Change in valuation allowance						(562)						—						—
Other						2,513						(4,363)						(3,117)
Income tax expense (benefit)						$	85,545					$	44,356					$	(12,185)

The following table summarizes the components of the net deferred income tax asset (liability) as December 31, 2022 and January 1, 2022: 

						2022						2021
Deferred tax assets (liabilities):
Net intangible assets						$	138,511					$	177,220
Accelerated depreciation						(196,936)						(199,357)
Net operating loss						195,669						224,014
Investment in limited partnership						(44,690)						(38,548)
Mining reclamation reserve						3,213						3,341
Working capital (e.g., accrued compensation, prepaid assets)						39,231						39,571
Interest expense limitation carryforward						3,101						—
Less valuation allowance						(1,113)						(1,675)
Deferred tax assets						136,986						204,566
Less foreign deferred tax liability (included in other noncurrent liabilities)						(15,752)						(16,939)
Net deferred tax asset						$	121,234					$	187,627

 

As of December 31, 2022, $363.9 million of our deferred tax assets subject to our TRA are included in the net intangible assets and the net operating loss line items above.

 

Our income tax expense (benefit) was $85.5 million, $44.4 million and $(12.2) million in the fiscal years ended 2022, 2021 and 2020, respectively. Our effective income tax rate in 2021 and 2020 was impacted by the IRS interpretative guidance of the Tax Cuts and Jobs Act (the “TCJA”), a change in state tax rates and a change in the amount of our TRA liability.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that begin to expire in 2030. The Company updates the analysis, and adjusted the valuation allowance for interest expense carryforwards limited under the TCJA based on updated forecast models each year.

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We had no unrecognized tax benefits as of December 31, 2022 and January 1, 2022, respectively. We did not recognize interest or penalties related to this amount as it is offset by other attributes.

 

Our net operating loss carryforward deferred tax assets begin to expire in 2030 and are expected to reverse before expiration. Therefore, we have not given consideration to any potential tax planning strategies as a source of future taxable income to monetize those net operating loss carryforwards. The Company will continue to monitor facts and circumstances, including our analysis of other sources of taxable income, in the reassessment of the likelihood that the tax benefit of our deferred tax assets will be realized.

     

As of December 31, 2022, Summit Inc. had federal net operating loss carryforwards of $813 million, a portion of which expire between 2030 and 2038. As of December 31, 2022, $660 million of our federal net operating losses were under the terms of our TRA. As of December 31, 2022 and January 1, 2022, Summit Inc. had a valuation allowance on net deferred tax assets of $1.1 million and $1.7 million, respectively, where realization of our net operating losses are not more likely than not.

						2022						2021
Valuation Allowance:
Beginning balance						$	(1,675)					$	(1,675)
Release of valuation allowance and other						562						—
Ending balance						$	(1,113)					$	(1,675)

 

Tax Receivable Agreement— During 2015, the Company entered into a TRA with the holders of LP Units and certain other pre-initial public offering owners (“Investor Entities”) that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. actually realizes (or, under certain circumstances such as an early termination of the TRA, is deemed to realize) as a result of increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA.

 

When LP Units are exchanged for an equal number of newly-issued shares of Summit Inc.’s Class A common stock, these exchanges result in new deferred tax assets. Using tax rates in effect as of each year end, $0.3 million and $13.7 million of deferred tax assets were created during the years ended December 31, 2022 and January 1, 2022, respectively, when LP Units were exchanged for shares of Class A common stock.

Each year, we update our estimate as to when TRA payments will be made. The timing and cash tax savings of those payments can cause variations in the future value of TRA tax attributes. As noted above, when payments are made under the TRA, a portion of the payment made will be characterized as imputed interest under IRS regulations. We also updated our estimate of the state income tax rate that will be in effect at the date the TRA payments are made. As a result of our updated state income tax rate, and the variance in TRA tax attributes noted above, we have increased our TRA liability by $1.6 million and decreased by $6.8 million as of December 31, 2022 and January 1, 2022, respectively.

Our TRA liability as of December 31, 2022 and January 1, 2022 was $328.4 million and $326.5 million, respectively.

 

Tax Distributions – The holders of Summit Holdings’ LP Units, including Summit Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of Summit Holdings. The limited partnership agreement of

Summit Holdings provides for pro rata cash distributions (“tax distributions”) to the holders of the LP Units in an amount generally calculated to provide each holder of LP Units with sufficient cash to cover its tax liability in respect of the LP Units. In general, these tax distributions are computed based on Summit Holdings’ estimated taxable income allocated to Summit Inc. multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate applicable to a corporate resident in New York, New York.

