|
|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
(unaudited)
|
|
(audited)
|
ASSETS
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
660,903
|
|
|
$
|
711,225
|
|
Accounts receivable, net
|
139,970
|
|
|
89,006
|
|
Inventories, net
|
69,458
|
|
|
78,709
|
|
Prepaid expenses and other current assets
|
12,401
|
|
|
12,323
|
|
Income tax deposits
|
1,397
|
|
|
1,682
|
|
Total current assets
|
884,129
|
|
|
892,945
|
|
Property, plant and mine development, net
|
806,288
|
|
|
783,313
|
|
Goodwill
|
242,301
|
|
|
240,975
|
|
Trade names
|
32,318
|
|
|
32,318
|
|
Intellectual property, net
|
57,524
|
|
|
57,270
|
|
Customer relationships, net
|
49,882
|
|
|
50,890
|
|
Other assets
|
14,798
|
|
|
15,509
|
|
Total assets
|
$
|
2,087,240
|
|
|
$
|
2,073,220
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current Liabilities:
|
|
|
|
Accounts payable
|
$
|
71,951
|
|
|
$
|
70,778
|
|
Dividends payable
|
5,223
|
|
|
5,221
|
|
Accrued liabilities
|
13,202
|
|
|
13,034
|
|
Accrued interest
|
69
|
|
|
169
|
|
Current portion of long-term debt
|
5,034
|
|
|
4,821
|
|
Current portion of capital leases
|
2,190
|
|
|
2,237
|
|
Current portion of deferred revenue
|
18,926
|
|
|
13,700
|
|
Total current liabilities
|
116,595
|
|
|
109,960
|
|
Long-term debt
|
507,484
|
|
|
508,417
|
|
Deferred revenue
|
66,360
|
|
|
58,090
|
|
Obligations under capital lease
|
425
|
|
|
717
|
|
Liability for pension and other post-retirement benefits
|
56,363
|
|
|
56,746
|
|
Deferred income taxes, net
|
49,643
|
|
|
50,075
|
|
Other long-term obligations
|
16,474
|
|
|
15,925
|
|
Total liabilities
|
813,344
|
|
|
799,930
|
|
Stockholders’ Equity:
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
Common stock
|
812
|
|
|
811
|
|
Additional paid-in capital
|
1,131,253
|
|
|
1,129,051
|
|
Retained earnings
|
160,600
|
|
|
163,173
|
|
Treasury stock, at cost
|
(3,422
|
)
|
|
(3,869
|
)
|
Accumulated other comprehensive loss
|
(15,347
|
)
|
|
(15,876
|
)
|
Total stockholders’ equity
|
1,273,896
|
|
|
1,273,290
|
|
Total liabilities and stockholders’ equity
|
$
|
2,087,240
|
|
|
$
|
2,073,220
|
|
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Sales:
|
|
|
|
Product
|
$
|
209,321
|
|
|
$
|
121,627
|
|
Service
|
35,476
|
|
|
883
|
|
Total sales
|
244,797
|
|
|
122,510
|
|
Cost of sales (excluding depreciation, depletion and amortization):
|
|
|
|
Product
|
162,637
|
|
|
106,629
|
|
Service
|
24,838
|
|
|
122
|
|
Total cost of sales (excluding depreciation, depletion and amortization)
|
187,475
|
|
|
106,751
|
|
Operating expenses:
|
|
|
|
Selling, general and administrative
|
22,341
|
|
|
15,503
|
|
Depreciation, depletion and amortization
|
21,599
|
|
|
14,556
|
|
Total operating expenses
|
43,940
|
|
|
30,059
|
|
Operating income (loss)
|
13,382
|
|
|
(14,300
|
)
|
Other income (expense):
|
|
|
|
Interest expense
|
(7,646
|
)
|
|
(6,643
|
)
|
Other income (expense), net, including interest income
|
(4,928
|
)
|
|
1,790
|
|
Total other expense
|
(12,574
|
)
|
|
(4,853
|
)
|
Income (loss) before income taxes
|
808
|
|
|
(19,153
|
)
|
Income tax benefit
|
1,714
|
|
|
8,150
|
|
Net income (loss)
|
$
|
2,522
|
|
|
$
|
(11,003
|
)
|
Earnings (loss) per share:
|
|
|
|
Basic
|
$
|
0.03
|
|
|
$
|
(0.20
|
)
|
Diluted
|
$
|
0.03
|
|
|
$
|
(0.20
|
)
|
Weighted average shares outstanding:
|
|
|
|
Basic
|
80,983
|
|
|
54,470
|
|
Diluted
|
82,244
|
|
|
54,470
|
|
Dividends declared per share
|
$
|
0.06
|
|
|
$
|
0.06
|
|
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Net income (loss)
|
$
|
2,522
|
|
|
$
|
(11,003
|
)
|
Other comprehensive income (loss):
|
|
|
|
Unrealized gain (loss) on derivatives (net of tax of ($22) and $21 for the three months ended March 31, 2017 and 2016, respectively)
|
(36
|
)
|
|
35
|
|
Unrealized loss on investments (net of tax of $0 and ($3) for the three months ended March 31, 2017 and 2016, respectively)
|
—
|
|
|
(5
|
)
|
Pension and other post-retirement benefits liability adjustment (net of tax of $340 and $(1,541) for the three months ended March 31, 2017 and 2016, respectively)
|
565
|
|
|
(2,558
|
)
|
Comprehensive income (loss)
|
$
|
3,051
|
|
|
$
|
(13,531
|
)
|
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited; dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders’
Equity
|
Balance at December 31, 2016
|
$
|
811
|
|
|
$
|
(3,869
|
)
|
|
$
|
1,129,051
|
|
|
$
|
163,173
|
|
|
$
|
(15,876
|
)
|
|
$
|
1,273,290
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
2,522
|
|
|
—
|
|
|
2,522
|
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
(36
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
565
|
|
|
565
|
|
Cash dividend declared ($0.0625 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,095
|
)
|
|
—
|
|
|
(5,095
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
5,510
|
|
|
—
|
|
|
—
|
|
|
5,510
|
|
Proceeds from options exercised
|
—
|
|
|
715
|
|
|
(198
|
)
|
|
—
|
|
|
—
|
|
|
517
|
|
Shares withheld for employee taxes related to vested restricted stock and stock units
|
1
|
|
|
(268
|
)
|
|
(3,110
|
)
|
|
—
|
|
|
—
|
|
|
(3,377
|
)
|
Balance at March 31, 2017
|
$
|
812
|
|
|
$
|
(3,422
|
)
|
|
$
|
1,131,253
|
|
|
$
|
160,600
|
|
|
$
|
(15,347
|
)
|
|
$
|
1,273,896
|
|
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Operating activities:
|
|
|
|
Net income (loss)
|
$
|
2,522
|
|
|
$
|
(11,003
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
Depreciation, depletion and amortization
|
21,599
|
|
|
14,556
|
|
Debt issuance amortization
|
347
|
|
|
348
|
|
Original issue discount amortization
|
94
|
|
|
96
|
|
Deferred income taxes
|
(1,726
|
)
|
|
(8,220
|
)
|
Deferred revenue
|
(4,689
|
)
|
|
(1,250
|
)
|
Gain (loss) on disposal of property, plant and equipment
|
59
|
|
|
8
|
|
Equity-based compensation
|
5,510
|
|
|
1,906
|
|
Bad debt provision, net of recoveries
|
783
|
|
|
150
|
|
Other
|
1,012
|
|
|
653
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
(51,747
|
)
|
|
(522
|
)
|
Inventories
|
9,251
|
|
|
(2,087
|
)
|
Prepaid expenses and other current assets
|
(78
|
)
|
|
(454
|
)
|
Income taxes
|
68
|
|
|
5,644
|
|
Accounts payable and accrued liabilities
|
831
|
|
|
(4,398
|
)
|
Accrued interest
|
(100
|
)
|
|
(1
|
)
|
Liability for pension and other post-retirement benefits
|
497
|
|
|
820
|
|
Net cash used in operating activities
|
(15,767
|
)
|
|
(3,754
|
)
|
Investing activities:
|
|
|
|
Capital expenditures
|
(23,647
|
)
|
|
(6,068
|
)
|
Capitalized intellectual property costs
|
(1,245
|
)
|
|
—
|
|
Maturities of short-term investments
|
—
|
|
|
15,020
|
|
Proceeds from sale of property, plant and equipment
|
12
|
|
|
58
|
|
Net cash provided by (used in) investing activities
|
(24,880
|
)
|
|
9,010
|
|
Financing activities:
|
|
|
