NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A—ORGANIZATION
U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) is a performance materials company and one of the largest domestic producers of commercial silica. We manufacture frac sand used to stimulate and maintain the flow of hydrocarbons in oil and natural gas wells. Our products are also used as a raw material in a wide range of industrial applications. Through our acquisition of EP Minerals, LLC ("EPM") and its affiliated companies, we are an industry leader in the production of industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite. During our
119
-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver products to customers across our end markets. Our operations are organized into
two
reportable segments based on end markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. See
Note W - Segment Reporting
for more information on our reportable segments.
On May 1, 2018, we completed the acquisition of all of the outstanding capital stock of EP Acquisition Parent, Inc., a Delaware corporation (“EPAP”), and the ultimate parent of EPM. Contemporaneous with the merger, EPAP was renamed EP Minerals Holdings, Inc. ("EPMH"). The consideration paid consisted of
$743.2 million
of cash, net of cash acquired of
$19.1 million
, including
$0.5 million
of post-closing adjustments. EPM is a global producer of engineered materials derived from industrial minerals, including diatomaceous earth, clay (calcium bentonite) and perlite. EPM's industrial minerals are used as filter aids, absorbents and functional additives for a variety of industries including food and beverage, biofuels, recreational water, oil and gas, farm and home, landscape, sports turf, paint, plastics, and insecticides. The acquisition of EPM increased our industrial materials product offering in our Industrial & Specialty Products segment.
On August 16, 2017, we completed the acquisition of Mississippi Sand, LLC ("MS Sand"). MS Sand is a frac sand mining and logistics company based in St. Louis, Missouri.
On April 1, 2017, we completed the acquisition of White Armor, a product line of cool roof granules used in industrial roofing applications.
On August 22, 2016, we completed the acquisition of Sandbox Enterprises, LLC ("Sandbox") as a “last mile” logistics solution for frac sand in the oil and gas industry.
On August 16, 2016, we completed the acquisition of New Birmingham, Inc. (“NBI”), the ultimate parent company of NBR Sand, LLC (“NBR”), a regional sand producer located near Tyler, Texas. The acquisition of NBI increased our regional frac sand product offering in our Oil & Gas Proppants segment.
See
Note E - Business Combinations
for more information.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, all adjustments necessary for a fair presentation of the Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature.
Certain reclassifications of prior year's amounts have been made to conform to the current year presentation. In conforming to the current year's presentation, the Company identified and corrected an amount in its statement of cash flows for the year ended
December 31, 2017
. The correction reduced Capital Expenditures within Net Cash Used in Investing Activities with a corresponding decrease to Accounts Payable and Accrued Expenses within Net Cash Used in Operating Activities. The amount is presented as Non-cash Accrued Capital Expenditures and had no impact in the Company's Balance Sheet, Income Statement or Net Change in Cash and Cash Equivalents in the Statement of Cash Flows.
Throughout this report we refer to (i) our Consolidated Balance Sheets as our “Balance Sheets,” (ii) our Consolidated Statements of Operations as our “Income Statements,” and (iii) our Consolidated Statements of Cash Flows as our “Cash Flows.”
Consolidation
The Consolidated Financial Statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
We follow FASB Accounting Standards Codification (“ASC”) guidance for identification and reporting of entities over which control is achieved through means other than voting rights. The guidance defines such entities as Variable Interest Entities (“VIEs”). We consolidate VIEs when we have variable interests and are the primary beneficiary. We continually evaluate our involvement with VIEs to determine when these criteria are met.
During the third quarter of 2018 we finalized a shareholders' agreement with unrelated parties to form a limited liability company with the purpose of constructing and operating a water pipeline to transport and sell water. In connection with the shareholders’ agreement, we acquired a
50%
equity ownership for
$3.2 million
, with a maximum capital contribution of
$7.0 million
, and a water rights intangible asset for
$0.7 million
. Based on our evaluation, we determined that we are the primary beneficiary of this VIE and therefore we are required to consolidate it, including the current construction work in progress of
$12.0 million
. During the fourth quarter of 2018 we contributed an additional
$3.8 million
for a total of
$7.0 million
in capital contributions for the year ended
December 31, 2018
.
Use of Estimates and Assumptions
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Consolidated 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 the 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, intangible assets 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; contingent considerations; 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are invested primarily in money market securities held by financial institutions with high credit ratings. Accounts at each institution are insured by the Federal Deposit Insurance Corporation. Cash balances at times may exceed federally-insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on cash.
Accounts Receivable
The majority of our accounts receivable are due from companies in the oil and natural gas drilling, glass, building products, filler and extenders, foundries and other major industries. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. Ongoing credit evaluations are performed. We write-off accounts receivable when they are deemed uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. See
Note F - Accounts Receivable
and
Note U - Revenue
.
Inventories
Inventories include raw stockpiles, in-process product and finished product available for shipment, as well as spare parts and supplies for routine facility maintenance. We value inventory at the lower of cost and net realizable value. Cost is determined using the first-in, first-out and average cost methods. Our inventoriable costs include production costs and transportation and additional service costs as applicable. See
Note G - Inventories
.
Property, Plant and Mine Development
Plant and equipment
Plant and equipment is recorded at cost and depreciated over their estimated useful lives. Interest incurred during construction of facilities is capitalized and depreciated over the life of the asset. Costs for normal repairs and maintenance that do not extend economic life or improve service potential are expensed as incurred. Costs of improvements that extend economic life or improve service potential are capitalized and depreciated over the estimated remaining useful life.
Depreciation is recorded using the straight-line method over the assets’ estimated useful lives as follows: buildings (
15
years); land improvements (
10
years); machinery and equipment, including computer equipment and software (
3
-
10
years); furniture and fixtures (
8
years). Leasehold improvements are depreciated over the shorter of the asset life or lease term. Construction-in-progress is primarily comprised of machinery and equipment which have not yet been placed in service.