For the years ended December 31, 2022 and January 1, 2022, Summit Holdings paid tax distributions totaling $0.7 million and zero, respectively, to holders of its LP Units, other than Summit Inc.

 

C Corporation Subsidiaries — The effective income tax rate for the C corporations differ from the statutory federal rate primarily due to (1) tax depletion expense (benefit) in excess of the expense recorded under U.S. GAAP, (2) state income taxes and the effect of graduated tax rates, (3) differences between book and tax basis for divested businesses, (4) various other items such as limitations on meals and entertainment and other costs and (5) unrecognized tax benefits. The effective income tax rate for the Canadian subsidiary is not significantly different from its historical effective tax rate.

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No material interest or penalties were recognized in income tax expense during the years ended December 31, 2022, January 1, 2022 or January 2, 2021. Tax years from 2015 to 2019 remain open and subject to audit by federal, Canadian, and state tax authorities.

Basic earnings per share is computed by dividing net earnings by the weighted average common shares outstanding and diluted net earnings is computed by dividing net earnings, adjusted for changes in the earnings allocated to Summit Inc. as a result of the assumed conversion of LP Units, by the weighted-average common shares outstanding assuming dilution.

The following table shows the calculation of basic income per share:  

						2022						2021						2020
Net income attributable to Summit Inc.						$	272,145					$	152,184					$	137,967
Weighted average shares of Class A stock outstanding						119,747,056						119,415,448						115,993,963
Add: Nonvested restricted stock awards of retirement eligible shares						147,388						213,846						212,443
Weighted average shares outstanding						119,894,444						119,629,294						116,206,406
Basic earnings per share						$	2.27					$	1.27					$	1.19
Diluted net income attributable to Summit Inc.						$	272,145					$	152,184					$	137,967
Weighted average shares outstanding						119,894,444						119,415,448						115,993,963
Add: stock options						87,976						282,677						3,390
Add: warrants						11,647						17,674						—
Add: restricted stock units						460,700						816,966						520,871
Add: performance stock units						173,692						188,381						92,758
Weighted average dilutive shares outstanding						120,628,459						120,721,146						116,610,982
Diluted earnings per share						$	2.26					$	1.26					$	1.18

 

Excluded from the above calculations were the shares noted below as they were antidilutive:

						2022						2021						2020
Antidilutive shares:
LP Units						1,313,204						1,867,853						3,060,248
Warrants						—						—						100,037

 

Our capital stock consists of 1.0 billion shares of $0.01 par value Class A common stock authorized, of which 118,408,655 shares were issued and outstanding as of December 31, 2022. We also have authorized 250 million shares of $0.01 par value Class B common stock, of which 99 shares were issued and outstanding as of December 31, 2022. The Class B common stock entitles holders thereof, who are also holders of LP Units, with a number of votes that is equal to the number of LP Units they hold. The Class B common stock does not participate in dividends and does not have any liquidation rights.

In March 2022, our Board of Directors authorized a share repurchase program, whereby we can repurchase up to $250 million of our Class A common stock. During the nine months ended October 1, 2022, we repurchased 3.4 million shares of Class A common stock for $101 million. These shares were retired upon purchase.

 

From time to time, limited partners of Summit Holdings exchange their LP Units for shares of Class A common stock of Summit Inc. The following table summarizes the changes in our ownership of Summit Holdings:

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						Summit Inc. Shares (Class A)						LP Units						Total						Summit Inc. Ownership Percentage
Balance — January 2, 2021 (1)						116,369,809						2,873,170						119,242,979						97.6		%
Exchanges during period						1,559,164						(1,559,164)						—
Stock option exercises						1,745,940						—						1,745,940
Other equity transactions						1,009,409						—						1,009,409
Balance — January 1, 2022 (1)						120,684,322						1,314,006						121,998,328						98.9		%
Exchanges during period						2,002						(2,002)						—
Stock option exercises						10,691						—						10,691
Repurchases of common stock						(3,427,510)						—						(3,427,510)
Other equity transactions						1,139,150						—						1,139,150
Balance — December 31, 2022						118,408,655						1,312,004						119,720,659						98.9		%

______________________

(1)The December 28, 2019 and January 1, 2022 balances of Summit Inc. Class A Shares of 116,369,809 and 120,684,322, respectively, are shown to reflect the retroactive application of 1,979,214 shares of Class A common stock issued as a stock dividend on December 29, 2022.

