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Summit Materials, Inc. - Quarter Report: 2022 October (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                       
Commission file numbers:
001-36873 (Summit Materials, Inc.)
333-187556 (Summit Materials, LLC)
SUMMIT MATERIALS, INC.
SUMMIT MATERIALS, LLC
(Exact name of registrants as specified in their charters)

Delaware (Summit Materials, Inc.)
47-1984212
Delaware (Summit Materials, LLC)
26-4138486
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1550 Wynkoop Street, 3rd Floor
80202
Denver, Colorado
(Zip Code)
(Address of principal executive offices)

Registrants’ telephone number, including area code: (303) 893-0012
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock (par value $.01 per share)SUMNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Summit Materials, Inc.YesNoSummit Materials, LLCYesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Summit Materials, Inc.YesNoSummit Materials, LLCYesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Summit Materials, Inc.     
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Summit Materials, LLC     
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Summit Materials, Inc.YesNoSummit Materials, LLCYesNo
As of November 1, 2022, the number of shares of Summit Materials, Inc.’s outstanding Class A and Class B common stock, par value $0.01 per share for each class, was 116,425,077 and 99, respectively.
As of November 1, 2022, 100% of Summit Materials, LLC’s outstanding limited liability company interests were held by Summit Materials Intermediate Holdings, LLC, its sole member and an indirect subsidiary of Summit Materials, Inc.



EXPLANATORY NOTE
 
This quarterly report on Form 10-Q (this “report”) is a combined quarterly report being filed separately by two registrants: Summit Materials, Inc. and Summit Materials, LLC. Each registrant hereto is filing on its own behalf all of the information contained in this report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. We believe that combining the quarterly reports on Form 10-Q of Summit Materials, Inc. and Summit Materials, LLC into this single report eliminates duplicative and potentially confusing disclosure and provides a more streamlined presentation since a substantial amount of the disclosure applies to both registrants.
 
Unless stated otherwise or the context requires otherwise, references to “Summit Inc.” mean Summit Materials, Inc., a Delaware corporation, and references to “Summit LLC” mean Summit Materials, LLC, a Delaware limited liability company. The references to Summit Inc. and Summit LLC are used in cases where it is important to distinguish between them. We use the terms “we,” “our,” “us” or “the Company” to refer to Summit Inc. and Summit LLC together with their respective subsidiaries, unless otherwise noted or the context otherwise requires.
 
Summit Inc. was formed on September 23, 2014 to be a holding company. As of October 1, 2022, its sole material asset was a 98.9% economic interest in Summit Materials Holdings L.P., a Delaware limited partnership (“Summit Holdings”). Summit Inc. has 100% of the voting rights of Summit Holdings, which is the indirect parent of Summit LLC. Summit LLC is a co-issuer of our outstanding 6 1/2 % senior notes due 2027 (“2027 Notes”) and our 5 1/4% senior notes due 2029 (“2029 Notes” and collectively with the 2027 Notes, the “Senior Notes”). Summit Inc.’s only revenue for the three and nine months ended October 1, 2022 was that generated by Summit LLC and its consolidated subsidiaries. Summit Inc. controls all of the business and affairs of Summit Holdings and, in turn, Summit LLC.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report includes “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “trends,” “plans,” “estimates,” “projects” or “anticipates” or similar expressions that concern our strategy, plans, expectations or intentions. All statements made relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, it is very difficult to predict the effect of known factors, and, of course, it is impossible to anticipate all factors that could affect our actual results. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be realized. Important factors could affect our results and could cause results to differ materially from those expressed in our forward-looking statements, including but not limited to the factors discussed in the section entitled “Risk Factors” in Summit Inc.’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”), any factors discussed in the section entitled “Risk Factors” of this report and the following:

our dependence on the construction industry and the strength of the economies in which we operate;
the cyclical nature of our industry;
risks related to weather and seasonality;
risks associated with our capital-intensive business;
competition within our local markets;
our ability to execute on our acquisition and portfolio optimization strategy, successfully integrate acquisitions with our existing operations and retain key employees of acquired businesses;
our dependence on securing and permitting aggregate reserves in strategically located areas;
the impact of the coronavirus (“COVID-19”) pandemic, and responses to it, including vaccine mandates, or any similar crisis, on our business;



declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies particularly if such are not augmented by federal funding or if the federal government fails to act on a highway infrastructure bill;
our reliance on private investment in infrastructure, which may be adversely affected by periods of economic stagnation, recession and rising interest rates;
environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;
costs associated with pending and future litigation;
rising prices for, or more limited availability of, commodities, labor and other production and delivery inputs as a result of inflation, supply chain challenges, geopolitical events or otherwise;
conditions in the credit markets;
our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications;
cancellation of a significant number of contracts or our disqualification from bidding for new contracts;
special hazards related to our operations that may cause personal injury or property damage not covered by insurance;
unexpected factors affecting self-insurance claims and reserve estimates;
our current level of indebtedness, including our exposure to variable interest rate risk;
our dependence on senior management team, and our ability to retain and attract other qualified personnel;
supply constraints or significant price fluctuations in the electricity and petroleum-based resources that we use, including diesel and liquid asphalt;
climate change and climate change legislation or other regulations;
unexpected operational difficulties;
interruptions in our information technology systems and infrastructure, including cybersecurity and data leakage risks; and
potential labor disputes, strikes, other forms of work stoppage or other union activities.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
 
Any forward-looking statement that we make herein speaks only as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

 CERTAIN DEFINITIONS
 
As used in this report, unless otherwise noted or the context otherwise requires:
 
“EBITDA” refers to net income (loss) before interest expense (income), income tax expense (benefit) and depreciation, depletion and amortization;
“Finance Corp.” refers to Summit Materials Finance Corp., an indirect wholly-owned subsidiary of Summit LLC and the co-issuer of the Senior Notes;
“LP Units” refers to the Class A limited partnership units of Summit Holdings; and
“TRA” refers to a tax receivable agreement between Summit Inc. and certain current and former holders of LP Units and their permitted assignees.



Corporate Structure
The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of October 1, 2022. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.
sum-20221001_g1.jpg
(1)SEC registrant.
(2)The shares of Class B Common Stock are currently held by pre-IPO investors, including certain members of management or their family trusts that directly hold LP Units. A holder of Class B Common Stock is entitled, without regard to the number of shares of Class B Common Stock held by such holder, to a number of votes that is equal to the aggregate number of LP Units held by such holder.
(3)Guarantor under the senior secured credit facilities, but not the Senior Notes.
(4)Summit LLC and Finance Corp are the issuers of the Senior Notes and Summit LLC is the borrower under our senior secured credit facilities. Finance Corp. was formed solely for the purpose of serving as co-issuer or guarantor of certain indebtedness, including the Senior Notes. Finance Corp. does not and will not have operations of any kind and does not and will not have revenue or assets other than as may be incidental to its activities as a co-issuer or guarantor of certain indebtedness.


Table of Contents
SUMMIT MATERIALS, INC.
SUMMIT MATERIALS, LLC 
FORM 10-Q 
TABLE OF CONTENTS  
  Page No.
PART I—Financial Information 
   
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
PART II — Other Information 
   
   
   
   
   
   
   
  



Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
 October 1, 2022January 1, 2022
 (unaudited)(audited)
Assets  
Current assets:  
Cash and cash equivalents$471,666 $380,961 
Accounts receivable, net363,956 287,226 
Costs and estimated earnings in excess of billings33,568 7,600 
Inventories202,783 180,760 
Other current assets20,132 11,827 
Current assets held for sale1,205 1,236 
Total current assets1,093,310 869,610 
Property, plant and equipment, less accumulated depreciation, depletion and amortization (October 1, 2022 - $1,241,028 and January 1, 2022 - $1,266,513)
1,768,394 1,842,908 
Goodwill1,131,764 1,163,750 
Intangible assets, less accumulated amortization (October 1, 2022 - $14,642 and January 1, 2022 - $15,269)
67,253 69,396 
Deferred tax assets, less valuation allowance (October 1, 2022 - $1,113 and January 1, 2022 - $1,675)
151,099 204,566 
Operating lease right-of-use assets31,057 30,150 
Other assets42,078 58,745 
Total assets$4,284,955 $4,239,125 
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of debt$6,354 $6,354 
Current portion of acquisition-related liabilities12,215 13,110 
Accounts payable166,592 128,232 
Accrued expenses123,985 147,476 
Current operating lease liabilities6,481 6,497 
Billings in excess of costs and estimated earnings7,143 7,401 
Total current liabilities322,770 309,070 
Long-term debt1,492,429 1,591,019 
Acquisition-related liabilities23,953 33,369 
Tax receivable agreement liability327,501 326,548 
Noncurrent operating lease liabilities29,945 28,880 
Other noncurrent liabilities117,133 127,027 
Total liabilities2,313,731 2,415,913 
Commitments and contingencies (see note 12)
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 116,386,969 and 118,705,108 shares issued and outstanding as of October 1, 2022 and January 1, 2022, respectively
1,165 1,188 
Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 99 shares issued and outstanding as of October 1, 2022 and January 1, 2022
— — 
Additional paid-in capital1,340,602 1,326,340 
Accumulated earnings620,320 478,956 
Accumulated other comprehensive (loss) income(3,470)7,083 
Stockholders’ equity1,958,617 1,813,567 
Noncontrolling interest in Summit Holdings12,607 9,645 
Total stockholders’ equity1,971,224 1,823,212 
Total liabilities and stockholders’ equity$4,284,955 $4,239,125 