|
Dividends paid
|
(5,092
|
)
|
|
(3,388
|
)
|
Issuance of common stock
|
—
|
|
|
200,000
|
|
Common stock issuance costs
|
—
|
|
|
(13,798
|
)
|
Proceeds from options exercised
|
517
|
|
|
22
|
|
Tax payments related to shares withheld for vested restricted stock
|
(3,377
|
)
|
|
(499
|
)
|
Repayment of long-term debt
|
(1,405
|
)
|
|
(1,275
|
)
|
Principal payments on capital lease obligations
|
(318
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
(9,675
|
)
|
|
181,062
|
|
Net increase (decrease) in cash and cash equivalents
|
(50,322
|
)
|
|
186,318
|
|
Cash and cash equivalents, beginning of period
|
711,225
|
|
|
277,077
|
|
Cash and cash equivalents, end of period
|
$
|
660,903
|
|
|
$
|
463,395
|
|
Supplemental cash flow information:
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
Interest
|
$
|
6,157
|
|
|
$
|
5,298
|
|
Taxes, net of refunds
|
$
|
(57
|
)
|
|
$
|
(5,574
|
)
|
Non-cash Items:
|
|
|
|
Equipment received
|
$
|
18,185
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; dollars in thousands, except per share amounts)
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements (the “Financial Statements”) of U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) included in this Quarterly Report on Form 10-Q, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). They do not contain certain information included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
; therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. 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 of the consolidated statement of cash flows to conform to the current year presentation. These reclassifications had no effect on previously reported net cash flows from operations.
In order to make this report easier to read, we refer throughout to (i) our Condensed Consolidated Balance Sheets as our “Balance Sheets,” (ii) our Condensed Consolidated Statements of Operations as our “Income Statements,” and (iii) our Condensed Consolidated Statements of Cash Flows as our “Cash Flows.”
Unaudited Interim Financial Statements
The accompanying Balance Sheet as of
March 31, 2017
; the Income Statements and Condensed Consolidated Statements of Comprehensive Income and Cash Flows for the
three
months ended
March 31, 2017
and
2016
; the Condensed Consolidated Statements of Stockholders' Equity for the
three
months ended
March 31, 2017
; and other information disclosed in the related notes are unaudited. The Balance Sheet as of
December 31, 2016
was derived from our audited consolidated financial statements as included in our
2016
Annual Report.
Use of Estimates and Assumptions
The preparation of the Financial Statements requires us 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.
Recently Issued Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2017-07 Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit ("ASU2017-07"). ASU 2017-07 amends presentation requirements related to reporting the service cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component from other net benefit costs. ASU 2017-07 also limits the components of net benefit cost eligible to be capitalized to service cost. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for public business entities. We are currently evaluating the impact of this accounting standard on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed with a measurement date after January 1, 2017. We are currently evaluating the impact of this accounting standard on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"). The new guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early application of the amendments in ASU 2017-01 is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance.
NOTE B—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. There were
81,069,660
shares of common stock issued and outstanding at
March 31, 2017
. As of
March 31, 2016
, there were
63,481,699
shares issued and outstanding.
During the
three months ended March 31,
2017
, our Board of Directors declared quarterly cash dividends as follows:
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
Declaration Date
|
|
Record Date
|
|
Payable Date
|
$
|
0.0625
|
|
|
February 16, 2017
|
|
March 15, 2017
|
|
April 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, to fix the powers, preferences and other rights of such series, and any 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 were
no
shares of preferred stock issued or outstanding at either
March 31, 2017
or
December 31, 2016
. At present, we have
no
plans to issue any preferred stock.
Employee Stock Awards
We grant stock options, restricted stock, restricted stock units and performance share units to our employees and directors under the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. The weighted-average stock awards (in thousands) that are anti-dilutive and are therefore excluded from the calculation of our diluted earnings per common share are:
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Weighted-average outstanding stock options excluded
|
195
|
|
|
1,306
|
|
Weighted-average outstanding restricted stock awards excluded
|
—
|
|
|
367
|
|
Share Repurchase Program
We are authorized by our Board of Directors to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions. As of
March 31, 2017
, we are authorized to repurchase up to
$50 million
of our common stock through December 11, 2017. Stock repurchases, if any, 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
March 31, 2017
, 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.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) consists of fair value adjustments associated with cash flow hedges 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 (in thousands) by component during the
three
months ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
Unrealized
gain/(loss) on
cash flow hedges
|
|
Unrealized
gain/(loss) on
short-term
investments
|
|
Pension and
other
post-retirement
benefits liability
|
|
Total
|
Beginning Balance
|
$
|
(32
|
)
|
|
$
|
—
|
|
|
$
|
(15,844
|
)
|
|
$
|
(15,876
|
)
|
Other comprehensive income (loss) before reclassifications
|
(36
|
)
|
|
—
|
|
|
250
|
|
|
214
|
|
Amounts reclassed from accumulated other comprehensive income
|
—
|
|
|
—
|
|
|
315
|
|
|
315
|
|
Ending Balance
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
(15,279
|
)
|
|
$
|
(15,347
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss) related to cash flow hedges category are included in interest expense in our Income Statements and amounts reclassified related to pension and other post-retirement benefits liability category are included in the computation of net periodic pension costs, respectively, at before tax amounts.
