NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A—ORGANIZATION
U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) is a domestic producer of commercial silica, a specialized mineral that is a critical input into a variety of end markets. During our
116
year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver products to customers across these markets. We manufacture frac sand used to stimulate and maintain the flow of hydrocarbons in oil and natural gas wells. Our silica is also used as a raw material in a wide range of industrial applications, including glassmaking and chemical manufacturing. We operate in
two
business segments: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products (see
Note S - Segment Reporting
for additional details).
On August 16, 2016, we completed the acquisition of New Birmingham, Inc. (“NBI”), the ultimate parent company of NBR Sand, LLC (“NBR”), a regional sand producer located near Tyler, Texas. On August 22, 2016, we completed the purchase of all of the outstanding units of membership interest of Sandbox Enterprises, LLC (“Sandbox”), a “last mile” transportation service provider in the oil and gas industry. See
Note D - Business Combinations
for more details for these two acquisitions.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements (the “Financial Statements”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, all adjustments necessary for a fair presentation of the Financial Statements have been included. Such adjustments are of a normal, recurring nature. We have reclassified certain immaterial amounts in the prior years’ operating activities section section of the consolidated statement of cash flows to conform to the current year presentation.
In order to make this report easier to read, we refer throughout to (i) our Consolidated Balance Sheets as our “Balance Sheets,” (ii) our Consolidated Statements of Operations as our “Income Statements,” and (iii) our Consolidated Statements of Cash Flows as our “Cash Flows.”
Consolidation
The Financial Statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
We follow FASB Accounting Standards Codification (“ASC”) guidance for identification and reporting of entities over which control is achieved through means other than voting rights. The guidance defines such entities as Variable Interest Entities (“VIEs”). For the periods presented herein, we have identified no entities over which we maintain any level of control that would qualify for consolidation under ASC guidance.
Use of Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to purchase price allocation for businesses acquired; mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production amortization calculations; environmental, reclamation and closure obligations; estimates of recoverable minerals; estimates of allowance for doubtful accounts; estimates of fair value for certain reporting units and asset impairments (including impairments of goodwill and other long-lived assets); write-downs of inventory to net realizable value; equity-based compensation expense; post-employment, post-retirement and other employee benefit liabilities; valuation allowances for deferred tax assets; reserves for contingencies and litigation; and the fair value and accounting treatment of financial instruments including derivative instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
We derive most of our sales by mining and processing minerals that our customers purchase for various uses. Our sales are primarily a function of the price per ton and the number of tons sold. The amount invoiced reflects product, transportation and additional services as applicable, such as storage, transloading the product from railcars to trucks and last mile logistics to the customer site.
Revenue is recognized from a sale when persuasive evidence of an arrangement exists, the price is fixed and determinable, the product has been delivered, legal title has been transferred to the customer or services are completed and collection of the sale is reasonably assured. Amounts received from customers in advance of revenue recognition are deferred as liabilities.
We primarily sell our products under short-term price agreements or at prevailing market rates. For a limited number of customers, we sell under long-term, competitively-bid take-or-pay supply agreements. As of
December 31, 2016
, we had
seven
take-or-pay supply agreements in the Oil & Gas Proppants segment with initial terms expiring between
2017
and
2019
. These agreements define, among other commitments, the volume of product that our customers must purchase, the volume of product that we must provide and the price that we will charge that our customers will pay for each product. Prices under these agreements are generally fixed and subject to upward adjustment in response to certain cost increases. Some of these existing agreements are under active negotiations regarding pricing and volume requirements, which may often occur in volatile market conditions. While these negotiations continue, we may deliver sand at prices or at volumes below the requirements in our existing take-or-pay supply agreements.
We invoice the majority of our clients on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly. Standard terms are net
30
days, although extended terms are offered in competitive situations. Sales and other transaction taxes imposed by government entities are reported on a net basis.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are invested primarily in money market securities held by financial institutions with high credit ratings. Accounts at each institution are insured by Federal Deposit Insurance Corporation. Cash balances at times may exceed federally-insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on cash.
Checks we issued but have not cleared our bank accounts frequently result in book overdraft balances. In 2015, we changed the presentation of book overdraft from being classified as a liability to a reduction to our cash and cash equivalents. As a result of this change, the amount of cash and cash equivalents was reduced by the book overdraft amounts as of
December 31, 2016
,
2015
and
2014
was
$3.2 million
,
$6.7 million
and
$4.2 million
, respectively.
Accounts Receivable
The majority of our accounts receivable are due from companies in the oil and natural gas drilling, glass, building products, filler and extenders, foundries and other major industries. Our
ten
largest customers accounted for approximately
52%
,
56%
, and
57%
of sales in the years ended
December 31, 2016
,
2015
and
2014
, respectively. Sales to our largest customer,
Halliburton Company
, which is an Oil & Gas Proppants customer, accounted for
13%
of our total revenues during the year ended
December 31, 2016
. No other customer accounted for 10% or more of our total revenues. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. Ongoing credit evaluations are performed. We write-off accounts receivable when they are deemed uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Inventories
Inventories include raw stockpiles and silica and other industrial sand available for shipment, as well as spare parts and supplies for routine facility maintenance. We value inventory at the lower of cost or net realizable value. Cost is determined
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
using the first-in, first-out and average cost methods. Costs of our raw stockpiles and silica and other industrial sand inventories include production costs and transportation and additional service costs as applicable.
Property, Plant and Mine Development
Plant and equipment
Plant and equipment is recorded at cost and depreciated over their estimated useful lives. Interest incurred during construction of facilities is capitalized and depreciated over the life of the asset. Costs for normal repairs and maintenance that do not extend economic life or improve service potential are expensed as incurred. Costs of improvements that extend economic life or improve service potential are capitalized and depreciated over the estimated remaining useful life.
Depreciation is recorded using the straight-line method over the assets’ estimated useful life as follows: buildings (
15
years); land improvements (
10
years); machinery and equipment, including computer equipment and software (
3
-
10
years); furniture and fixtures (
8
years). Leasehold improvements are depreciated over the shorter of the asset life or lease term. Construction-in-progress is primarily comprised of machinery and equipment, which has not yet been placed in service.
Mining property and development
Mining property and development includes mineral deposits and mine exploration and development. Mineral deposits are initially recognized at cost, which approximates the estimated fair value on the date of purchase. Mine exploration and development costs include engineering and mineral studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body for production. Costs incurred before mineralization are classified as proven and probable reserves are expensed and classified as exploration or advanced projects, research and development expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.
The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in costs applicable to sales in the same period as the revenue from the sale of inventory.
Depletion and amortization of mineral deposits and mine development costs are recorded as the minerals are extracted, based on units of production and engineering estimates of mineable reserves. The impact of revisions to reserve estimates is recognized on a prospective basis.
Mine reclamation costs and asset retirement obligations
We recognize the fair value of any liability for conditional asset retirement obligations, including environmental remediation liabilities when incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset, if sufficient information exists to reasonably estimate the fair value of the liability. These obligations generally include the estimated net future costs of dismantling, restoring and reclaiming operating mines and related mine sites, in accordance with federal, state, local regulatory and land lease agreement requirements. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The reclamation obligation is based on when spending for an existing environmental disturbance will occur. If the asset retirement obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement. We review, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site in accordance with ASC guidance for accounting reclamation obligations.
Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.
In connection with our annual review of our reclamation obligations, we have determined that some of our estimates required revision due primarily to the additions of new plant and transload facilities and other changes in cost estimates and
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
settlement dates at various sites. These additions and changes in estimates resulted in an additional
$(2.1) million
and
$0.2 million
of asset retirement obligations in
2016
and
2015
, respectively.
Our asset retirement obligations are reported in other long-term obligations. The changes in these obligations (in thousands) during the year ending
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
12,254
|
|
|
$
|
11,283
|
|
Accretion
|
979
|
|
|
812
|
|
Additions and revisions of prior estimates
|
(2,074
|
)
|
|
159
|
|
Ending balance
|
$
|
11,159
|
|
|
$
|
12,254
|
|
Impairment or Disposal of Property, Plant and Mine Development
Gains on the sale of property, plant and mine development are included in income when the assets are disposed of provided there is more than reasonable certainty of the collectability of the sales price and any future activities required to be performed by us relating to the disposal of the assets are complete or insignificant. Upon retirement or disposal of assets, all costs and related accumulated depreciation or amortization are written-off.
We periodically evaluate whether current events or circumstances indicate that the carrying value of our property, plant and equipment assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash flows using estimates of proven and probable sand reserves, estimated future sales prices (considering historical and current prices, price trends and related factors) and operating costs and anticipated capital expenditures. If th
e undiscounted cash flows are less than the carrying value of the assets, we recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets.
Goodwill and Other Intangible Assets and Related Impairment
Our intangible assets consist of goodwill, which is not being amortized, indefinite lived intangibles, which consist of certain trade names that are not subject to amortization, intellectual property and customer relationships.
Intellectual property was acquired in connection with our Sandbox acquisition and mainly consists of patents and technology. It is amortized on a straight-line basis over an average useful life of
15 years
. As of
December 31, 2016
, the gross carrying amount of the intellectual property intangible asset was
$58.7 million
with accumulated amortization of
$1.4 million
. During the year ended
December 31, 2016
, we capitalized
$0.9 million
in legal costs and patent filing costs. As of
December 31, 2016
, the remaining useful life was
14.6
years. The estimated annual amortization in each of the next five years is
$3.8 million
. Amortization expense for intellectual property was
$1.4 million
for the year ended
December 31, 2016
.
Customer relationships are amortized on a straight-line basis over their useful life of
20
,
15
or
13
years. We acquired additional customer relationships in connection with our NBI and Sandbox acquisitions during the year ended
December 31, 2016
. As of
December 31, 2016
, the gross carrying amount of the customer relationships intangible asset was
$55.7 million
with accumulated amortization of
$4.8 million
.
As of
December 31, 2016
, the weighted average remaining useful life of our customer relations
hips was
13.0
years. The estimated annual amortization in each of the next five years is
$4.0 million
. Amortization expense was
$1.8 million
,
$0.5 million
and
$0.4 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Goodwill represents the excess of purchase price over the fair value of net assets from business acquisitions. Goodwill and trade names are reviewed for impairment annually as of October 31 or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of those assets. Prior to conducting a formal impairment test, we have an option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that is more likely than not (more than
50%
) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If the qualitative assessment determines that an impairment is more likely than not, or if we choose to bypass the qualitative assessment, we perform a quantitative comparison of the fair value with the carrying amount, including goodwill. If this comparison reflects impairment, then the loss would be measured as the excess of recorded goodwill, or other intangible assets with indefinite lives, over its implied fair value. Implied
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fair value is the excess of our fair value over the fair value of all recognized and unrecognized assets and liabilities. As of December 31, 2016, our qualitative assessment did not indicate that it was more likely than not that an impairment had occurred.
Debt Issuance Costs
The Company defers costs directly associated with acquiring third-party financing, primarily loan origination costs and related professional expenses. Debt issuance costs are deferred and amortized using the effective interest rate method over the term of our senior secured term loan facility (the “Term Loan”) and the straight-line method for our revolving line-of-credit (the "Revolver"). Debt issuance costs related to long-term debt are reflected as direct deduction from the carrying amount of the debt. Amortization included in interest expense was
$1.4 million
,
$1.4 million
and
$0.9 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Environmental Costs
Environmental costs, other than qualifying capital expenditures, are accrued at the time the exposure becomes known and costs can be reasonably estimated. Costs are accrued based upon management’s estimates of all direct costs, after taking into account expected reimbursement by third parties (primarily the sellers of acquired businesses), and are reviewed by outside consultants. Environmental costs are charged to expense unless a settlement with an indemnifying party has been reached.