See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except share and per share amounts) 
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Revenue:    
Product$587,138 $561,938 $1,485,746 $1,443,972 
Service98,871 100,321 224,676 235,298 
Net revenue686,009 662,259 1,710,422 1,679,270 
Delivery and subcontract revenue66,738 54,981 149,826 133,731 
Total revenue752,747 717,240 1,860,248 1,813,001 
Cost of revenue (excluding items shown separately below):
Product392,187 356,214 1,042,888 980,045 
Service76,011 75,741 179,807 187,570 
Net cost of revenue468,198 431,955 1,222,695 1,167,615 
Delivery and subcontract cost66,738 54,981 149,826 133,731 
Total cost of revenue534,936 486,936 1,372,521 1,301,346 
General and administrative expenses39,959 47,364 139,534 146,454 
Depreciation, depletion, amortization and accretion52,133 59,082 150,483 173,651 
Gain on sale of property, plant and equipment (1,343)(1,159)(6,293)(4,331)
Operating income127,062 125,017 204,003 195,881 
Interest expense21,980 24,134 62,728 72,536 
Loss on debt financings— 6,016 — 6,016 
Tax receivable agreement expense— — 954 — 
(Gain) loss on sale of businesses(4,115)113 (174,373)(15,319)
Other income, net(3,283)(1,137)(4,956)(10,721)
Income from operations before taxes112,480 95,891 319,650 143,369 
Income tax expense24,829 20,513 74,033 33,478 
Net income87,651 75,378 245,617 109,891 
Net income attributable to Summit Holdings1,162 1,174 3,307 1,545 
Net income attributable to Summit Inc.$86,489 $74,204 $242,310 $108,346 
Earnings per share of Class A common stock:
Basic$0.73 $0.63 $2.05 $0.92 
Diluted$0.73 $0.62 $2.03 $0.92 
Weighted average shares of Class A common stock:
Basic117,917,058 118,473,530 118,365,801 117,258,431 
Diluted118,404,098 119,291,646 119,098,936 118,360,615 

See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
(In thousands) 
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net income$87,651 $75,378 $245,617 $109,891 
Other comprehensive income (loss):
Foreign currency translation adjustment(10,247)(4,076)(14,113)682 
Less tax effect of other comprehensive income (loss) items2,470 823 3,404 (176)
Other comprehensive (loss) income(7,777)(3,253)(10,709)506 
Comprehensive income79,874 72,125 234,908 110,397 
Less comprehensive income attributable to Summit Holdings1,048 1,117 3,151 1,584 
Comprehensive income attributable to Summit Inc.$78,826 $71,008 $231,757 $108,813 

See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands) 
 Nine months ended
 October 1, 2022October 2, 2021
Cash flows from operating activities:  
Net income$245,617 $109,891 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion160,162 177,841 
Share-based compensation expense15,058 14,875 
Net gain on asset and business disposals(180,240)(19,295)
Non-cash loss on debt financings— 2,116 
Change in deferred tax asset, net58,318 19,814 
Other(396)(586)
Decrease (increase) in operating assets, net of acquisitions and dispositions:
Accounts receivable, net(96,724)(78,108)
Inventories(53,762)(12,002)
Costs and estimated earnings in excess of billings(32,042)(26,969)
Other current assets(6,961)(2,556)
Other assets3,432 6,459 
(Decrease) increase in operating liabilities, net of acquisitions and dispositions:
Accounts payable44,510 33,756 
Accrued expenses(21,780)(15,598)
Billings in excess of costs and estimated earnings646 (2,907)
Tax receivable agreement liability954 9,191 
Other liabilities(4,601)(8,549)
Net cash provided by operating activities132,191 207,373 
Cash flows from investing activities:
Acquisitions, net of cash acquired(1,933)(7,263)
Purchases of property, plant and equipment(189,008)(170,070)
Proceeds from the sale of property, plant and equipment8,298 8,827 
Proceeds from sale of businesses373,790 103,649 
Other(2,214)(459)
Net cash provided by (used in) investing activities188,933 (65,316)
Cash flows from financing activities:
Payments on debt(113,769)(323,802)
Payments on acquisition-related liabilities(12,964)(9,755)
Distributions from partnership(399)— 
Repurchases of common stock(100,980)— 
Proceeds from stock option exercises199 32,416 
Other(774)(951)
Net cash used in financing activities(228,687)(302,092)
Impact of foreign currency on cash(1,732)(63)
Net increase (decrease) in cash90,705 (160,098)
Cash and cash equivalents—beginning of period380,961 418,181 
Cash and cash equivalents—end of period$471,666 $258,083 

See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share amounts) 
 Summit Materials, Inc. 
 Accumulated
OtherClass AClass BAdditionalNoncontrollingTotal
AccumulatedComprehensiveCommon StockCommon StockPaid-inInterest inStockholders’
 Earnings(loss) incomeSharesDollarsSharesDollarsCapitalSummit HoldingsEquity
Balance - January 1, 2022$478,956 $7,083 118,705,108 $1,188 99 $— $1,326,340 $9,645 $1,823,212 
Net loss(34,292)— — — — — — (508)(34,800)
Other comprehensive income, net of tax— 1,306 — — — — — 19 1,325 
Stock option exercises— — 1,589 — — — 27 — 27 
Share-based compensation— — — — — — 5,422 — 5,422 
Repurchases of common stock(47,494)— (1,506,878)(15)— — (121)121 (47,509)
Shares redeemed to settle taxes and other— — 842,029 — — (1,120)(68)(1,180)
Balance — April 2, 2022$397,170 $8,389 118,041,848 $1,181 99 $— $1,330,548 $9,209 $1,746,497 
Net loss190,113 — — — — — — 2,653 192,766 
Other comprehensive loss, net of tax— (4,196)— — — — — (61)(4,257)
Stock option exercises— — 4,929 — — — 96 — 96 
Share-based compensation— — — — — — 4,734 — 4,734 
Distributions from partnership— — — — — — — (25)(25)
Shares redeemed to settle taxes and other— — 67,835 — — 997 (7)991 
Balance — July 2, 2022$587,283 $4,193 118,114,612 $1,182 99 $— $1,336,375 $11,769 $1,940,802 
Net income86,489 — — — — — — 1,162 87,651 
LP Unit exchanges— — 2,000 — — — 34 (34)— 
Other comprehensive loss, net of tax— (7,663)— — — — — (114)(7,777)
Stock option exercises— — 3,580 — — — 76 — 76 
Share-based compensation— — — — — — 4,902 — 4,902 
Repurchases of common stock(53,452)— (1,920,632)(19)— — (198)198 (53,471)
Distributions from partnership— — — — — — — (374)(374)
Shares redeemed to settle taxes and other— — 187,409 — — (587)— (585)
Balance - October 1, 2022$620,320 $(3,470)116,386,969 $1,165 99 $— $1,340,602 $12,607 $1,971,224 
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Summit Materials, Inc.
Accumulated
OtherClass AClass BAdditionalNoncontrollingTotal
AccumulatedComprehensiveCommon StockCommon StockPaid-inInterest inStockholders’
Earnings(loss) incomeSharesDollarsSharesDollarsCapitalSummit HoldingsEquity
Balance — January 2, 2021$326,772 $5,203 114,390,595 $1,145 99 $— $1,264,681 $18,467 $1,616,268 
Net loss(22,517)— — — — — — (728)(23,245)
LP Unit exchanges— — 711,794 — — 4,744 (4,751)— 
Other comprehensive income, net of tax— 1,635 — — — — — 45 1,680 
Stock option exercises— — 863,338 — — 15,911 — 15,920 
Share-based compensation— — — — — — 5,363 — 5,363 
Shares redeemed to settle taxes and other— — 678,605 — — (1,432)— (1,426)
Balance — April 3, 2021$304,255 $6,838 116,644,332 $1,167 99 $— $1,289,267 $13,033 $1,614,560 
Net income56,659 — — — — — — 1,099 57,758 
LP Unit exchanges— — 445,540 — — 3,631 (3,635)— 
Other comprehensive income, net of tax— 2,028 — — — — — 51 2,079 
Stock option exercises— — 847,480 — — 15,837 — 15,845 
Share-based compensation— — — — — — 4,827 — 4,827 
Shares redeemed to settle taxes and other— — 18,536 — — (148)— (147)
Balance — July 3, 2021$360,914 $8,866 117,955,888 $1,180 99 $— $1,313,414 $10,548 $1,694,922 
Net income74,204 — — — — — — 1,174 75,378 
LP Unit exchanges— — 283,649 — — 1,769 (1,772)— 
Other comprehensive loss, net of tax— (3,196)— — — — — (57)(3,253)
Stock option exercises— — 33,438 — — — 651 — 651 
Share-based compensation— — — — — — 4,685 — 4,685 
Shares redeemed to settle taxes and other— — 291,975 — — (622)— (619)
Balance — October 2, 2021$435,118 $5,670 118,564,950 $1,186 99 $— $1,319,897 $9,893 $1,771,764 
See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC.
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
(Dollars in tables in thousands, except per share amounts or otherwise noted)
 
1.SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
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.
 