NOTE C—ACCOUNTS RECEIVABLE
At
March 31, 2017
and
December 31, 2016
, accounts receivable (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Trade receivables
|
$
|
145,146
|
|
|
$
|
93,982
|
|
Less: Allowance for doubtful accounts
|
(6,613
|
)
|
|
(7,042
|
)
|
Net trade receivables
|
138,533
|
|
|
86,940
|
|
Other receivables
|
1,437
|
|
|
2,066
|
|
Total accounts receivable
|
$
|
139,970
|
|
|
$
|
89,006
|
|
Changes in our allowance for doubtful accounts (in thousands) during the
three
months ended
March 31, 2017
are as follows:
|
|
|
|
|
|
March 31,
2017
|
Beginning balance
|
$
|
7,042
|
|
Bad debt provision
|
783
|
|
Write-offs
|
(1,212
|
)
|
Ending balance
|
$
|
6,613
|
|
NOTE D—INVENTORIES
At
March 31, 2017
and
December 31, 2016
, inventories (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Supplies
|
$
|
19,410
|
|
|
$
|
18,824
|
|
Raw materials and work in process
|
22,525
|
|
|
25,161
|
|
Finished goods
|
27,523
|
|
|
34,724
|
|
Total inventories
|
$
|
69,458
|
|
|
$
|
78,709
|
|
NOTE E—PROPERTY, PLANT AND MINE DEVELOPMENT
At
March 31, 2017
and
December 31, 2016
, property, plant and mine development (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Mining property and mine development
|
$
|
415,334
|
|
|
$
|
414,434
|
|
Asset retirement cost
|
8,062
|
|
|
8,062
|
|
Land
|
35,052
|
|
|
35,052
|
|
Land improvements
|
43,205
|
|
|
42,738
|
|
Buildings
|
52,208
|
|
|
52,178
|
|
Machinery and equipment
|
471,512
|
|
|
450,881
|
|
Furniture and fixtures
|
2,635
|
|
|
2,566
|
|
Construction-in-progress
|
64,022
|
|
|
43,790
|
|
|
1,092,030
|
|
|
1,049,701
|
|
Accumulated depletion, depreciation and amortization
|
(285,742
|
)
|
|
(266,388
|
)
|
Total property, plant and mine development, net
|
$
|
806,288
|
|
|
$
|
783,313
|
|
At
March 31, 2017
, the aggregate cost of the machinery and equipment acquired under capital leases was
$4.7 million
, reduced by accumulated depreciation of
$0.4 million
.
NOTE F—DEBT AND CAPITAL LEASES
At
March 31, 2017
and
December 31, 2016
, debt (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Senior secured credit facility:
|
|
|
|
Revolver expiring July 23, 2018 (5.5% at March 31, 2017 and 5.25% at December 31, 2016)
|
$
|
—
|
|
|
$
|
—
|
|
Term loan facility—final maturity July 23, 2020 (4.2% - 4.7% at March 31, 2017 and 4%-4.5% at December 31, 2016)
|
492,900
|
|
|
494,175
|
|
Less: Unamortized original issue discount
|
(1,224
|
)
|
|
(1,318
|
)
|
Less: Unamortized debt issuance cost
|
(4,135
|
)
|
|
(4,482
|
)
|
Note payable secured by royalty interest
|
23,134
|
|
|
23,076
|
|
Customer note payable
|
1,843
|
|
|
1,787
|
|
Total debt
|
512,518
|
|
|
513,238
|
|
Less: current portion
|
(5,034
|
)
|
|
(4,821
|
)
|
Total long-term portion of debt
|
$
|
507,484
|
|
|
$
|
508,417
|
|
Revolving Line-of-Credit
We have a
$50 million
revolving line-of-credit (the “Revolver”), with
zero
drawn and
$4.0 million
allocated for letters of credit as of
March 31, 2017
, leaving
$46.0 million
available under the Revolver.
Senior Secured Credit Facility
At
March 31, 2017
, contractual maturities of long-term debt (in thousands) are as follows:
|
|
|
|
|
2017
|
$
|
3,825
|
|
2018
|
5,100
|
|
2019
|
5,100
|
|
2020
|
478,875
|
|
|
$
|
492,900
|
|
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
March 31, 2017
, we are in compliance with all covenants in accordance with our senior secured credit facility.
Note Payable Secured by Royalty Interest
In conjunction with the acquisition of New Birmingham, Inc. ("NBI") in August 2016, 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
|
1,313
|
|
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 royalty 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 discounted rate of
14%
. As of
March 31, 2017
, the note payable has a balance of
$23.1 million
. The effective interest rate based on the updated projected future cash payments is
16%
at
March 31, 2017
.
Customer Note Payable
In connection with the acquisition of NBI in August 2016, we assumed a customer note payable that was entered into by NBI. NBI entered into an amendment 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%
. As of
March 31, 2017
, the note has a balance of
$1.8 million
.
Capital Leases
W enter into financing arrangements from time to time to purchase machinery and equipment utilized in operations. At
March 31, 2017
, scheduled future minimum lease payments under capital lease obligations (in thousands) are as follows:
|
|
|
|
|
2017
|
$
|
1,941
|
|
2018
|
722
|
|
Total minimum lease payments
|
2,663
|
|
Less: amount representing interest
|
(48
|
)
|
Present value of minimum lease payments
|
2,615
|
|
Less: current portion of capital lease obligations
|
(2,190
|
)
|
Non-current portion of capital lease obligations
|
$
|
425
|
|
NOTE G—DEFERRED REVENUE
On January 25, 2017, we entered into a service agreement with a customer and received equipment with fair value of
$18.2 million
. This amount represents future purchases and is recorded as deferred revenue which is recognized as revenues over a term of five years.
NOTE H—ASSET RETIREMENT OBLIGATION
Mine reclamation costs, or 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.
As of
March 31, 2017
, we had a liability of
$11.4 million
in other long-term obligations related to our asset retirement obligation. Changes in the asset retirement obligation (in thousands) during the
three
months ended
March 31, 2017
are as follows:
|
|
|
|
|
|
March 31,
2017
|
Beginning balance
|
$
|
11,159
|
|
Accretion
|
217
|
|
Ending balance
|
$
|
11,376
|
|
NOTE I—FAIR VALUE ACCOUNTING
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, quoted 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
March 31, 2017
and
December 31, 2016
approximate their reported carrying values.
Long-Term Debt, Including Current Maturities
We believe that the fair values of our long-term debt, including current maturities, approximate 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 within 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
March 31, 2017
, 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
March 31, 2017
of those assets that we measure at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Interest rate derivatives
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Net asset
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
14
|
|
NOTE J—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
Operating Leases
|
|
Minimum Purchase Commitments
|
2017
|
$
|
38,533
|
|
|
$
|
16,570
|
|
2018
|
52,178
|
|
|
19,658
|
|
2019
|
46,566
|
|
|
17,359
|
|
2020
|
38,200
|
|
|
7,971
|
|
2021
|
32,235
|
|
|
5,736
|
|
Thereafter
|
76,330
|
|
|
12,800
|
|
Total future lease and purchase commitments
|
$
|
284,042
|
|
|
$
|
80,094
|
|
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 totaled approximately
$15.4 million
and
$12.9 million
for the three months ended
March 31, 2017
and
2016
, 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 Company (“U.S. Silica”), has been named as a defendant in various product liability claims alleging silica exposure causing silicosis. During the
three
months ended
March 31, 2017
,
no
new claims were brought against U.S. Silica. As of
March 31, 2017
, there were
73
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 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.