Self-Insurance
We are self-insured for various levels of employee health insurance coverage, workers’ compensation and third party product liability claims alleging occupational disease. We purchase insurance coverage for claim amounts which exceed our self-insured retentions. Depending on the type of insurance, these self-insured retentions range from
$0.1 million
to
$0.5 million
per occurrence. Our insurance reserves are accrued based on estimates of the ultimate cost of claims expected to occur during the covered period. The current portion of our self-insurance reserves is included in accrued liabilities and the non-current portion is included in other long-term obligations in our Balance Sheets.
For
December 31, 2016
and
2015
, our self-insurance reserves totaled
$5.3 million
and
$5.7 million
, respectively, and
$1.3 million
and
$1.8 million
was classified as
current, respectively.
Equity-based Compensation
We recognize the cost of employee services rendered in exchange for awards of equity instruments, including stock options, restricted stock, restricted stock units and performance share units.
Vesting of restricted stock and restricted stock units is based on the individual continuing to render service over a
three
year vesting schedule. Cash dividend equivalents are accrued and paid to the holders of time based restricted stock units and restricted stock. The fair value of the restricted stock awards is equal to the market price of our stock at date of grant. The restricted award-related compensation expense is recognized, on a straight-line basis, over the vesting period.
We grant performance share units to certain employees in which the number of shares of common stock ultimately received is determined based on achievement of certain performance thresholds over a specified performance period (generally three years) in accordance with the stock award agreement. Cash dividend equivalents are not accrued or paid on performance share units. We recognize expense based on the estimated vesting of our performance share units granted and the grant date market price. The estimated vesting of the performance share units is principally based on the probability of achieving certain financial performance levels during the vesting periods. In the period it becomes probable that the minimum performance criteria specified in the award agreement will be achieved, we recognize expense for the proportionate share of the total fair value of the award related to the vesting period that has already lapsed. The remaining fair value of the award is expensed on a straight-line basis over the remaining vesting period.
During the year ended
December 31, 2016
, we granted certain employees performance share units, the vesting of which is based on the Company’s total shareholder return (“TSR”) ranking among a peer group over the three year period from January 1, 2016 through December 31, 2018. The number of units that will vest will depend on the percentage ranking of the Company's TSR compared to the TSRs for each of the companies in the peer group over the performance period. For these awards subject to market conditions, a binomial-lattice model (i.e., Monte Carlo simulation model) is used to fair value these awards at grant date. The related compensation expense is recognized, on a straight-line basis, over the vesting period.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The options vest on a vesting schedule and the related compensation expense is recognized over the vesting period, usually over
3
or
4
years. In calculating the compensation expense for options granted, we estimate the fair value of each grant using the Black-Scholes option-pricing model. The weighted-average fair value per share of options granted during the years ended December 31,
2015
and
2014
was
$13.11
and
$19.37
, respectively. The fair value of stock options granted have been calculated based on the exercise price of the option and the following assumptions, which are evaluated and revised, as necessary, to reflect market conditions and experience. There were
no
options granted during the year ended December 31, 2016.
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
Year ended December 31,
|
|
|
2015
|
|
2014
|
Risk-free interest rate
|
|
1.68
|
%
|
|
1.81
|
%
|
Expected volatility
|
|
48
|
%
|
|
45
|
%
|
Expected term
|
|
6.25 years
|
|
|
6.25 years
|
|
Expected dividend yield
|
|
1
|
%
|
|
1
|
%
|
Expected forfeiture rate
|
|
0
|
%
|
|
0
|
%
|
Our expected forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled on an annual basis before becoming fully vested. We account for forfeitures as they occur.
Our expected term is the period of time over which the options are expected to remain outstanding. An increase in the expected term will increase compensation expense. The computation of the expected term is based on the simplified method, under which the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.
The assumptions for expected volatility are based on historical experience for the same periods as our expected lives. Risk-free interest rates are set using grant-date U.S. Treasury yield curves for the same periods as our expected lives. The expected dividend yield is based on our future dividend expectations for the same periods as our expected lives.
Income Taxes
Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We recognize a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than
50%
likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
The largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share
Basic and diluted earnings per share is presented for net income (loss). Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed similarly to basic earnings per common share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. In accordance with the applicable accounting guidance for calculating earnings per share, we did not include in our calculation of diluted earnings per share for the applicable periods stock options where the exercise prices were greater than the average market prices. The weighted-average stock options (in thousands) that are antidilutive and are therefore excluded from the calculation of diluted earnings per common share are:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted-average outstanding stock options excluded
|
573
|
|
|
528
|
|
|
33
|
|
Weighted-average outstanding restricted stock awards excluded
|
166
|
|
|
66
|
|
|
20
|
|
Comprehensive Income (loss)
In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as adjustments to minimum pension liabilities, unrealized gain or loss on our short term investments and the effective portion of changes in fair value of derivative instruments that qualify as cash flow hedges.
Short-term Investments
Our short-term investments consist of fixed income securities that have been classified and accounted for as available-for-sale. We determine the appropriate classification of our investments at the time of purchase and reevaluate the designations at each balance sheet date. We classify these securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Fixed income securities with maturities of
12 months or less
are classified as short-term and fixed income securities with maturities
greater than 12 months
are classified as long-term. These investments are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a separate component of accumulated other comprehensive income. The cost of securities sold is based upon the specific identification method.
We typically invest in highly-rated securities, and our investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and our intent to sell, or whether it is more likely than not we will be required to sell, the investment before recovery of the investment’s cost basis. As of December 31,
2015
, we considered any losses in our short-term investment portfolio to be temporary in nature and did not consider any of our investments other-than-temporarily impaired. All short-term investments have matured as of
December 31, 2016
.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
We currently use interest rate hedge agreements to manage interest costs and the risk associated with changing interest rates. Amounts to be paid or received under these hedge agreements are accrued as interest rates change and are recognized over the life of the hedge agreements as an adjustment to interest expense. Our policy is to not hold or issue derivative financial instruments for trading or speculative purposes. When entered into, these financial instruments are designated as hedges of underlying exposures, associated with our long-term debt and are monitored to determine if they remain effective hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income net of tax and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in income. Additional disclosures for derivative instruments are presented in
Note M
to these financial statements.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest-Imputation of Interest, which simplifies presentation of debt issuance costs. The new standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The new standard was effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. We have elected to adopt the standard early and have presented debt issuance costs as a direct deduction from the carrying amount of debt on our Balance Sheets as of
December 31, 2016
and
December 31, 2015
.
In November 2015, the FASB issued ASU 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes, which will require the presentation of deferred tax liabilities and assets be classified as non-current on balance sheets. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. We have elected to early adopt this guidance prospectively as of December 31, 2015. The adoption only impacted deferred tax presentation on our Balance Sheets and related disclosure. No prior periods were retrospectively adjusted.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The new standard requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The new standard will not apply to inventories that are measured using either the last-in, first-out (LIFO) method or the retail inventory method. This Update is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years; early application is permitted. We elected to prospectively early adopt the standard effective January 1, 2016 and have measured our inventory at the lower of cost and net realizable value on our Balance Sheet. The impacts of the early adoption of this Update on our Financial Statements are not significant.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation." The update requires that excess tax benefits and deficiencies be recorded in the income statement when the awards vest or are settled. It also eliminates the requirement that excess tax benefits be realized (reduce cash taxes payable) before being recognized. Previously, an entity could not recognize excess tax benefits if the tax deduction increased a net operating loss ("NOL") or tax credit carryforward. The updated standard no longer requires cash flows related to excess tax benefits to be presented as a financing activity separate from other income tax cash flows. The update also allows the employer to repurchase more of an employee's shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments to taxing authorities made on an employee's behalf for withheld shares should be presented as a financing activity on the statement of cash flows, and provides for an accounting policy election to account for forfeitures as they occur. The update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods and permits early adoption.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We elected to early adopt this update during the three months ended September 30, 2016, which requires any adjustments to be reflected as of January 1, 2016. This resulted in the recognition of excess tax benefits on our Balance Sheet that were previously not recognized, as the benefits would have increased our NOL or tax credit carryforwards. The recognition decreased net deferred tax liability by
$0.1 million
and
$2.2 million
as of January 1, 2016 and December 31, 2016, respectively. Retained earnings on January 1, 2016 was increased accordingly by
$0.1 million
. In addition, we will recognize excess tax benefits or deficiencies in the provision for income taxes rather than paid-in capital for 2016 and future periods. Adoption of the update resulted in the reduction in the provision for income taxes of
$2.2 million
for the year ended December 31, 2016.
The effect of the adoption of this update on our previously reported income tax provision on our Income Statement was a decrease in tax benefit of
$0.3 million
for the three months ended March 31, 2016 and an increase in tax benefit of
$0.2 million
for the three months ended June 30, 2016, respectively.
We elected to include excess tax benefits as operating activities in the Cash Flow on a prospective basis. Prior periods are not adjusted. We also made the accounting policy election to account for forfeitures as they occur.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance, the FASB has issued an additional six ASUs, including ASU 2016-20 in December 2016, amending the guidance and the effective dates of amendments, and the SEC has rescinded certain related SEC guidance; the most recent of which was issued in May 2016. The pronouncements are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We have not yet completed our final review of the impact of this guidance, although we currently do not anticipate a material impact on our revenue recognition practices. We continue to review our existing contracts with our customers, any variable consideration, potential disclosures, and our method of adoption to complete our evaluation of the impact on our consolidated financial statements. In addition, we continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact our current conclusions.
In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing lease guidance and requires all leases with a term greater than 12 months to be recognized on the balance sheet as assets and obligations. This Update is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; early application is permitted. This standard mandates a modified retrospective transition method. We have not yet determined the impact from adoption of this new accounting pronouncement on our financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The Update provides amendments that clarify guidance or correct references in the Accounting Standards Codification that addresses current diversity in practice and could potentially result in changes in current practice because of either misapplication or misunderstanding of current guidance. Early adoption is permitted for the amendments that require transition guidance. We are currently evaluating the effect that the transition guidance will have on our financial statements and related disclosures.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. Most of the amendments are effective upon issuance. Six amendments clarify guidance or correct references in the Accounting Standards Codification that could potentially result in changes in current practice because of either misapplication or misunderstanding of current guidance. The transition guidance effective dates for these six amendments varies depending upon the amendment, relevant Subtopic and applicability to other ASUs. Early adoption is permitted for the amendments that require transition guidance. We are currently evaluating the effect that the transition guidance will have on our financial statements and related disclosures.
NOTE C—CAPITAL STRUCTURE AND ACCUMULATED COMPREHENSIVE INCOME
Common Stock
Our Amended and Restated Certificate of Incorporation, authorizes up to
500,000,000
shares of common stock, par value of
$0.01
. Subject to the rights of holders of any series of preferred stock, all of the voting power of the stockholders of Holdings shall be vested in the holders of the common stock.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2016, we completed a public offering of
10,000,000
shares of our common stock for total cash proceeds of approximately
$186.2 million
net of underwriting discounts and offering costs. In August 2016, we issued an additional
6,825,693
shares of our common stock to complete two acquisitions discussed in Note D - Business Combinations. In November 2016, we executed another offering of
10,350,000
shares of common stock raising net cash proceeds of
$467.0 million
. There were
81,028,898
shares of common stock issued and outstanding at
December 31, 2016
. As of
December 31, 2015
, there were
53,390,136
shares issued and outstanding.
In 2016, our Board of Directors declared quarterly cash dividends as follows:
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
Declaration Date
|
|
Record Date
|
|
Payable Date
|
$
|
0.0625
|
|
|
February 22, 2016
|
|
March 15, 2016
|
|
April 5, 2016
|
$
|
0.0625
|
|
|
May 5, 2016
|
|
June 15, 2016
|
|
July 6, 2016
|
$
|
0.0625
|
|
|
July 21, 2016
|
|
September 15, 2016
|
|
October 4, 2016
|
$
|
0.0625
|
|
|
November 3, 2016
|
|
December 15, 2016
|
|
January 5, 2017
|
All dividends were paid as scheduled.