Accumulated other comprehensive income (loss) - The changes in each component of accumulated other comprehensive income (loss) consisted of the following:

																								Accumulated
												Foreign currency												other
						Change in						translation												comprehensive
						retirement plans						adjustments												income (loss)
Balance — January 2, 2021						$	533					$	4,670											$	5,203
Postretirement liability adjustment, net of tax						975						—												975
Foreign currency translation adjustment, net of tax						—						905												905
Balance — January 1, 2022						$	1,508					$	5,575											$	7,083
Postretirement liability adjustment, net of tax						4,848						—												4,848
Foreign currency translation adjustment, net of tax						—						(8,847)												(8,847)
Balance — December 31, 2022						$	6,356					$	(3,272)											$	3,084

 

Supplemental cash flow information for the years ended December 31, 2022, January 1, 2022 and January 2, 2021 was as follows:

						2022						2021						2020
Cash payments:
Interest						$	76,279					$	81,592					$	99,551
Payments for income taxes, net						23,352						7,580						1,754
Operating cash payments on operating leases						9,483						10,955						10,452
Operating cash payments on finance leases						1,081						2,162						3,132
Finance cash payments on finance leases						16,245						17,278						14,408
Non cash investing and financing activities:
Accrued liabilities for purchases of property, plant and equipment						$	8,558					$	13,730					$	11,828
Stock Dividend						59,258						—						—
Right of use assets obtained in exchange for operating lease obligations						17,300						11,528						4,849
Right of use assets obtained in exchange for finance leases obligations						(635)						1,125						18,016
Exchange of LP Units to shares of Class A common stock						62						48,425						8,227

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Prior to the IPO and related Reorganization, the capital structure of Summit Holdings consisted of six different classes of limited partnership units, each of which was subject to unique distribution rights. In connection with the IPO and the related Reorganization, the limited partnership agreement of Summit Holdings was amended and restated to, among other things, modify its capital structure by creating LP Units. Holders of the LP Units periodically exchange their LP Units for shares of Class A common Stock of Summit Inc.

Omnibus Incentive Plan

 

Our 2015 Omnibus Incentive Plan (the "Plan") allows for grants of equity-based awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and other stock-based awards. The Plan authorizes the issuance of up to 17,500,000 shares of Class A common stock in the form of restricted stock units and stock options, of which 7.2 million shares of Class A common stock were available for future grants as of December 31, 2022.

Employee Stock Purchase Plan

At the May 2021 Annual Meeting, stockholders approved the Summit Materials, Inc. 2021 Employee Stock Purchase Plan (the “ESPP”), which authorized 5,500,000 shares of Class A common stock for issuance under the ESPP. All eligible employees may voluntarily enroll to purchase the Company’s Class A common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. Compensation expense is measured as the discount the employee is entitled to upon purchase and is recognized over the offering period. As of December 31, 2022, 5.5 million shares of Class A common stock were reserved for future issuance through the ESPP, with 5.4 million shares available for issuance.

Restricted Stock

 

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

 

In each of 2022, 2021 and 2020, the Compensation Committee granted restricted stock to executives and key employees under the Plan as part of our annual equity award program, which vest over a two or three year period, subject to continued employment or service.  From time to time, the Compensation Committee grants restricted stock to newly hired or promoted employees or other employees who have achieved extraordinary personal performance objectives.

 

Further, in each of 2022, 2021 and 2020, the Compensation Committee granted 30,520, 34,672 and 42,736 shares, respectively, to non-employee members of the Board of Directors for their annual service as directors. These restricted stock grants vest over a one year period.

 

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

Restricted stock with Service, Market-Condition-Based and Performance Based Vesting—In 2022, 2021 and 2020, the Compensation Committee granted restricted stock to certain members of our executive team as part of their annual compensation package. The restricted stock vests at the end of a three year performance period, based on our total stock return (“TSR”) ranking relative to companies in the S&P Building & Construction Select Industry Index, as well as increases in our return on invested capital, subject to continued employment.

 

Compensation expense is recorded monthly over the vesting period of the awards. The following table summarizes information for the equity awards granted in 2022:

 

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						Options												Restricted Stock Units												Performance Stock Units												Warrants
												Weighted												Weighted												Weighted												Weighted
												average grant-						Number of						average grant-						Number of						average grant-												average grant-
						Number of						date fair value						restricted						date fair value						performance						date fair value						Number of						date fair value
						options						per unit						stock units						per unit						stock units						per unit						warrants						per unit
Beginning balance—January 1, 2022						292,533						$	9.22					1,481,992						$	22.76					410,357						$	28.52					31,519						$	18.00
Granted						—						—						557,253						27.52						316,705						28.17						—						—
Forfeited/ Canceled						(1,260)						10.09						(111,203)						26.83						(17,450)						34.89						—						—
Exercised						(10,691)						10.45						—						—						—						—						—						—
Vested						—						—						(827,712)						20.96						(297,000)						26.20						—						—
Balance—December 31, 2022						280,582						$	9.27					1,100,330						$	26.12					412,612						$	29.66					31,519						$	18.00

 

The fair value of the time-vesting options granted was estimated as of the grant date using the Black-Scholes-Merton model, which requires the input of subjective assumptions, including the expected volatility and the expected term. No options to purchase common stock were granted in 2022, 2021 and 2020. The fair value of the performance stock units granted was estimated as of the grant date using Monte Carlo simulations, which requires the input of subjective assumptions, including the expected volatility and the expected term.