Mining property and development
Mining property and development includes mineral deposits and mine exploration and development. Mineral deposits are initially recognized at cost, which approximates the estimated fair value on the date of purchase. Mine exploration and development costs include engineering and mineral studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body for production. Costs incurred before mineralization are classified as proven and probable reserves are expensed and classified as exploration or advanced projects, research and development expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.
The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in costs applicable to sales in the same period as the revenue from the sale of inventory.
Depletion and amortization of mineral deposits and mine development costs are recorded as the minerals are extracted, based on units of production and engineering estimates of mineable reserves. The impact of revisions to reserve estimates is recognized on a prospective basis.
See
Note H - Property, Plant and Mine Development
.
Mine reclamation costs and asset retirement obligations
We recognize the fair value of any liability for conditional asset retirement obligations, including environmental remediation liabilities when incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset, if sufficient information exists to reasonably estimate the fair value of the liability. These obligations generally include the estimated net future costs of dismantling, restoring and reclaiming operating mines and related mine sites, in accordance with federal, state, local regulatory and land lease agreement requirements. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The reclamation obligation is based on when spending for an existing environmental disturbance will occur. If the asset retirement obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement. We review, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site in accordance with ASC guidance for accounting for reclamation obligations.
Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.
See
Note M - Asset Retirement Obligations
.
Impairment or Disposal of Property, Plant and Mine Development
We periodically evaluate whether current events or circumstances indicate that the carrying value of our property, plant and equipment assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash flows using estimates of proven and probable sand reserves, estimated future sales prices (considering historical and current prices, price trends and related factors) and operating costs and anticipated capital
expenditures. If the undiscounted cash flows are less than the carrying value of the assets, we recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets.
The recoverability of the carrying value of our mineral properties is dependent upon the successful development, start-up and commercial production of our mineral deposit and the related processing facilities. Our evaluation of mineral properties for potential impairment primarily includes assessing the existence or availability of required permits and evaluating changes in our mineral reserves, or the underlying estimates and assumptions, including estimated production costs. Assessing the economic feasibility requires certain estimates, including the prices of products to be produced and processing recovery rates, as well as operating and capital costs.
Gains on the sale of property, plant and mine development are included in income when the assets are disposed of provided there is more than reasonable certainty of the collectability of the sales price and any future activities required to be performed by us relating to the disposal of the assets are complete or insignificant. Upon retirement or disposal of assets, all costs and related accumulated depreciation or amortization are written-off.
Goodwill and Other Intangible Assets and Related Impairment
Our intangible assets consist of goodwill, which is not being amortized, indefinite-lived intangibles, which consist of certain trade names that are not subject to amortization, intellectual property and customer relationships.
Intellectual property mainly consists of patents and technology, and it is amortized on a straight-line basis over an average useful life of
15
years. Customer relationships are amortized on a straight-line basis over their useful life of
20
,
15
or
13
years.
Goodwill represents the excess of the purchase price of business combinations over the fair value of net assets acquired. Goodwill and trade names are reviewed for impairment annually as of October 31, or more frequently when indicators of impairment exist. An impairment exists if the fair value of a reporting unit to which goodwill has been allocated, or the fair value of indefinite-lived intangible assets, is less than their respective carrying values. Prior to conducting a formal impairment test, we have an option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that is more likely than not (more than
50%
) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If the qualitative assessment determines that an impairment is more likely than not, or if we choose to bypass the qualitative assessment, we perform a quantitative assessment by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
See
Note I - Goodwill and Intangible Assets
.
Revenue Recognition
Products
We derive our product sales by mining and processing 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. We primarily sell our products through individual purchase orders executed under short-term price agreements or at prevailing market rates. The amount invoiced reflects product, transportation and / or additional handling services as applicable, such as storage, transloading the product from railcars to trucks and last mile logistics to the customer site. We invoice most of our product customers on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly. Standard collection terms are net 30 days, although extended terms are offered in competitive situations.
We recognize revenue for products and materials at a point in time following the transfer of control of such items to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. We account for shipping and handling activities related to product and material sales contracts with customers as costs to fulfill our promise to transfer the associated products pursuant to the accounting policy election allowed under ASC 606-10-25-18b. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and accrue and classify related costs as a component of cost of sales at the time revenue is recognized.
For a limited number of customers, we sell under long-term, minimum purchase supply agreements. 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 certain contractual adjustments. Sometimes these agreements may undergo negotiations regarding pricing and volume requirements, which may often occur in volatile market conditions. While these negotiations continue, we may deliver sand at prices or at volumes below the requirements in our existing supply agreements. We do not consider these agreements solely representative of contracts with customers. An executed order specifying the type and quantity of product to be delivered, in combination with the noted agreements, comprise our contracts in these arrangements.
Service
We derive our service revenues primarily through the provision of transportation, equipment rental, and contract labor services to companies in the oil and gas industry. Transportation services typically consist of transporting customer proppant from storage facilities to proximal well-sites and are contracted through work orders executed under established pricing agreements. The amount invoiced reflects the transportation services rendered. Equipment rental services provide customers with use of either dedicated or nonspecific wellhead proppant delivery equipment solutions for contractual periods defined either through formal lease agreements or executed work orders under established pricing agreements. The amounts invoiced reflect the length of time the equipment set was utilized in the billing period. Contract labor services provide customers with proppant delivery equipment operators through work orders executed under established pricing agreements. The amounts invoiced reflect the amount of time our labor services were utilized in the billing period.
We typically invoice our customers on a weekly or monthly basis; however, some customers receive invoices upon well-site operation completion. Standard collection terms are net 30 days, although extended terms are offered in competitive situations. We typically recognize revenue for specific, dedicated equipment set rental arrangements under ASC 840, Leases. For the remaining components of service revenue, we have applied the practical expedient allowed under ASC 606-10-55-18 to recognize transportation revenues in proportion to the amount we have the right to invoice.