Summit Inc. is a holding corporation operating and controlling all of the business and affairs of Summit Materials Holdings L.P. (“Summit Holdings”) and its subsidiaries, and through Summit Holdings conducts its business. Summit Inc. owns the majority of the partnership interests of Summit Holdings (see Note 9, Stockholders’ Equity). Summit Materials, LLC (“Summit LLC”), an indirect wholly owned subsidiary of Summit Holdings, conducts the majority of our operations. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of Summit LLC, has jointly issued our Senior Notes as described below.
 
Basis of Presentation—These unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto as of and for the year ended January 1, 2022. The Company continues to follow the accounting policies set forth in those audited consolidated financial statements.
 
Management believes that these consolidated interim financial statements include all adjustments, normal and recurring in nature, that are necessary to present fairly the financial position of the Company as of October 1, 2022, the results of operations for the three and nine months ended October 1, 2022 and October 2, 2021 and cash flows for the nine months ended October 1, 2022 and October 2, 2021.
 
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.
 
For a summary of the changes in Summit Inc.’s ownership of Summit Holdings, see Note 9, Stockholders’ Equity.

Use of Estimates—Preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, valuation of deferred tax assets, goodwill, intangibles and other long-lived assets, 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 20 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 the three and nine months ended October 1, 2022 or October 2, 2021.

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 from the provision of services, which are primarily paving and related services.
Products: Revenue for product sales is recognized when evidence of an arrangement exists and when control passes, which generally is when the product is shipped. 
Services: We earn revenue from the provision of services, which are primarily paving and related services, which are typically calculated using monthly progress based on the percentage of completion or a customer’s engineer review of progress.
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 are for work that occurs mostly during the spring, summer and fall. We generally measure progress toward completion on long-term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion.
The percentage of completion 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.
 
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 Period 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.

2.ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLES
 
The Company has completed numerous acquisitions since its formation, which have been financed through a combination of debt and equity funding and available cash. 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:

Nine months endedYear ended
October 1, 2022January 1, 2022
West— — 
East

The purchase price allocation, primarily the valuation of property, plant and equipment for the acquisitions completed during the nine months ended October 1, 2022, as well as the acquisitions completed during 2021 that occurred after
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October 2, 2021, 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:

Nine months endedYear ended
October 1, 2022    January 1, 2022
Financial assets$— $— 
Inventories16 2,406 
Property, plant and equipment1,877 19,668 
Intangible assets— 702 
Other assets83 98 
Financial liabilities— (1,742)
Other long-term liabilities(43)(470)
Net assets acquired1,933 20,662 
Goodwill— — 
Purchase price1,933 20,662 
Acquisition-related liabilities— (1,149)
Other— — 
Net cash paid for acquisitions$1,933 $19,513 

Changes in the carrying amount of goodwill, by reportable segment, from January 1, 2022 to October 1, 2022 are summarized as follows:
 WestEastCement
Total  
Balance—January 1, 2022$570,509 $388,585 $204,656 $1,163,750 
Dispositions (1)— (27,084)— (27,084)
Foreign currency translation adjustments(4,902)— — (4,902)
Balance—October 1, 2022$565,607 $361,501 $204,656 $1,131,764 
_______________________________________________________________________
(1) Reflects goodwill derecognition from dispositions completed during the nine months ended October 1, 2022.

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

 October 1, 2022January 1, 2022
 Gross
 Carrying
 Amount
Accumulated
 Amortization
Net
 Carrying
 Amount
Gross
 Carrying
 Amount
Accumulated
 Amortization
Net
 Carrying
 Amount
Operating permits$36,036 $(3,739)$32,297 $33,671 $(2,467)$31,204 
Mineral leases15,463 (6,529)8,934 19,927 (8,922)11,005 
Reserve rights25,586 (3,947)21,639 25,586 (3,329)22,257 
Other4,810 (427)4,383 5,481 (551)4,930 
Total intangible assets$81,895 $(14,642)$67,253 $84,665 $(15,269)$69,396 
 
Amortization expense totaled $0.8 million and $2.6 million for the three and nine months ended October 1, 2022, respectively, and $0.9 million and $2.8 million for the three and nine months ended October 2, 2021, respectively. The estimated amortization expense for the intangible assets for each of the five years subsequent to October 1, 2022 is as follows:

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2022 (three months)$959 
20233,845 
20243,819 
20253,775 
20263,726 
20273,714 
Thereafter47,415 
Total$67,253 

In the nine months ended October 1, 2022, as part of the Company's strategy to rationalize assets, the Company sold three businesses in the East segment, resulting in cash proceeds of $373.8 million and a total gain on disposition of $174.4 million.

In October 2022, we completed an acquisition of an aggregates based business in Florida, which will be included in our East segment results subsequent to the date of acquisition.

3.REVENUE RECOGNITION
 
We derive our revenue predominantly by selling construction materials, products and providing paving and related services. Construction materials consist of aggregates and cement. Products consist of related downstream products, including ready-mix concrete, asphalt paving mix and concrete products. Paving and related service revenue is generated primarily from the asphalt paving services that we provide.
 
Revenue by product for the three and nine months ended October 1, 2022 and October 2, 2021 is as follows:
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Revenue by product*:    
Aggregates$163,524 $160,317 $448,397 $431,201 
Cement112,489 87,645 241,858 207,953 
Ready-mix concrete189,081 183,114 530,001 525,208 
Asphalt106,804 116,364 218,083 238,674 
Paving and related services120,327 112,671 249,547 257,966 
Other60,522 57,129 172,362 151,999 
Total revenue$752,747 $717,240 $1,860,248 $1,813,001 
*Revenue from liquid asphalt terminals is included in asphalt revenue.
 
Accounts receivable, net consisted of the following as of October 1, 2022 and January 1, 2022: 
 October 1, 2022January 1, 2022
Trade accounts receivable$299,467 $230,714 
Construction contract receivables57,734 47,054 
Retention receivables11,633 13,094 
Receivables from related parties— 292 
Accounts receivable368,834 291,154 
Less: Allowance for doubtful accounts(4,878)(3,928)
Accounts receivable, net$363,956 $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.

4.INVENTORIES
 
Inventories consisted of the following as of October 1, 2022 and January 1, 2022: 
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 October 1, 2022January 1, 2022
Aggregate stockpiles$139,330 $130,640 
Finished goods33,502 22,690 
Work in process10,245 8,277 
Raw materials19,706 19,153 
Total$202,783 $180,760 

5.ACCRUED EXPENSES
 
Accrued expenses consisted of the following as of October 1, 2022 and January 1, 2022:
 October 1, 2022January 1, 2022
Interest$8,926 $22,762 
Payroll and benefits27,869 38,894 
Finance lease obligations9,697 17,624 
Insurance21,759 20,480 
Non-income taxes26,800 19,409 
Deferred asset purchase payments4,238 4,912 
Professional fees1,683 1,524 
Other (1)23,013 21,871 
Total$123,985 $147,476 
(1)Consists primarily of current portion of asset retirement obligations and miscellaneous accruals.

6.DEBT
 
Debt consisted of the following as of October 1, 2022 and January 1, 2022: 
 October 1, 2022January 1, 2022
Term Loan, due 2024:  
$509.6 million and $610.0 million, net of $0.5 million and $0.7 million discount at October 1, 2022 and January 1, 2022, respectively
$509,068 $609,298 
612% Senior Notes, due 2027
300,000 300,000 
514% Senior Notes, due 2029
700,000 700,000 
Total1,509,068 1,609,298 
Current portion of long-term debt6,354 6,354 
Long-term debt$1,502,714 $1,602,944 
 
The contractual payments of long-term debt, including current maturities, for the five years subsequent to October 1, 2022, are as follows:

2022 (three months)$1,588 
20236,354 
2024501,618 
2025— 
2026— 
2027300,000 
Thereafter700,000 
Total1,509,560 
Less: Original issue net discount(492)
Less: Capitalized loan costs(10,285)
Total debt$1,498,783 
 
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Senior Notes— On August 11, 2020, Summit LLC and Summit Finance (together, 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.

