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Section 1: 10-Q (10-Q)

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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 June 30, 2018

 

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

Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

 

Registrants’ telephone number, including area code: (303) 893-0012

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


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.

 

 

 

Yes ☒

No ◻

Summit Materials, LLC

 

 

 

Yes ☒

No ◻

 

 

 

 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

 

 

 

 

Summit Materials, Inc.

 

 

 

Yes ☒

No ◻

Summit Materials, LLC

 

 

 

Yes ☒

No ◻

 

 

 

 

 

 

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 filer

(Do not check if a smaller reporting company)

Smaller reporting 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

Emerging growth company

Exchange Act.

 

 

 

 

 

 

 

 

 

 

Summit Materials, LLC

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting 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

Emerging growth company

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.

 

 

 

Yes ◻

No ☒

Summit Materials, LLC

 

 

 

Yes ◻

No ☒

 

As of July 26, 2018, 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 111,629,238 and 99, respectively.

As of July 26, 2018, 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.

 

 


 

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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 June 30, 2018, its sole material asset was a 97.0% 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 8  1/2% senior notes due 2022 (“2022 Notes”), our 6 1/8% senior notes due 2023 (“2023 Notes”) and our 5 1/8% senior notes due 2025 (“2025 Notes” and collectively with the 2022 Notes and 2023 Notes, the “Senior Notes”). Summit Inc.’s only revenue for the three and six months ended June 30, 2018 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 December 30, 2017 (the “Annual Report”) and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018 (the “Q1 2018 10-Q”), each  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 local economies in which we operate;

 

·

the cyclical nature of our business;

 

·

risks related to weather and seasonality;

 

·

risks associated with our capital-intensive business;

 

·

competition within our local markets;


 

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·

our ability to execute on our acquisition 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;

 

·

declines in public infrastructure construction and delays or reductions in governmental funding, including the funding by transportation authorities and other state agencies;

 

·

environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;

 

·

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;

 

·

our substantial current level of indebtedness;

 

·

our dependence on senior management and other key personnel;

 

·

supply constraints or significant price fluctuations in the petroleum-based resources that we use, including electricity, diesel and liquid asphalt;

 

·

unexpected operational difficulties;

 

·

interruptions in our information technology systems and infrastructure;

 

·

potential labor disputes; and

 

·

rising prices for commodities, labor and other production and delivery costs as a result of inflation or otherwise.

 

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 tax expense (benefit), depreciation, depletion and amortization expense;

 


 

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·

“Finance Corp.” refers to Summit Materials Finance Corp., an indirect wholly-owned subsidiary of Summit LLC and the co-issuer of the Senior Notes;

 

·

“Issuers” refers to Summit LLC and Finance Corp. as co‑issuers of the Senior Notes;  

 

·

“IPO” refers to the March 2015 initial public offering of Summit Inc.;

 

·

“LP Units” refers to the Class A limited partnership units of Summit Holdings; and

 

·

“TRA” refers to tax receivable agreement between Summit Inc. and holders of LP Units.

 


 

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Corporate Structure

The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of June 30, 2018. This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities.

Picture 1


 

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(1)

U.S. Securities and Exchange Commission (“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.

 

 


 

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SUMMIT MATERIALS, INC.

SUMMIT MATERIALS, LLC

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

Page No.

PART I—Financial Information 

 

 

 

 

Item 1. 

Financial Statements for Summit Materials, Inc.

1

 

 

 

 

Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 30, 2017

1

 

 

 

 

Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2018 and July 1, 2017

2

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and July 1, 2017

3

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and July 1, 2017

4

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2018  

5

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

 

Financial Statements for Summit Materials, LLC

22

 

 

 

Item 2. 

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

23

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

42

 

 

 

Item 4. 

Controls and Procedures

42

 

 

 

PART II — Other Information 

 

 

 

 

Item 1. 

Legal Proceedings

43

 

 

 

Item 1A. 

Risk Factors

43

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3. 

Defaults Upon Senior Securities

43

 

 

 

Item 4. 

Mine Safety Disclosures

43

 

 

 

Item 5. 

Other Information

43

 

 

 

Item 6. 