						Performance Stock Units
						2022						2021						2020
Risk-free interest rate						1.44%						0.29%						0.85%
Dividend yield						N/A						N/A						N/A
Volatility						67%						70%						39%
Expected term						3 years						3 years						3 years

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

 

Compensation expense for time-vesting interests granted is based on the grant date fair value. The Company recognizes compensation costs on a straight-line basis over the service period, which is generally the vesting period of the award. Forfeitures are recognized as they occur. Share-based compensation expense, which is recognized in general and administrative expenses, totaled $18.3 million, $19.7 million and $28.9 million in the years ended December 31, 2022, January 1, 2022 and January 2, 2021, respectively. As of December 31, 2022, unrecognized compensation cost totaled $19.5 million. The weighted average remaining contractual term over which the unrecognized compensation cost is to be recognized is 1.7 years as of year-end 2022.

 

 

Defined Contribution Plan—The Company sponsors employee 401(k) savings plans for its employees, including certain union employees. The plans provide for various required and discretionary Company matches of employees’ eligible compensation contributed to the plans. The expense for the defined contribution plans was $12.1 million, $10.9 million and $12.1 million for the years ended December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

 

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Defined Benefit and Other Postretirement Benefits Plans—The Company’s subsidiary, Continental Cement, sponsors two noncontributory defined benefit pension plans for hourly and salaried employees. The plans are closed to new participants and benefits are frozen. Pension benefits for eligible hourly employees are based on a monthly pension factor for each year of credited service. Pension benefits for eligible salaried employees are generally based on years of service and average eligible compensation. Continental Cement also sponsors two unfunded healthcare and life insurance benefits plans for certain eligible retired employees.

The funded status of the pension and other postretirement benefit plans is recognized in the consolidated balance sheets as the difference between the fair value of plan assets and the benefit obligations. For defined benefit pension plans, the benefit obligation is the projected benefit obligation (“PBO”) and for the healthcare and life insurance benefits plans, the benefit obligation is the accumulated postretirement benefit obligation (“APBO”). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. However, since the plans’ participants are not subject to future compensation increases, the plans’ PBO equals the accumulated benefit obligation (“ABO”). The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets represents the current market value of assets held by an irrevocable trust fund for the sole benefit of participants. The measurement of the benefit obligations is based on the Company’s estimates and actuarial valuations. These valuations reflect the terms of the plan and use participant-specific information, such as compensation, age and years of service, as well as certain assumptions that require significant judgment, including estimates of discount rates, expected return on plan assets and mortality rates.

 

The Company uses December 31 as the measurement date for its defined benefit pension and other postretirement benefit plans.

Obligations and Funded Status—The following information is as of December 31, 2022 and January 1, 2022 and for the years ended December 31, 2022, January 1, 2022 and January 2, 2021:

 

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						2022												2021
						Pension						Healthcare						Pension						Healthcare
						benefits						& Life Ins.						benefits						& Life Ins.
Change in benefit obligations:
Beginning of period						$	25,266					$	9,790					$	27,827					$	9,229
Service cost						68						35						58						194
Interest cost						640						239						550						189
Actuarial (gain) loss						(5,360)						(1,454)						(1,594)						1,143
Change in plan provision						—						(2,014)						—						—
Benefits paid						(1,577)						(1,025)						(1,575)						(965)
End of period						$	19,037					$	5,571					$	25,266					$	9,790
Change in fair value of plan assets:
Beginning of period						$	20,004					$	—					$	19,058					$	—
Actual return on plan assets						(1,606)						—						1,304						—
Employer contributions						222						1,025						1,217						965
Benefits paid						(1,577)						(1,025)						(1,575)						(965)
End of period						$	17,043					$	—					$	20,004					$	—
Funded status of plans						$	(1,994)					$	(5,571)					$	(5,262)					$	(9,790)
Current liabilities						$	—					$	(484)					$	—					$	(723)
Noncurrent liabilities						(1,994)						(5,087)						(5,262)						(9,067)
Liability recognized						$	(1,994)					$	(5,571)					$	(5,262)					$	(9,790)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss						$	5,170					$	1,919					$	8,261					$	3,591
Prior service cost						—						(3,167)						—						(1,449)
Total amount recognized						$	5,170					$	(1,248)					$	8,261					$	2,142

The amount recognized in accumulated other comprehensive income (“AOCI”) is the actuarial loss (gain) and prior service cost, which has not yet been recognized in periodic benefit cost.