Contracts with Multiple Performance Obligations
For contracts that contain multiple performance obligations, such as work orders containing a combination of product, transportation, equipment rentals, and contract labor services, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations. We typically invoice our customers on a weekly or monthly basis; however, some customers receive invoices upon well-site operation completion. Standard collection terms are net 30 days, although extended terms are offered in competitive situations.
Taxes Collected from Customers and Remitted to Governmental Authorities.
We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales.
Foreign Operations
Foreign operations constituted approximately
$44.0 million
of our consolidated sales;
$7.3 million
of consolidated assets;
$2.6 million
of pre-tax income and
$2.4 million
of net income as of and for the year ended December 31, 2018. We had no significant foreign operations during the years ended December 31, 2017 and 2016.
See
Note U - Revenue
.
Deferred Revenues
For a limited number of customers, we enter into supply agreements which give customers the right to make advanced payments toward the purchase of certain products at specified volumes over an average initial period of
one
to
fifteen
years. These payments represent consideration that is unconditional for which we have yet to transfer the related product. These payments are recorded as contract liabilities referred to as “deferred revenues” upon receipt and recognized as revenue upon delivery of the related product.
Unbilled Receivables
Revenues recognized in advance of invoice issuance create assets referred to as “unbilled receivables.” Any portion of our unbilled receivables for which our right to consideration is conditional on a factor other than the passage of time is considered a contract asset. These assets are presented on a combined basis with accounts receivable and are converted to accounts receivable once billed.
Debt Issuance Costs
The Company defers costs directly associated with acquiring third-party financing, primarily loan origination costs and related professional expenses. Debt issuance costs are deferred and amortized using the effective interest rate method over the term of our senior secured Term Loan facility and the straight-line method for our Revolver facility. Debt issuance costs related to long-term debt are reflected as a direct deduction from the carrying amount of the debt. Amortization included in interest expense was
$4.0 million
for the year ended
December 31, 2018
, and
$1.4 million
for each of the years ended
December 31, 2017
and
2016
. See
Note K - Debt
.
Employee Benefit Plans
We provide a range of benefits to our employees and retired employees, including pensions and post-retirement healthcare and life insurance benefits. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions, including discount rates, assumed rates of returns, compensation increases, turnover rates, mortality table, and healthcare cost trend rates. We review the actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by U.S. generally accepted accounting principles, the effect of the modifications is generally recorded or amortized over future periods. We believe that the assumptions utilized in recording our obligations under the plans are reasonable based on advice from our actuaries and information as to assumptions used by other employers. See
Note R - Pension and Post-Retirement Benefits
.
Environmental Costs
Environmental costs, other than qualifying capital expenditures, are accrued at the time the exposure becomes known and costs can be reasonably estimated. Costs are accrued based upon management’s estimates of all direct costs, after taking into account expected reimbursement by third parties (primarily the sellers of acquired businesses) and are reviewed by outside consultants. Environmental costs are charged to expense unless a settlement with an indemnifying party has been reached.
Self-Insurance
We are self-insured for various levels of employee health insurance coverage, workers’ compensation and third-party product liability claims alleging occupational disease. We purchase insurance coverage for claim amounts which exceed our self-insured retentions. Depending on the type of insurance, these self-insured retentions range from
$0.1 million
to
$0.5 million
per occurrence. Our insurance reserves are accrued based on estimates of the ultimate cost of claims expected to occur during the covered period. Our insurance reserves are accrued based on estimates of the ultimate cost of claims expected to occur during the covered period. These estimates are prepared with the assistance of outside actuaries and consultants. Our actuaries periodically review the volume and amount of claims activity, and based upon their findings, we adjust our insurance reserves accordingly. The ultimate cost of claims for a covered period may differ from our original estimates. The current portion of our self-insurance reserves is included in accrued liabilities and the non-current portion is included in other long-term obligations in our Balance Sheets. As of
December 31, 2018
and
2017
, our self-insurance reserves totaled
$5.4 million
and
$5.5 million
, respectively, of which
$2.6 million
and
$1.7 million
, respectively, was classified as current.
Research and Development Costs
We may incur immaterial internal research and development (“R&D”) expenditures, and research and development conducted for others, all of which are expensed as incurred, and included in selling, general and administrative expense. R&D costs may include, but are not limited to, research and administrative salaries, contractor fees, building costs, utilities, administrative expenses, and allocations of corporate costs.
Advertising Costs
We recognize advertising expense when incurred as selling, general and administrative expense.
Equity-based Compensation
We grant stock options, restricted stock, restricted stock units and performance share units to certain of our employees and directors under the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. We recognize the cost of employee services rendered in exchange for awards of equity instruments.
Vesting of restricted stock and restricted stock units is based on the individual continuing to render service over a pre-defined vesting schedule, generally
three
years. Cash dividend equivalents are accrued and paid to the holders of time-based restricted stock units and restricted stock. The fair value of the restricted stock awards is equal to the market price of our stock at date of grant. The restricted award-related compensation expense is recognized, on a straight-line basis, over the vesting period.
We grant performance share units to certain employees in which the number of shares of common stock ultimately received is determined based on achievement of certain performance thresholds over a specified performance period (generally
three
years) in accordance with the stock award agreement. Cash dividend equivalents are not accrued or paid on performance share units. We recognize expense based on the estimated vesting of our performance share units granted and the grant date market price. The estimated vesting of the performance share units is principally based on the probability of achieving certain financial performance levels during the vesting periods. In the period it becomes probable that the minimum performance criteria specified in the award agreement will be achieved, we recognize expense for the proportionate share of the total fair value of the award related to the vesting period that has already lapsed. The remaining fair value of the award is expensed on a straight-line basis over the remaining vesting period.