Any determination to pay dividends and other distributions in cash, stock, or property by Holdings in the future will be at the discretion of our Board of Directors and will be dependent on then-existing conditions, including our business conditions, our financial condition, results of operations, liquidity, capital requirements, contractual restrictions including restrictive covenants contained in our debt agreements, and other factors. Additionally, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness.
Preferred Stock
Our Amended and Restated Certificate of Incorporation authorizes our Board of Directors to issue up to
10,000,000
shares, in the aggregate, of preferred stock, par value of
$0.01
in one or more series and to fix the preferences, powers and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference and to fix the number of shares to be included in any such series without any further vote or action by our stockholders.
There are
no
shares of preferred stock issued or outstanding at
December 31, 2016
and
2015
. At present, we have
no
plans to issue any preferred stock.
Share Repurchase Program
We are authorized by our Board of Directors to repurchase shares of our outstanding common stock on the open market or in privately negotiated transactions. As of
December 31, 2016
, we are authorized to repurchase up to
$50 million
of our common stock through
December 11, 2017
. Stock repurchases will be funded using our available liquidity. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Under our share repurchase program, as of
December 31, 2016
, we have repurchased
706,093
shares of our common stock at an average price of
$23.83
and are authorized to repurchase up to an additional
$33.2 million
of our common stock.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of fair value adjustments associated with cash flow hedges, short-term investments and accumulated adjustments for net experience losses and prior service cost related to employee benefit plans. The following table presents the changes in accumulated other comprehensive income by component (in thousands) during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
Unrealized
gain (loss) on
cash flow
hedges
|
|
Unrealized
gain (loss) on
short-term
investments
|
|
Pension and
other post-
retirement
benefits liability
|
|
Total
|
Beginning Balance
|
$
|
(81
|
)
|
|
$
|
6
|
|
|
$
|
(16,096
|
)
|
|
$
|
(16,171
|
)
|
Other comprehensive income before reclassifications
|
(32
|
)
|
|
(6
|
)
|
|
(760
|
)
|
|
(798
|
)
|
Amounts reclassed from accumulated other comprehensive income
|
81
|
|
|
—
|
|
|
1,012
|
|
|
1,093
|
|
Ending Balance
|
$
|
(32
|
)
|
|
$
|
—
|
|
|
$
|
(15,844
|
)
|
|
$
|
(15,876
|
)
|
Amounts reclassed from accumulated other comprehensive income (loss) related to cash flow hedges are included in interest expense in our Income Statements and amounts reclassed related to the pension and other post-retirement benefits liability are included in the computation of net periodic pension costs, at their before tax amounts.
NOTE D—BUSINESS COMBINATIONS
NBI Acquisition:
On August 16, 2016, we completed the acquisition of New Birmingham, Inc. (“NBI”), the ultimate parent company of NBR Sand, LLC (“NBR”), by acquiring all of the outstanding capital stock of NBI through the merger of New Birmingham Merger Corp., a Nevada corporation and wholly owned subsidiary of the Company, with and into NBI, followed immediately by the merger of NBI with and into NBI Merger Subsidiary II, Inc., a Delaware corporation and wholly owned subsidiary of the Company, which subsequently changed its name to Tyler Silica Company (the “NBI Acquisition”). NBR is a regional sand producer located near Tyler, Texas. The acquisition of NBI increased our regional frac sand product offering in our Oil & Gas Proppants segment.
The preliminary consideration paid to the stockholders of NBI at the closing of the NBI Acquisition consisted of
$107.2 million
of cash (net of
$9.0 million
cash acquired) and
2,630,513
shares of common stock. The calculation of the preliminary purchase price (in thousands, except shares) is as follows:
|
|
|
|
|
|
|
|
|
|
|
Cash consideration paid
|
|
$
|
116,165
|
|
Number of Holdings common shares delivered
|
2,630,513
|
|
|
Multiplied by closing market price per share of U.S. Silica common stock on August 16, 2016
|
$
|
40.51
|
|
|
Total value of Holdings common shares delivered
|
|
$
|
106,562
|
|
Less, cash acquired
|
|
$
|
(9,002
|
)
|
Total purchase price
|
|
$
|
213,725
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the preliminary allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Allocation of Purchase price:
|
|
Accounts receivable
|
$
|
2,680
|
|
Inventories
|
3,494
|
|
Other current assets
|
428
|
|
Income tax deposits
|
6,657
|
|
Property, plant and mine development
|
210,913
|
|
Identifiable intangible assets
|
1,600
|
|
Goodwill
|
86,228
|
|
Total assets acquired
|
312,000
|
|
Accounts payable, accrued expenses and other current liabilities
|
1,938
|
|
Deferred revenue
|
500
|
|
Notes payable
|
24,361
|
|
Capital lease liabilities
|
3,331
|
|
Asset retirement obligations
|
710
|
|
Deferred tax liabilities
|
67,435
|
|
Total liabilities assumed
|
98,275
|
|
Net assets acquired
|
$
|
213,725
|
|
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
Approximate Fair Value
|
Estimated Useful Life
|
|
(in thousands)
|
(in years)
|
Customer relationships
|
$
|
1,600
|
|
15
|
Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired. Goodwill in this transaction is attributable to planned growth in regional frac sand markets and synergies expected to be achieved from integrating the operations of our operating subsidiary, U.S. Silica Company (“U.S. Silica”), and NBI. The goodwill amount is included in our Oil & Gas Proppants segment. Both customer relationships and goodwill are not expected to be deductible for tax purposes.
We incurred
$1.4 million
of acquisition-related charges which are included in selling, general and administrative expenses during the year ended
December 31, 2016
. Additionally, we incurred
$1.7 million
related to the inventory write-up values in cost of goods sold during the year ended
December 31, 2016
. Revenue and earnings for NBR after the acquisition date are not presented as the business was integrated into our operations subsequent to the acquisition and therefore impracticable to quantify.
Sandbox Acquisition:
On August 22, 2016, we completed the purchase of all of the outstanding units of membership interest of Sandbox Enterprises, LLC, a Texas limited liability company ("Sandbox" or the “Sandbox Acquisition”). Sandbox earns revenues from providing “last mile” transportation services to companies in the oil and gas industry. Sandbox has operations in Midland/Odessa, Texas; Morgantown, West Virginia; western North Dakota; northeast of Denver, Colorado; Oklahoma City, OK; and Cambridge, Ohio, where its major customers are located.
The preliminary consideration paid includes
$69.5 million
of cash (net of
$1.3 million
cash acquired) and
4,195,180
shares of our common stock. The calculation of preliminary purchase price (in thousands, except shares) is as follows:
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
Cash consideration paid
|
|
$
|
70,760
|
|
Number of Holdings common shares delivered
|
4,195,180
|
|
|
Multiplied by closing market price per share of U.S. Silica common stock on August 22, 2016
|
$
|
40.92
|
|
|
Total value of Holdings common shares delivered
|
|
$
|
171,667
|
|
Less, cash acquired
|
|
$
|
(1,306
|
)
|
Total purchase price
|
|
$
|
241,121
|
|
The following table sets forth a preliminary allocation of the purchase price to Sandbox’s identifiable tangible and intangible assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Allocation of Purchase price:
|
(in thousands)
|
Accounts receivable
|
$
|
13,392
|
|
Prepaid expenses and other
|
1,465
|
|
Property, plant and mine development
|
32,336
|
|
Identifiable intangible assets
|
120,144
|
|
Goodwill
|
86,100
|
|
Total assets acquired
|
253,437
|
|
Accounts payable
|
4,122
|
|
Deferred revenue
|
4,902
|
|
Accrued expenses and other current liabilities
|
3,292
|
|
Total liabilities assumed
|
12,316
|
|
Net assets acquired
|
$
|
241,121
|
|
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
Approximate Fair Value
|
Estimated Useful Life
|
|
(in thousands)
|
(in years)
|
Indefinite lived intangible assets - Trade names
|
$
|
17,844
|
|
Indefinite
|
Definite lived intangible assets - Technology and intellectual property
|
57,700
|
|
15
|
Definite lived intangible asset - Customer relationships
|
44,600
|
|
13
|
Total fair value of identifiable intangible assets
|
$
|
120,144
|
|
|
Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired. Goodwill in this transaction is attributable to expected growth in frac sand demand at the wellhead and synergies expected to be achieved from integrating the operations of U.S. Silica and Sandbox. The goodwill amount is included in our Oil & Gas Proppants segment. Goodwill and all intangible assets identified above are expected to be deductible for tax purposes.
Our 2016 Income Statement included revenue of
$31.0 million
associated with Sandbox following the date of acquisition. Sandbox's impact on our net loss was not significant for the year ended
December 31, 2016
. We incurred
$3.0 million
of acquisition-related charges which are included in selling, general and administrative expenses on the Income Statement for the year ended
December 31, 2016
.
The cost related to the issuance of the
6,825,693
shares of common stock to complete the
two
acquisitions totaled
$0.3 million
, which is included in additional paid-in capital on our Condensed Consolidated Statements of Stockholders' Equity for the year ended
December 31, 2016
.
Both acquisitions were accounted for using the acquisition method of accounting. The purchase price and purchase price allocations for both Sandbox and NBI acquisitions are preliminary and subject to customary post-closing adjustments and
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
changes in the fair value of assets and liabilities. The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the reporting date. We believe that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for measurement period adjustments exists based on our continuing review of matters related to the acquisitions. As a result, our final purchase price allocations may be significantly different than those reflected in the tables above. We expect to complete the purchase price allocations as soon as practicable, but no later than one year from the acquisition dates.
Combined Pro Forma Results
The results of NBI's and Sandbox’s operations have been included in the consolidated financial statements subsequent to the acquisition dates. The following unaudited pro forma consolidated financial information reflects the results of operations as if the NBI Acquisition and Sandbox Acquisition had occurred on January 1, 2015, after giving effect to certain purchase accounting adjustments. These adjustments mainly include incremental depreciation expense related to the fair value adjustment of property, plant, equipment and mine development, amortization expense related to identifiable intangible assets and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2016
|
|
2015
|
Sales
|
$
|
615,552
|
|
|
$
|
753,287
|
|
Net income (loss)
|
$
|
(45,161
|
)
|
|
$
|
43,163
|
|
Basic earnings per share
|
$
|
(0.69
|
)
|
|
$
|
0.81
|
|
Diluted earnings per share
|
$
|
(0.69
|
)
|
|
$
|
0.81
|
|
NOTE E—ACCOUNTS RECEIVABLE
At
December 31, 2016
and
2015
, accounts receivable (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Trade receivables
|
$
|
93,982
|
|
|
$
|
64,821
|
|
Less: Allowance for doubtful accounts
|
(7,042
|
)
|
|
(7,686
|
)
|
Net trade receivables
|
86,940
|
|
|
57,135
|
|
Other receivables
|
2,066
|
|
|
1,571
|
|
Total accounts receivable
|
$
|
89,006
|
|
|
$
|
58,706
|
|
Changes in our allowance for doubtful accounts (in thousands) during the years ended
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
2016
|
|
2015
|
Balance at January 1,
|
$
|
7,686
|
|
|
$
|
10,429
|
|
Bad debt provision
|
(1,232
|
)
|
|
(290
|
)
|
Write-offs and recoveries
|
588
|
|
|
(2,453
|
)
|
Balance at December 31,
|
$
|
7,042
|
|
|
$
|
7,686
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F—INVENTORIES
At
December 31, 2016
and
2015
, inventories (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Supplies
|
$
|
18,824
|
|
|
$
|
18,029
|
|
Raw materials and work in process
|
25,161
|
|
|
18,113
|
|
Finished goods
|
34,724
|
|
|
28,862
|
|
Total inventories
|
$
|
78,709
|
|
|
$
|
65,004
|
|
NOTE G—PROPERTY, PLANT AND MINE DEVELOPMENT
At
December 31, 2016
and
2015
, property, plant and mine development (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Mining property and mine development
|
$
|
414,434
|
|
|
$
|
222,439
|
|
Asset retirement cost
|
8,062
|
|
|
9,889
|
|
Land
|
35,052
|
|
|
30,322
|
|
Land improvements
|
42,738
|
|
|
37,791
|
|
Buildings
|
52,178
|
|
|
51,280
|
|
Machinery and equipment
|
450,881
|
|
|
360,817
|
|
Furniture and fixtures
|
2,566
|
|
|
1,917
|
|
Construction-in-progress
|
43,790
|
|
|
56,130
|
|
|
1,049,701
|
|
|
770,585
|
|
Accumulated depletion, depreciation and amortization
|
(266,388
|
)
|
|
(209,389
|
)
|
Total property, plant and mine development, net
|
$
|
783,313
|
|
|
$
|
561,196
|
|
At December 31, 2016, the aggregate cost of the machinery and equipment acquired under capital lease was
$4.7 million
, reduced by accumulated depreciation of
$0.3 million
. At December 31, 2015, we held
no
assets under a capital lease obligation.