 

						2022												2021												2020
						Pension						Healthcare						Pension						Healthcare						Pension						Healthcare
						benefits						& Life Ins.						benefits						& Life Ins.						benefits						& Life Ins.
Amounts recognized in other comprehensive (income) loss:
Net actuarial (gain) loss						$	(2,785)					$	(1,454)					$	(2,000)					$	1,143					$	1,728					$	675
Prior service credit						—						(2,013)						—						—						—						—
Amortization of prior year service credit						—						296						—						241						—						241
Amortization of loss						(307)						(218)						(428)						(259)						(326)						(89)
Total amount recognized						$	(3,092)					$	(3,389)					$	(2,428)					$	1,125					$	1,402					$	827

The pension and postretirement healthcare and life programs experienced significant actuarial gains during the year ended December 31, 2022 due to the change in discount rate. This change was partially offset by lower than expected investment returns.

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						2022												2021												2020
						Pension						Healthcare						Pension						Healthcare						Pension						Healthcare
						benefits						& Life Ins.						benefits						& Life Ins.						benefits						& Life Ins.
Components of net periodic benefit cost:
Service cost						$	68					$	35					$	58					$	194					$	71					$	176
Interest cost						640						239						550						189						733						242
Amortization of loss						307						218						428						259						326						89
Expected return on plan assets						(970)						—						(898)						—						(1,221)						—
Amortization of prior service credit						—						(296)						—						(241)						—						(241)
Net periodic benefit (expense) cost						$	45					$	196					$	138					$	401					$	(91)					$	266

 

Assumptions—Weighted-average assumptions used to determine the benefit obligations as of year-end 2022 and 2021 are:

						2022												2021
												Healthcare												Healthcare
						Pension benefits						& Life Ins.						Pension benefits						& Life Ins.
Discount rate						5.16%						5.09%						2.63%						2.31%
Expected long-term rate of return on plan assets						5.00%						N/A						5.00%						N/A

 

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, 2022, January 1, 2022 and January 2, 2021:

						2022												2021												2020
												Healthcare												Healthcare												Healthcare
						Pension benefits						& Life Ins.						Pension benefits						& Life Ins.						Pension benefits						& Life Ins.
Discount rate						2.63%						2.31%						2.04%						1.82%						2.90%						2.79%
Expected long-term rate of return on plan assets						5.00%						N/A						5.00%						N/A						7.00%						N/A

 

The expected long-term return on plan assets is based upon the Plans’ consideration of historical and forward-looking returns and the Company’s estimation of what a portfolio, with the target allocation described below, will earn over a long-term horizon. The discount rate is derived using the FTSE Above Median Pension Discount Curve.

The assumed health care cost trend rate for year end 2022 was 7.0% grading to 4.46% in 2042. As of year end 2021, the assumed trend rate was 7.0% grading to 4.75% in 2032. Assumed health care cost trend rates have a significant effect on the amounts reported for the Company’s healthcare and life insurance benefits plans.

Plan Assets—The defined benefit pension plans’ (the “Plans”) investment strategy is to minimize investment risk while generating acceptable returns. The Plans currently invest a relatively high proportion of the plan assets in fixed income securities, while the remainder is invested in equity securities, cash reserves and precious metals. The equity securities are diversified into funds with growth and value investment strategies. The target allocation for plan assets is as follows: equity securities—35%; fixed income securities—55%; cash reserves—5%; alternatives—4%; and precious metals—1%. The Plans’ current investment allocations are within the tolerance of the target allocation. The Company had no Level 3 investments as of or for the years ended December 31, 2022 and January 1, 2022.

 

At year-end 2022 and 2021, the Plans’ assets were invested predominantly in fixed-income securities and publicly traded equities, but may be invested in other asset classes in the future subject to the parameters of the investment policy. The Plans’ investments in fixed-income assets include U.S. Treasury and U.S. agency securities and corporate bonds. The Plans’ investments in equity assets include U.S. and international securities and equity funds. The Company estimates the fair value of the Plans’ assets using various valuation techniques and, to the extent available, quoted market prices in active markets or observable market inputs. The descriptions and fair value methodologies for the Plans’ assets are as follows:

 

Fixed Income Securities—Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields and credit ratings.