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 October 1, 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 $650.0 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 2018 payment. The interest rate on the term loan is a variable rate, it was 5.12% as of October 1, 2022. During the nine months ended October 1, 2022, the Company repaid $95.6 million of its term loan under provisions related to divestitures of businesses. Should the Company consummate additional divestitures during the remainder of the year, additional prepayments of the term loan may be required. The unpaid principal balance is due in full on the maturity date, which is November 21, 2024.
 
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. The maturity date with respect to revolving credit commitments under the revolving credit facility is February 25, 2024.
 
There were no outstanding borrowings under the revolving credit facility as of October 1, 2022 and January 1, 2022, with borrowing capacity of $324.9 million remaining as of October 1, 2022, which is net of $20.1 million of outstanding letters of credit. The outstanding letters of credit are renewed annually and support required bonding on construction projects, large leases, workers compensation claims 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 October 1, 2022 and January 1, 2022, Summit LLC was in compliance with all financial covenants.
 
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.
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The following table presents the activity for the deferred financing fees for the nine months ended October 1, 2022 and October 2, 2021:
 Deferred financing fees
Balance—January 1, 2022$13,049 
Amortization(2,028)
Balance—October 1, 2022$11,021 
 
 
Balance—January 2, 2021$18,367 
Amortization(2,510)
Write off of deferred financing fees(2,116)
Balance—October 2, 2021$13,741 

Other—On January 15, 2015, the Company’s wholly-owned subsidiary in British Columbia, Canada entered into an agreement with HSBC Bank Canada 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 0.90% and (iii) $0.3 million CAD revolving credit commitment to provide guarantees on behalf of that subsidiary. There were no amounts outstanding under this agreement as of October 1, 2022 or January 1, 2022, which may be terminated upon demand.

7.INCOME TAXES
 
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 accounts.
 
Our income tax expense was $24.8 million and $74.0 million in the three and nine months ended October 1, 2022, respectively, and our income tax expense was $20.5 million and $33.5 million in the three and nine months ended October 2, 2021, respectively. The effective tax rate for Summit Inc. differs from the federal statutory tax rate primarily due to (1) state taxes, (2) tax depletion expense in excess of the expense recorded under U.S. GAAP, (3) basis differences in assets divested, (4) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (5) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.
  
As of October 1, 2022 and January 1, 2022, Summit Inc. had a valuation allowance of $1.1 million and $1.7 million, respectively, which relates to certain deferred tax assets in taxable entities where realization is not more likely than not.

No material interest or penalties were recognized in income tax expense during the three and nine months ended October 1, 2022 and October 2, 2021.

Tax Receivable Agreement—The Company is party to a TRA with certain current and former holders of LP Units 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.
 
In the nine months ended October 1, 2022, 2,000 LP Units were acquired by Summit Inc. in exchange for an equal number of newly-issued shares of Summit Inc.’s Class A common stock. As of October 1, 2022 and January 1, 2022, we had recorded $327.5 million and $326.5 million of TRA liability, 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
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Inc. multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate in New York, New York. In the nine months ended October 1, 2022, Summit Holdings made a tax distribution of approximately $34.2 million, of which $0.4 million went to LP units not owned by Summit Inc. No tax distributions were made by Summit Holdings in the nine months ended October 2, 2021.

8.EARNINGS PER SHARE
 
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 and diluted earnings per share:
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net income attributable to Summit Inc.$86,489 $74,204 $242,310 $108,346 
Weighted average shares of Class A stock outstanding117,774,592 118,272,955 118,216,997 117,040,207 
Add: Nonvested restricted stock awards of retirement eligible shares142,466 200,575 148,804 218,224 
Weighted average shares outstanding117,917,058 118,473,530 118,365,801 117,258,431 
Basic earnings per share$0.73 $0.63 $2.05 $0.92 
Diluted net income attributable to Summit Inc.$86,489 $74,204 $242,310 $108,346 
Weighted average shares outstanding117,917,058 118,272,955 118,365,801 117,040,207 
Add: stock options78,799 125,164 93,993 310,990 
Add: warrants10,790 14,405 12,202 17,573 
Add: restricted stock units279,684 680,980 485,174 812,702 
Add: performance stock units117,767 198,142 141,766 179,143 
Weighted average dilutive shares outstanding118,404,098 119,291,646 119,098,936 118,360,615 
Diluted earnings per share$0.73 $0.62 $2.03 $0.92 
 
Excluded from the above calculations were the shares noted below as they were antidilutive:
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Antidilutive shares:    
LP Units1,312,795 1,594,272 1,313,601 2,031,090 

9.STOCKHOLDERS’ EQUITY

During 2021, certain limited partners of Summit Holdings exchanged their LP Units for shares of Class A common stock of Summit Inc.

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 101.0 million. These shares were retired upon purchase.

The following table summarizes the changes in our ownership of Summit Holdings:

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 Summit Inc.
Shares (Class A)
LP UnitsTotalSummit Inc.
Ownership
Percentage
Balance — January 1, 2022118,705,108 1,314,006 120,019,114 98.9 %
Exchanges during period2,000 (2,000)— 
Stock option exercises10,098 — 10,098 
Repurchases of common stock(3,427,510)— (3,427,510)
Other equity transactions1,097,273 — 1,097,273 
Balance — October 1, 2022116,386,969 1,312,006 117,698,975 98.9 %
Balance — January 2, 2021114,390,595 2,873,170 117,263,765 97.5 %
Exchanges during period1,440,983 (1,440,983)— 
Stock option exercises1,744,256 — 1,744,256 
Other equity transactions989,116 — 989,116 
Balance — October 2, 2021118,564,950 1,432,187 119,997,137 98.8 %

Summit Inc. is Summit Holdings’ primary beneficiary and thus consolidates Summit Holdings in its consolidated financial statements with a corresponding noncontrolling interest reclassification, which was 1.1% and 1.1% as of October 1, 2022 and January 1, 2022, respectively.
 
Accumulated other comprehensive income (loss) —The changes in each component of accumulated other comprehensive income (loss) consisted of the following:
 Change in
 retirement plans
Foreign currency
 translation
 adjustments
Accumulated
 other
 comprehensive
 income (loss)
Balance — January 1, 2022$1,508 $5,575 $7,083 
Foreign currency translation adjustment, net of tax— (10,553)(10,553)
Balance — October 1, 2022$1,508 $(4,978)$(3,470)
Balance — January 2, 2021$533 $4,670 $5,203 
Foreign currency translation adjustment, net of tax— 467 467 
Balance — October 2, 2021$533 $5,137 $5,670 

10.SUPPLEMENTAL CASH FLOW INFORMATION
 
Supplemental cash flow information is as follows:
 Nine months ended
 October 1, 2022October 2, 2021
Cash payments:  
Interest$70,184 $77,890 
Payments for income taxes, net15,888 6,694 
Operating cash payments on operating leases7,112 7,894 
Operating cash payments on finance leases890 1,722 
Finance cash payments on finance leases13,465 13,739 
Non cash investing and financing activities:
Accrued liabilities for purchases of property, plant and equipment$16,778 $12,188 
Right of use assets obtained in exchange for operating lease obligations13,302 6,476 
Right of use assets obtained in exchange for finance leases obligations258 600 
Exchange of LP Units to shares of Class A common stock62 43,796 

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11.LEASES

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 Accounting Standards Update 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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Three months endedNine months ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Operating lease cost$2,398 $1,755 $7,181 $5,175 
Variable lease cost70 90 225 263 
Short-term lease cost11,916 12,373 31,097 30,517 
Financing lease cost:
Amortization of right-of-use assets1,235 2,168 4,598 7,835 
Interest on lease liabilities239 475 879 1,689 
Total lease cost$15,858 $16,861 $43,980 $45,479 
October 1, 2022January 1, 2022
Supplemental balance sheet information related to leases:
Operating leases:
Operating lease right-of-use assets$31,057 $30,150 
Current operating lease liabilities$6,481 $6,497 
Noncurrent operating lease liabilities29,945 28,880 
Total operating lease liabilities$36,426 $35,377 
Finance leases:
Property and equipment, gross$52,558 $68,982 
Less accumulated depreciation(29,204)(31,404)
Property and equipment, net$23,354 $37,578 
Current finance lease liabilities$9,697 $17,624 
Long-term finance lease liabilities8,246 14,982 
Total finance lease liabilities$17,943 $32,606 
Weighted average remaining lease term (years):
Operating leases9.49.7
Finance lease2.62.3
Weighted average discount rate:
Operating leases4.4 %4.4 %
Finance leases5.1 %5.2 %
Maturities of lease liabilities, as of October 1, 2022, were as follows:
Operating LeasesFinance Leases
2022 (three months)$1,967 $3,870 
20237,571 7,491 
20246,327 2,936 
20254,570 2,415 
20263,459 980 
20272,705 750 
Thereafter18,711 1,083 
Total lease payments45,310 19,525 
Less imputed interest(8,884)(1,582)
Present value of lease payments$36,426 $17,943 

12.COMMITMENTS AND CONTINGENCIES
 
The Company is party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all current pending or threatened claims and
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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.

