NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 2015
; 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, 2016
; the Income Statements, Condensed Consolidated Statements of Comprehensive Income and Cash Flows for the
three
months ended
March 31, 2016
and
2015
; the Condensed Consolidated Statements of Stockholders' Equity for the
three
months ended
March 31, 2016
; and other information disclosed in the related notes are unaudited. The Balance Sheet as of
December 31, 2015
was derived from our audited consolidated financial statements as included in our
2015
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 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 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update, Improvements to Employee Share-Based Payment Accounting, which simplifies the income tax consequences, accounting for forfeitures and classification on the Statements of Cash Flows. 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 are currently evaluating the effect that the new guidance will have on our financial statements and related disclosures.
In February 2016, the FASB issued an Accounting Standards Update, 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 are currently evaluating the effect that the new guidance will have on our financial statements and related disclosures.
On July 22, 2015, the FASB issued Accounting Standards Update, 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 have elected to adopt the standard early effective January 1, 2016 prospectively and have measured our inventory at the lower of cost and net realizable value on our Balance Sheet as of
March 31, 2016
.
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.
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. There were
63,481,699
shares of common stock issued and outstanding at
March 31, 2016
. As of
March 31, 2015
, there were
53,374,963
shares issued and outstanding.
During the
three months ended March 31,
2016
, our Board of Directors declared quarterly cash dividends as follows:
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
Declaration Date
|
|
Record Date
|
|
Payable Date
|
$
|
0.06
|
|
|
February 22, 2016
|
|
March 15, 2016
|
|
April 5, 2016
|
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, 2016
or
December 31, 2015
. 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 antidilutive and are therefore excluded from the calculation of our diluted earnings per common share are:
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Weighted-average outstanding stock options excluded
|
1,306
|
|
|
306
|
|
Weighted-average outstanding restricted stock awards excluded
|
367
|
|
|
27
|
|
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, 2016
, we are authorized to repurchase up to
$50 million
of our common stock through December 11, 2016. 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, 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.
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 by component during the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 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 (loss) before reclassifications
|
—
|
|
|
(5
|
)
|
|
(2,947
|
)
|
|
(2,952
|
)
|
Amounts reclassed from accumulated other comprehensive income
|
35
|
|
|
—
|
|
|
389
|
|
|
424
|
|
Ending Balance
|
$
|
(46
|
)
|
|
$
|
1
|
|
|
$
|
(18,654
|
)
|
|
$
|
(18,699
|
)
|
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, 2016
and
December 31, 2015
, accounts receivable (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Trade receivables
|
$
|
65,279
|
|
|
$
|
64,821
|
|
Less: Allowance for doubtful accounts
|
(7,503
|
)
|
|
(7,686
|
)
|
Net trade receivables
|
57,776
|
|
|
57,135
|
|
Other receivables
|
1,302
|
|
|
1,571
|
|
Total accounts receivable
|
$
|
59,078
|
|
|
$
|
58,706
|
|
Changes in our allowance for doubtful accounts (in thousands) during the
three
months ended
March 31, 2016
are as follows:
|
|
|
|
|
|
March 31,
2016
|
Beginning balance
|
$
|
7,686
|
|
Bad debt provision net of recoveries
|
150
|
|
Write-offs
|
(333
|
)
|
Ending balance
|
$
|
7,503
|
|
NOTE D—INVENTORIES
At
March 31, 2016
and
December 31, 2015
, inventories (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Supplies
|
$
|
18,114
|
|
|
$
|
18,029
|
|
Raw materials and work in process
|
16,493
|
|
|
18,113
|
|
Finished goods
|
32,484
|
|
|
28,862
|
|
Total inventories
|
$
|
67,091
|
|
|
$
|
65,004
|
|
NOTE E—PROPERTY, PLANT AND MINE DEVELOPMENT
At
March 31, 2016
and
December 31, 2015
, property, plant and mine development (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Mining property and mine development
|
$
|
222,427
|
|
|
$
|
222,439
|
|
Asset retirement cost
|
9,887
|
|
|
9,889
|
|
Land
|
30,322
|
|
|
30,322
|
|
Land improvements
|
37,972
|
|
|
37,791
|
|
Buildings
|
51,280
|
|
|
51,280
|
|
Machinery and equipment
|
368,353
|
|
|
360,817
|
|
Furniture and fixtures
|
1,917
|
|
|
1,917
|
|
Construction-in-progress
|
53,867
|
|
|
56,130
|
|
|
776,025
|
|
|
770,585
|
|
Accumulated depletion, depreciation and amortization
|
(223,020
|
)
|
|
(209,389
|
)
|
Total property, plant and mine development, net
|
$
|
553,005
|
|
|
$
|
561,196
|
|
The amount of interest costs capitalized in property, plant and equipment was
$90
and
$42
for the
three
months ended
March 31, 2016
and
2015
respectively.