Exhibits

45

 

 

SIGNATURES 

46

 

 

 

 


 

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PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets 

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 30,

 

 

    

2018

    

2017

 

 

    

(unaudited)

    

(audited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,404

 

$

383,556

 

Accounts receivable, net

 

 

268,819

 

 

198,330

 

Costs and estimated earnings in excess of billings

 

 

44,481

 

 

9,512

 

Inventories

 

 

245,238

 

 

184,439

 

Other current assets

 

 

12,381

 

 

7,764

 

Total current assets

 

 

621,323

 

 

783,601

 

Property, plant and equipment, less accumulated depreciation, depletion and amortization (June 30, 2018 - $711,216 and December 30, 2017 - $631,841)

 

 

1,733,653

 

 

1,615,424

 

Goodwill

 

 

1,114,967

 

 

1,036,320

 

Intangible assets, less accumulated amortization (June 30, 2018 - $7,337 and December 30, 2017 - $6,698)

 

 

16,294

 

 

16,833

 

Deferred tax assets, less valuation allowance (June 30, 2018 and December 30, 2017 - $1,675)

 

 

287,606

 

 

284,092

 

Other assets

 

 

50,413

 

 

51,063

 

Total assets

 

$

3,824,256

 

$

3,787,333

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

 

$

6,354

 

$

4,765

 

Current portion of acquisition-related liabilities

 

 

15,634

 

 

14,087

 

Accounts payable

 

 

144,284

 

 

98,744

 

Accrued expenses

 

 

118,494

 

 

116,629

 

Billings in excess of costs and estimated earnings

 

 

14,724

 

 

15,750

 

Total current liabilities

 

 

299,490

 

 

249,975

 

Long-term debt

 

 

1,807,290

 

 

1,810,833

 

Acquisition-related liabilities

 

 

28,904

 

 

58,135

 

Tax receivable agreement liability

 

 

333,028

 

 

331,340

 

Other noncurrent liabilities

 

 

77,773

 

 

65,329

 

Total liabilities

 

 

2,546,485

 

 

2,515,612

 

Commitments and contingencies (see note 11)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share; 1,000,000,000 shares authorized, 111,629,238 and 110,350,594 shares issued and outstanding as of June 30, 2018 and December 30, 2017, respectively

 

 

1,117

 

 

1,104

 

Class B common stock, par value $0.01 per share; 250,000,000 shares authorized, 99 and 100 shares issued and outstanding as of June 30, 2018 and December 30, 2017, respectively

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

1,183,071

 

 

1,154,220

 

Accumulated earnings

 

 

77,613

 

 

95,833

 

Accumulated other comprehensive income

 

 

4,645

 

 

7,386

 

Stockholders’ equity

 

 

1,266,446

 

 

1,258,543

 

Noncontrolling interest in Summit Holdings

 

 

11,325

 

 

13,178

 

Total stockholders’ equity

 

 

1,277,771

 

 

1,271,721

 

Total liabilities and stockholders’ equity

 

$

3,824,256

 

$

3,787,333

 

 

See notes to unaudited consolidated financial statements.

1


 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

July 1,

 

June 30,

 

July 1,

 

    

2018

    

2017

    

2018

    

2017

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

459,967

 

$

397,726

 

$

716,774

 

$

622,743

Service

 

 

89,268

 

 

80,642

 

 

122,377

 

 

114,669

Net revenue

 

 

549,235

 

 

478,368

 

 

839,151

 

 

737,412

Delivery and subcontract revenue

 

 

51,655

 

 

45,725

 

 

76,160

 

 

70,958

Total revenue

 

 

600,890

 

 

524,093

 

 

915,311

 

 

808,370

Cost of revenue (excluding items shown separately below):

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

295,147

 

 

233,592

 

 

492,580

 

 

400,560

Service

 

 

64,130

 

 

56,587

 

 

90,053

 

 

81,958

Net cost of revenue

 

 

359,277

 

 

290,179

 

 

582,633

 

 

482,518

Delivery and subcontract cost

 

 

51,655

 

 

45,725

 

 

76,160

 

 

70,958

Total cost of revenue

 

 

410,932

 

 

335,904

 