We grant certain employees performance share units, the vesting of which is based on the Company’s total shareholder return (“TSR”) ranking among a peer group over a
three
-year period. The number of units that will vest will depend on the percentage ranking of the Company's TSR compared to the TSRs for each of the companies in the peer group over the performance period. For these awards subject to market conditions, a binomial-lattice model (i.e., Monte Carlo simulation model) is used to fair value these awards at grant date. The related compensation expense is recognized, on a straight-line basis, over the vesting period.
We grant stock options to certain employees and directors. Stock options vest on a vesting schedule and the related compensation expense is recognized over the vesting period, usually over
3
or
4
years. In calculating the compensation expense for stock options granted, we estimate the fair value of each grant using the Black-Scholes option-pricing model.
The fair value of stock options granted is based on the exercise price of the option and certain assumptions, which are evaluated and revised, as necessary, to reflect market conditions and experience. Our expected forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled on an annual basis before becoming fully vested. Our expected term is the period of time over which the options are expected to remain outstanding. An increase in the expected term will increase compensation expense. The computation of the expected term is based on the simplified method, under which the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term. The assumptions for expected volatility are based on historical experience for the same periods as our expected lives. Risk-free interest rates are set using grant-date U.S. Treasury yield curves for the same periods as our expected lives. The expected dividend yield is based on our future dividend expectations for the same periods as our expected lives. See
Note P - Equity-based Compensation
.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, (1) bonus depreciation that will allow for full expensing of qualified property; (2) reduction of the U.S. federal corporate tax rate; (3) elimination of the corporate alternative minimum tax; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; and (7) limitations on net operating losses generated after December 31, 2017, to 80 percent of taxable income.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed the accounting for the tax effects of the Tax Act. In August 2018, the Internal Revenue Service released Tax Act guidance on limitations on executive compensation which clarified transition rules for certain compensation agreements in existence on November 2, 2017. Based on the issued guidance, we recorded a discrete tax expense of
$0.7 million
to remove deferred tax assets on certain executive compensation agreements that were not eligible for transition relief.
The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we were required to adjust deferred tax assets and liabilities as of December 22, 2017. Accordingly, for the year ended December 31, 2017, we recorded a decrease
related to deferred tax assets and liabilities of
$45.0 million
and
$80.8 million
, respectively, with a corresponding net adjustment to deferred income tax benefit of
$35.8 million
.
Under the Tax Act, net operating loss (NOL) deductions arising in tax years beginning after December 31, 2017 can only offset up to 80 percent of future taxable income. The Act also prohibits NOL carrybacks, but allows indefinite carryforwards for NOLs arising in tax years beginning after December 31, 2017. Net operating losses arising before January 1, 2018 are accounted for under the previous tax rules that imposed no limit on the amount of the taxable income that can be set off using NOLs and that can be carried back 2 years and carried forward 20 years.
The Tax Act repeals the corporate alternative minimum tax (AMT), effective for tax years beginning after December 31, 2017, but allows an entity to claim portions of any unused AMT credits over the next four years to offset its regular tax liability. An entity with unused AMT credits as of December 31, 2017 can first use these credits to offset its regular tax for 2017 and can then claim up to 50 percent of the remaining AMT credits in 2018, 2019, and 2020, with all remaining AMT credits refundable in 2021.
Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We recognize a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
The largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes. See
Note T - Income Taxes
.
Financial Instruments
We currently use interest rate hedge agreements to manage interest costs and the risk associated with changing interest rates. Amounts to be paid or received under these hedge agreements are accrued as interest rates change and are recognized over the life of the hedge agreements as an adjustment to interest expense. Our policy is to not hold or issue derivative financial instruments for trading or speculative purposes. When entered into, these financial instruments are designated as hedges of underlying exposures, associated with our long-term debt, and are monitored to determine if they remain effective hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income (loss), net of tax, and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in income. See
Note O - Derivative Instruments
.
Foreign Currency Translation
For our operations in countries where the functional currency is other than the U.S. dollar, balance sheet amounts are translated using the exchange rate in effect at the balance sheet date. Income statement amounts are translated monthly using the average exchange rate for the respective month. The gains and losses resulting from the changes in exchange rates from year-to-year are recorded as a component of accumulated other comprehensive income or loss as currency translation adjustments, net of tax. Any gains or losses on transactions in currencies other than the functional currency are included in other income (expense), net, including interest income. For the year ended
December 31, 2018
, other income (expense), net, including interest income, includes a net realized foreign currency transaction loss of
$0.6 million
.
Comprehensive Income (loss)
In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as adjustments to minimum pension liabilities and the effective portion of changes in fair value of derivative instruments that qualify as cash flow hedges.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets and any assumed liabilities, are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. See
Note E - Business Combinations
.
New Accounting Pronouncements Recently Adopted
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes previous revenue recognition guidance. The new guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance, the FASB has issued additional ASUs, amending the guidance and the effective dates of amendments, and the SEC has rescinded certain related SEC guidance.
On January 1, 2018, we adopted the new accounting standard and all of the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. Adoption of the new revenue standard did not result in a material cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the new revenue standard will not have material impact to our net income on an ongoing basis. See
Note U - Revenue
.
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 early adopted this standard on a prospective basis in the fourth quarter of 2018 for our annual impairment test. We performed a quantitative assessment by comparing the fair value of our reporting units with their carrying amount and determined that the goodwill of our Oil & Gas Sand reporting unit was impaired. We recognized a goodwill impairment charge of
$164.2 million
during the fourth quarter of 2018. See
Note I - Goodwill and Intangible Assets
.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit. The update required companies to include the service cost component of net periodic benefit costs in the same line item or items as compensation costs arising from services rendered by the associated employees during the period. The update disallowed capitalization of the other components of net periodic benefit costs and required those costs to be presented in the income statement separately from the service cost component and outside of a subtotal of income from operations. The update was effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for public business entities. Companies were required to retrospectively apply the requirement for a separate presentation in the income statement of service costs and other components of net benefit cost and prospectively adopt the requirement to limit the capitalization of benefit costs to the service component. Application of a practical expedient was allowed permitting an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.