During 2015, we wrote off
$1.1 million
of equipment due to discontinuation of certain industrial and specialty products. This amount is included in the depreciation, depletion and amortization expense on our Income Statements. The amount of interest costs capitalized in property, plant and equipment was
$0.2 million
,
$0.5 million
and
$1.4 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
NOTE H—ACCRUED LIABILITIES
At
December 31, 2016
and
2015
, accrued liabilities (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Accrued salaries and wages
|
$
|
3,794
|
|
|
$
|
1,309
|
|
Accrued vacation liability
|
2,471
|
|
|
2,593
|
|
Current portion of liability for pension and post-retirement benefits
|
1,553
|
|
|
1,505
|
|
Accrued healthcare liability
|
1,307
|
|
|
1,830
|
|
Accrued property taxes and sales taxes
|
1,815
|
|
|
1,940
|
|
Other accrued liabilities
|
2,094
|
|
|
2,531
|
|
Total accrued liabilities
|
$
|
13,034
|
|
|
$
|
11,708
|
|
Other accrued liabilities consist of accrued transportation and related costs, customer rebates, royalties payable, and other items.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I—DEBT AND CAPITAL LEASES
At
December 31, 2016
and
2015
, debt (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Senior secured credit facility:
|
|
|
|
|
Revolver expiring July 23, 2018 (5.25% at December 31, 2016 and 5% at December 31, 2015)
|
$
|
—
|
|
|
$
|
—
|
|
Term loan facility—final maturity July 23, 2020 (4% - 4.5% at December 31, 2016 and December 31, 2015)
|
494,175
|
|
|
499,275
|
|
Less: Unamortized original issue discount
|
(1,318
|
)
|
|
(1,696
|
)
|
Less: Unamortized debt issuance cost
|
(4,482
|
)
|
|
(5,874
|
)
|
Note payable secured by royalty interest (includes $3,053 unamortized fair value premium)
|
23,076
|
|
|
—
|
|
Customer note payable
|
1,787
|
|
|
—
|
|
Total debt
|
513,238
|
|
|
491,705
|
|
Less: current portion
|
(4,821
|
)
|
|
(3,330
|
)
|
Total long-term portion of debt
|
$
|
508,417
|
|
|
$
|
488,375
|
|
Revolving Line-of-Credit
We have a
$50 million
the Revolver, with
zero
drawn and
$4.0 million
allocated for letters of credit as of
December 31, 2016
, leaving
$46.0 million
available under the Revolver.
Debt Maturities
At
December 31, 2016
, contractual maturities of senior secured credit facility (in thousands) are as follows:
|
|
|
|
|
2017
|
$
|
5,100
|
|
2018
|
5,100
|
|
2019
|
5,100
|
|
2020
|
478,875
|
|
|
$
|
494,175
|
|
On July 23, 2013, we refinanced our then existing senior secured debt by amending our Term Loan and replacing our then existing revolving line-of-credit. The Term Loan amendment refinanced our then existing senior debt by entering into a new
$425 million
senior secured credit facility, consisting of a
$375 million
Term Loan and the
$50 million
Revolver that may also be used for swingline loans (up to
$5 million
) or letters of credit (up to
$20 million
). The Term Loan amendment also, among other things, removed and amended certain financial and other covenants to provide additional operating flexibility, and lowered interest rates on borrowed amounts. The existing revolving line-of-credit was terminated. The Term Loan will expire on
July 23, 2020
and the Revolver will expire on
July 23, 2018
. On December 5, 2014, we further increased our Term Loan by an additional
$135
million to a total of approximately
$502 million
in accordance with the incremental borrowing feature in our senior secured credit facility.
Our senior secured credit facility is secured by a pledge of substantially all of our assets, including accounts receivable, inventory, property, plant and mine development, and a pledge of the equity interests in certain of our subsidiaries. The facility contains covenants that, among other things, govern our ability to create, incur or assume indebtedness and liens, to make acquisitions or investments, to sell assets and to pay dividends. This includes a restriction on the ability of our operating subsidiaries to make distributions to us to the extent that the incurrence ratio (as defined in the senior secured credit facility) after giving effect to the distribution is
3
:1 or greater. The facility also requires us to maintain a consolidated total net leverage ratio of no more than
3.75
:
1.00
as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds
25%
of the Revolver commitment. As of
December 31, 2016
and
December 31, 2015
, we are in compliance with all covenants in accordance with our senior secured credit facility.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Payable Secured by Royalty Interest
In conjunction with the NBI Acquisition, we assumed a note payable secured by a royalty interest. The monthly royalty payment is calculated based on future tonnages and sales related to the sand shipped from our Tyler, Texas facility. The note payable is due by June 30, 2032. The note does not provide a stated interest rate. The minimum payments (in thousands) for the next five years required by the note are as follows:
|
|
|
|
|
2017
|
$
|
1,750
|
|
2018
|
1,750
|
|
2019
|
1,750
|
|
2020
|
1,750
|
|
2021
|
1,750
|
|
Under this agreement, once a certain number of tons have been shipped from the Tyler facility, the minimum payments will decrease to
$0.5 million
per year, subject to proration in the period this threshold is met.
The note payable fair value was estimated to be
$22.5 million
on the acquisition date. The estimate was made using a discounted cash flow model which calculated the present value of projected future cash payments required under the agreement using a discount rate of
14%
. As of
December 31, 2016
, the note payable has a balance of
$23.1 million
. The
$0.6 million
increase in this note payable amount is due to payment-in-kind interest.
Customer Note Payable
In connection with the NBI Acquisition, we assumed a customer note payable that was entered into by NBI. NBI entered into an amendment to a supply agreement effective January 1, 2016. Terms of the amended agreement call for repayment of
$2.5 million
at
0%
interest, in equal monthly payments beginning January 1, 2016 for
60
months, or
$0.5 million
per year. Additionally, the principal of this note payable can be reduced via future product load credit. We discounted the required future cash payments and projected product load credit using an effective interest rate of
3.5%
and recorded the note payable at
$1.9 million
on the acquisition date.
Capital Leases
We enter into financing arrangements from time to time to purchase machinery and equipment utilized in operations. At December 31, 2016, scheduled future minimum lease payments under capital lease obligations (in thousands) are as follows:
|
|
|
|
|
2017
|
$
|
2,315
|
|
2018
|
722
|
|
Total minimum lease payments
|
3,037
|
|
Less: amount representing interest
|
(83
|
)
|
Present value of minimum lease payments
|
2,954
|
|
Less: current portion of capital lease obligations
|
(2,237
|
)
|
Non-current portion of capital lease obligations
|
$
|
717
|
|
NOTE J—DEFERRED REVENUE
On
July 3, 2014
, we received an advance of
$100.0 million
from a customer under a supply agreement which gives the customer the right to purchase certain products for a fixed price at certain volumes. The customer has an unsecured promissory note related to this deposit, which has been recorded as deferred revenue in the Balance Sheets. The unused portion of the deposit has a stated interest rate of
4.9%
compounded quarterly. The deposit obligation and related interest are reduced as shipments occur with a portion of the sales price being received in cash and a smaller non-cash portion reducing first any accrued interest and then, to the extent available, any outstanding deposit. We can, through
December 31, 2019
, repay the unused deposit obligation at any time without penalty.
NOTE K—FAIR VALUE ACCOUNTING
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1—Quoted prices in active markets for identical assets or liabilities
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quote prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Cash Equivalents
Due to the short-term maturity, we believe our cash equivalent instruments at
December 31, 2016
and
2015
approximate their reported carrying values.
Short-Term Investments
In general, the fair value of our short-term investments is based on quoted prices for similar assets in active markets, or for identical assets or similar assets in markets in which there were fewer transactions (Level 2). Money market mutual funds are based on calculated net asset value and are reported in Level 1. Variable rate demand obligations underwritten and remarketed by a financial institution are priced at par value.
Long-Term Debt, Including Current Maturities
We believe that the fair values of our long-term debt, including current maturities, approximates their carrying values based on their effective interest rates compared to current market rates.
Derivative Instruments
The estimated fair value of our derivative assets (interest rate caps) are recorded at each reporting period and are based upon widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We also incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk as well as that of the respective counterparty in the fair value measurements.
Although we have determined that the majority of the inputs used to value our derivatives fall with Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default of ourselves and our counterparties. However, as of
December 31, 2016
, we have assessed that the impact of the credit valuation adjustments on the overall valuation of our derivative positions is not significant. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
In accordance with the fair value hierarchy, the following table presents the fair value as of
December 31, 2016
and
2015
, respectively, of those assets (in thousands) that we measure at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
Short-term investments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
21,848
|
|
|
$
|
21,849
|
|
Interest rate derivatives
|
—
|
|
|
72
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net asset
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
72
|
|
|
$
|
1
|
|
|
$
|
21,848
|
|
|
$
|
21,849
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L—SHORT-TERM INVESTMENTS
At December 31, 2015, we segregated funds into designated accounts with investment brokers who managed our short-term investment portfolio. Those funds were held on an available-for-sale basis and are therefore reported at fair value on the balance sheet. In 2016, we liquidated our short-term investments and have
no
short-term investments as of December 31, 2016. The following table summarizes our available-for-sale short-term investments (in thousands) as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
December 31, 2015
|
|
|
|
|
|
|
|
Money market mutual funds
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Certificates of deposit
|
10,535
|
|
|
—
|
|
|
(3
|
)
|
|
10,532
|
|
Commercial paper
|
5,689
|
|
|
19
|
|
|
—
|
|
|
5,708
|
|
Corporate notes and bonds
|
2,006
|
|
|
—
|
|
|
—
|
|
|
2,006
|
|
Government agencies
|
3,598
|
|
|
4
|
|
|
—
|
|
|
3,602
|
|
U.S. Treasuries
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Variable rate demand obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total available-for-sale investments
|
$
|
21,829
|
|
|
$
|
23
|
|
|
$
|
(3
|
)
|
|
$
|
21,849
|
|
NOTE M—DERIVATIVE INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
We enter into interest rate cap agreements in connection with the Term Loan to add stability to interest expense and to manage our exposure to interest rate movements. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium.
The following table summarizes the fair value of our derivative instruments (in thousands, except contract/notional amount). See
Note K - Fair Value Accounting
for additional disclosures regarding the estimated fair values of our derivative instruments at
December 31, 2016
, and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
Maturity
Date
|
|
Contract/Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Maturity
Date
|
|
Contract/Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
Interest rate cap agreement
(1)
|
2019
|
|
$
|
249
|
million
|
|
$
|
72
|
|
|
$
|
72
|
|
|
2016
|
|
$
|
252
|
million
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
Agreements limit the LIBOR floating interest rate base to
4%
.
We have designated these contracts as qualified cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and recognized in earnings in the same period or periods during which the hedged transaction affects earnings. During the year ended
December 31, 2016
and
2015
, we had
no
ineffectiveness for such contracts.