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Equity Securities—Equity securities are valued at the closing market price reported on a U.S. exchange where the security is actively traded and are therefore classified as Level 1 assets.

 

Cash—The carrying amounts of cash approximate fair value due to the short-term maturity.

 

Precious Metals—Precious metals are valued at the closing market price reported on a U.S. exchange where the security is actively traded and are therefore classified as Level 1 assets.

The fair value of the Plans’ assets by asset class and fair value hierarchy level as of December 31, 2022 and January 1, 2022 are as follows:

 

						2022
												Quoted prices in active
						Total fair						markets for identical						Observable
						value						assets (Level 1)						inputs (Level 2)
Fixed income securities:
Intermediate—government						$	4,849					$	4,849					$	—
Intermediate—corporate						2,754						—						2,754
Short-term—government						531						531						—
Short-term—corporate						538						—						538
International						836						—						836
Equity securities:
U.S. Large cap value						1,635						1,635						—
U.S. Large cap growth						997						997						—
U.S. Mid cap value						630						630						—
U.S. Mid cap growth						439						439						—
U.S. Small cap value						607						607						—
U.S. Small cap growth						422						422						—
International						745						—						745
Emerging Markets						740						740						—
Commodities Broad Basket						185						185						—
Cash						1,135						1,135						—
Total						$	17,043					$	12,170					$	4,873

 

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						2021
												Quoted prices in active
						Total fair						markets for identical						Observable
						value						assets (Level 1)						inputs (Level 2)
Fixed income securities:
Intermediate—government						$	3,412					$	3,412					$	—
Intermediate—corporate						4,424						—						4,424
Short-term—government						1,727						1,727						—
Short-term—corporate						79						—						79
International						821						—						821
Equity securities:
U.S. Large cap value						1,912						1,912						—
U.S. Large cap growth						1,330						1,330						—
U.S. Mid cap value						750						750						—
U.S. Mid cap growth						526						526						—
U.S. Small cap value						730						730						—
U.S. Small cap growth						491						491						—
International						1,188						396						792
Emerging Markets						374						374						—
Commodities Broad Basket						1,058						202						856
Cash						1,182						1,182						—
Total						$	20,004					$	13,032					$	6,972

 

Cash Flows—The Company does not expect to contribute to its pension plans during 2023 and expects to contribute $0.5 million to its postretirement healthcare and life insurance benefits plans.

The estimated benefit payments for each of the next five years and the five-year period thereafter are as follows:

 

						Pension						Healthcare and Life
						benefits						Insurance Benefits
2023						$	1,698					$	484
2024						1,684						496
2025						1,640						515
2026						1,604						531
2027						1,575						555
2028 - 2032						7,215						2,560

 

Multiemployer Pension Plans— In 2018, through an acquisition, the Company assumed an obligation to contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in multiemployer pension plans are different from single-employer plans. Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer ceases contributing to the plan, the unfunded obligations of the plan are the responsibility of the remaining participating employers.

The Company's participation in these plans for the annual period ended December 31, 2022, is outlined in the table below. The ''EIN/Pension Plan Number" column provides the Employer Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2022 and 2021 is for the plan 's year end at December 31, 2022, and December 31, 2021, respectively. The zone status is based on information the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The "Surcharge Imposed" column indicates whether a surcharge has been imposed on contributions to the plan. The last column lists the expiration date(s) of the collective-

---

bargaining agreement(s) to which the plans are subject. There have been no significant changes that affect the comparability of 2022 and 2021 contributions.

Expiration Date of

Pension Protection Act

FIP/RP Status

Contributions of Company

Collective-

Pension

EIN/ Pension

Zone Status

Pending/

($ in thousands)

Surcharge

Bargaining

Trust Fund

Plan Number

2022

2021

Implemented

2022

2021

Imposed

Agreement

Construction Industry Laborers Pension Fund

43-6060737/001

Green - as of December 31, 2021

Green - as of December 31, 2020

None

$

108

$

107

No

3/31/2026

Operating Engineers Local 101 Pension Plan

43-6059213/001

Green - as of December 31, 2021

Green - as of December 31, 2020

None

21

19

No

3/31/2026

Total Contributions

$

129

$

126

The Company was not listed as providing more than 5% of the total contributions for the Operating Engineers Local 101 Pension Plan or the Construction Industry Laborers Pension Fund for the plan years 2022 and 2021 per the plans' Forms 5500. As of the date of the filing of this annual report on Form 10-K, Forms 5500 were not available for the plan year ending December 31, 2022.