We implemented the update on January 1, 2018 and utilized the practical expedient to estimate the impact on the prior comparative period information presented in the interim and annual financial statements. We previously capitalized all net periodic benefit costs incurred for plant personnel in inventory and recorded the majority of net periodic benefit costs incurred by corporate personnel and retirees into selling, general, and administrative expenses.
The following is a reconciliation of the effect of the reclassification (in thousands) of the net benefit cost in the Company’s Income Statements for the years ended
December 31, 2017
and
2016
. In addition, the table reflects the effect of the reclassification between product sales and services sales to conform to the current year's presentation for the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
As Previously Reported
|
|
Services Reclassifications
|
|
ASU 2017-07 Adjustments
|
|
As Revised
|
Product Sales
|
$
|
1,057,553
|
|
|
$
|
(47,159
|
)
|
|
$
|
—
|
|
|
$
|
1,010,394
|
|
Service Sales
|
183,298
|
|
|
47,159
|
|
|
—
|
|
|
230,457
|
|
Total sales
|
1,240,851
|
|
|
—
|
|
|
—
|
|
|
1,240,851
|
|
Product cost of sales
|
720,312
|
|
|
(5,096
|
)
|
|
(695
|
)
|
|
714,521
|
|
Service cost of sales
|
147,203
|
|
|
5,096
|
|
|
—
|
|
|
152,299
|
|
Total cost of sales (excluding depreciation, depletion and amortization)
|
867,515
|
|
|
—
|
|
|
(695
|
)
|
|
866,820
|
|
Selling, general and administrative expenses
|
107,592
|
|
|
—
|
|
|
(536
|
)
|
|
107,056
|
|
Operating income
|
168,511
|
|
|
—
|
|
|
1,231
|
|
|
169,742
|
|
Other income (expense)
|
(643
|
)
|
|
—
|
|
|
(1,231
|
)
|
|
(1,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
As Previously Reported
|
|
Services Reclassifications
|
|
ASU 2017-07 Adjustments
|
|
As Revised
|
Product Sales
|
$
|
523,900
|
|
|
$
|
237
|
|
|
$
|
—
|
|
|
$
|
524,137
|
|
Service Sales
|
35,725
|
|
|
(237
|
)
|
|
—
|
|
|
35,488
|
|
Total sales
|
559,625
|
|
|
—
|
|
|
—
|
|
|
559,625
|
|
Product cost of sales
|
455,189
|
|
|
2,079
|
|
|
(485
|
)
|
|
456,783
|
|
Service cost of sales
|
22,106
|
|
|
(2,079
|
)
|
|
—
|
|
|
20,027
|
|
Total cost of sales (excluding depreciation, depletion and amortization)
|
477,295
|
|
|
—
|
|
|
(485
|
)
|
|
476,810
|
|
Selling, general and administrative expenses
|
67,727
|
|
|
—
|
|
|
(555
|
)
|
|
67,172
|
|
Operating income
|
(53,531
|
)
|
|
—
|
|
|
1,040
|
|
|
(52,491
|
)
|
Other income (expense)
|
3,758
|
|
|
—
|
|
|
(1,040
|
)
|
|
2,718
|
|
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit the use of the Overnight Index Swap ("OIS") rate based on the Secured Overnight Financing Rate ("SOFR") as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. government ("UST"), the London Interbank Offered Rate ("LIBOR") swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association ("SIFMA") Municipal Swap Rate. For public entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of this ASU. We early adopted this standard with no impact to our consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued ASU 2018-11 Leases (Topic 842): Targeted Improvements. The new standard(s) established a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a corresponding lease liability on the balance sheet for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether the lease risks and rewards, as well as substantive control, have been transferred through a lease contract. 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, and early adoption is permitted. The new transition method allows companies to use the effective date of the new lease standard as the date of initial application on transition. We established a project team in order to analyze the standard and have reviewed our current accounting policies and procedures to identify potential differences and changes which would result from applying the requirements of the new standard to our lease contracts. We selected a lease software to help us account for the new lease standard. We identified our population of lease agreements and assessed the impact of other arrangements for embedded leases. Using the modified retrospective approach, we evaluated the effect of the standard and expect to recognize right-of-use assets
of
$223.0 million
and lease liabilities of
$222.7 million
as of January 1, 2019, and determined that the standard will not have a material impact on our consolidated statements of operations or cash flows.
In February 2018, the FASB issued Accounting Standards Update ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The ASU is effective January 1, 2019, with early adoption permitted. We are currently evaluating the effect that the transition guidance will have on our financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The update is effective for calendar-year public business entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods in 2022. Early adoption is permitted. We are currently evaluating the effect that the guidance will have on our financial statements and related disclosures.
In October 2018, FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU is intended to reduce the cost and complexity of financial reporting associated with consolidation of VIEs. This ASU affects organizations that are required to determine whether they should consolidate a legal entity under the guidance within Subtopic 810-10, Consolidation. The update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the adoption of this standard and the impact to our consolidated financial statements.
In November 2018, the FASB issued 2018-18, Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606. The amendments in this ASU provide clarification and guidance on whether certain transactions between collaborative arrangement participants should be accounting for with revenue under Topic 606 (Revenue from Contracts with Customers). The amendments provide narrow scope improvements for lessors. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. We are currently evaluating the adoption of this standard and the impact to our consolidated financial statements.
In November 2018, FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The amendments in this ASU clarified issues related to Topic 326. In Issue 1, the amendment in this ASU mitigate transition complexity by requiring that for nonpublic business entities the amendments in ASU 2016-13 are effective for fiscal years after December 15, 2021, including interim periods within those fiscal years. In Issue 2, the amendment clarifies that receivable arising from operating leases are not within the scope of Subtopic 326-20. Impairment of receivables arising from operating leases should be accounting for in accordance with Topic 842, Leases. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. We are currently evaluating the adoption of this standard and the impact to our consolidated financial statements.