The following table summarizes the effect of derivatives instruments (in thousands) on our income statements and our consolidated statements of comprehensive income for the years ended
December 31, 2016
,
2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Deferred losses from derivatives in OCI, beginning of period
|
$
|
(81
|
)
|
|
$
|
(134
|
)
|
|
$
|
(79
|
)
|
Loss recognized in OCI from derivative instruments
|
(32
|
)
|
|
—
|
|
|
(65
|
)
|
Loss reclassified from Accumulated OCI
|
81
|
|
|
53
|
|
|
10
|
|
Deferred losses from derivatives in OCI, end of period
|
$
|
(32
|
)
|
|
$
|
(81
|
)
|
|
$
|
(134
|
)
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N—EQUITY-BASED COMPENSATION
In July 2011, we adopted the U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan (the “2011 Plan”), which was amended and restated in May 2015. The 2011 Plan provides for grants of stock options, restricted stock, performance share units and other incentive-based awards. We believe our 2011 Plan aligns the interests of our employees and directors with those of our common stockholders. At
December 31, 2016
, we have
4,437,767
shares of common stock that may be issued under the 2011 Plan. We use a combination of treasury stock and new shares if necessary to satisfy option exercises or vesting of restricted awards and performance share units.
Stock Options
The following table summarizes the status of and changes in our stock option grants during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Weighted
Average
Remaining Contractual Term in Years
|
Outstanding at December 31, 2015
|
1,307,067
|
|
|
24.61
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(326,884
|
)
|
|
14.76
|
|
|
|
|
|
Forfeited
|
(27,490
|
)
|
|
24.81
|
|
|
|
|
|
Outstanding at December 31, 2016
|
952,693
|
|
|
27.99
|
|
|
$
|
27,332
|
|
|
7.00 years
|
Exercisable at December 31, 2016
|
597,799
|
|
|
23.71
|
|
|
$
|
19,712
|
|
|
6.33 years
|
The total intrinsic value of stock options exercised was
$7.6 million
,
$0.4 million
, and
$10.9 million
for the years ended
December 31, 2016
,
2015
and
2014
respectively. Cash received from options exercised in
2016
was
$4.8 million
. The actual tax benefit realized for the tax deductions from option exercises totaled
$2.9 million
,
$0.0 million
, and
$4.2 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
We recognized
$3.0 million
,
$3.4 million
, and
$1.9 million
of equity-based compensation expense related to these options during the years ended
December 31, 2016
,
2015
and
2014
, respectively. As of
December 31, 2016
, there was
$3.7 million
of total unrecognized compensation expense related to these options, which is expected to be recognized over a weighted-average period of approximately
1.5 years
.
Restricted Stock and Restricted Stock Unit Awards
The following table summarizes the status of and changes in our unvested restricted stock awards during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2015
|
398,987
|
|
|
$
|
26.65
|
|
Granted
|
364,710
|
|
|
22.97
|
|
Vested
|
(180,419
|
)
|
|
26.28
|
|
Forfeited
|
(25,562
|
)
|
|
27.26
|
|
Unvested, December 31, 2016
|
557,716
|
|
|
$
|
24.33
|
|
We recognized
$5.7 million
,
$3.9 million
, and
$2.2 million
of equity-based compensation expense related to these restricted stock awards during the years ended
December 31, 2016
,
2015
and
2014
respectively. As of
December 31, 2016
, there was
$9.5 million
of total unrecognized compensation expense related to these restricted stock awards, which is expected to be recognized over a period of
1.8 years
.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Unit Awards
The following table summarizes the status of and changes in our performance share unit awards during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2015
|
277,066
|
|
|
$
|
29.05
|
|
Granted
|
850,143
|
|
|
39.36
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
(163,596
|
)
|
|
33.30
|
|
Unvested, December 31, 2016
|
963,613
|
|
|
$
|
32.63
|
|
We recognized
$3.3 million
, (
$3.4 million
), and
$3.4 million
of compensation expense related to these performance share unit awards during the years ended
December 31, 2016
,
2015
and
2014
respectively. As of
December 31, 2016
, there was
$17.6 million
of estimated total unrecognized compensation expense related to these performance share unit awards, which is expected to be recognized over a period of
1.7 years
.
NOTE O—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at
December 31, 2016
|
|
|
|
|
|
|
|
|
Amounts in thousands
Year ending December 31,
|
Operating Lease Minimum Rental Payments
|
|
Minimum Purchase Commitments
|
2017
|
$
|
55,525
|
|
|
$
|
20,739
|
|
2018
|
63,221
|
|
|
19,332
|
|
2019
|
56,171
|
|
|
17,590
|
|
2020
|
48,774
|
|
|
9,175
|
|
2021
|
42,824
|
|
|
3,450
|
|
Thereafter
|
114,905
|
|
|
12,800
|
|
Total future lease and purchase commitments
|
$
|
381,420
|
|
|
$
|
83,086
|
|
Operating Leases
We are obligated under certain operating leases for railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Certain operating lease agreements include options to purchase the equipment for fair market value at the end of the original lease term. In general, the above leases include renewal options and provide that we pay for all utilities, insurance, taxes and maintenance. Expense related to operating leases and rental agreements for the years ended
December 31, 2016
,
2015
and
2014
totaled approximately
$54.1 million
,
$48.2 million
and
$33.3 million
, respectively.
Minimum Purchase Commitments
We enter into service agreements with our transload service providers and transportation service providers. Some of these agreements require us to purchase a minimum amount of services over a specific period of time. Any inability to meet these minimum contract requirements requires us to pay a shortfall fee, which is based on the difference between the minimum amount contracted for and the actual amount purchased.
Other Commitments and Contingencies
Our operating subsidiary, U.S. Silica, has been named as a defendant in various product liability claims alleging silica exposure causing silicosis. U.S. Silica was named as a defendant in
two
claims filed during the year ended
December 31, 2016
,
no
claims filed in
2015
and
one
claim filed in
2014
. As of
December 31, 2016
, there were
74
active silica-related products liability claims pending in which U.S. Silica is a defendant. Although the outcomes of these claims cannot be predicted with
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certainty, in the opinion of management, it is not reasonably possible that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations that exceeds the accrual amounts.
For periods prior to 1986, U.S. Silica had numerous insurance policies and an indemnity from a former owner that covered silicosis claims. In the fourth quarter of 2012, U.S. Silica settled all rights under the indemnity and its underlying insurance. The settlement was received during the first quarter of 2013. As a result of the settlement, the indemnity and related policies are no longer available to U.S. Silica and U.S. Silica will not seek reimbursement for any defense costs or claim payments. Other insurance policies, however, continue to remain available to U.S. Silica.
We have recorded estimated liabilities for these claims in other long-term obligations as well as estimated recoveries under the indemnity agreement and an estimate of future recoveries under insurance in other assets on our consolidated balance sheets. As of both
December 31, 2016
and
2015
, other non-current assets included
$0.3 million
for insurance for third-party products liability claims. As of
December 31, 2016
and
2015
, other long-term obligations included
$1.3 million
and
$1.5 million
, respectively, in third-party products claims liability.
Additionally, during 2015, we received an unfavorable ruling in an arbitration proceeding as a result of exiting a toll manufacturing contract. The matter was settled and the settlement amount of
$6.5 million
was paid on June 9, 2015, which was included in selling, general and administrative expense in our Income Statement for the year ended
December 31, 2015
.
NOTE P—PENSION AND POST-RETIREMENT BENEFITS
We maintain a single-employer noncontributory defined benefit pension plan covering certain employees. There have been no new entrants to the plan since May 2009 when the plan was frozen to all new employees. The plan provides benefits based on each covered employee’s years of qualifying service. Our funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for the plan consistent with a goal of appropriate minimization of the unfunded projected benefit obligation. The pension plan uses a benefit level per year of service for covered hourly employees and a final average pay method for covered salaried employees. The plan uses the projected unit credit cost method to determine the actuarial valuation.
We employ a total rate of return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.
We employ a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed to check for reasonability and appropriateness.
In addition, we provide defined benefit post-retirement healthcare and life insurance benefits to some employees. Covered employees become eligible for these benefits at retirement after meeting minimum age and service requirements. The projected future cost of providing post-retirement benefits, such as healthcare and life insurance, is recognized as an expense as employees render services.
We maintain a Voluntary Employees’ Beneficiary Association trust that will be used to partially fund health care benefits for future retirees. Benefits are funded to the extent contributions are tax deductible, which under current legislation is limited. In general, retiree health benefits are paid as covered expenses are incurred.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net pension benefit cost (in thousands) consisted of the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Service cost—benefits earned during the period
|
$
|
1,078
|
|
|
$
|
1,295
|
|
|
$
|
1,080
|
|
Interest cost
|
4,067
|
|
|
4,813
|
|
|
4,811
|
|
Expected return on plan assets
|
(5,495
|
)
|
|
(5,498
|
)
|
|
(5,146
|
)
|
Net amortization and deferral
|
1,592
|
|
|
2,665
|
|
|
1,037
|
|
Net pension benefit costs
|
$
|
1,242
|
|
|
$
|
3,275
|
|
|
$
|
1,782
|
|
Net post-retirement cost (in thousands) consisted of the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Service cost—benefits earned during the period
|
$
|
132
|
|
|
$
|
176
|
|
|
$
|
151
|
|
Interest cost
|
876
|
|
|
1,074
|
|
|
1,030
|
|
Expected return on plan assets
|
(1
|
)
|
|
(1
|
)
|
|
(4
|
)
|
Net amortization and deferral
|
—
|
|
|
281
|
|
|
—
|
|
Special termination benefit
|
21
|
|
|
48
|
|
|
—
|
|
Net post-retirement costs
|
$
|
1,028
|
|
|
$
|
1,578
|
|
|
$
|
1,177
|
|
The changes in benefit obligations and plan assets (in thousands), as well as the funded status (in thousands) of our pension and post-retirement plans at
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Benefit obligation at January 1,
|
$
|
115,420
|
|
|
$
|
122,336
|
|
|
$
|
25,091
|
|
|
$
|
28,289
|
|
Service cost
|
1,078
|
|
|
1,295
|
|
|
132
|
|
|
176
|
|
Interest cost
|
4,067
|
|
|
4,813
|
|
|
876
|
|
|
1,074
|
|
Actuarial (gain) loss
|
1,640
|
|
|
(7,492
|
)
|
|
(802
|
)
|
|
(3,631
|
)
|
Benefits paid
|
(6,517
|
)
|
|
(6,106
|
)
|
|
(1,332
|
)
|
|
(1,288
|
)
|
Amendments
|
457
|
|
|
574
|
|
|
—
|
|
|
—
|
|
Special termination benefits
|
—
|
|
|
—
|
|
|
21
|
|
|
48
|
|
Other
|
—
|
|
|
—
|
|
|
407
|
|
|
423
|
|
Benefit obligation at December 31,
|
$
|
116,145
|
|
|
$
|
115,420
|
|
|
$
|
24,393
|
|
|
$
|
25,091
|
|
Fair value of plan assets at January 1,
|
$
|
84,716
|
|
|
$
|
90,897
|
|
|
$
|
17
|
|
|
$
|
19
|
|
Actual return on plan assets
|
5,651
|
|
|
(2,100
|
)
|
|
(3
|
)
|
|
(2
|
)
|
Employer contributions
|
—
|
|
|
2,025
|
|
|
925
|
|
|
864
|
|
Benefits paid
|
(6,517
|
)
|
|
(6,106
|
)
|
|
(1,332
|
)
|
|
(1,288
|
)
|
Other
|
—
|
|
|
—
|
|
|
407
|
|
|
424
|
|
Fair value of plan assets at December 31,
|
$
|
83,850
|
|
|
$
|
84,716
|
|
|
$
|
14
|
|
|
$
|
17
|
|
Plan assets less than benefit obligations at December 31 recognized as liability for pension and other post-retirement benefits
|
$
|
(32,295
|
)
|
|
$
|
(30,704
|
)
|
|
$
|
(24,379
|
)
|
|
$
|
(25,074
|
)
|
The accumulated benefit obligation for the defined benefit pension plans, which excludes the assumption of future salary increases, totaled
$116.0 million
and
$115.3 million
at
December 31, 2016
and
2015
, respectively.