NOTE F—DEBT
At
March 31, 2016
and
December 31, 2015
, debt (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Senior secured credit facility:
|
|
|
|
Revolver expiring July 23, 2018 (5% at March 31, 2016 and December 31, 2015)
|
$
|
—
|
|
|
$
|
—
|
|
Term loan facility—final maturity July 23, 2020 (4 - 4.5% at March 31, 2016 and December 31, 2015)
|
498,000
|
|
|
499,275
|
|
Less: Unamortized original issue discount
|
(1,602
|
)
|
|
(1,696
|
)
|
Less: Unamortized debt issuance cost
|
(5,525
|
)
|
|
(5,874
|
)
|
Total debt
|
490,873
|
|
|
491,705
|
|
Less: current portion
|
(3,333
|
)
|
|
(3,330
|
)
|
Total long-term portion of debt
|
$
|
487,540
|
|
|
$
|
488,375
|
|
Revolving Line-of-Credit
We have a
$50 million
revolving line-of-credit (the “Revolver”), with
zero
drawn and
$3.3 million
allocated for letters of credit as of
March 31, 2016
, leaving
$46.7 million
available under the Revolver.
Debt Maturities
At
March 31, 2016
, contractual maturities of long-term debt (in thousands) are as follows:
|
|
|
|
|
2016
|
$
|
3,825
|
|
2017
|
5,100
|
|
2018
|
5,100
|
|
2019
|
5,100
|
|
2020
|
478,875
|
|
Thereafter
|
—
|
|
|
$
|
498,000
|
|
Our senior secured credit facility is secured by substantially all of our assets 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 pay dividends and to sell assets. 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, 2016
, we are in compliance with all covenants in accordance with our senior secured credit facility.
NOTE G—ASSET RETIREMENT OBLIGATIONS
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, 2016
, we had a liability of
$12.5 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, 2016
are as follows:
|
|
|
|
|
|
March 31,
2016
|
Beginning balance
|
$
|
12,254
|
|
Payments
|
—
|
|
Accretion
|
240
|
|
Additions and revisions of prior estimates
|
—
|
|
Ending balance
|
$
|
12,494
|
|
NOTE H—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, 2016
and
December 31, 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, 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, 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
March 31, 2016
of those assets (in thousands) that we measure at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Short-term investments
|
$
|
982
|
|
|
$
|
5,858
|
|
|
$
|
6,840
|
|
Interest rate derivatives
|
—
|
|
|
—
|
|
|
—
|
|
Net asset
|
$
|
982
|
|
|
$
|
5,858
|
|
|
$
|
6,840
|
|
NOTE I—SHORT-TERM INVESTMENTS
We have segregated funds into designated accounts with investment brokers who manage our short-term investment portfolio. Those funds are held on an available-for-sale basis and are therefore reported at fair value on the balance sheet. The following table summarizes our available-for-sale short-term investments (in thousands) as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Money market mutual funds
|
$
|
982
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
982
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Certificates of deposit
|
4,655
|
|
|
—
|
|
|
—
|
|
|
4,655
|
|
Government agencies
|
1,200
|
|
|
3
|
|
|
—
|
|
|
1,203
|
|
Total available-for-sale investments
|
$
|
6,837
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
6,840
|
|
As of
March 31, 2016
, we considered any declines in market value of our short-term investment portfolio to be temporary in nature and did not consider any of our investments other-than-temporarily impaired. 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 it will be required to sell, the investment before recovery of the investment’s cost basis. As of
March 31, 2016
, we did
no
t recognize any impairment charges.