NOTE C—EARNINGS PER SHARE
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed similarly to basic earnings per common share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
The following table shows the computation of basic and diluted earnings per share for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to U.S. Silica Holdings, Inc.
|
|
$
|
(200,808
|
)
|
|
$
|
145,206
|
|
|
$
|
(41,056
|
)
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
76,453
|
|
|
81,051
|
|
|
65,037
|
|
Diluted effect of stock awards
|
|
—
|
|
|
909
|
|
|
—
|
|
Weighted average shares outstanding assuming dilution
|
|
76,453
|
|
|
81,960
|
|
|
65,037
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to U.S. Silica Holdings, Inc.:
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(2.63
|
)
|
|
$
|
1.79
|
|
|
$
|
(0.63
|
)
|
Diluted earnings (loss) per share
|
|
$
|
(2.63
|
)
|
|
$
|
1.77
|
|
|
$
|
(0.63
|
)
|
Potentially dilutive shares of
443
and
732
for the year ended
December 31, 2018
and 2016, respectively, were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share because we were in a loss position. Certain stock options, restricted stock awards and performance share units were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. Stock awards (in thousands) excluded from the calculation of diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Stock options excluded
|
|
574
|
|
|
195
|
|
|
573
|
|
Restricted stock and performance share units awards excluded
|
|
155
|
|
|
305
|
|
|
166
|
|
NOTE D—CAPITAL STRUCTURE AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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
81,811,977
shares issued and
73,148,853
shares outstanding at
December 31, 2018
. There were
81,267,205
shares issued and
80,524,255
shares outstanding at
December 31, 2017
.
During the year ended
December 31, 2018
, our Board of Directors declared quarterly cash dividends as follows:
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
Declaration Date
|
|
Record Date
|
|
Payable Date
|
$
|
0.0625
|
|
|
February 16, 2018
|
|
March 15, 2018
|
|
April 5, 2018
|
$
|
0.0625
|
|
|
May 14, 2018
|
|
June 15, 2018
|
|
July 6, 2018
|
$
|
0.0625
|
|
|
July 16, 2018
|
|
September 14, 2018
|
|
October 3, 2018
|
$
|
0.0625
|
|
|
November 13, 2018
|
|
December 14, 2018
|
|
January 4, 2019
|
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 and 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
December 31, 2018
or
December 31, 2017
. At present, we have
no
plans to issue any preferred stock.
Share Repurchase Program
We are authorized by our Board of Directors to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions. 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.
In May 2018, our Board of Directors authorized the repurchase of up to
$200 million
of our common stock. As of
December 31, 2018
, we have repurchased a total of
5,036,139
shares of our common stock at an average price of
$14.59
and have
$126.5 million
of remaining availability under this program.
In October 2017, our Board of Directors authorized us to repurchase up to
$100 million
of our common stock by December 11, 2018. As of March 31, 2018, we had repurchased a total of
3,555,104
shares of our common stock at an average price of
$28.13
, and fully utilized our shares authorized to be repurchased at such time.
Our Board of Directors previously had authorized the repurchase of up to
$50.0 million
of our common stock. This program expired on December 11, 2017. We repurchased a total of
706,093
shares of our common stock at an average price of
$23.83
under this program.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of fair value adjustments associated with cash flow hedges, accumulated adjustments for net experience losses and prior service cost related to employee benefit plans and foreign currency translation adjustments, net of tax. The following table presents the changes in accumulated other comprehensive loss by component (in thousands) during the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
Unrealized gain/(loss) on cash flow hedges
|
|
Foreign currency translation adjustments
|
|
Pension and other post-retirement benefits liability
|
|
Total
|
Beginning Balance
|
$
|
(76
|
)
|
|
$
|
(6
|
)
|
|
$
|
(13,844
|
)
|
|
$
|
(13,926
|
)
|
Other comprehensive gain (loss) before reclassifications
|
(1,622
|
)
|
|
(614
|
)
|
|
(879
|
)
|
|
(3,115
|
)
|
Amounts reclassed from accumulated other comprehensive loss
|
77
|
|
|
—
|
|
|
1,944
|
|
|
2,021
|
|
Ending Balance
|
$
|
(1,621
|
)
|
|
$
|
(620
|
)
|
|
$
|
(12,779
|
)
|
|
$
|
(15,020
|
)
|
Amounts reclassified from accumulated other comprehensive loss related to cash flow hedges are included in interest expense in our Income Statements and amounts reclassified related to pension and other post-retirement benefits are included in the computation of net periodic benefit costs at their pre-tax amounts.
NOTE E—BUSINESS COMBINATIONS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired.
Trade Names
A trade name is a legally protected trade or similar mark. Acquired trade names are valued using an income method approach, generally the relief-from-royalty valuation method. The method uses a royalty rate based on comparable marketplace royalty agreements for similar types of trade names and applies it to the after-tax discounted free cash flow attributed to the trade name. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.
The valued trade names have an indefinite life based on our plans and expectations for the trade names going forward and is reviewed for impairment under ASC 360-10.
Intellectual Property and Technology
Intellectual property and technology (“IP”) is a design, work or invention that is the result of creativity to which one has ownership rights that may be protected through a patent, copyright, trademark or service mark. IP is valued using the relief from royalty valuation method. The method uses a royalty rate based on comparable market-place royalty agreements for similar types of IP and applies it to the after-tax discounted free cash flow attributed to the IP. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.
The IP is amortized following the pattern in which the expected benefits will be consumed or otherwise used up over each component’s useful life, based on our plans and expectations for the IP going forward, which is generally the underlying IP’s legal expiration dates. IP is reviewed for impairment under ASC 360-10.
Customer Relationships
Customer relationships are intangible assets that consist of historical and factual information about customers and contacts collected from repeat transactions with customers, with or without any underlying contracts. The information is generally organized as customer lists or customer databases. We have the expectation of repeat patronage from these customers based on the customers’ historical purchase activity, which creates the intrinsic value over a finite period of time and translates into the expectation of future revenue, income, and cash flow.