The amendments in 2015 and 2014 reflect plan changes including increases in the benefit multiplier for certain participants and allowing eligible salaried and non-union hourly participants to have the option to receive a lump sum form of payment under certain conditions and specific benefit increases at several plant facilities, respectively.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also sponsor unfunded, nonqualified pension plans. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans were
$1.6 million
,
$1.6 million
and
$0.0 million
at
December 31, 2016
and
$1.6 million
,
$1.6 million
and
$0.0 million
at
December 31, 2015
. Future estimated annual benefit payments (in thousands) for pension and post-retirement benefit obligations at
December 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
|
Post-retirement
|
|
Pension
|
|
Before
Medicare
Subsidy
|
|
After
Medicare
Subsidy
|
2017
|
$
|
6,824
|
|
|
$
|
1,570
|
|
|
$
|
1,429
|
|
2018
|
7,050
|
|
|
1,544
|
|
|
1,402
|
|
2019
|
7,201
|
|
|
1,521
|
|
|
1,379
|
|
2020
|
7,343
|
|
|
1,598
|
|
|
1,452
|
|
2021
|
7,419
|
|
|
1,676
|
|
|
1,528
|
|
2022-2026
|
38,158
|
|
|
8,627
|
|
|
7,839
|
|
Our best estimate of expected contributions to the pension and post-retirement medical benefit plans for the 2017 fiscal year are
$2.1 million
and
$1.4 million
, respectively.
The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost (in thousands) during the year ended December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
Pension
|
|
Post-retirement
|
|
Total
|
Net actuarial loss
|
$
|
1,372
|
|
|
$
|
—
|
|
|
$
|
1,372
|
|
Prior service cost
|
411
|
|
|
—
|
|
|
411
|
|
|
$
|
1,783
|
|
|
$
|
—
|
|
|
$
|
1,783
|
|
The total amounts in accumulated other comprehensive income related to net actuarial loss, net of tax, for both plans was
$13.8 million
and
$14.1 million
as of
December 31, 2016
and
2015
, respectively. The total amounts in accumulated other comprehensive income related to prior service cost, net of tax, for both plans, was
$1.8 million
as of
December 31, 2016
and
2015
.
The following weighted-average assumptions were used to determine our obligations under the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
4.2
|
%
|
|
4.5
|
%
|
|
4.2
|
%
|
|
4.5
|
%
|
Long-term rate of compensation increase
|
3.5
|
%
|
|
3.5
|
%
|
|
N/A
|
|
|
N/A
|
|
Long-term rate of return on plan assets
|
7.0
|
%
|
|
7.0
|
%
|
|
7.0
|
%
|
|
7.0
|
%
|
Health care cost trend rate:
|
|
|
|
|
|
|
|
Pre-65 initial rate/ultimate rate
|
N/A
|
|
|
N/A
|
|
|
7.3%/5.0%
|
|
|
7.8%/5.0%
|
|
Pre-65 ultimate year
|
N/A
|
|
|
N/A
|
|
|
—
|
|
|
—
|
|
Post-65 initial rate/ultimate rate
|
N/A
|
|
|
N/A
|
|
|
8.5%/5.0%
|
|
|
9.0%/5.0%
|
|
Post-65 ultimate year
|
N/A
|
|
|
N/A
|
|
|
2024/2025
|
|
|
2024/2025
|
|
The discount rate reflects the expected long-term rates of return with maturities comparable to payments for the plan obligations utilizing
Aon Hewitt's AA Only Above Medium Curve
.
In 2016, we changed the method utilized to estimate the service cost and interest cost components of net periodic benefit costs for our defined benefit pension and other post-retirement benefit plans. Historically, we estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to use a spot rate approach in the estimation of these components of benefit cost by applying the specific rates along the yield curve to the relevant projected cash flows, as we believe this provides a better estimate
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of service and interest costs. We consider this a change in estimate and, accordingly, have accounted for it prospectively starting in 2016. This change does not affect the measurement of our total benefit obligation.
Mortality tables used for pension benefits and post-retirement benefits plans are the following:
|
|
|
|
|
|
Pension Benefits and Post-retirement Benefits
|
|
2016
|
|
2015
|
Healthy lives
|
RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2016
|
|
RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2015
|
Disabled lives
|
RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2016
|
|
RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2015
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point
|
|
Increase
|
|
Decrease
|
Effect on total of service and interest cost
|
$
|
144
|
|
|
$
|
(120
|
)
|
Effect on post-retirement benefit obligation
|
2,827
|
|
|
(2,406
|
)
|
The major investment categories and their relative percentage of the fair value of total plan assets as invested at
December 31, 2016
, and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Equity securities
|
59.4
|
%
|
|
58.1
|
%
|
|
64.0
|
%
|
|
52.5
|
%
|
Debt securities
|
38.3
|
%
|
|
40.0
|
%
|
|
39.1
|
%
|
|
35.3
|
%
|
Cash
|
2.3
|
%
|
|
1.9
|
%
|
|
(3.1
|
)%
|
|
12.2
|
%
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the pension plan assets (in thousands) at
December 31, 2016
, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,893
|
|
|
$
|
—
|
|
|
$
|
1,893
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Diversified emerging markets
|
7,700
|
|
|
—
|
|
|
—
|
|
|
7,700
|
|
Foreign large blend
|
12,621
|
|
|
—
|
|
|
—
|
|
|
12,621
|
|
Large-cap blend
|
16,687
|
|
|
—
|
|
|
—
|
|
|
16,687
|
|
Mid-cap blend
|
8,674
|
|
|
—
|
|
|
—
|
|
|
8,674
|
|
Real estate
|
4,070
|
|
|
—
|
|
|
—
|
|
|
4,070
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
21,357
|
|
|
—
|
|
|
—
|
|
|
21,357
|
|
Government agencies
|
301
|
|
|
—
|
|
|
—
|
|
|
301
|
|
U.S. Treasuries
|
7,495
|
|
|
—
|
|
|
—
|
|
|
7,495
|
|
Mortgage-backed securities
|
—
|
|
|
2,022
|
|
|
—
|
|
|
2,022
|
|
Asset-backed securities
|
—
|
|
|
983
|
|
|
—
|
|
|
983
|
|
Insurance policies
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
Net asset
|
$
|
78,905
|
|
|
$
|
4,898
|
|
|
$
|
47
|
|
|
$
|
83,850
|
|
The fair values of the pension plan assets (in thousands) at
December 31, 2015
, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,635
|
|
|
$
|
—
|
|
|
$
|
1,635
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Diversified emerging markets
|
6,890
|
|
|
—
|
|
|
—
|
|
|
6,890
|
|
Foreign large blend
|
13,111
|
|
|
—
|
|
|
—
|
|
|
13,111
|
|
Large-cap blend
|
16,855
|
|
|
—
|
|
|
—
|
|
|
16,855
|
|
Mid-cap blend
|
7,769
|
|
|
—
|
|
|
—
|
|
|
7,769
|
|
Real estate
|
4,369
|
|
|
—
|
|
|
—
|
|
|
4,369
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
22,559
|
|
|
—
|
|
|
—
|
|
|
22,559
|
|
Government agencies
|
607
|
|
|
—
|
|
|
—
|
|
|
607
|
|
U.S. Treasuries
|
5,384
|
|
|
—
|
|
|
—
|
|
|
5,384
|
|
Mortgage-backed securities
|
—
|
|
|
3,111
|
|
|
—
|
|
|
3,111
|
|
Asset-backed securities
|
—
|
|
|
2,375
|
|
|
—
|
|
|
2,375
|
|
Insurance policies
|
—
|
|
|
—
|
|
|
51
|
|
|
51
|
|
Net asset
|
$
|
77,544
|
|
|
$
|
7,121
|
|
|
$
|
51
|
|
|
$
|
84,716
|
|
We contribute to three multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. These plans allow multiple employers to pool their pension resources and realize efficiencies associated with the daily administration of the plan. Multiemployer plans are generally governed by a board of trustees composed of management and labor representatives and are funded through employer contributions. However, in most cases, management is not directly represented.
The risks of participating in multiemployer plans differ from single employer plans as follows: 1) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, 2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and 3) if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of each multiemployer pension plan for which we participate is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Fund
|
EIN/ Pension
Plan No.
|
|
Pension Protection Act
Zone Status
(1)
|
|
FIP/RP Status
Pending/
Implemented
|
|
Company
Contributions
(in thousands)
|
|
Surcharge
Imposed
|
|
Expiration
Date of
CBA
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2014
|
|
LIUNA
|
52-6074345/001
|
|
Red
|
|
Red
|
|
Yes
|
|
$
|
167
|
|
|
$
|
182
|
|
|
$
|
149
|
|
|
Yes
|
|
5/31/2017
|
IUOE
|
36-6052390/001
|
|
Green
|
|
Green
|
|
No
|
|
28
|
|
|
29
|
|
|
28
|
|
|
No
|
|
7/29/2018
|
CSSS
(2)
|
36-6044243/001
|
|
Red
|
|
Red
|
|
Yes
|
|
51
|
|
|
51
|
|
|
51
|
|
|
NA
|
|
NA
|
|
|
(1)
|
The Pension Protection Act of 2006 defines the zone status as follows: green—healthy, yellow—endangered, orange—seriously endangered and red—critical.
|
|
|
(2)
|
In 2011, we withdrew from the Central States, Southeast and Southwest Areas Pension Plan. The withdrawal liability of
$1.0 million
will be paid in monthly installments of
$4,000
until 2031.
|
Our contributions to individual multiemployer pension funds did not exceed
5%
of the fund’s total contributions in any of the three years ended
December 31, 2016
. Additionally, our contributions to multiemployer post-retirement benefit plans were immaterial for all periods presented in the accompanying consolidated financial statements.
We also sponsor a defined contribution plan covering certain employees. We contribute to the plan in two ways. For certain employees not covered by the defined benefit plan, we make a contribution equal to
4%
of their salary. We also contribute an employee match of
25 cents
, for each dollar contributed by an employee, up to
8%
of their earnings. For certain employees, we make a profit sharing match up to
25 cents
, based on financial performance, for each dollar contributed up to
8%
of their earnings. Finally, for some employees, we make a catch-up match of
25 cents
for each dollar of catch-up contributions. Contributions were
$2.4 million
,
$2.8 million
and
$2.1 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
NOTE Q—INCOME TAXES
We evaluate our deferred tax assets periodically to determine if valuation allowances are required. Ultimately, the realization of deferred tax assets is dependent upon generation of future taxable income during those periods in which temporary differences become deductible and/or credits can be utilized. To this end, management considers the level of historical taxable income, the scheduled reversal of deferred tax liabilities, tax-planning strategies and projected future taxable income. Based on these considerations, and the carry-forward availability of a portion of the deferred tax assets, management believes it is more likely than not that we will realize the benefit of the deferred tax assets.