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.
 
The Company has asset retirement obligations arising from regulatory and contractual requirements to perform reclamation activities at the time certain quarries and landfills are closed. As of October 1, 2022 and January 1, 2022, $36.7 million and $37.7 million, respectively, were included in other noncurrent liabilities on the consolidated balance sheets and $4.1 million and $7.4 million, respectively, were included in accrued expenses for future reclamation costs. The total undiscounted anticipated costs for site reclamation as of October 1, 2022 and January 1, 2022 were $109.0 million and $112.4 million, respectively.
 
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.

13.FAIR VALUE
 
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 October 1, 2022 and January 1, 2022 was:
 October 1, 2022January 1, 2022
Current portion of acquisition-related liabilities and Accrued expenses:  
Contingent consideration$133 $129 
Acquisition-related liabilities and Other noncurrent liabilities:
Contingent consideration$1,208 $1,239 
 
The fair value of contingent consideration was based on unobservable, or Level 3, inputs, including 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 valuation adjustments to contingent consideration as of October 1, 2022 and October 2, 2021.
 
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 October 1, 2022 and January 1, 2022 was:
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 October 1, 2022January 1, 2022
 Fair ValueCarrying ValueFair ValueCarrying Value
Level 1    
Long-term debt(1)$1,402,577 $1,509,068 $1,653,085 $1,609,298 
Level 3
Current portion of deferred consideration and noncompete obligations(2)12,082 12,082 12,981 12,981 
Long term portion of deferred consideration and noncompete obligations(3)22,745 22,745 32,130 32,130 
(1)$6.4 million was included in current portion of debt as of October 1, 2022 and January 1, 2022.
(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.

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

14.SEGMENT INFORMATION
 
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, our Company’s Chief Operating Decision Maker (“CODM”). The CODM primarily evaluates the performance of the Company’s segments and allocates resources to them based on a segment profit metric that we call Adjusted EBITDA, which is computed as earnings from operations before interest, taxes, depreciation, depletion, amortization, accretion, and share-based compensation, as well as various other non-recurring, non-cash amounts. Beginning with the first quarter of 2021, the Company no longer adjusts for transaction costs, as those costs are recurring cash payments, and are included in general and administrative expenses.
 
The West and East segments have several 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 October 1, 2022 and January 1, 2022 and for the three and nine months ended October 1, 2022 and October 2, 2021:
 
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Revenue*:    
West$439,411 $369,250 $1,075,393 $958,351 
East193,421 255,490 525,064 635,659 
Cement119,915 92,500 259,791 218,991 
Total revenue$752,747 $717,240 $1,860,248 $1,813,001 
*Intercompany sales are immaterial and the presentation above only reflects sales to external customers.
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 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Income from operations before taxes$112,480 $95,891 $319,650 $143,369 
Interest expense21,980 24,134 62,728 72,536 
Depreciation, depletion and amortization51,439 58,381 148,373 171,474 
Accretion694 701 2,110 2,177 
Loss on debt financings— 6,016 — 6,016 
Tax receivable agreement expense— — 954 — 
(Gain) loss on sale of businesses(4,115)113 (174,373)(15,319)
Non-cash compensation4,902 4,685 15,058 14,875 
Other(2,492)363 (2,315)682 
Total Adjusted EBITDA$184,888 $190,284 $372,185 $395,810 
Total Adjusted EBITDA by Segment:
West$98,281 $92,303 $215,617 $211,722 
East44,119 69,084 98,949 138,113 
Cement46,597 40,360 84,019 82,281 
Corporate and other(4,109)(11,463)(26,400)(36,306)
Total Adjusted EBITDA$184,888 $190,284 $372,185 $395,810 
 
 Nine months ended
 October 1, 2022October 2, 2021
Purchases of property, plant and equipment  
West$85,462 $85,137 
East65,116 69,469 
Cement30,503 14,852 
Total reportable segments181,081 169,458 
Corporate and other7,927 612 
Total purchases of property, plant and equipment$189,008 $170,070 
 
 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Depreciation, depletion, amortization and accretion:    
West$24,908 $24,796 $71,495 $75,287 
East15,445 22,809 48,655 66,306 
Cement10,959 10,409 27,993 28,785 
Total reportable segments51,312 58,014 148,143 170,378 
Corporate and other821 1,068 2,340 3,273 
Total depreciation, depletion, amortization and accretion$52,133 $59,082 $150,483 $173,651 

 October 1, 2022January 1, 2022
Total assets:  
West$1,625,846 $1,512,298 
East1,136,239 1,292,638 
Cement893,471 844,086 
Total reportable segments3,655,556 3,649,022 
Corporate and other629,399 590,103 
Total$4,284,955 $4,239,125 
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SUMMIT MATERIALS, LLC AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
The unaudited consolidated financial statements and notes thereto for Summit Materials, LLC and subsidiaries are included as Exhibit 99.1 to this Quarterly Report on Form 10-Q and are incorporated by reference herein.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. Forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section entitled “Risk Factors” in the Annual Report, and factors discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated interim financial statements and the related notes and other information included in this report.
 
Overview

Summit’s vision is to be the most socially responsible, integrated construction materials solution provider, collaborating with stakeholders to deliver differentiated innovations and solve our customers’ challenges. Within our markets, we strive to be a market leader by offering customers a single-source provider for construction materials and related downstream products through our vertical integration. Our materials include aggregates, which we supply across the United States, and in British Columbia, Canada, and cement, which we supply to surrounding states along the Mississippi River from Minnesota to Louisiana. In addition to supplying aggregates to customers, we use a portion of our materials internally to produce ready-mix concrete and asphalt paving mix, which may be sold externally or used in our paving and related services businesses. Our vertical integration creates opportunities to increase aggregates volumes, optimize margin at each stage of production and provide customers with efficiency gains, convenience and reliability, which we believe gives us a competitive advantage.
 
We are organized into 10 operating companies that make up our three distinct operating segments: West, East and Cement, which are also our reporting segments. We operate in 21 U.S. states and in British Columbia, Canada and currently have assets in 21 U.S. states and in British Columbia, Canada. The map below illustrates our geographic footprint.

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Business Trends and Conditions
 
The U.S. construction materials industry is composed of four primary sectors: aggregates; cement; ready-mix concrete; and asphalt paving mix. Each of these materials is widely used in most forms of construction activity. Participants in these sectors typically range from small, privately-held companies focused on a single material, product or market to publicly traded multinational corporations that offer a wide array of construction materials and services. Competition is constrained in part by the distance materials can be transported efficiently, resulting in predominantly local or regional operations. Due to the lack of product differentiation, competition for all of our products is predominantly based on price and, to a lesser extent, quality of products and service. As a result, the prices we charge our customers are not likely to be materially different from the prices charged by other producers in the same markets. Accordingly, our profitability is generally dependent on the level of demand for our materials and products and our ability to control operating costs. We continue to monitor supply chain issues, as well as inflationary pressures on our raw material inputs as well as labor costs.

Our revenue is derived from multiple end-use markets including public infrastructure construction and private residential and nonresidential construction. Public infrastructure includes spending by federal, state, provincial and local governments for roads, highways, bridges, airports and other infrastructure projects. Public infrastructure projects have historically been a relatively stable portion of state and federal budgets. Residential and nonresidential construction consists of new construction and repair and remodel markets. Any economic stagnation or decline, which could vary by local region and market, could affect our results of operations. Our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical changes in construction spending, especially in the private sector. From a macroeconomic view, we continue to see positive indicators for highway obligations. We are beginning to see the impact of rising interest rates
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and inflation on residential markets in our geographies. Rising interest rates and inflation may also impact our non-residential construction activity in the future as non-residential activity tends to lag behind residential activity by a year or so.
 
Transportation infrastructure projects, driven by both federal and state funding programs, represent a significant share of the U.S. construction materials market. Federal funds are allocated to the states, which are required to match a portion of the federal funds they receive. Federal highway spending uses funds predominantly from the Federal Highway Trust Fund, which derives its revenue from taxes on diesel fuel, gasoline and other user fees. The dependability of federal funding allows state departments of transportation to plan for their long-term highway construction and maintenance needs. The Infrastructure Investment and Jobs Act ("IIJA") was signed into law on November 15, 2021. The IIJA provides $1.2 trillion in funding over five years from 2022 through 2026, including $550 billion in new investments for all modes of transportation, water, power and energy, environment remediation, public lands, broadband and resilience.