 

658,793

 

 

553,476

General and administrative expenses

 

 

61,657

 

 

58,086

 

 

131,518

 

 

116,554

Depreciation, depletion, amortization and accretion

 

 

49,731

 

 

45,039

 

 

96,689

 

 

84,787

Transaction costs

 

 

1,291

 

 

2,620

 

 

2,557

 

 

3,893

Operating income

 

 

77,279

 

 

82,444

 

 

25,754

 

 

49,660

Interest expense

 

 

28,943

 

 

25,986

 

 

57,727

 

 

50,955

Loss on debt financings

 

 

149

 

 

 —

 

 

149

 

 

190

Tax receivable agreement expense

 

 

 —

 

 

1,525

 

 

 —

 

 

1,525

Other income, net

 

 

(916)

 

 

(590)

 

 

(8,571)

 

 

(1,247)

Income (loss) from operations before taxes

 

 

49,103

 

 

55,523

 

 

(23,551)

 

 

(1,763)

Income tax expense (benefit)

 

 

12,190

 

 

3,435

 

 

(4,516)

 

 

1,257

Net income (loss)

 

 

36,913

 

 

52,088

 

 

(19,035)

 

 

(3,020)

Net income (loss) attributable to noncontrolling interest in subsidiaries

 

 

 —

 

 

12

 

 

 —

 

 

(86)

Net income (loss) attributable to Summit Holdings

 

 

1,404

 

 

2,076

 

 

(815)

 

 

(490)

Net income (loss) attributable to Summit Inc.

 

$

35,509

 

$

50,000

 

$

(18,220)

 

$

(2,444)

Income (loss) per share of Class A common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

$

0.46

 

$

(0.16)

 

$

(0.02)

Diluted

 

$

0.32

 

$

0.46

 

$

(0.16)

 

$

(0.02)

Weighted average shares of Class A common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

111,564,190

 

 

108,419,568

 

 

111,111,644

 

 

107,556,143

Diluted

 

 

112,583,321

 

 

109,429,944

 

 

111,111,644

 

 

107,556,143

 

See notes to unaudited consolidated financial statements.

 

2


 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

July 1,

 

June 30,

 

July 1,

 

    

2018

    

2017

    

2018

    

2017

Net income (loss)

 

$

36,913

 

$

52,088

 

$

(19,035)

 

$

(3,020)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement liability adjustment

 

 

 —

 

 

413

 

 

 —

 

 

413

Foreign currency translation adjustment

 

 

(2,045)

 

 

3,418

 

 

(5,149)

 

 

4,124

Income (loss) on cash flow hedges

 

 

361

 

 

(240)

 

 

1,356

 

 

172

Less tax effect of other comprehensive loss items

 

 

1,455

 

 

 —

 

 

935

 

 

 —

Other comprehensive (loss) income:

 

 

(229)

 

 

3,591

 

 

(2,858)

 

 

4,709

Comprehensive income (loss)

 

 

36,684

 

 

55,679

 

 

(21,893)

 

 

1,689

Less comprehensive income (loss) attributable to the noncontrolling interest in consolidated subsidiaries

 

 

 —

 

 

12

 

 

 —

 

 

(86)

Less comprehensive income (loss) attributable to Summit Holdings

 

 

1,353

 

 

1,145

 

 

(932)

 

 

(303)

Comprehensive income (loss) attributable to Summit Inc.

 

$

35,331

 

$

54,522

 

$

(20,961)

 

$

2,078

 

See notes to unaudited consolidated financial statements.

 

 

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SUMMIT MATERIALS, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

June 30,

 

July 1,

 

    

2018

    

2017

Cash flow from operating activities:

 

 

 

 

 

 

Net loss

 

$

(19,035)

 

$

(3,020)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

98,562

 

 

90,781

Share-based compensation expense

 

 

14,190

 

 

9,424

Net gain on asset disposals

 

 

(7,508)

 

 

(4,052)

Non-cash loss on debt financings

 

 

 —

 

 

85

Change in deferred tax asset, net

 

 

(6,934)

 

 

391

Other

 

 

162

 

 

710

(Increase) decrease in operating assets, net of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

 