 

The Company has asset retirement obligations arising from regulatory or contractual requirements to perform certain reclamation activities at the time that certain quarries and landfills are closed, which are primarily included in other noncurrent liabilities on the consolidated balance sheets. The current portion of the liabilities, $4.0 million and $7.4 million as of December 31, 2022 and January 1, 2022, respectively, is included in accrued expenses on the consolidated balance sheets. The total undiscounted anticipated costs for site reclamation as of December 31, 2022 and January 1, 2022 were $124.9 million and $112.4 million, respectively. The liabilities were initially measured at fair value and are subsequently adjusted for accretion expense, payments and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. The following table presents the activity for the asset retirement obligations for the years ended December 31, 2022 and January 1, 2022: 

						2022						2021
Beginning balance						$	45,051					$	43,603
Acquired obligations						739						337
Change in cost estimate						(1,238)						1,427
Settlement of reclamation obligations						(2,756)						(3,240)
Dispositions						(4,150)						—
Accretion expense						2,613						2,924
Ending balance						$	40,259					$	45,051

 

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

In March 2018, we were notified of an investigation by the Canadian Competition Bureau (the “CCB”) into pricing practices by certain asphalt paving contractors in British Columbia, including Winvan Paving, Ltd. (“Winvan”). We believe the investigation is focused on time periods prior to our April 2017 acquisition of Winvan and we are cooperating with the CCB. Although we currently do not believe this matter will have a material adverse effect on our business, financial condition or results of operations, we are currently not able to predict the ultimate outcome or cost of the investigation.

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

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

We lease construction and office equipment, distribution facilities and office space. Leases with an initial term of 12 months or less, including month to month leases, are not recorded on the balance sheet. Lease expense for short-term leases is recognized on a straight line basis over the lease term. For lease agreements we have entered into or reassessed, we combine lease and nonlease components. While we also own mineral leases for mining operations, those leases are outside the scope of ASU No. 2016-2, Leases (Topic 842). Assets acquired under finance leases are included in property, plant and equipment.

Many of our leases include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease expense were as follows:

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The Company has lease agreements associated with quarry facilities under which royalty payments are made. The payments are generally based on tons sold in a particular period; however, certain agreements have minimum annual payments. Royalty expense recorded in cost of revenue during the years ended December 31, 2022, January 1, 2022 and January 2, 2021 was $33.5 million, $34.8 million and $29.2 million, respectively. Minimum contractual commitments for the subsequent five years under royalty agreements are as follows:

			Royalty
			Agreements
2023			$	10,794
2024			10,431
2025			10,202
2026			9,060
2027			8,468

 

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

 

The fair value of contingent consideration as of December 31, 2022 and January 1, 2022 was: 

						2022						2021
Current portion of acquisition-related liabilities and Accrued expenses:
Contingent consideration						$	336					$	129
Acquisition-related liabilities and Other noncurrent liabilities:
Contingent consideration						$	4,981					$	1,239

 

The fair value accounting guidance establishes the following fair value hierarchy that prioritizes the inputs used to measure fair value:

 

Level  1 —  Quoted prices in active markets for identical assets and liabilities.

Level 2 —  Observable inputs, other than quoted prices, for similar assets or liabilities in active markets.

Level 3 —  Unobservable inputs, which includes the use of valuation models.

  

Financial Instruments—The Company’s financial instruments include debt and certain acquisition-related liabilities (deferred consideration and noncompete obligations). The carrying value and fair value of these financial instruments as of December 31, 2022 and January 1, 2022 were: 

						December 31, 2022												January 1, 2022
						Fair Value						Carrying Value						Fair Value						Carrying Value
Level 1
Long-term debt(1)						$	1,447,673					$	1,504,549					$	1,653,085					$	1,609,298
Level 3
Current portion of deferred consideration and noncompete obligations(2)						13,382						13,382						12,981						12,981
Long term portion of deferred consideration and noncompete obligations(3)						24,070						24,070						32,130						32,130

_____________________

(1)$5.1 million and $6.4 million was included in current portion of debt as of December 31, 2022 and January 1, 2022, respectively.

(2)Included in current portion of acquisition-related liabilities on the consolidated balance sheets.

(3)Included in acquisition-related liabilities on the consolidated balance sheets.

    

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Level 1 fair values are used to value investments in publicly-traded entities and assumed obligations for publicly-traded long-term debt.

Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred income tax assets and liabilities, liabilities for asset retirement obligations, environmental remediation and compliance obligations. Additionally, Level 2 fair values are typically used to value assumed contracts at other-than-market rates.