NOTE J—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at
March 31, 2016
:
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Operating Lease Minimum Rental Payments
|
|
Minimum Purchase Commitments
|
2016
|
$
|
33,721
|
|
|
$
|
22,109
|
|
2017
|
46,960
|
|
|
19,861
|
|
2018
|
57,211
|
|
|
17,222
|
|
2019
|
52,363
|
|
|
12,967
|
|
2020
|
48,687
|
|
|
4,258
|
|
Thereafter
|
157,427
|
|
|
14,850
|
|
Total future lease and purchase commitments
|
$
|
396,369
|
|
|
$
|
91,267
|
|
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
$12.9 million
and
$10.0 million
for the three months ended
March 31, 2016
and
2015
, respectively. As of
March 31, 2016
, we have
no
obligations under a capital lease.
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, 2016
,
no
new claims were brought against U.S. Silica. As of
March 31, 2016
, there were
75
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, 2016
and
December 31, 2015
other non-current assets included
$0.3 million
for insurance for third-party products liability claims and other long-term obligations included
$1.5 million
in third-party products claims liability.
Additionally, during the three months ended March 31, 2015, we received an unfavorable ruling in an arbitration proceeding as a result of exiting a toll manufacturing contract. The amount of the ruling was approximately
$7.6 million
. The matter was settled and the settlement amount of
$6.5 million
was paid on June 9, 2015. The expense was included in selling, general and administrative expense in our Income Statement for the
three
months ended
March 31, 2015
.
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. The effective tax rate was
44%
and
19%
for the
three
months ended
March 31, 2016
and
2015
, respectively.
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, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Service cost
|
$
|
288
|
|
|
$
|
324
|
|
Interest cost
|
1,235
|
|
|
1,203
|
|
Expected return on plan assets
|
(1,392
|
)
|
|
(1,375
|
)
|
Net amortization and deferral
|
481
|
|
|
666
|
|
Net pension benefit costs
|
$
|
612
|
|
|
$
|
818
|
|
In addition, we provide defined benefit post-retirement health care and life insurance benefits to some employees. Net periodic post-retirement benefit cost (in thousands) recognized for the
three
months ended
March 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Service cost
|
$
|
44
|
|
|
$
|
44
|
|
Interest cost
|
306
|
|
|
277
|
|
Expected return on plan assets
|
—
|
|
|
(1
|
)
|
Net amortization and deferral
|
135
|
|
|
96
|
|
Net post-retirement costs
|
$
|
485
|
|
|
$
|
416
|
|
The weighted average discount rate used to determine the projected pension and post-retirement obligations was updated during the
three
months ended
March 31, 2016
, and was decreased from
4.5%
at
December 31, 2015
to
4.1%
at
March 31, 2016
. We made no contributions to the qualified pension plan for the three months ended
March 31, 2016
and
2015
. Total expected employer funding contributions during the fiscal year ending
December 31, 2016
are
$0
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, 2016
, Travelers had
$10.2 million
in bonds outstanding for us. The majority of these bonds,
$9.9 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 by 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 oil and natural gas from the wells.
The Industrial & Specialty Products segment consists of over
260
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, 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 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, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Sales:
|
|
|
|
Oil & Gas Proppants
|
$
|
73,865
|
|
|
$
|
148,753
|
|
Industrial & Specialty Products
|
48,645
|
|
|
55,205
|
|
Total Sales
|
122,510
|
|
|
203,958
|
|
Segment contribution margin:
|
|
|
|
Oil & Gas Proppants
|
851
|
|
|
52,195
|
|
Industrial & Specialty Products
|
16,893
|
|
|
15,456
|
|
Total segment contribution margin
|
17,744
|
|
|
67,651
|
|
Operating activities excluded from segment cost of goods sold
|
(1,985
|
)
|
|
(2,346
|
)
|
Selling, general and administrative
|
(15,503
|
)
|
|
(26,961
|
)
|
Depreciation, depletion and amortization
|
(14,556
|
)
|
|
(13,243
|
)
|
Interest expense
|
(6,643
|
)
|
|
(6,836
|
)
|
Other income, net, including interest income
|
1,790
|
|
|
11
|
|
Income (loss) before income taxes
|
$
|
(19,153
|
)
|
|
$
|
18,276
|
|
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
$68.6 million
has been allocated to these segments with
$47.9 million
assigned to Oil & Gas Proppants and
$20.7 million
to Industrial & Specialty Products.
NOTE O—SUBSEQUENT EVENTS
On
April 5, 2016
we paid a cash dividend of $
0.0625
per share to common stockholders of record on
March 15, 2016
, which had been declared by our Board of Directors on
February 22, 2016
.