(57,763)

 

 

(68,539)

Inventories

 

 

(44,428)

 

 

(19,272)

Costs and estimated earnings in excess of billings

 

 

(34,525)

 

 

(21,571)

Other current assets

 

 

(1,766)

 

 

3,535

Other assets

 

 

780

 

 

(1,565)

Increase (decrease) in operating liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts payable

 

 

23,912

 

 

28,550

Accrued expenses

 

 

1,674

 

 

(6,789)

Billings in excess of costs and estimated earnings

 

 

(2,187)

 

 

1,252

Tax receivable agreement liability

 

 

1,688

 

 

1,525

Other liabilities

 

 

(540)

 

 

(296)

Net cash (used in) provided by operating activities

 

 

(33,718)

 

 

11,149

Cash flow from investing activities:

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(153,196)

 

 

(213,124)

Purchases of property, plant and equipment

 

 

(131,657)

 

 

(109,088)

Proceeds from the sale of property, plant and equipment

 

 

14,110

 

 

8,411

Other

 

 

684

 

 

137

Net cash used for investing activities

 

 

(270,059)

 

 

(313,664)

Cash flow from financing activities:

 

 

 

 

 

 

Proceeds from equity offerings

 

 

 —

 

 

237,600

Capital issuance costs

 

 

 —

 

 

(627)

Proceeds from debt issuances

 

 

 —

 

 

302,000

Debt issuance costs

 

 

(550)

 

 

(5,308)

Payments on debt

 

 

(10,772)

 

 

(9,288)

Payments on acquisition-related liabilities

 

 

(31,224)

 

 

(17,204)

Distributions from partnership

 

 

(69)

 

 

(79)

Proceeds from stock option exercises

 

 

15,615

 

 

5,736

Other

 

 

(1,904)

 

 

(832)

Net cash (used in) provided by financing activities

 

 

(28,904)

 

 

511,998

Impact of foreign currency on cash

 

 

(471)

 

 

188

Net (decrease) increase in cash

 

 

(333,152)

 

 

209,671

Cash and cash equivalents—beginning of period

 

 

383,556

 

 

143,392

Cash and cash equivalents—end of period

 

$

50,404

 

$

353,063

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Class A

 

Class B

 

Additional

 

Noncontrolling

 

Total

 

 

Accumulated

 

Comprehensive

 

Common Stock

 

Common Stock

 

Paid-in

 

Interest in

 

Stockholders’

 

   

Earnings

   

Income (Loss)

   

Shares

   

Dollars

   

Shares

   

Dollars

   

Capital

   

Summit Holdings

   

Equity

Balance — December 30, 2017

 

$

95,833

 

$

7,386

 

 

110,350,594

 

$

1,104

 

 

100

 

$

 —

 

$

1,154,220

 

$

13,178

 

$

1,271,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(18,220)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(815)

 

 

(19,035)

LP Unit exchanges

 

 

 —

 

 

 —

 

 

229,658

 

 

 2

 

 

 —

 

 

 —

 

 

850

 

 

(852)

 

 

 —

Other comprehensive loss, net of tax

 

 

 —

 

 

(2,741)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(117)

 

 

(2,858)

Stock option exercises

 

 

 —

 

 

 —

 

 

863,898

 

 

 9

 

 

 —

 

 

 —

 

 

15,607

 

 

 —

 

 

15,616

Share-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14,190

 

 

 —

 

 

14,190

Distributions from partnership

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(69)

 

 

(69)

Other

 

 

 —

 

 

 —

 

 

185,088

 

 

 2

 

 

 —

 

 

 —

 

 

(1,796)

 

 

 —

 

 

(1,794)

Balance — June 30, 2018

 

$

77,613

 

$

4,645

 

 

111,629,238

 

$

1,117

 

 

100

 

$

 —

 

$

1,183,071

 

$

11,325

 

$

1,277,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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 December 30, 2017. 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 June 30, 2018, the results of operations for the three and six months ended June 30, 2018 and July 1, 2017 and cash flows for the six months ended June 30, 2018 and July 1, 2017.

 

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

 

For a summary of the changes in Summit Inc.’s ownership of Summit Holdings, see Note 9, Stockholders’ Equity.