The expense or benefit for income taxes (in thousands) consisted of the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal
|
$
|
60
|
|
|
$
|
(170
|
)
|
|
$
|
(34,790
|
)
|
State
|
(274
|
)
|
|
1,448
|
|
|
(4,835
|
)
|
|
$
|
(214
|
)
|
|
$
|
1,278
|
|
|
$
|
(39,625
|
)
|
Deferred:
|
|
|
|
|
|
Federal
|
32,944
|
|
|
7,439
|
|
|
(308
|
)
|
State
|
3,959
|
|
|
3,034
|
|
|
2,750
|
|
|
$
|
36,903
|
|
|
$
|
10,473
|
|
|
$
|
2,442
|
|
Income tax benefit (expense)
|
$
|
36,689
|
|
|
$
|
11,751
|
|
|
$
|
(37,183
|
)
|
Deferred tax assets and liabilities are recognized for the estimated future tax effects, based on enacted tax laws, of temporary differences between the values of assets and liabilities recorded for financial reporting and for tax purposes and of net operating loss and other carry forwards.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of the types of temporary differences and carry forwards that gave rise to deferred tax assets and liabilities (in thousands) at
December 31, 2016
and
2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Gross deferred tax assets:
|
|
|
|
Net operating loss carry forward and state tax credits
|
$
|
65,022
|
|
|
$
|
39,280
|
|
Pension and post-retirement benefit costs
|
22,920
|
|
|
22,577
|
|
Alternative minimum tax credit carry forward
|
19,431
|
|
|
19,049
|
|
Property, plant and equipment
|
6,112
|
|
|
6,657
|
|
Accrued expenses
|
6,752
|
|
|
3,765
|
|
Inventories
|
4,362
|
|
|
6,425
|
|
Third-party products liability
|
511
|
|
|
568
|
|
Stock-based compensation expense
|
5,576
|
|
|
3,365
|
|
Note payable
|
4,009
|
|
|
—
|
|
Other
|
5,458
|
|
|
5,373
|
|
Total deferred tax assets
|
$
|
140,153
|
|
|
$
|
107,059
|
|
Gross deferred tax liabilities:
|
|
|
|
Land and mineral property basis difference
|
$
|
(126,315
|
)
|
|
$
|
(63,488
|
)
|
Fixed assets and depreciation
|
(61,531
|
)
|
|
(54,913
|
)
|
Intangibles
|
(2,260
|
)
|
|
(8,049
|
)
|
Other
|
(122
|
)
|
|
(122
|
)
|
Total deferred tax liabilities
|
$
|
(190,228
|
)
|
|
$
|
(126,572
|
)
|
Net deferred tax liabilities
|
$
|
(50,075
|
)
|
|
$
|
(19,513
|
)
|
We have federal net operating loss carry forwards of approximately
$170.4 million
at
December 31, 2016
. The losses will expire in years
2027 through 2036
. Approximately
$69.0 million
of the losses are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized.
At
December 31, 2016
and
2015
, we have an alternative minimum tax credit carry forward of approximately
$19.4 million
and
$19.0 million
, respectively. The credit carry forward may be carried forward indefinitely to offset any excess of regular tax liability over alternative minimum tax liability subject to certain limitations.
At the end of each reporting period as presented, there were no material amounts of interest and penalties recognized in the statement of operations or balance sheets. We have
no
material unrecognized tax benefits or any known material tax contingencies at
December 31, 2016
or
December 31, 2015
and do not expect this to change significantly within the next twelve months. Tax returns filed with the IRS for the years
2013
through
2015
along with tax returns filed with numerous state entities remain subject to examination.
The income tax expense or benefit (in thousands) differed from the amount that would be provided by applying the U.S. federal statutory rate for the years ended
December 31, 2016
,
2015
and
2014
due to the following:
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Income tax benefit (expense) computed at U.S. federal statutory rate
|
$
|
27,211
|
|
|
$
|
(41
|
)
|
|
$
|
(55,553
|
)
|
Decrease (increase) resulting from:
|
|
|
|
|
|
Statutory depletion
|
4,734
|
|
|
8,918
|
|
|
15,548
|
|
Prior year tax return reconciliation
|
435
|
|
|
393
|
|
|
1,018
|
|
State income taxes, net of federal benefit
|
2,369
|
|
|
1,370
|
|
|
(3,416
|
)
|
Domestic production deduction
|
—
|
|
|
—
|
|
|
3,911
|
|
Equity compensation
|
2,003
|
|
|
—
|
|
|
—
|
|
Other, net
|
(63
|
)
|
|
1,111
|
|
|
1,309
|
|
Income tax benefit (expense)
|
$
|
36,689
|
|
|
$
|
11,751
|
|
|
$
|
(37,183
|
)
|
The largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.
NOTE R—OBLIGATIONS UNDER GUARANTEES
We have indemnified Travelers Casualty and Surety Company of America (“Travelers”) against any loss Travelers may incur in the event that holders of surety bonds, issued on behalf of us by Travelers, execute the bonds. As of
December 31, 2016
, Travelers had
$10.5 million
in bonds outstanding for us. The majority of these bonds (
$10.1 million
) relate to reclamation requirements issued by various governmental authorities. Reclamation bonds remain outstanding until the mining area is reclaimed and the authority issues a formal release. The remaining bonds relate to such indefinite purposes as licenses, permits, and tax collection.
NOTE S—SEGMENT REPORTING
Our business is organized into
two
reportable segments, Oil & Gas Proppants and Industrial & Specialty Products, based on end markets. The reportable segments are consistent with how management views the markets that we serve and the financial information reviewed by the chief operating decision maker. We manage our Oil & Gas Proppants and Industrial & Specialty Products businesses as components of an enterprise for which separate information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance.
An operating segment’s performance is primarily evaluated based on segment contribution margin, which excludes certain corporate costs not associated with the operations of the segment. These corporate costs are separately stated below and include costs that are related to functional areas such as operations management, corporate purchasing, accounting, treasury, information technology, legal and human resources. We believe that segment contribution margin, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, not a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with generally accepted accounting principles. The other accounting policies of each of the two reporting segments are the same as those in
Note B - Summary of Significant Accounting Policies
.
In the Oil & Gas Proppants segment, we serve the oil and gas recovery market providing fracturing sand, or “frac sand,” which is pumped down oil and natural gas wells to prop open rock fissures and increase the flow rate of natural gas and oil from the wells.
The Industrial & Specialty Products segment consists of over
215
products and materials used in a variety of industries including, container glass, fiberglass, specialty glass, flat glass, building products, fillers and extenders, foundry products, chemicals, recreation products and filtration products.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents sales and segment contribution margin (in thousands) for the reporting segments and other operating results not allocated to the reported segments for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Sales:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
362,550
|
|
|
$
|
430,435
|
|
|
$
|
662,770
|
|
Industrial & Specialty Products
|
197,075
|
|
|
212,554
|
|
|
213,971
|
|
Total sales
|
$
|
559,625
|
|
|
$
|
642,989
|
|
|
$
|
876,741
|
|
Segment contribution margin:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
11,445
|
|
|
$
|
88,928
|
|
|
$
|
256,137
|
|
Industrial & Specialty Products
|
78,988
|
|
|
70,137
|
|
|
61,102
|
|
Total segment contribution margin
|
$
|
90,433
|
|
|
$
|
159,065
|
|
|
$
|
317,239
|
|
Operating activities excluded from segment cost of goods sold
|
(8,103
|
)
|
|
(11,142
|
)
|
|
(7,082
|
)
|
Selling, general and administrative
|
(67,727
|
)
|
|
(62,777
|
)
|
|
(88,971
|
)
|
Depreciation, depletion and amortization
|
(68,134
|
)
|
|
(58,474
|
)
|
|
(45,019
|
)
|
Interest expense
|
(27,972
|
)
|
|
(27,283
|
)
|
|
(18,202
|
)
|
Other income, net, including interest income
|
3,758
|
|
|
728
|
|
|
758
|
|
Income tax benefit (expense)
|
$
|
36,689
|
|
|
11,751
|
|
|
(37,183
|
)
|
Net income (loss)
|
$
|
(41,056
|
)
|
|
$
|
11,868
|
|
|
$
|
121,540
|
|
Asset information, including capital expenditures and depreciation, depletion, and amortization, by segment is not included in reports used by management in its monitoring of performance and, therefore, is not reported by segment. Goodwill of
$241.0 million
has been allocated to these segments with
$220.3 million
assigned to Oil & Gas Proppants and
$20.7 million
to Industrial & Specialty Products.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T—UNAUDITED SUPPLEMENTARY DATA
The following table sets forth our unaudited quarterly consolidated statements of operations (in thousands, except per share data) for each of the four quarters in the years ended
December 31, 2016
and
2015
. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements and includes all adjustments, consisting only of normal recurring adjustments that are necessary to present fairly the financial information for the fiscal quarters presented. The income tax benefit amounts for 2016 first quarter and second quarter include the impacts from the early adoption of ASU 2016-09 discussed in Note B - Summary of Significant Accounting Policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2016:
|
(Unaudited)
|
Sales
|
$
|
122,510
|
|
|
$
|
116,994
|
|
|
$
|
137,748
|
|
|
$
|
182,373
|
|
Cost of goods sold (excluding depreciation, depletion and amortization)
|
106,751
|
|
|
102,707
|
|
|
119,426
|
|
|
148,411
|
|
Operating expenses
|
|
|
|
|
|
|
|
Selling, general and administrative
|
15,503
|
|
|
14,585
|
|
|
18,472
|
|
|
19,167
|
|
Depreciation, depletion and amortization
|
14,556
|
|
|
15,209
|
|
|
17,175
|
|
|
21,194
|
|
|
$
|
30,059
|
|
|
$
|
29,794
|
|
|
$
|
35,647
|
|
|
$
|
40,361
|
|
Operating loss
|
(14,300
|
)
|
|
(15,507
|
)
|
|
(17,325
|
)
|
|
(6,399
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
Interest expense
|
(6,643
|
)
|
|
(6,647
|
)
|
|
(6,684
|
)
|
|
(7,998
|
)
|
Other income, net, including interest income
|
1,790
|
|
|
608
|
|
|
493
|
|
|
867
|
|
|
$
|
(4,853
|
)
|
|
$
|
(6,039
|
)
|
|
$
|
(6,191
|
)
|
|
$
|
(7,131
|
)
|
Loss before income taxes
|
(19,153
|
)
|
|
(21,546
|
)
|
|
(23,516
|
)
|
|
(13,530
|
)
|
Income tax benefit
|
8,150
|
|
|
9,774
|
|
|
12,177
|
|
|
6,588
|
|
Net loss
|
$
|
(11,003
|
)
|
|
$
|
(11,772
|
)
|
|
$
|
(11,339
|
)
|
|
$
|
(6,942
|
)
|
Loss per share, basic
|
$
|
(0.20
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.09
|
)
|
Loss per share, diluted
|
$
|
(0.20
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.09
|
)
|
Weighted average shares outstanding, basic
|
54,470
|
|
|
63,417
|
|
|
66,676
|
|
|
75,539
|
|
Weighted average shares outstanding, diluted
|
54,470
|
|
|
63,417
|
|
|
66,676
|
|
|
75,539
|
|
Dividends declared per share
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2015:
|
(Unaudited)
|
Sales
|
$
|
203,958
|
|
|
$
|
147,511
|
|
|
$
|
155,408
|
|
|
$
|
136,112
|
|
Cost of goods sold (excluding depreciation, depletion and amortization)
|
138,653
|
|
|
117,200
|
|
|
122,599
|
|
|
116,614
|
|
Operating expenses
|
|
|
|
|
|
|
|
Selling, general and administrative
|
26,961
|
|
|
6,575
|
|
|
13,559
|
|
|
15,682
|
|
Depreciation, depletion and amortization
|
13,243
|
|
|
13,695
|
|
|
15,158
|
|
|
16,378
|
|
|
$
|
40,204
|
|
|
$
|
20,270
|
|
|
$
|
28,717
|
|
|
$
|
32,060
|
|
Operating income (loss)
|
25,101
|
|
|
10,041
|
|
|
4,092
|
|
|
(12,562
