Construction Partners, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Related Parties

Related Parties

3 Months Ended

Dec. 31, 2019

On December 31, 2017, the Company sold an indirect wholly owned subsidiary to an immediate family member of a Senior Vice President of the Company (“Purchaser of Subsidiary”) in consideration for a promissory note in the amount of $1.0 million, which approximated the net book value of the disposed entity. At December 31, 2019, $0.1 million and $0.6 million was reflected on the Company’s Consolidated Balance Sheet within other current assets and other assets, respectively, representing the remaining balances on this note receivable. In connection with this transaction, the Company also received a promissory note from the disposed entity (“Disposed Entity”) on December 31, 2017 in the amount of $1.0 million representing certain accounts payable of the disposed subsidiary that were paid by the Company. At December 31, 2019, $0.1 million and $0.4 million was reflected on the Company’s Consolidated Balance Sheet within other current assets and other assets, respectively, representing the remaining balances on this note receivable. Remaining payments are scheduled to be made in periodic installments during fiscal year 2020 through fiscal year 2026.

From time to time, the Company conducts or has conducted business with the following related parties:

•Prior to its acquisition by the Company, a current subsidiary of the Company advanced funds to an entity owned by an immediate family member of a Senior Vice President of the Company in connection with a land development project. The obligations of the borrower entity to repay the advances are guaranteed by a separate entity owned by the same family member of the officer. Amounts outstanding under the advances do not bear interest and must be repaid in full no later than March 17, 2021 (“Land Development Project”).

•Entities owned by immediate family members of a Senior Vice President of the Company perform subcontract work for a subsidiary of the Company, including trucking and grading services (“Subcontracting Services”).

•From time to time, a subsidiary of the Company provides construction services to various companies owned by a family member of a Senior Vice President of the Company (“Construction Services”).

•Since June 1, 2014, the Company has been a party to an access agreement with Island Pond Corporate Services, LLC (“Island Pond”), which provides a location for the Company to conduct business development activities from time to time on a property owned by the Executive Chairman of the Company’s Board of Directors.

•The Company rents and purchases vehicles from an entity owned by a family member of a Senior Vice President of the Company (“Vehicles”).

•Family members of a Senior Vice President of the Company provide consulting services to a subsidiary of the Company (“Consulting Services”).

•A subsidiary of the Company leased office space for its Dothan, Alabama office from H&K, Ltd. (“H&K”), an entity partially owned by a Senior Vice President of the Company. The office space was originally leased through early 2020, but the subsidiary terminated the lease in June 2019 and paid $15,000 to H&K as consideration for the early termination. Under the lease agreement, the Company paid a fixed minimum rent per month.

•The Company is party to a management services agreement with SunTx, under which the Company pays SunTx $0.25 million per fiscal quarter and reimburses certain travel and other out-of-pocket expenses.

The following table presents revenues earned and expenses incurred by the Company during the three months ended December 31, 2019 and 2018, and accounts receivable and payable balances at December 31, 2019 and September 30, 2019, related to transactions with the related parties described above (in thousands):


	Revenue Earned (Expense Incurred)								Accounts Receivable (Payable)
	For the Three Months Ended December 31,								December 31,		September 30,
	2019			2018			2019		2019
	(unaudited)			(unaudited)			(unaudited)
Purchaser of Subsidiary	$	—		$	—		$	725	$	756
Disposed Entity	$	—		$	—		$	462	$	846
Land Development Project	$	—		$	—		$	774	$	774
Subcontracting Services	$	(1,578)	⁽¹⁾	$	(3,293)	⁽¹⁾	$	(316)	$	(1,238)
Construction Services	$	1,280		$	113		$	1,643	$	2,434
Island Pond	$	(80)	⁽²⁾	$	(80)	⁽²⁾	$	—	$	—
Vehicles	$	(253)	⁽²⁾	$	(289)	⁽²⁾	$	—	$	—
Consulting Services	$	(71)	⁽²⁾	$	(67)	⁽²⁾	$	—	$	—
H&K	$	—	⁽²⁾	$	(21)	⁽²⁾	$	—	$	—
SunTx	$	(314)	⁽²⁾	$	(254)	⁽²⁾	$	—	$	—

⁽¹⁾ Cost is reflected as cost of revenues on the Company’s Consolidated Statements of Income.
⁽²⁾ Cost is reflected as general and administrative expenses on the Company’s Consolidated Statements of Income.