 

The Company attributes consolidated stockholders’ equity and net income separately to the controlling and noncontrolling interests. The Company accounts for investments in entities for which it has an ownership of 20% to 50% using the equity method of accounting. In October 2017, the Company acquired the 20% of Ohio Valley Asphalt, LLC held by noncontrolling interests, making it a wholly owned subsidiary.

 

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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, the 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.

 

Business and Credit Concentrations—The Company’s operations are conducted primarily across 23 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 those states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been extended 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 six months ended June 30, 2018 and July 1, 2017.

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

 

Products

 

We earn revenue from the sale of products, which primarily include aggregates, cement, ready-mix concrete and asphalt, but also include concrete products, net of discounts or allowances, if any, and freight and delivery charges billed to customers. Freight and delivery charges associated with cement sales are recorded on a net basis together with freight costs within cost of sales. Revenue for product sales is recognized when evidence of an arrangement exists and when control passes, which generally is when the product is shipped.

 

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

 

Services

 

We earn revenue from the provision of services, which are primarily paving and related services, but also include landfill operations, the receipt and disposal of waste that is converted to fuel for use in our cement plants, and underground storage space rental. Revenue from the receipt of waste fuels is recognized when the waste is accepted and a corresponding liability is recognized for the costs to process the waste into fuel for the manufacturing of cement or to ship the waste offsite for disposal in accordance with applicable regulations. Collectability of service contracts is due reasonably after certain milestones in the contract are performed. Milestones vary by project, but are typically calculated using monthly progress based on the percentage of completion or a customer’s engineered review of progress. The majority of the time, collection occurs within 90 days of billing and cash is received within the same fiscal year as services performed. On most projects, the

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customer will withhold a portion of the invoice for retainage, which may last longer than a year depending on the job.

 

Revenue derived from paving and related services is recognized using the percentage of completion method, which approximates progress towards completion. Under the percentage of completion method, we recognize paving and related services revenue as services are rendered. The majority of our construction service contracts are completed within one year, but may occasionally extend beyond this time frame. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on input measures. We generally measure progress toward completion on long-term paving and related services contracts based on the proportion of costs incurred to date relative to total estimated costs at completion. We include revisions of estimated profits on contracts in earnings under the cumulative catch-up method, under which the effect of revisions in estimates is recognized immediately. If a revised estimate of contract profitability reveals an anticipated loss on the contract, we recognize the loss in the period it is identified.

 

The 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. Contract estimates involve various assumptions and projections relative to the outcome of future events over multiple periods, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the effect of delayed performance, and the availability and timing of funding from the customer. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts. We review our contract estimates regularly to assess revisions in contract values and estimated costs at completion. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. No material adjustments to a contract were recognized in the three and six months ended June 30, 2018.

 

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

 

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

 

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

 

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

 

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

 

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

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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.

 

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

 

We periodically evaluate the realizability of the deferred tax assets resulting from the exchange of LP Units for Class A common stock. If the deferred tax assets are determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability equal to 85% of such deferred tax assets, and the remaining 15% as an increase to additional paid-in capital. If a deferred tax asset subject to the TRA is determined not to be realizable and therefore subject to a valuation allowance, we do not record a TRA liability for such deferred tax assets. In subsequent periods, we assess the realizability of all of our deferred tax assets subject to the TRA. Should we determine a deferred tax asset with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become deductible and consideration of prudent and feasible tax-planning strategies.

 

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

 

Reclassification —The Company reclassified $0.4 million from deferred income tax benefit and $17,000 from other current assets to change in deferred tax asset, net, and reclassified $1.5 million from other liabilities to tax receivable agreement liability for the six months ended July 1, 2017 consolidated statements of cash flows, to conform to the current year presentation. 

 

New Accounting Standards — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP. The ASU supersedes nearly all existing revenue recognition guidance under U.S. GAAP and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. We adopted this ASU in the first quarter of 2018 using the modified retrospective approach, which did not have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business. This ASU provides a screen to determine whether a group of assets constitutes a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (2) removes the

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evaluation of whether a market participant could replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. We adopted this ASU in the first quarter of 2018 and the adoption of this ASU did not have a material impact on the consolidated financial statements.