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
Interest expense
|
(6,836
|
)
|
|
(6,928
|
)
|
|
(6,684
|
)
|
|
(6,835
|
)
|
Other income (loss), net, including interest income
|
11
|
|
|
498
|
|
|
309
|
|
|
(90
|
)
|
|
$
|
(6,825
|
)
|
|
$
|
(6,430
|
)
|
|
$
|
(6,375
|
)
|
|
$
|
(6,925
|
)
|
Income before income taxes
|
18,276
|
|
|
3,611
|
|
|
(2,283
|
)
|
|
(19,487
|
)
|
Income tax benefit (expense)
|
(3,453
|
)
|
|
6,342
|
|
|
4,695
|
|
|
4,167
|
|
Net income (loss)
|
$
|
14,823
|
|
|
$
|
9,953
|
|
|
$
|
2,412
|
|
|
$
|
(15,320
|
)
|
Earnings (loss) per share, basic
|
$
|
0.28
|
|
|
$
|
0.19
|
|
|
$
|
0.05
|
|
|
$
|
(0.29
|
)
|
Earnings (loss) per share, diluted
|
$
|
0.28
|
|
|
$
|
0.18
|
|
|
$
|
0.04
|
|
|
$
|
(0.29
|
)
|
Weighted average shares outstanding, basic
|
53,416
|
|
|
53,303
|
|
|
53,321
|
|
|
53,323
|
|
Weighted average shares outstanding, diluted
|
53,869
|
|
|
53,857
|
|
|
53,742
|
|
|
53,323
|
|
Dividends declared per share
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.06
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE U—PARENT COMPANY FINANCIALS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
ASSETS
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
534,378
|
|
|
$
|
58,579
|
|
Short-term investments
|
—
|
|
|
21,849
|
|
Total current assets
|
534,378
|
|
|
80,428
|
|
Investment in subsidiaries
|
854,860
|
|
|
417,462
|
|
Total assets
|
$
|
1,389,238
|
|
|
$
|
497,890
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current Liabilities:
|
|
|
|
Accrued expenses and other current liabilities
|
$
|
461
|
|
|
$
|
107
|
|
Dividends payable
|
5,222
|
|
|
3,453
|
|
Due to affiliates
|
110,265
|
|
|
110,159
|
|
Total current liabilities
|
115,948
|
|
|
113,719
|
|
Deferred income taxes, net
|
—
|
|
|
4
|
|
Total liabilities
|
115,948
|
|
|
113,723
|
|
Stockholders’ Equity:
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
Common stock
|
811
|
|
|
539
|
|
Additional paid-in capital
|
1,129,051
|
|
|
194,670
|
|
Retained earnings
|
163,173
|
|
|
220,974
|
|
Treasury stock, at cost
|
(3,869
|
)
|
|
(15,845
|
)
|
Accumulated other comprehensive loss
|
(15,876
|
)
|
|
(16,171
|
)
|
Total stockholders’ equity
|
1,273,290
|
|
|
384,167
|
|
Total liabilities and stockholders’ equity
|
$
|
1,389,238
|
|
|
$
|
497,890
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in thousands, except per share amounts)
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of revenue
|
—
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
|
|
|
|
|
Selling, general and administrative
|
184
|
|
|
185
|
|
|
184
|
|
Other
|
10
|
|
|
19
|
|
|
—
|
|
|
194
|
|
|
204
|
|
|
184
|
|
Operating loss
|
(194
|
)
|
|
(204
|
)
|
|
(184
|
)
|
Other income (expense)
|
|
|
|
|
|
Interest income
|
1,046
|
|
|
262
|
|
|
278
|
|
Early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
Other income, net, including interest income
|
—
|
|
|
1
|
|
|
—
|
|
|
1,046
|
|
|
263
|
|
|
278
|
|
Income before income taxes and equity in net earnings of subsidiaries
|
852
|
|
|
59
|
|
|
94
|
|
Income tax benefit (expense)
|
(344
|
)
|
|
(24
|
)
|
|
(38
|
)
|
Income before equity in net earnings of subsidiaries
|
508
|
|
|
35
|
|
|
56
|
|
Equity in earnings of subsidiaries, net of tax
|
(41,564
|
)
|
|
11,833
|
|
|
121,484
|
|
Net income (loss)
|
(41,056
|
)
|
|
11,868
|
|
|
121,540
|
|
Other comprehensive income (loss), net of deferred income taxes:
|
|
|
|
|
|
Unrealized gain (loss) on investments (net of tax of ($4), $29, and ($8) for 2016, 2015, and 2014, respectively)
|
(6
|
)
|
|
47
|
|
|
(14
|
)
|
Unrealized loss on derivatives, (net of tax of $29, $34 and ($32) for 2016, 2015 and 2014, respectively)
|
49
|
|
|
53
|
|
|
(55
|
)
|
Pension and post-retirement liability (net of tax of $152, $2,469, and ($9,678) for 2016, 2015 and 2014, respectively)
|
252
|
|
|
3,547
|
|
|
(15,732
|
)
|
Other comprehensive income (loss), net of deferred income taxes
|
295
|
|
|
3,647
|
|
|
(15,801
|
)
|
Comprehensive income (loss) attributable to U.S. Silica Holdings, Inc.
|
$
|
(40,761
|
)
|
|
$
|
15,515
|
|
|
$
|
105,739
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Additional
|
|
Retained
|
|
Other
|
|
Total
|
|
Par
|
|
Treasury
|
|
Paid-In
|
|
Earnings-
|
|
Comprehensive
|
|
Stockholders'
|
|
Value
|
|
Stock
|
|
Capital
|
|
Present
|
|
Income (Loss)
|
|
Equity
|
Balance at January 1, 2014
|
$
|
534
|
|
|
$
|
—
|
|
|
$
|
174,799
|
|
|
$
|
137,978
|
|
|
$
|
(4,017
|
)
|
|
$
|
309,294
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
121,540
|
|
|
—
|
|
|
121,540
|
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
(55
|
)
|
Unrealized loss on short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,732
|
)
|
|
(15,732
|
)
|
Cash dividend declared ($0.500 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,967
|
)
|
|
—
|
|
|
(26,967
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
7,487
|
|
|
—
|
|
|
—
|
|
|
7,487
|
|
Excess tax benefit from equity compensation
|
—
|
|
|
—
|
|
|
3,813
|
|
|
—
|
|
|
—
|
|
|
3,813
|
|
Proceeds from options exercised
|
4
|
|
|
572
|
|
|
4,987
|
|
|
—
|
|
|
—
|
|
|
5,563
|
|
Shares withheld for employee taxes related to
|
|
|
|
|
|
|
|
|
|
|
|
|
vested restricted stock and stock units
|
1
|
|
|
(615
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(614
|
)
|
Repurchase of common stock
|
—
|
|
|
(499
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(499
|
)
|
Balance at December 31, 2014
|
539
|
|
|
(542
|
)
|
|
191,086
|
|
|
232,551
|
|
|
(19,818
|
)
|
|
403,816
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
11,868
|
|
|
—
|
|
|
11,868
|
|
Unrealized gain on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
53
|
|
Unrealized gain on short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,547
|
|
|
3,547
|
|
Cash dividend declared ($0.438 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,445
|
)
|
|
—
|
|
|
(23,445
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
3,857
|
|
|
—
|
|
|
—
|
|
|
3,857
|
|
Proceeds from options exercised
|
—
|
|
|
744
|
|
|
(271
|
)
|
|
—
|
|
|
—
|
|
|
473
|
|
Shares withheld for employee taxes related to
|
|
|
|
|
|
|
|
|
|
|
|
|
vested restricted stock and stock units
|
—
|
|
|
(792
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(794
|
)
|
Repurchase of common stock
|
—
|
|
|
(15,255
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,255
|
)
|
Balance at December 31, 2015
|
539
|
|
|
(15,845
|
)
|
|
194,670
|
|
|
220,974
|
|
|
(16,171
|
)
|
|
384,167
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,056
|
)
|
|
—
|
|
|
(41,056
|
)
|
Issuance of common stock (stock offerings net of issuance costs of $25,732)
|
272
|
|
|
—
|
|
|
931,016
|
|
|
—
|
|
|
—
|
|
|
931,288
|
|
Unrealized gain on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
49
|
|
Unrealized loss on short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
252
|
|
|
252
|
|
Cash dividend declared ($0.25 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,893
|
)
|
|
—
|
|
|
(16,893
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
12,107
|
|
|
—
|
|
|
—
|
|
|
12,107
|
|
Excess tax benefit from equity-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
Proceeds from options exercised
|
—
|
|
|
8,465
|
|
|
(3,640
|
)
|
|
—
|
|
|
—
|
|
|
4,825
|
|
Issuance of restricted stock
|
—
|
|
|
1,437
|
|
|
(1,437
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares withheld for employee taxes related to
|
|
|
|
|
|
|
|
|
|
|
|
vested restricted stock and stock units
|
—
|
|
|
2,074
|
|
|
(3,665
|
)
|
|
—
|
|
|
—
|
|
|
(1,591
|
)
|
Balance at December 31, 2016
|
$
|
811
|
|
|
$
|
(3,869
|
)
|
|
$
|
1,129,051
|
|
|
$
|
163,173
|
|
|
$
|
(15,876
|
)
|
|
$
|
1,273,290
|
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in thousands)
|
Operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
(41,056
|
)
|
|
$
|
11,868
|
|
|
$
|
121,540
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Undistributed (Income) loss from equity method investment, net
|
41,564
|
|
|
(11,833
|
)
|
|
(121,484
|
)
|
Other
|
(30
|
)
|
|
(195
|
)
|
|
(213
|
)
|
Changes in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
353
|
|
|
29
|
|
|
36
|
|
Net cash provided by (used in) operating activities
|
831
|
|
|
(131
|
)
|
|
(121
|
)
|
Investing activities:
|
|
|
|
|
|
Proceeds from sales and maturities of short-term investments
|
21,872
|
|
|
53,568
|
|
|
—
|
|
Investment in subsidiary
|
(188,177
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
(166,305
|
)
|
|
53,568
|
|
|
—
|
|
Financing activities:
|
|
|
|
|
|
Dividends paid
|
(15,125
|
)
|
|
(26,797
|
)
|
|
(26,871
|
)
|
Repurchase of common stock
|
—
|
|
|
(15,255
|
)
|
|
(499
|
)
|
Proceeds from options exercised
|
4,603
|
|
|
473
|
|
|
5,563
|
|
Tax payments related to shares withheld for vested restricted stock and stock units
|
(1,590
|
)
|
|
(794
|
)
|
|
(614
|
)
|
Issuance of common stock (secondary offering)
|
678,791
|
|
|
—
|
|
|
—
|
|
Issuance of treasury stock
|
221
|
|
|
—
|
|
|
—
|
|
Costs of common stock issuance
|
(25,733
|
)
|
|
—
|
|
|
—
|
|
Net financing activities with subsidiaries
|
106
|
|
|
223
|
|
|
211
|
|
Net cash provided by (used in) financing activities
|
641,273
|
|
|
(42,150
|
)
|
|
(22,210
|
)
|
Net increase in cash and cash equivalents
|
475,799
|
|
|
11,287
|
|
|
(22,331
|
)
|
Cash and cash equivalents, beginning of period
|
58,579
|
|
|
47,292
|
|
|
69,623
|
|
Cash and cash equivalents, end of period
|
$
|
534,378
|
|
|
$
|
58,579
|
|
|
$
|
47,292
|
|
Non-cash financing activities:
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
Interest
|
$
|
(1,046
|
)
|
|
$
|
(263
|
)
|
|
$
|
(278
|
)
|
Non-cash transactions
|
|
|
|
|
|
Common stock issued for business acquisitions
|
$
|
278,229
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Notes to Condensed Financial Statements of Registrant (Parent Company Only)
These condensed parent company only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, because the restricted net assets of the subsidiaries of U.S. Silica Holdings, Inc. (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the Company. The ability of the Company's operating subsidiaries to pay dividends may be restricted due to the terms of the Company's senior credit facility, as discussed in
Note I - Debt and Capital Leases
to the audited consolidated financial statements.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements; the only exceptions are that (a) the parent company accounts for its subsidiaries using the equity method of accounting, (b) taxes are allocated to the parent from the subsidiary using the separate return method, and (c) intercompany loans are not eliminated. In the parent company financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. These condensed parent company financial statements should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in this report.
No cash dividends were paid to the parent by its consolidated entities for the years presented in the condensed financial statements.
NOTE V—SUBSEQUENT EVENTS
On
January 5, 2017
, we paid a cash dividend of
$0.0625
per share to common stockholders of record on
December 15, 2016
, as had been declared by our Board of Directors on
November 7, 2016
.
On
February 16, 2017
, our Board of Directors declared a quarterly cash dividend of
$0.0625
per share to common stockholders of record at the close of business on
March 15, 2017
, payable on
April 5, 2017
.