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
March 31, 2017
, and
December 31, 2016
other non-current assets included
$0.3 million
for insurance for third-party products liability claims and other long-term obligations included
$1.3 million
in third-party products claims liability.
NOTE K—INCOME TAXES
For interim period reporting, we record income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. At the end of each interim period, we update the estimated annual effective tax rate, and if the estimated tax rate changes based on new information, we make a cumulative adjustment in the period. We record the tax effect of an unusual or infrequently occurring item in the interim period in which it occurs as a discrete item of tax.
In the three months ended
March 31, 2017
, we recorded a tax benefit of
$1.5 million
related to excess tax benefits on equity compensation pursuant to ASU 2016-09.
The effective tax rate was
(212)%
and
43%
for the
three
months ended
March 31, 2017
and
2016
, respectively. The tax rate for the
three
months ended
March 31, 2017
would have been
(26)%
without the equity compensation tax benefit recorded discretely.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
NOTE L— PENSION AND POST-RETIREMENT BENEFITS
We maintain a single-employer noncontributory defined benefit pension plan covering certain employees. Net pension benefit cost (in thousands) recognized for the
three
months ended
March 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Service cost
|
$
|
295
|
|
|
$
|
288
|
|
Interest cost
|
883
|
|
|
1,235
|
|
Expected return on plan assets
|
(1,331
|
)
|
|
(1,392
|
)
|
Net amortization and deferral
|
693
|
|
|
481
|
|
Net pension benefit costs
|
$
|
540
|
|
|
$
|
612
|
|
In addition, we provide defined benefit post-retirement health care and life insurance benefits to some employees. Net periodic post-retirement benefit cost recognized for the
three
months ended
March 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Service cost
|
$
|
32
|
|
|
$
|
44
|
|
Interest cost
|
192
|
|
|
306
|
|
Net amortization and deferral
|
54
|
|
|
135
|
|
Net post-retirement costs
|
$
|
278
|
|
|
$
|
485
|
|
The weighted average discount rate used to determine the projected pension and post-retirement obligations was updated during the
three
months ended
March 31, 2017
, and was decreased from
4.2%
at
December 31, 2016
to
4.1%
at
March 31, 2017
. We made
no
contributions to the qualified pension plan for the
three
months ended
March 31, 2017
and 2016. Total expected employer funding contributions during the fiscal year ending
December 31, 2017
are
$2.1 million
for the pension plan and
$1.4 million
for the post-retirement medical and life plan.
NOTE M— 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
March 31, 2017
, Travelers had
$10.6 million
in bonds outstanding for us. The majority of these bonds,
$10.3 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 N— 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.
In the Oil & Gas Proppants segment, we serve the oil and gas recovery market primarily by providing and delivering 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 oil and natural gas 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.
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, net income (loss) 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 A - Summary of Significant Accounting Policies
of our 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
three
months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Sales:
|
|
|
|
Oil & Gas Proppants
|
$
|
192,959
|
|
|
$
|
73,865
|
|
Industrial & Specialty Products
|
51,838
|
|
|
48,645
|
|
Total sales
|
244,797
|
|
|
122,510
|
|
Segment contribution margin:
|
|
|
|
Oil & Gas Proppants
|
38,841
|
|
|
851
|
|
Industrial & Specialty Products
|
20,216
|
|
|
16,893
|
|
Total segment contribution margin
|
59,057
|
|
|
17,744
|
|
Operating activities excluded from segment cost of sales
|
(1,735
|
)
|
|
(1,985
|
)
|
Selling, general and administrative
|
(22,341
|
)
|
|
(15,503
|
)
|
Depreciation, depletion and amortization
|
(21,599
|
)
|
|
(14,556
|
)
|
Interest expense
|
(7,646
|
)
|
|
(6,643
|
)
|
Other income (loss), net, including interest income
|
(4,928
|
)
|
|
1,790
|
|
Income tax benefit
|
1,714
|
|
|
8,150
|
|
Net income (loss)
|
$
|
2,522
|
|
|
$
|
(11,003
|
)
|
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
$242.3 million
has been allocated to these segments with
$221.6 million
assigned to Oil & Gas Proppants and
$20.7 million
to Industrial & Specialty Products as of
March 31, 2017
.
NOTE O— SUBSEQUENT EVENTS
On
April 4, 2017
, we acquired a division of National Coatings Corporation that manufactures and distributes cool roof granules used in industrial roofing systems for cash consideration of approximately
$18.7 million
, subject to customary post-closing adjustments.
On
April 5, 2017
, we paid a cash dividend of
$0.0625
per share to common stockholders of record on
March 15, 2017
, which had been declared by our Board of Directors on
February 16, 2017
.
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as the Consolidated Financial Statements, the accompanying notes and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
(the "2016 Annual Report").
Overview
We are one of the largest domestic producers of commercial silica, a specialized mineral that is a critical input into a variety of attractive end markets. During our
117
-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver
243
products to customers across these markets. After our acquisition of New Birmingham, Inc. ("NBI" or the "NBI Acquisition") on August 16, 2016, as of
March 31, 2017
, we operate
18
production facilities across the United States and control
463
million tons of reserves of commercial silica, which can be processed to make
225
million tons of finished products that meet American Petroleum Institute (API) frac sand specifications. On August 22, 2016, we completed the acquisition of Sandbox Enterprises, LLC ("Sandbox" or the “Sandbox Acquisition”) as a “last mile” logistics solution for frac sand in the oil and gas industry.
Our operations are organized into two segments based on end markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. Our segments are complementary because our ability to sell to a wide range of customers across end markets allows us to maximize recovery rates in our mining operations, optimize our asset utilization and reduce the cyclicality of our earnings.
Recent Trends and Outlook
Oil and gas proppants end market trends
Increased demand for frac sand between 2008 and 2014 was driven by the growth in the use of hydraulic fracturing as a means to extract hydrocarbons from shale formations. According to the 2014 Proppant Market Report, PropTester Inc., published February 2015, global frac sand consumption grew at a 51.2% compound annual growth rate from 2009 to 2014. This included 53.7% growth in frac sand demand from 2013 to 2014. We significantly expanded our sales efforts to the frac sand market in 2008 and experienced rapid growth in our sales associated with our oil and gas activities from 2008 until 2014.