In 2021, approximately 64% of our revenue was derived from the private construction market, and the remaining revenue from the public markets. We believe residential activity in our key markets will continue to be a driver for volumes in future periods. Funding for public infrastructure projects is expected to remain a high priority.

In addition to federal funding, state, county and local agencies provide highway construction and maintenance funding. Our four largest states by revenue, Texas, Utah, Kansas and Missouri, represented approximately 23%, 15%, 12% and 9%, respectively, of our total revenue in 2021. The following is a summary of key funding initiatives in those states:
 
The Texas Department of Transportation (“TXDOT”) updated its fiscal year 2022 lettings estimate to $11.2 billion up from $8.4 billion in fiscal year 2021 and $7.5 billion in fiscal year 2020. Longer term, TXDOT has indicated a target of $8 billion per year in total state and local lettings.

The state of Utah anticipates transportation funding of approximately $2.7 billion in fiscal year 2023.

The state of Kansas anticipates approximately $2.1 billion for fiscal year 2023 for transportation funding.

The state of Missouri anticipates transportation funding of approximately $3.5 billion in fiscal year 2023.

Use and consumption of our products fluctuate due to seasonality. Nearly all of the products used by us, and by our customers, in the private construction and public infrastructure industries are used outdoors. Our highway operations and production and distribution facilities are also located outdoors. Therefore, seasonal changes and other weather-related conditions, in particular extended rainy and cold weather in the spring and fall, as well as major weather events such as hurricanes, tornadoes, tropical storms, heavy snows and flooding, can adversely affect our business and operations through a decline in both the use of our products and demand for our services. Further, low water levels on the Mississippi River are beginning to negatively impact barge traffic on the river, notably in the area south of our Hannibal, Missouri location. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters. The first quarter of our fiscal year typically has lower levels of activity due to weather conditions, and the third quarter of our fiscal year typically has the highest levels of activity.
 
We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates, cement, ready-mix concrete and asphalt paving mix production, natural gas for hot mix asphalt production and diesel fuel for distribution vehicles and production related mobile equipment. Liquid asphalt escalator provisions in most of our private and commercial contracts limit our exposure to price fluctuations in this commodity. We often obtain similar escalators on public infrastructure contracts. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials, including diesel fuel.
 
Backlog
 
Our products are generally delivered upon receipt of orders or requests from customers, or shortly thereafter. Accordingly, the backlog associated with product sales is converted into revenue within a relatively short period of time. Inventory for products is generally maintained in sufficient quantities to meet rapid delivery requirements of customers. Therefore, a period-over-period increase or decrease of backlog does not necessarily result in an improvement or a deterioration of our business. Our backlog includes only those products and projects for which we have obtained a purchase order or a signed contract with the customer and does not include products purchased and sold or services awarded and provided within the period.
 
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Financial Highlights
    
The principal factors in evaluating our financial condition and operating results as of and for the three and nine months ended October 1, 2022 as compared to the three and nine months ended October 2, 2021, and certain other highlights include:
 
Net revenue increased $23.8 million and $31.2 million in the three and nine months ended October 1, 2022, respectively, primarily resulting from increases in average sales prices more than offsetting decreases due to divestitures completed in 2022 and 2021.
Our operating income increased $2.0 million and $8.1 million in the three and nine months ended October 1, 2022, respectively, as our increases in revenue slightly trailed inflationary impacts on our cost of revenue, mitigated by a $6.9 million and $23.2 million decrease, respectively, in depreciation, depletion, amortization and accretion expenses resulting from our divestitures.
In the three and nine months ended October 1, 2022, average sales price increased 10.2% and 6.5% in aggregates, 12.8% and 10.4% in cement, 17.5% and 11.6% in ready-mix concrete and 19.3% and 18.3% in asphalt, respectively.
In the three and nine months ended October 1, 2022, sales volume decreased 9.0% and 4.1% in aggregates, increased 12.4% and 5.1% in cement, decreased 12.1% and 9.6% in ready-mix concrete and decreased 22.4% and 22.2% in asphalt, respectively.
In the nine months ended October 1, 2022, the Company sold three businesses in the East segment, resulting in cash proceeds of $373.8 million and a total gain on disposition of $174.4 million. We used $95.6 million of proceeds to prepay our term loan related to divestitures of businesses during the nine months ended October 1, 2022.
In the first nine months of 2022, the Company repurchased $101.0 million of our Class A common stock.

Results of Operations
    
The following discussion of our results of operations is focused on the key financial measures we use to evaluate the performance of our business from both a consolidated and operating segment perspective. Operating income and margins are discussed in terms of changes in volume, pricing and mix of revenue source (i.e., type of product, sales or service revenue). We focus on operating margin, which we define as operating income as a percentage of net revenue, as a key metric when assessing the performance of the business, as we believe that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining costs in isolation.
 
Operating income reflects our profit from operations after taking into consideration cost of revenue, general and administrative expenses, depreciation, depletion, amortization and accretion and gain on sale of property, plant and equipment. Cost of revenue generally increases ratably with revenue, as labor, transportation costs and subcontractor costs are recorded in cost of revenue. As organic volumes increase, we expect our general and administrative costs as a percentage of revenue to decrease. General and administrative expenses as a percentage of revenue vary throughout the year due to the seasonality of our business.

Consolidated Results of Operations
 
The table below sets forth our consolidated results of operations for the three and nine months ended October 1, 2022 and October 2, 2021. 
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 Three months endedNine months ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
($ in thousands)
Net revenue$686,009 $662,259 $1,710,422 $1,679,270 
Delivery and subcontract revenue66,738 54,981 149,826 133,731 
Total revenue752,747 717,240 1,860,248 1,813,001 
Cost of revenue (excluding items shown separately below)534,936 486,936 1,372,521 1,301,346 
General and administrative expenses39,959 47,364 139,534 146,454 
Depreciation, depletion, amortization and accretion52,133 59,082 150,483 173,651 
Gain on sale of property, plant and equipment (1,343)(1,159)(6,293)(4,331)
Operating income127,062 125,017 204,003 195,881 
Interest expense21,980 24,134 62,728 72,536 
Loss on debt financings— 6,016 — 6,016 
Tax receivable agreement expense— — 954 — 
(Gain) loss on sale of businesses(4,115)113 (174,373)(15,319)
Other income, net(3,283)(1,137)(4,956)(10,721)
Income from operations before taxes112,480 95,891 319,650 143,369 
Income tax expense24,829 20,513 74,033 33,478 
Net income$87,651 $75,378 $245,617 $109,891 

Three and nine months ended October 1, 2022 compared to the three and nine months ended October 2, 2021
 
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Net revenue$686,009 $662,259 $23,750 3.6 %$1,710,422 $1,679,270 $31,152 1.9 %
Operating income127,062 125,017 2,045 1.6 %204,003 195,881 8,122 4.1 %
Operating margin percentage18.5 %18.9 %11.9 %11.7 %
Adjusted EBITDA (1)$184,888 $190,284 $(5,396)(2.8)%$372,185 $395,810 $(23,625)(6.0)%
Adjusted EBITDA Margin (1)27.0 %28.7 %21.8 %23.6 %
(1)Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures that we find helpful in monitoring the performance of our business. See "Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure.

Net revenue increased $23.8 million in the three months ended October 1, 2022, due to increases in our average sales price and as well as organic revenue increases in the West and Cement segments, more than offsetting a $68.0 million decrease in net revenue in the East segment related to divestitures. Of the increase in net revenue, $28.1 million was from increased sales of materials, partially offset by $2.9 million from decreased sales of products and $1.5 million from decreased service revenue. We experienced organic volume decline of 3.5%, 1.3% and 0.9% in our aggregates, ready-mix concrete and asphalt lines of business, respectively, while our organic cement volumes increased 12.4%. Our organic volume declines in aggregates and ready-mix concrete occurred in both the West and East segments, as volumes decreased in residential and non-residential markets. The decline in organic asphalt volumes occurred in our East segment. We achieved organic price growth across all lines of business during the third quarter of 2022. Additional detail about the impact of acquisitions and divestitures on each segment is presented below where material.