Customer relationships are valued using projected operating income, adjusted for estimated future existing customer growth less estimated future customer attrition, net of charges for net tangible assets, IP charge, trade name charge and work force. The concluded value is the after-tax discounted free cash flow. Customer relationships are reviewed for impairment under ASC 360-10.
2018 Acquisition:
On May 1, 2018, we completed the acquisition of all of the outstanding capital stock of EP Acquisition Parent, Inc., a Delaware corporation (“EPAP”), and the ultimate parent of EP Minerals, LLC ("EPM"). Contemporaneous with the merger, EPAP was renamed EP Minerals Holdings, Inc. ("EPMH"). The consideration paid consisted of
$743.2 million
of cash, net of cash acquired of
$19.1 million
, including
$0.5 million
of post-closing adjustments. EPM is a global producer of engineered materials derived from industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite. EPM's industrial minerals are used as filter aids, absorbents and functional additives for a variety of industries including food and beverage, biofuels, recreational water, oil and gas, farm and home, landscape, sports turf, paint, plastics, and insecticides. The acquisition of EPM increased our industrial materials product offering in our Industrial & Specialty Products business segment.
We have accounted for the acquisition of EPMH under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Estimates of fair value included in the Consolidated Financial Statements represent our best estimates and valuations. In accordance with the acquisition method of accounting, the allocation of consideration value is subject to adjustment until we complete our analysis, within a period of time not to exceed one year after the date of acquisition, or May 1, 2019, in order to provide us with the time to complete the valuation of its assets and liabilities. We are still completing our analysis of the fair value of property, plant and mine development, mineral rights and intangible assets.
The following table sets forth the preliminary allocation of the purchase price to EPMH's identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Preliminary allocation of purchase price:
|
Estimate as of May 1, 2018
|
Measurement Period Adjustments
|
Purchase Price Allocation
|
Accounts receivable, net
|
$
|
43,354
|
|
$
|
(49
|
)
|
$
|
43,305
|
|
Inventories
|
84,395
|
|
1,717
|
|
86,112
|
|
Property, plant and mine development
|
123,086
|
|
25,409
|
|
148,495
|
|
Mineral rights
|
462,050
|
|
(42,581
|
)
|
419,469
|
|
Identifiable intangible assets - finite lived
|
21,050
|
|
(10,780
|
)
|
10,270
|
|
Identifiable intangible assets - indefinite lived
|
25,050
|
|
13,000
|
|
38,050
|
|
Prepaids and deposits
|
2,054
|
|
18
|
|
2,072
|
|
Other assets
|
4,088
|
|
3,386
|
|
7,474
|
|
Goodwill
|
139,787
|
|
10,841
|
|
150,628
|
|
Total assets acquired
|
904,914
|
|
961
|
|
905,875
|
|
Accounts payable
|
13,435
|
|
—
|
|
13,435
|
|
Accrued expenses and other current liabilities
|
8,255
|
|
2,049
|
|
10,304
|
|
Deferred tax liabilities
|
130,209
|
|
(7,398
|
)
|
122,811
|
|
Long term obligations
|
9,766
|
|
6,310
|
|
16,076
|
|
Total liabilities assumed
|
$
|
161,665
|
|
$
|
961
|
|
$
|
162,626
|
|
Net assets acquired
|
$
|
743,249
|
|
$
|
—
|
|
$
|
743,249
|
|
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
|
Approximate Fair Value
|
|
Estimated Useful Life
|
|
(in thousands)
|
|
(in years)
|
Technology and intellectual property
|
$
|
2,900
|
|
|
15
|
Customer relationships
|
7,370
|
|
|
15
|
Total identifiable intangible assets - finite lived
|
$
|
10,270
|
|
|
|
|
|
|
|
Trade names
|
$
|
38,050
|
|
|
|
Total identifiable intangible assets - indefinite lived
|
$
|
38,050
|
|
|
|
Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired. Goodwill in this transaction is attributable to planned growth in our industrial materials product offering in our Industrial & Specialty Products business segment. Intangibles and goodwill are not expected to be deductible for tax purposes.
Our Income Statement included revenue of
$158.8 million
and a net loss of
$0.6 million
for the year ended
December 31, 2018
, associated with EPMH following the date of acquisition. We incurred
$13.6 million
of acquisition-related charges, excluding debt issuance costs, for the year ended
December 31, 2018
, which are included in selling, general and administrative expenses on our Income Statement.
The acquisition of EPMH was accounted for using the acquisition method of accounting. The purchase price and purchase price allocation are subject to customary post-closing adjustments and changes in the fair value of assets and liabilities. The above estimated fair values of net assets acquired are based on the information that was available as of the reporting date. We believe that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for measurement period adjustments exists based on our continuing review of matters related to the acquisition. As a result, our final purchase price allocation may be significantly different than reflected above. We expect to complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.