Declines in oil prices starting in 2015 reduced oil and gas drilling and completion activity in North America during 2015 and most of 2016. As of September 30, 2016, the U.S. land rig count had fallen over 70% from its peak in 2014. Demand for frac sand fell in conjunction with the rig count and activity levels, partially offset by higher proppant per well to optimize recovery and production rates. Beginning in the last quarter of 2016, leading indicators have suggested the stabilization and increase in North American oil and gas drilling and completion activity. As of
March 31, 2017
, U.S. land rig count has increased 25% since December 31, 2016. Driven by the corresponding increase in frac sand demand, sales, tons sold and average selling price all increased sequentially during the three months ended
March 31, 2017
compared to the three months ended December 31, 2016 as summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands except per ton data
|
|
Three Months Ended
|
|
Amount Change
|
|
Percent Change
|
|
March 31,
|
|
December 31,
|
|
'17 vs. '16
|
|
'17 vs. '16
|
Oil & Gas Proppants
|
|
2017
|
|
2016
|
|
|
Sales
|
|
$
|
192,959
|
|
|
$
|
136,977
|
|
|
$
|
55,982
|
|
|
41
|
%
|
Tons Sold
|
|
2,532
|
|
|
2,081
|
|
|
451
|
|
|
22
|
%
|
Average Selling Price per Ton
|
|
$
|
76.21
|
|
|
$
|
65.82
|
|
|
$
|
10.39
|
|
|
16
|
%
|
However, if recovery in oil and gas drilling and completion activity does not continue, demand for frac sand may decline, which could result in us selling fewer tons, selling tons at lower prices, or both. If we sell less frac sand, or sell frac sand at lower prices, our revenue, net income, cash generated from operating activities, and liquidity would be adversely affected. We could evaluate further actions to reduce cost and improve liquidity. For instance, depending on market conditions, we may implement additional cost improvement projects or further reduce our capital spending for 2017 and beyond and may delay or cancel capital projects.
Additionally, due to impacts of change in demand for our frac sand, we are engaged in ongoing discussions with our take-or-pay supply agreement customers regarding pricing and volume requirements under our existing contracts. While these discussions continue, in certain circumstances, we have provided contract customers with temporary reductions to contract pricing in exchange for additional term and/or volume in order to preserve the value of these agreements. We may deliver sand at prices or at volumes below the requirements in our existing take-or-pay supply agreements. These circumstances may continue for the remainder of 2017. For a discussion of customer credit risk, see the Credit Risk section in Part I, Item 3 of this Quarterly Report on Form 10-Q.
We believe fluctuations in frac sand demand and price may occur as the market adjusts to changing supply and demand due to energy pricing fluctuations. We continue to expect long-term growth in oil and gas drilling in North American shale basins.
Oil and natural gas exploration and production companies' and oilfield service providers’ preferences and expectations have been evolving in recent years. A proppant vendor’s logistics capabilities have become an important differentiating factor when competing for business on both a spot and contract basis. Many of our customers increasingly seek convenient in-basin and wellhead proppant delivery capability from their proppant supplier. We believe that, over time, proppant customers will prefer to consolidate their purchases across a smaller group of suppliers with robust logistics capabilities and a broad offering of high performance proppants.
Industrial and specialty products end market trends
Demand in the industrial and specialty products end markets is relatively stable and is primarily influenced by key macroeconomic drivers such as housing starts, light vehicle sales, repair and remodel activity and industrial production. The primary end markets served by our production used in Industrial & Specialty Products are foundry, building products, sports and recreation, glassmaking and filtration. We have been increasing our value-added product offerings in the industrial and specialty products end markets. These new higher margin product sales have increased our Industrial & Specialty Products segment's profitability.
Our Strategy
The key drivers of our growth strategy include:
|
|
•
|
Expand our Oil & Gas Proppants
production capacity and product portfolio.
We continue to consider and execute several initiatives to increase our frac sand production capacity and augment our proppant product portfolio. We are evaluating Greenfield opportunities and also are expanding production capacities and maximizing production efficiencies of our existing facilities.
|
|
|
•
|
Increase our presence and product offering in industrial and specialty products end markets.
Our research and business development teams work in tandem with our customers to develop new products, which we expect will either increase our presence and market share in certain industrial and specialty products end markets or allow us to enter new markets. We manage a robust pipeline of new products in various stages of development. Some of these products have already come to market, resulting in a positive impact on our financial results. We continue to work toward offering more value-driven industrial and specialty products that will enhance the profitability of the business.
|
|
|
•
|
Optimize product mix and further develop value-added capabilities to maximize margins.
We continue to actively manage our product mix at each of our plants to ensure we maximize our profit margins. This requires us to use our proprietary expertise in balancing key variables, such as mine geology, processing capacities, transportation availability, customer requirements and pricing. We expect to continue investing in ways to increase the value we provide to our customers by expanding our product offerings, improving our supply chain management, upgrading our information technology, and creating a world class customer service model.
|
|
|
•
|
Expand our supply chain network and leverage our logistics capabilities to meet our customers’ needs in each strategic oil and gas basin.
We continue to expand our transload network to ensure product is available to meet the in-basin needs of our customers. This approach allows us to provide strong customer service and puts us in a position to take advantage of opportunistic spot market sales. Our plant sites are strategically located to provide access to key Class I railroads, which enables us to cost effectively send product to each of the strategic basins in North America. We can ship product by truck, barge and rail with an ability to connect to short-line railroads as necessary to meet our customers’ evolving in-basin product needs. We believe that our supply chain network and logistics capabilities are a competitive advantage that enables us to provide superior service for our customers. We expect to continue to make strategic investments and develop partnerships with transload operators and transportation providers that will enhance our portfolio of supply chain services that we can provide to customers. As of
March 31, 2017
, we have storage capacity at
46
transloads located near all of the major shale basins in the
|
United States. Our acquisition of Sandbox extends our delivery capability directly to our customers' wellhead locations, which increases efficiency and provides a lower cost logistics solution for our customers. 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.
|
|
•
|
Evaluate both Greenfield and Brownfield expansion opportunities and other acquisitions.
We expect to continue leveraging our reputation, processing capabilities and infrastructure to increase production, as well as explore other opportunities to expand our reserve base. We may accomplish this by developing Greenfield projects, where we can capitalize on our technical knowledge of geology, mining and processing and our strong reputation within local communities. We are continuing to actively pursue acquisitions to grow by taking advantage of our asset footprint, our management’s experience with high-growth businesses, and our strong customer relationships. Our primary objective is to acquire assets with differing levels of frac sand qualities that are complementary to our Oil & Gas Proppants segment, with a focus on mining, processing and logistics to further enhance our market presence. We prioritize acquisitions that provide opportunities to realize synergies (and, in some cases, the acquisition may be immediately accretive assuming synergies), including entering new geographic and frac sand product markets, acquiring attractive customer contracts and improving operations. For instance, on August 16, 2016, we completed our acquisition of NBI, the ultimate parent company of NBR Sand, LLC, a regional sand producer located near Tyler, Texas. Additionally, on August 22, 2016, we completed the acquisition of Sandbox, a provider of logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry. We are in active discussions to acquire additional assets fitting this strategy, which, if completed, could be “significant” under Regulation S-X and could require additional sources of financing. There can be no assurance that we will reach a definitive agreement and complete any of these potential transactions. See the risk factors disclosed in Item 1A of Part I of our 2016 Annual Report, including the risk factor entitled, “If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.”
|
|
|
•
|
Maintain financial strength and flexibility
.