Net revenue increased $31.2 million in the nine months ended October 1, 2022, primarily resulting from organic price increases in aggregates, cement and ready-mix, partially offset by a small organic volume decline in our asphalt operations. Of the increase in net revenue, $51.1 million was from increased sales of materials, partially offset by $9.3 million from decreased sales of products and $10.6 million from decreased service revenue. Our organic volumes declined 0.9%, 1.6% and 0.6% in aggregates, ready-mix concrete and asphalt, respectively, while our organic cement volumes increased 5.1%. The organic volume decreases for aggregates, ready-mix and asphalt were primarily attributable to reduced activity in our residential and non-residential markets in our East segment. We had organic price growth in our aggregate, cement, and ready-mix lines of business of 7.4%, 10.4%, and 13.0%, respectively, during the first nine months of 2022.
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Operating income increased by $2.0 million and $8.1 million in the three and nine months ended October 1, 2022, respectively, as inflationary increases in cost of revenue, increased repair and maintenance costs from sourcing constraints and higher subcontracting costs were more than offset by revenue growth, lower general and administrative expenses resulting from adjustments to estimates of health care and short term incentive amounts, and a decrease of $6.9 million and $23.2 million, respectively, in depletion, amortization and accretion expenses as a result of our divestitures.

Our operating margin percentage for the three and nine months ended October 1, 2022 decreased from 18.9% to 18.5% and increased from 11.7% to 11.9%, respectively, from the comparable period a year ago, due to the factors noted above. Adjusted EBITDA, as defined in "Non-GAAP Performance Measures" below, decreased by $5.4 million and $23.6 million in the three and nine months ended October 1, 2022, respectively, due to the factors noted above.

As a vertically-integrated company, we include intercompany sales from materials to products and from products to services when assessing the operating results of our business. We refer to revenue inclusive of intercompany sales as gross revenue. These intercompany transactions are eliminated in the consolidated financial statements. Gross revenue by product was as follows: 
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Revenue by product*:
Aggregates$202,982 $202,523 $459 0.2 %$552,943 $540,912 $12,031 2.2 %
Cement115,022 90,648 24,374 26.9 %249,517 215,024 34,493 16.0 %
Ready-mix concrete189,151 183,213 5,938 3.2 %530,178 525,485 4,693 0.9 %
Asphalt106,897 123,364 (16,467)(13.3)%222,399 255,215 (32,816)(12.9)%
Paving and related services191,815 194,678 (2,863)(1.5)%400,841 432,384 (31,543)(7.3)%
Other(53,120)(77,186)24,066 31.2 %(95,630)(156,019)60,389 38.7 %
Total revenue$752,747 $717,240 $35,507 5.0 %$1,860,248 $1,813,001 $47,247 2.6 %
*Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
 
Detail of our volumes and average selling prices by product in the three and nine months ended October 1, 2022 and October 2, 2021 were as follows:   
 Three months ended  
 October 1, 2022October 2, 2021  
Volume(1)Volume(1)Percentage Change in
(in thousands)Pricing(2)(in thousands)Pricing(2)VolumePricing
Aggregates16,267 $12.48 17,884 $11.32 (9.0)%10.2 %
Cement841 136.83 748 121.26 12.4 %12.8 %
Ready-mix concrete1,326 142.66 1,509 121.40 (12.1)%17.5 %
Asphalt1,459 73.26 1,880 61.42 (22.4)%19.3 %
 Nine months ended  
 October 1, 2022October 2, 2021  
Volume(1)Volume(1)Percentage Change in
(in thousands)Pricing(2)(in thousands)Pricing(2)VolumePricing
Aggregates46,489 $11.89 48,484 $11.16 (4.1)%6.5 %
Cement1,887 132.22 1,796 119.76 5.1 %10.4 %
Ready-mix concrete3,960 133.87 4,381 119.95 (9.6)%11.6 %
Asphalt3,041 71.74 3,911 60.63 (22.2)%18.3 %
(1)Volumes are shown in tons for aggregates, cement and asphalt and in cubic yards for ready-mix concrete.
(2)Pricing is shown on a per ton basis for aggregates, cement and asphalt and on a per cubic yard basis for ready-mix concrete.
    
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Revenue from aggregates increased $0.5 million and $12.0 million in the three and nine months ended October 1, 2022, respectively. In the three months ended October 1, 2022 we had strong organic price increases which were mostly offset by a decrease in organic aggregate volumes. Organic aggregate volumes decreased 0.9% in the first nine months of 2022 as compared to the same period a year ago, primarily due to moderating demand, as well as unfavorable weather conditions in certain geographies, partially offset by increases in our Virginia, Georgia and British Columbia markets. Aggregate average sales price of $11.89 per ton increased 6.5% in the first nine months of 2022 as compared to the first nine months of 2021, due to our focus on increasing prices in the current inflationary environment. We continue to focus on increasing our prices as market conditions allow, attempting to increase prices as inflationary pressures continue.

Revenue from cement increased $24.4 million and $34.5 million in the three and nine months ended October 1, 2022, respectively. In the three and nine months ended October 1, 2022, organic cement volumes increased 12.4% and 5.1%, respectively, reflecting a healthy demand environment. Organic cement average sales prices increased 12.8% and 10.4%, respectively, as compared to the same period in the prior year.

Revenue from ready-mix concrete increased $5.9 million and $4.7 million in the three and nine months ended October 1, 2022, respectively. In the three and nine months ended October 1, 2022, our ready-mix organic volumes decreased 12.1% and 9.6%, respectively, and our average sales prices increased 17.5% and 11.6%, respectively. The volume decrease in the three and nine months ended October 1, 2022 occurred primarily in our Intermountain West and Kansas markets while our price increase was primarily in the Intermountain West and South Texas markets.

Revenue from asphalt decreased $16.5 million and $32.8 million in the three and nine months ended October 1, 2022, respectively, primarily due to the divestitures in our East Segment. In the first nine months of 2022, organic pricing increased 16.3%, with strong pricing gains in the Virginia, North Texas and Intermountain West geographies. In the first nine months of 2022, organic volumes decreased by 0.6% due to decreases in our North Texas and Virginia markets.

Other Financial Information
 
Interest expense

In September 2021, we redeemed all $300.0 million 5.125% Senior Notes due 2025 using existing cash on hand. As a result, interest expense in the three and nine month periods ended October 1, 2022 decreased, offset by increased interest expense due to the variable rate of our term loan.

Gain (Loss) on Sale of businesses

We continue to make progress on our strategy to divest certain businesses through portfolio optimization. In the first nine months of 2022, we sold three businesses in the East segment, resulting in cash proceeds of $373.8 million and a net gain on disposition of $174.4 million. In the first nine months of 2021, we sold four businesses in the East segment and one in the West segment, resulting in cash proceeds of $103.6 million and a net gain on disposition of $15.3 million.

Income Tax Expense
 
Our income tax expense was $24.8 million and $74.0 million in the three and nine months ended October 1, 2022, respectively, and our income tax expense was $20.5 million and $33.5 million in the three and nine months ended October 2, 2021, respectively. The effective tax rate for Summit Inc. differs from the federal statutory tax rate primarily due to (1) state taxes, (2) tax depletion expense in excess of the expense recorded under U.S. GAAP, (3) basis differences in assets divested, (4) the minority interest in the Summit Holdings partnership that is allocated outside of the Company and (5) various other items such as limitations on meals and entertainment, certain stock compensation and other costs.
 
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.
    
As of October 1, 2022 and January 1, 2022, Summit Inc. had a valuation allowance of $1.1 million and $1.7 million, respectively, which relates to certain deferred tax assets in taxable entities where realization is not more likely than not.
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Segment results of operations
 
West Segment
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Net revenue$394,648 $338,575 $56,073 16.6 %$983,160 $886,936 $96,224 10.8 %
Operating income73,087 67,427 5,660 8.4 %143,659 135,693 7,966 5.9 %
Operating margin percentage18.5 %19.9 %14.6 %15.3 %
Adjusted EBITDA (1)$98,281 $92,303 $5,978 6.5 %$215,617 $211,722 $3,895 1.8 %
Adjusted EBITDA Margin (1)24.9 %27.3 %21.9 %23.9 %
(1)Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures that we find helpful in monitoring the performance of our business. See "Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure.

Net revenue in the West segment increased $56.1 million and $96.2 million for the three and nine months ended October 1, 2022, respectively, due to net revenue increases across all lines of business. Organic aggregate volumes decreased 2.5% in the three month period due, in part, to unfavorable weather in our Texas market and increased 2.7% in the first nine months of 2022 as compared to the first nine months of 2021. Organic aggregates average sales prices increased 14.5% and 7.6% in the three and nine months ended October 1, 2022, respectively, as price increases were implemented across all geographies to help offset inflationary factors. Organic ready-mix concrete volumes decreased 0.7% and organic ready-mix concrete average sales prices increased 19.4% in the three months ended October 1, 2022. Organic ready-mix concrete volumes decreased 0.7% and our organic ready-mix concrete average sales prices increased 12.7% in the first nine months of 2022. Construction activity appears to be slowing, to varying degrees, across residential markets, including in our two largest, Houston and Salt Lake City, as home builders phase new builds in anticipation of a slowdown. We continue to monitor that activity given recent increases in mortgage rates and other inflationary concerns that impact residential markets.