 

2.ACQUISITIONS

 

Since its formation, the Company has completed numerous acquisitions, which have been financed through a combination of debt and equity funding. 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. The following table summarizes the Company’s acquisitions by region and period:

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Year ended

 

 

 

June 30,

 

December 30,

 

 

 

2018

    

2017

 

West

 

 

 3

 

 

 6

 

East (1)

 

 

 4

 

 

 8

 


(1)

In addition, the Company acquired certain assets of a small ready-mix concrete operation in the second quarter of 2018.

 

The purchase price allocation, primarily the valuation of property, plant and equipment for the 2018 acquisitions, as well as the 2017 acquisitions that occurred after July 1, 2017, has not yet been finalized due to the recent timing of the acquisitions and status of the valuation of property, plant and equipment. The following table summarizes aggregated information regarding the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Year ended

 

 

June 30,

 

December 30,

 

    

2018

    

2017

Financial assets

 

$

12,968

 

$

31,615

Inventories

 

 

16,628

 

 

8,300

Property, plant and equipment

 

 

65,185

 

 

160,975

Intangible assets

 

 

98

 

 

161

Other assets

 

 

2,807

 

 

4,200

Financial liabilities

 

 

(10,669)

 

 

(15,501)

Other long-term liabilities

 

 

(4,453)

 

 

(17,610)

Net assets acquired

 

 

82,564

 

 

172,140

Goodwill

 

 

78,881

 

 

247,536

Purchase price

 

 

161,445

 

 

419,676

Acquisition-related liabilities

 

 

(8,249)

 

 

(43,452)

Other

 

 

 —

 

 

(1,294)

Net cash paid for acquisitions

 

$

153,196

 

$

374,930

 

Changes in the carrying amount of goodwill, by reportable segment, from December 30, 2017 to June 30, 2018 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

West

    

East

    

Cement

    

Total  

Balance, December 30, 2017

 

$

526,290

 

$

305,374

 

$

204,656

 

$

1,036,320

Acquisitions (1)

 

 

44,388

 

 

36,975

 

 

 —

 

 

81,363

Foreign currency translation adjustments

 

 

(2,716)

 

 

 —

 

 

 —

 

 

(2,716)

Balance, June 30, 2018

 

$

567,962

 

$

342,349

 

$

204,656

 

$

1,114,967


(1)

Reflects goodwill from 2018 acquisitions and working capital adjustments from prior year acquisitions.

 

The Company’s intangible assets are primarily composed of goodwill, lease agreements and reserve rights. The assets related to lease agreements reflect the submarket royalty rates paid under agreements, primarily for

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extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates. The reserve rights relate to aggregate reserves to which the Company has the rights of ownership, but does not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases. The following table shows intangible assets by type and in total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 30, 2017

 

 

Gross

 

 

 

 

Net

 

Gross

 

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

 

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Leases

 

$

15,988

 

$

(4,584)

 

$

11,404

 

$

15,888

 

$

(4,178)

 

$

11,710

Reserve rights

 

 

6,234

 

 

(1,777)

 

 

4,457

 

 

6,234

 

 

(1,625)

 

 

4,609

Trade names

 

 

1,000

 

 

(808)

 

 

192

 

 

1,000

 

 

(758)

 

 

242

Other

 

 

409

 

 

(168)

 

 

241

 

 

409

 

 

(137)

 

 

272

Total intangible assets

 

$

23,631

 

$

(7,337)

 

$

16,294

 

$

23,531

 

$

(6,698)

 

$

16,833

 

Amortization expense totaled $0.3 million and $0.6 million for the three and six months ended June 30, 2018, respectively, and $0.4 million and $0.7 million for the three and six months ended July 1, 2017, respectively. The estimated amortization expense for the intangible assets for each of the five years subsequent to June 30, 2018 is as follows:

 

 

 

 

 

2018 (six months)

    

$

625

2019

 

 

1,245

2020

 

 

1,161

2021

 

 

1,119

2022

 

 

1,119

2023

 

 

1,119

Thereafter

 

 

9,906

Total