We intend to maintain financial strength and flexibility to enable us to better pursue acquisitions and new growth opportunities as they arise and manage through any oil and gas proppant industry downturn. As of
March 31, 2017
, we had
$660.9 million
of cash on hand and
$46.0 million
of availability under our Revolver.
|
How We Generate Our Sales
We derive our sales primarily by mining, processing and delivering minerals that our customers purchase for various uses. Our product sales are primarily a function of the price per ton and the number of tons sold. The price invoiced reflects product, transportation and additional services as applicable, such as storage and transloading the product from railcars to trucks for delivery to the customer site. We invoice the majority of our customers on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly. Service sales are billed periodically after services are completed. Depending on the types of services, the total amount billed includes labor, equipment costs, freight, handling and other costs.
Our
five
largest customers accounted for approximately
42
% of total sales during the
three
months ended
March 31, 2017
. Sales to our two largest customers, Halliburton Company and Schlumberger N.V. accounted for
14%
and
11%
of our total revenues during the
three
months ended
March 31, 2017
. No other customer accounted for 10% or more of our total sales.
We primarily sell our products under short-term price agreements or at prevailing market rates. For a number of customers, we sell under long-term competitively-bid contracts. As of
March 31, 2017
, we have
seven
take-or-pay supply agreements in the Oil & Gas Proppants segment with initial terms expiring between
2018 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 and 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. Additionally, at the time the take-or-pay supply agreements were signed, some customers provided advance payments for future shipments. A percentage of these advance payments is recognized as revenue with each ton of applicable product shipped to the customer. Collectively, sales to customers with take-or-pay supply agreements accounted for
22%
and
23%
of our total company revenue during the
three
months ended
March 31, 2017
and
2016
, respectively. Although sales under take-or-pay supply agreements may result in us realizing lower margins than we otherwise might during periods of high market prices, we believe such lower margins are offset by the benefits derived from the product mix and sales volume stability afforded by such supply agreements, which helps us lower market risk arising from adverse changes in spot prices and market conditions. Additionally, selling more tons under supply contracts also enables us to be more efficient from a production, supply chain and logistics standpoint. As discussed in Part I, Item 1A., "Risk Factors", of our
2016
Annual Report—"A large portion of our sales is generated by our top ten customers, and the loss of, or significant reduction in, purchases by our largest customers could adversely affect our
operations,” these customers may not continue to purchase the same levels of product in the future due to a variety of reasons, contract requirements notwithstanding.
Historically we have not entered into long-term take-or-pay contracts with our customers in the industrial and specialty products end markets because of the high cost to our customers of switching providers. With these customers, we often enter into price agreements which are typically negotiated annually.
The Costs of Conducting Our Business
The principal expenses involved in conducting our business are labor costs, electricity and drying fuel costs, maintenance and repair costs for our mining and processing equipment and facilities and transportation costs. Transportation and related costs include freight charges, fuel surcharges, transloading fees, switching fees, railcar lease costs, demurrage costs, storage fees and labor costs. We believe the majority of our operating costs are relatively stable in price, but can vary significantly based on the volume of product produced. We benefit from owning the majority of the mineral deposits that we mine and having long-term mineral rights leases or supply agreements for our other primary sources of raw material, which limit royalty payments.
Additionally, we incur expenses related to our corporate operations, including costs for sales and marketing; research and development; and finance, legal, environmental, health and safety functions of our organization. These costs are principally driven by personnel expenses.
How We Evaluate Our Business
Our management team evaluates our business using a variety of financial and operational metrics. Our business is organized into two segments, Oil & Gas Proppants and Industrial & Specialty Products. We evaluate the performance of these segments based on their tons sold, average selling price and contribution margin earned. Additionally, we consider a number of factors in evaluating the performance of the business as a whole, including total tons sold, average selling price, segment contribution margin, and Adjusted EBITDA. We view these metrics as important factors in evaluating our profitability and review these measurements frequently to analyze trends and make decisions.
Segment Contribution Margin
Segment contribution margin, a non-GAAP measure, is a key metric that management uses to evaluate our operating performance and to determine resource allocation between segments. Segment contribution margin excludes certain corporate costs not associated with the operations of the segment. These unallocated costs include costs that are related to corporate functional areas such as operations management, corporate purchasing, accounting, treasury, information technology, legal and human resources.
Segment contribution margin is not a measure of our financial performance under GAAP and should not be considered an alternative to measures derived in accordance with GAAP. For more details on the reconciliation of segment contribution margin to its most directly comparable GAAP financial measure, net income (loss), see
Note N - Segment Reporting
to our Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP measure, is included in this report because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA. In addition, our Revolver contains a consolidated total net leverage ratio that we must meet 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, which is calculated based on our Adjusted EBITDA. Noncompliance with the financial ratio covenant contained in the Revolver could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the Term Loan. Moreover, the Revolver and the Term Loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our Adjusted EBITDA.
Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative to net income as a measure of operating performance, cash flows from operating activities as a measure of liquidity or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized, and excludes certain non-recurring charges. Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.
The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
(All amounts in thousands)
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Net income (loss)
|
$
|
2,522
|
|
|
$
|
(11,003
|
)
|
Total interest expense, net of interest income
|
6,311
|
|
|
6,370
|
|
Provision for taxes
|
(1,714
|
)
|
|
(8,150
|
)
|
Total depreciation, depletion and amortization expenses
|
21,599
|
|
|
14,556
|
|
EBITDA
|
28,718
|
|
|
1,773
|
|
Non-cash incentive compensation
(1)
|
5,510
|
|
|
1,906
|
|
Post-employment expenses (excluding service costs)
(2)
|
489
|
|
|
765
|
|
Business development related expenses
(3)
|
1,486
|
|
|
107
|
|
Other adjustments allowable under our existing credit agreement
(4)
|
6,509
|
|
|
701
|
|
Adjusted EBITDA
|
$
|
42,712
|
|
|
$
|
5,252
|
|
|
|
|
|
|
|
|
(1)
|
Reflects equity-based compensation expense.
|
(2)
|
Includes net pension cost and net post-retirement cost relating to pension and other post-retirement benefit obligations during the applicable period, but in each case excluding the service cost relating to benefits earned during such period. See Note L - Pension and Post-retirement Benefits to our Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
|
(3)
|
Reflects expenses related to business development activities in connection with our growth and expansion initiatives.
|
(4)
|
Reflects miscellaneous adjustments permitted under our existing credit agreement. The 2017 amount includes a contract restructuring cost of $6.3 million.