Level 3 fair values are used to value acquired mineral reserves and leased mineral interests and other identifiable intangible assets. The fair values of mineral reserves and leased mineral interests are determined using an excess earnings approach, which requires management to estimate future cash flows. The estimate of future cash flows is based on available historical information and forecasts determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, volumes and expected profit margins, net of capital requirements. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would assume if purchasing the acquired business.

The Level 3 fair values of contingent consideration were based on projected probability-weighted cash payments and a 9.5% discount rate, which reflects a market discount rate. Changes in fair value may occur as a result of a change in actual or projected cash payments, the probability weightings applied by the Company to projected payments or a change in the discount rate. Significant increases or decreases in any of these inputs in isolation could result in a lower, or higher, fair value measurement. There were no material adjustments to the fair value of contingent consideration in 2022 or 2021. The fair values of the deferred consideration and noncompete obligations were determined based on the cash payment terms in the purchase agreements and a discount rate reflecting the Company’s credit risk. The discount rate used is generally consistent with that used when the obligations were initially recorded.

 

Securities with a maturity of three months or less are considered cash equivalents and the fair value of these assets approximates their carrying value.

 

The Company has three operating segments: West, East and Cement, which are its reporting segments. These segments are consistent with the Company’s management reporting structure. The operating results of each segment are regularly reviewed and evaluated by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”). The CODM primarily evaluates the performance of its segments and allocates resources to them based on a segment profit metric that we call Adjusted EBITDA, which is computed as earnings from continuing operations before interest, taxes, depreciation, depletion, amortization, accretion, share-based compensation, and transaction costs, as well as various other non-recurring, non-cash amounts.

 

The West and East segments have several acquired subsidiaries that are engaged in various activities including quarry mining, aggregate production and contracting. The Cement segment is engaged in the production of Portland cement. Assets employed by each segment include assets directly identified with those operations. Corporate assets consist primarily of cash, property, plant and equipment for corporate operations and other assets not directly identifiable with a reportable business segment. The accounting policies applicable to each segment are consistent with those used in the consolidated financial statements.

 

The following tables display selected financial data for the Company’s reportable business segments as of and for the years ended December 31, 2022, January 1, 2022 and January 2, 2021: 

						2022						2021						2020
Revenue*:
West						$	1,390,307					$	1,262,061					$	1,262,196
East						664,479						849,374						799,633
Cement						357,736						298,234						270,622
Total revenue						$	2,412,522					$	2,409,669					$	2,332,451

______________________

*       Intercompany sales are immaterial and the presentation above only reflects sales to external customers.

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						2022						2021						2020
Income from operations before taxes						$	361,488					$	198,637					$	129,055
Interest expense						86,969						92,240						103,595
Depreciation, depletion and amortization						197,837						226,442						218,682
Accretion						2,613						2,924						2,638
Loss on debt financings						1,737						6,016						4,064
Tax receivable agreement expense (benefit)						1,566						(6,779)						(7,559)
Loss (gain) on sale of businesses						(172,389)						(20,011)						—
Non-cash compensation						18,347						19,705						28,857
Other						(6,692)						908						2,957
Total Adjusted EBITDA						$	491,476					$	520,082					$	482,289
Total Adjusted EBITDA by Segment:
West						$	280,557					$	271,560					$	271,052
East						129,203						181,483						162,275
Cement						125,582						117,159						92,956
Corporate and other						(43,866)						(50,120)						(43,994)
Total Adjusted EBITDA						$	491,476					$	520,082					$	482,289

 

						2022						2021						2020
Purchases of property, plant and equipment
West						$	123,085					$	94,056					$	67,500
East						84,323						89,727						92,528
Cement						44,950						26,962						15,071
Total reportable segments						252,358						210,745						175,099
Corporate and other						14,375						1,237						2,150
Total purchases of property, plant and equipment						$	266,733					$	211,982					$	177,249

 

						2022						2021						2020
Depreciation, depletion, amortization and accretion:
West						$	97,892					$	99,470					$	93,866
East						63,297						86,623						86,205
Cement						36,028						39,024						37,267
Total reportable segments						197,217						225,117						217,338
Corporate and other						3,233						4,249						3,982
Total depreciation, depletion, amortization and accretion						$	200,450					$	229,366					$	221,320

 

						2022						2021						2020
Total assets:
West						$	1,565,776					$	1,512,298					$	1,503,382
East						1,151,223						1,292,638						1,303,742
Cement						873,604						844,086						850,835
Total reportable segments						3,590,603						3,649,022						3,657,959
Corporate and other						665,089						590,103						650,052
Total						$	4,255,692					$	4,239,125					$	4,308,011

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ATTACHMENTS / EXHIBITS

EX-4.1

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XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

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XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

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XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

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