The West segment’s operating income increased $5.7 million and $8.0 million in the three and nine months ended October 1, 2022, respectively. Adjusted EBITDA increased $6.0 million and $3.9 million and Adjusted EBITDA Margin decreased to 24.9% from 27.3% and to 21.9% from 23.9% in the three and nine months ended October 1, 2022, respectively. The increases in operating income and Adjusted EBITDA for the third quarter of 2022 occurred primarily due to increases in average sales prices for both aggregates and ready-mix concrete. The operating margin percentage in the West segment decreased in the three and nine months ended October 1, 2022 due to the aggregate product mix in Texas as well as ongoing input cost inflation.

Gross revenue by product/ service was as follows:  
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Revenue by product*:
Aggregates$102,316 $91,701 $10,615 11.6 %$277,870 $251,324 $26,546 10.6 %
Ready-mix concrete164,050 138,371 25,679 18.6 %455,334 406,858 48,476 11.9 %
Asphalt88,133 74,695 13,438 18.0 %167,639 161,847 5,792 3.6 %
Paving and related services151,724 119,385 32,339 27.1 %300,592 270,042 30,550 11.3 %
Other(66,812)(54,902)(11,910)(21.7)%(126,042)(131,720)5,678 4.3 %
Total revenue$439,411 $369,250 $70,161 19.0 %$1,075,393 $958,351 $117,042 12.2 %
*Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in “Other.” Revenue from the liquid asphalt terminals is included in asphalt revenue.
 
The West segment’s percent changes in sales volumes and pricing in the three and nine months ended October 1, 2022 from the three and nine months ended October 2, 2021 were as follows:
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 Three months endedNine months ended
Percentage Change inPercentage Change in
VolumePricingVolumePricing
Aggregates(2.5)%14.5 %2.7 %7.6 %
Ready-mix concrete(0.7)%19.4 %(0.7)%12.6 %
Asphalt1.1 %16.7 %(9.6)%17.5 %
 
Revenue from aggregates in the West segment increased $10.6 million and $26.5 million in the three and nine months ended October 1, 2022, respectively. Aggregates pricing for the three and nine months ended October 1, 2022 increased 14.5% and 7.6% when compared to the same period in 2021 as we implemented price increases in all our markets. Increased average sales prices more than offset a 2.5% decrease in sales volumes in the third quarter of 2022, and complemented a 2.7% increase in sales volumes in the first nine months of 2022. In the three months ended October 1, 2022, aggregate volumes increased in the Intermountain region and decreased in Texas and British Columbia. Aggregate volume declines in the third quarter of 2022 were impacted by the limited availability of trucking in Texas. In the nine months ended October 1, 2022, aggregate volumes increased in all of our major markets.

Revenue from ready-mix concrete in the West segment increased $25.7 million and $48.5 million in the three and nine months ended October 1, 2022, respectively. For the three and nine months ended October 1, 2022, organic ready-mix concrete prices increased 19.4% and 12.7%, respectively, as price increases were implemented to mitigate higher costs of labor, materials and transportation. For the three and nine months ended October 1, 2022, our ready-mix concrete organic volumes decreased 0.7% and 0.7%, respectively.

Revenue from asphalt in the West segment increased $13.4 million and $5.8 million in the three and nine months ended October 1, 2022, respectively. For the three and nine months ended October 1, 2022, asphalt volumes increased 1.1% and decreased 9.6%, respectively. The decrease in our asphalt volumes was primarily due to the divestiture of our paving business in South Texas in May 2021. Average sales prices for asphalt increased 16.7% and 17.5% in the three and nine months ended October 1, 2022, respectively. Revenue for paving and related services in the West segment increased by $32.3 million and $30.6 million in the three and nine months ended October 1, 2022, respectively.

Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in the nine months ended October 1, 2022 was approximately $(10.2) million and $91.0 million, respectively.

East Segment
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Net revenue$171,446 $231,184 $(59,738)(25.8)%$467,471 $573,343 $(105,872)(18.5)%
Operating income28,475 45,018 (16,543)(36.7)%49,373 69,249 (19,876)(28.7)%
Operating margin percentage16.6 %19.5 %10.6 %12.1 %
Adjusted EBITDA (1)$44,119 $69,084 $(24,965)(36.1)%$98,949 $138,113 $(39,164)(28.4)%
Adjusted EBITDA Margin (1)25.7 %29.9 %21.2 %24.1 %
(1)Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures that we find helpful in monitoring the performance of our business. See "Non-GAAP Performance Measures" below for a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure.

Net revenue in the East segment decreased $59.7 million and $105.9 million in the three and nine months ended October 1, 2022, respectively, as compared to the same period a year ago, primarily due to three divestitures. In the third quarter of 2022, we completed one divestiture in the East. The decrease in net revenues from divestitures was $68.0 million and $126.3 million in the three and nine months ended October 1, 2022, respectively. Operating income decreased $16.5 million and $19.9 million in the three and nine months ended October 1, 2022, respectively, as supply chain disruptions and inflationary increases in our cost of revenue exceeded our increases in average sales prices. Adjusted EBITDA decreased $25.0 million and $39.2 million in the three and nine months ended October 1, 2022, respectively. Adjusted EBITDA from businesses divested was approximately $16.3 million and $27.6 million in the three and nine months period ended October 1, 2022. Operating income margin decreased to 16.6% from 19.5% and to 10.6% from 12.1% in the three and nine months ended October 1, 2022, respectively, as compared to the same period a year ago. Adjusted EBITDA Margin decreased to 25.7% from
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29.9% and to 21.2% from 24.1% in the three and nine months ended October 1, 2022, respectively, as compared to the same period a year ago. 
 
Gross revenue by product/ service was as follows:  
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Revenue by product*:
Aggregates$100,666 $110,822 $(10,156)(9.2)%$275,073 $289,588 $(14,515)(5.0)%
Ready-mix concrete25,101 44,842 (19,741)(44.0)%74,844 118,627 (43,783)(36.9)%
Asphalt18,764 48,669 (29,905)(61.4)%54,760 93,368 (38,608)(41.4)%
Paving and related services40,091 75,293 (35,202)(46.8)%100,249 162,342 (62,093)(38.2)%
Other8,799 (24,136)32,935 136.5 %20,138 (28,266)48,404 171.2 %
Total revenue$193,421 $255,490 $(62,069)(24.3)%$525,064 $635,659 $(110,595)(17.4)%
*Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.

The East segment’s percent changes in sales volumes and pricing in the three and nine months ended October 1, 2022 from the three and nine months ended October 2, 2021 were as follows:   
 Three months endedNine months ended
Percentage Change inPercentage Change in
VolumePricingVolumePricing
Aggregates(15.5)%7.5 %(11.1)%6.9 %
Ready-mix concrete(47.2)%6.1 %(40.0)%5.2 %
Asphalt(60.9)%17.6 %(45.3)%16.5 %
 
Revenue from aggregates in the East segment decreased $10.2 million and $14.5 million in the three and nine months ended October 1, 2022, respectively, as compared to the same period a year ago. Aggregate volumes in the three and nine months of 2022 decreased 15.5% and 11.1%, respectively, primarily due to our divestiture program. Excluding the impact of the divestitures, we had further declines due to softness in our residential markets and unfavorable weather conditions. Aggregates organic pricing increased 8.2% and 7.8% in the three and nine months ended October 1, 2022, respectively, as compared to the same period a year ago.
 
Revenue from ready-mix concrete in the East segment decreased $19.7 million and $43.8 million in the three and nine months ended October 1, 2022, respectively, as compared to the same period in 2021, primarily due to our divestiture program. Our organic ready-mix volumes were down 4.9% and 7.3% in the three and nine month periods ended October 1, 2022, respectively, due to softness in our residential markets and unfavorable weather conditions. Our ready-mix average sales prices increased 6.1% and 5.2%, in the three and nine months ended October 1, 2022, respectively.

Revenue from asphalt decreased $29.9 million and $38.6 million in the three and nine months ended October 1, 2022, respectively, when compared to the same period in 2021, again impacted by divestitures. Asphalt pricing increased 16.5% in the nine months ended October 1, 2022, due to increases in liquid asphalt. Paving and related service revenue decreased $35.2 million and $62.1 million in the three and nine months ended October 1, 2022, respectively, primarily due to our divestitures noted above.
 
Prior to eliminations of intercompany transactions, the net effect of volume and pricing changes on gross revenue in the nine months ended October 1, 2022 was approximately $(146.7) million and $49.8 million, respectively.









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Cement Segment
 Three months ended  Nine months ended  
($ in thousands)October 1, 2022October 2, 2021VarianceOctober 1, 2022October 2, 2021Variance
Net revenue$119,915 $92,500 </