|
Results of Operations for the Three Months Ended
March 31, 2017
and
2016
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All numbers in thousands except per ton data
|
Three Months Ended
March 31,
|
|
Amount Change
|
|
Percent Change
|
|
2017
|
|
2016
|
|
'17 vs.'16
|
|
'17 vs.'16
|
Sales:
|
|
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
192,959
|
|
|
$
|
73,865
|
|
|
$
|
119,094
|
|
|
161
|
%
|
Industrial & Specialty Products
|
51,838
|
|
|
48,645
|
|
|
3,193
|
|
|
7
|
%
|
Total Sales
|
$
|
244,797
|
|
|
$
|
122,510
|
|
|
$
|
122,287
|
|
|
100
|
%
|
Tons:
|
|
|
|
|
|
|
|
Oil & Gas Proppants
|
2,532
|
|
|
1,411
|
|
|
1,121
|
|
|
79
|
%
|
Industrial & Specialty Products
|
861
|
|
|
862
|
|
|
(1
|
)
|
|
—
|
%
|
Total Tons
|
3,393
|
|
|
2,273
|
|
|
1,120
|
|
|
49
|
%
|
Average Selling Price per Ton:
|
|
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
76.21
|
|
|
$
|
52.35
|
|
|
$
|
23.86
|
|
|
46
|
%
|
Industrial & Specialty Products
|
60.21
|
|
|
56.43
|
|
|
3.78
|
|
|
7
|
%
|
Overall Average Selling Price per Ton:
|
$
|
72.15
|
|
|
$
|
53.90
|
|
|
$
|
18.25
|
|
|
34
|
%
|
Total sales increased
100%
for the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
, driven by a
49%
increase in total tons sold and a
34%
increase in overall average selling price. Tons sold in-basin represented
50%
and
31%
of total company tons sold for the three months ended
March 31, 2017
and
2016
, respectively.
The increase in total sales was primarily driven by Oil & Gas Proppants sales, which increased
161%
for the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
. Oil & Gas Proppants tons sold increased
79%
and average selling price increased
46%
due to year over year increase in demand for our frac sands.
Industrial & Specialty Products sales increased by
7%
for the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
driven by a
7%
increase in average selling price. The increase in average selling price was primarily a result of new higher-margin product sales and price increases.
Cost of Sales
Cost of sales increased by
$80.7 million
, or
76%
, to
$187.5 million
for the three months ended
March 31, 2017
compared to
$106.8 million
for the three months ended
March 31, 2016
. As a percentage of sales, cost of sales decreased to
77%
for the three months ended
March 31, 2017
compared to
87%
for the same period in
2016
. These changes result from the main components of cost of goods sold as discussed below.
We incurred
$104.2 million
and
$52.1 million
of transportation and related costs for the three months ended
March 31, 2017
and
2016
, respectively. This increase was due to increased tons sold through our transloads. As a percentage of sales, transportation and related costs remained relatively flat at
43%
for both the three months ended
March 31, 2017
and
2016
.
We incurred
$30.4 million
and
$19.7 million
of operating labor costs for the three months ended
March 31, 2017
and
2016
, respectively. The
$10.7 million
increase in labor costs incurred was primarily due to more tons sold and incremental costs related to Sandbox operations. As a percentage of sales, operating labor costs represented
12%
for the three months ended
March 31, 2017
compared to
16%
for the same period in
2016
.
We incurred
$8.7 million
and
$6.7 million
of electricity and drying fuel (principally natural gas) costs for the three months ended
March 31, 2017
and
2016
, respectively. The
$2.0 million
increase in electricity and drying fuel costs incurred was mainly due to more tons sold. As a percentage of sales, electricity and drying fuel costs represented
4%
for the three months ended
March 31, 2017
compared to
5%
for the same period in
2016
.
We incurred
$12.8 million
and
$8.1 million
of maintenance and repair costs for the three months ended
March 31, 2017
and
2016
, respectively. The increase in maintenance and repair costs incurred was mainly due to higher production volume and the addition of our Tyler, Texas facility. As a percentage of sales, maintenance and repair costs represented
5%
for the three months ended
March 31, 2017
compared to
7%
for the same period in
2016
.
Segment Contribution Margin
Oil & Gas Proppants contribution margin increased by
$38.0 million
, or
4,464%
, to
$38.8 million
for the three months ended
March 31, 2017
compared to
$0.9 million
for the three months ended
March 31, 2016
, driven by a
$119.1 million
increase in segment revenue, partially offset by higher segment cost of sales.
Industrial & Specialty Products contribution margin increased by
$3.3 million
, or
20%
, to
$20.2 million
for the three months ended
March 31, 2017
compared to
$16.9 million
for the three months ended
March 31, 2016
, driven by increased higher-margin products sales as a percentage of total sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
$6.8 million
, or
44%
, to
$22.3 million
for the three months ended
March 31, 2017
compared to
$15.5 million
for the three months ended
March 31, 2016
. The increase was due to the following factors:
|
|
•
|
Business development related expense increased by
$1.4 million
to
$1.5 million
for the three months ended
March 31, 2017
compared to
$0.1 million
for the three months ended
March 31, 2016
. The increase was primarily due to costs related to acquiring the cool roof division of National Coatings Corporation and to evaluating other acquisition opportunities.
|
|
|
•
|
Compensation-related expense increased by
$5.2 million
for the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
, mainly driven by increased equity-based compensation and incremental personnel expense related to our NBI and Sandbox employees.
|
|
|
•
|
Bad debt expense increased by
$0.6 million
for the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
, mainly due to increased sales.
|
In total, our selling, general and administrative costs represented approximately
9%
and
13%
of our sales for the three months ended
March 31, 2017
and
2016
, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased by
$7.0 million
, or
48%
, to
$21.6 million
for the three months ended
March 31, 2017
compared to
$14.6 million
for the three months ended
March 31, 2016
. The year over year increase was mainly driven by additional costs related to assets acquired in conjunction with our NBI and Sandbox acquisitions as well as other continued capital spending. Depreciation, depletion and amortization costs represented approximately
9%
and
12%
of our sales for the three months ended
March 31, 2017
and
2016
, respectively.
Operating Income (Loss)
Operating income increased by
$27.7 million
, or
194%
, to
$13.4 million
in operating income for the three months ended
March 31, 2017
compared to operating loss of
$(14.3) million
for the three months ended
March 31, 2016
. The increase was due to a
100%
increase in total sales partially offset by a
76%
increase in cost of sales, a
44%
increase in selling, general and administrative expense and a
48%
increase in depreciation, depletion and amortization expense.
Interest Expense
Interest expense increased by
$1.0 million
, or
15%
, to
$7.6 million
for the three months ended
March 31, 2017
compared to
$6.6 million
for the three months ended
March 31, 2016
, driven by additional long-term liabilities assumed in conjunction with our NBI and Sandbox acquisitions.
Other Income (Expense), net, including interest income
Other income decreased by
$6.7 million
, or
375%
, to
$(4.9) million
in other expense for the three months ended
March 31, 2017
compared to other income of
$1.8 million
for the three months ended
March 31, 2016
. The decrease was primarily due to a contract restructuring cost incurred during the three months ended
March 31, 2017
.
Income Tax Benefit
The income tax benefit decreased by
$6.4 million
to
$1.7 million
for the three months ended
March 31, 2017
compared to
$8.2 million
for the three months ended
March 31, 2016
. The decrease was due to increased profit before income tax partially offset by the equity compensation tax benefit recorded discretely during the three months ended
March 31, 2017
. The effective tax rate was
(212)%
and
43%
for the three months ended
March 31, 2017
and
2016
, respectively. See accompanying
Note K - Income Taxes
of our Financial Statements for more information.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
Net Income (Loss)
Net income was
$2.5 million
for the three months ended
March 31, 2017
compared to a net loss of
$(11.0) million
for the three months ended
March 31, 2016
. The year over year increase was due to the factors noted above.
Liquidity and Capital Resources
Overview
Our principal liquidity requirements have historically been to service our debt, to meet our working capital, capital expenditure and mine development expenditure needs, to return cash to our stockholders, and to finance acquisitions. We have historically met our liquidity and capital investment needs with funds generated through operations. We have historically funded our acquisitions through cash on hand or borrowings under our credit facilities and equity issuances. Our working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. As of
March 31, 2017
, our working capital was
$767.5 million
and we had
$46.0 million
of availability under the Revolver.
We believe that cash generated through operations and our financing arrangements will be sufficient to meet working capital requirements, anticipated capital expenditures, scheduled debt payments and any dividends declared for at least the next 12 months.
Management and our Board remain committed to evaluating additional ways of creating shareholder value. Any determination to pay dividends and other distributions in cash, stock, or property in the future will be at the discretion of our Board 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 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.
Cash Flow Analysis
A summary of operating, investing and financing activities (in thousands) is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Percent
Change
|
|
2017
|
|
2016
|
|
'17 vs. '16
|
Net cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
(15,767
|
)
|
|
$
|
(3,754
|
)
|
|
320
|
%
|
Investing activities
|
(24,880
|
)
|
|
9,010
|
|
|
(376
|
)%
|
Financing activities
|
(9,675
|
)
|
|
181,062
|
|
|
(105
|
)%
|
Net Cash Provided by (Used In) Operating Activities
Operating activities consist primarily of net income adjusted for certain non-cash and working capital items. Adjustments to net income for non-cash items include depreciation, depletion and amortization, deferred revenue, deferred income taxes, equity-based compensation and bad debt provision. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally accounts receivable, inventories, prepaid expenses and other current assets, income taxes payable and receivable, accounts payable and accrued expenses.
Net cash used in operating activities was
$15.8 million
for the
three
months ended
March 31, 2017
compared to
$3.8 million
for the
three
months ended
March 31, 2016
. This
$12.0 million
increase in cash used in operations was the result of a
$40.0 million
decrease in cash provided by working capital activities partially offset by
$13.5 million
increase in net income and
$14.4 million
increase due to other components of operating activities.
Net Cash Provided by (Used in) Investing
Activities
Investing activities consist primarily of cash consideration paid to acquire businesses, capital expenditures for growth and maintenance and proceeds from the sale and maturity of short-term investments.
Net cash used in investing activities was
$24.9 million
for the
three
months ended
March 31, 2017
. This was due to capital expenditures of
$23.6 million
and capitalized intellectual property costs of
$1.2 million
. Capital expenditures for the
three
months ended
March 31, 2017
were primarily for engineering, procurement and construction of our growth projects and other maintenance and cost improvement capital projects.
Net cash provided by investing activities was
$9.0 million
for the
three
months ended
March 31, 2016
. This was due to
$15.0 million
in proceeds from sales and maturities of short-term investments being partially offset by capital expenditures. Capital expenditures for the
three
months ended
March 31, 2016
, which totaled
$6.1 million
, were primarily for the engineering, procurement and construction of our growth projects and other maintenance and cost improvement capital projects.
Subject to our continuing evaluation of market conditions, we anticipate that our capital expenditures in
2017
will be in a range of
$125 million
to
$150 million
, which is primarily associated with growth, maintenance and cost improvement capital projects. We expect to fund our capital expenditures through cash on our balance sheet, cash generated from our operations and cash generated from financing activities.
Net Cash Provided by (Used in) Financing Activities
Financing activities consist primarily of equity issuances, capital contributions, dividend payments, borrowings and repayments related to the Revolver, Term Loan, as well as fees and expenses paid in connection with our credit facilities, advance payments from our customers and capital leases.
Net cash used in financing activities was
$9.7 million
for the
three
months ended
March 31, 2017
, driven by
$5.1 million
in dividends paid,
$3.4 million
of tax payments related to shares withheld for vested restricted stock,
$1.4 million
of long-term debt payments, and
$0.3 million
of capital lease repayments partially offset by
$0.5 million
of proceeds from options exercised.
Net cash provided by financing activities was
$181.1 million
in the
three
months ended
March 31, 2016
, driven by
$200.0 million
of common stock issuances partially offset by
$13.8 million
common stock issuance costs,
$3.4 million
of dividends paid and
$1.3 million
of long-term debt payments.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
There have been no significant changes outside the ordinary course of business to our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our
2016
Annual Report. For more details on future minimum annual commitments under such operating leases, please see accompanying
Note I - Fair Value Accounting
to our Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but
cannot predict the full amount of such future expenditures. As of
March 31, 2017
, we had
$11.4 million
accrued for future reclamation costs, as compared to
$11.2 million
as of
December 31, 2016
.
We discuss certain environmental matters relating to our various production and other facilities, certain regulatory requirements relating to human exposure to crystalline silica and our mining activity and how such matters may affect our business in the future under Item 1, “Business,” Item 1A, “Risk Factors” Item 3, “Legal Proceedings”, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters” in our
2016
Annual Report.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our
2016
Annual Report.
Recent Accounting Pronouncements
New accounting guidance that we have recently adopted, as well as accounting guidance that has been recently issued but not yet adopted by us, are included in
Note A - Summary of Significant Accounting Policies
to our Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Availability of Reports; Website Access; Other Information
Our internet address is http://www.ussilica.com. Through “Investor Relations”—“SEC Filings” on our home page, we make available free of charge our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our proxy statements, our Current Reports on Form 8-K, SEC Forms 3, 4 and 5 and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports filed with the SEC are also made available to read and copy at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information about the Public Reference Room may be obtained by contacting the SEC at 1-800-SEC-0330. Reports filed with the SEC are also made available on its website at www.sec.gov.
Copies of our Corporate Governance Guidelines, our Audit Committee, Compensation Committee and Nominating and Governance Committee charters, the Code of Conduct for our Board of Directors and Code of Conduct and Ethics for U.S. Silica employees (including the chief executive officer, chief financial officer and corporate controller) can also be found on our website. Any amendments or waivers to the Code of Conduct and Ethics applicable to the chief executive officer, chief financial officer and corporate controller can also be found in the “Investor Relations” section of the U.S. Silica website. Stockholders may also request a free copy of these documents from: U.S. Silica Holdings, Inc., attn.: Investor Relations, 8490 Progress Drive, Suite 300, Frederick, Maryland 21701 or IR@ussilica.com.