Unaudited Pro Forma Results
The results of EPMH's operations have been included in the Consolidated Financial Statements subsequent to the acquisition date. EPMH's fiscal year end was November 30 and the Company's fiscal year end was December 31. Under SEC regulations, if a target's fiscal year end varies by more than 93 days from the acquirer's fiscal year end, it is required to adjust interim periods until it is within 93 days. Since EPMH’s fiscal year end was within 93 days of the Company's fiscal year end,
no adjustment is necessary and EPMH’s fiscal year end and interim period ends are used as if they coincided with the Company's fiscal year end and interim period end. The following unaudited pro forma consolidated financial information reflects the results of operations as if the EPMH acquisition had occurred on January 1, 2017, after giving effect to certain purchase accounting adjustments. Material non-recurring transaction costs attributable to the business combination were
$15.2 million
. Pro forma net income includes incremental interest expense due to the related debt financing, incremental depreciation and depletion expense related to the fair value adjustment of property, plant and mine development, amortization expense related to identifiable intangible assets, and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2018
|
|
2017
|
Sales
|
$
|
1,659,775
|
|
|
$
|
1,454,070
|
|
Net income (loss)
|
$
|
(179,220
|
)
|
|
$
|
116,899
|
|
Basic earnings (loss) per share
|
$
|
(2.34
|
)
|
|
$
|
1.44
|
|
Diluted earnings (loss) per share
|
$
|
(2.34
|
)
|
|
$
|
1.43
|
|
|
|
|
|
2017 Acquisitions:
White Armor Acquisition:
On April 1, 2017, we completed the acquisition of White Armor, a product line of cool roof granules used in industrial roofing applications, for cash consideration of
$18.6 million
. The final purchase price was allocated to goodwill of approximately
$3.9 million
, identifiable intangible assets of
$12.8 million
and other net assets of approximately
$1.9 million
.
Goodwill in this transaction is attributable to planned growth in our specialty industrial sand business segment. The goodwill amount is included in our Industrial & Specialty Products business segment. Identifiable definite lived intangibles, including customer relationships, and goodwill are expected to be deductible for tax purposes.
We incurred
$0.2 million
of acquisition-related charges which are included in selling, general and administrative expenses during the year ended December 31, 2017. Revenue and earnings for White Armor after the acquisition date are not presented as the business was integrated into our operations subsequent to the acquisition and therefore impracticable to quantify.
MS Sand Acquisition:
On August 16, 2017, we completed the acquisition of Mississippi Sand, LLC ("MS Sand"), a Missouri limited liability company, for cash consideration of approximately
$95.4 million
, net of cash acquired of
$2.2 million
. As is normal and customary, subsequent adjustments were made including
$(0.5) million
of net working capital adjustments plus an additional
$6.1 million
consideration paid related to a pre-existing contracted asset sale, which was entered into prior to our acquisition, for total cash consideration of
$101.0 million
. MS Sand is a frac sand mining and logistics company based in St. Louis, Missouri. The acquisition of MS Sand increased our regional frac sand product offering in our Oil & Gas Proppants business segment.
We have accounted for the acquisition of MS Sand under the acquisition method of accounting in accordance with ASC 805, Business Combinations, and have accounted for measurement period adjustments in accordance with ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. In accordance with the acquisition method of accounting, the allocation of consideration value was subject to adjustment until we completed our analysis in the third quarter of 2018.
The following table sets forth the final allocation of the purchase price to MS Sands' identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimate as of December 31, 2017
|
Measurement Period Adjustments
|
Purchase Price Allocation
|
Accounts receivable
|
$
|
11,201
|
|
$
|
—
|
|
$
|
11,201
|
|
Inventories
|
8,067
|
|
—
|
|
8,067
|
|
Other current assets
|
362
|
|
—
|
|
362
|
|
Assets held for sale
|
9,453
|
|
—
|
|
9,453
|
|
Property, plant and mine development
|
27,458
|
|
—
|
|
27,458
|
|
Mineral rights
|
26,300
|
|
(2,800
|
)
|
23,500
|
|
Other non-current assets
|
1,136
|
|
—
|
|
1,136
|
|
Goodwill
|
22,522
|
|
2,800
|
|
25,322
|
|
Customer relationships
|
1,840
|
|
—
|
|
1,840
|
|
Total assets acquired
|
108,339
|
|
—
|
|
108,339
|
|
Accounts payable and accrued expenses
|
3,761
|
|
—
|
|
3,761
|
|
Unfavorable leasehold positions
|
2,237
|
|
—
|
|
2,237
|
|
Notes Payable
|
866
|
|
—
|
|
866
|
|
Other long term liabilities
|
—
|
|
—
|
|
—
|
|
Asset retirement obligations
|
474
|
|
—
|
|
474
|
|
Total liabilities assumed
|
7,338
|
|
—
|
|
7,338
|
|
Net assets acquired
|
$
|
101,001
|
|
$
|
—
|
|
$
|
101,001
|
|
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
Approximate Fair Value
|
Estimated Useful Life
|
|
(in thousands)
|
(in years)
|
Customer relationships
|
$
|
1,840
|
|
15
|
Goodwill in this transaction is attributable to planned growth in our regional frac sand product offering in our Oil & Gas Proppants business segment. The goodwill amount is included in our Oil & Gas Proppants business segment. Identifiable definite lived intangibles, including customer relationships, and goodwill are expected to be deductible for tax purposes.
We incurred
$1.0 million
of acquisition-related charges which are included in selling, general and administrative expenses. Revenue and earnings for MS Sand after the acquisition date are not presented as the business was integrated into our operations subsequent to the acquisition and therefore impracticable to quantify.
Unaudited Pro Forma Results
The results of MS Sand’s operations have been included in the Consolidated Financial Statements subsequent to the acquisition dates. The following unaudited pro forma consolidated financial information reflects the results of operations as if the MS Sand Acquisition had occurred on January 1, 2016, after giving effect to certain purchase accounting adjustments. These adjustments mainly include incremental depreciation expense related to the fair value adjustment of property, plant, equipment and mine development, amortization expense related to identifiable intangible assets and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2017
|
|
2016
|
Sales
|
$
|
1,287,202
|
|
|
$
|
642,951
|
|
Net income (loss)
|
$
|
143,604
|
|
|
$
|
(55,835
|
)
|
Basic earnings (loss) per share
|
$
|
1.77
|
|
|
$
|
(0.86
|
)
|
Diluted earnings (loss) per share
|
$
|
1.75
|
|
|
$
|
(0.86
|
)
|
2016 Acquisitions:
NBI Acquisition:
On August 16, 2016, we completed the acquisition of New Birmingham, Inc. (“NBI”), the ultimate parent company of NBR Sand, LLC (“NBR”), by acquiring all of the outstanding capital stock of NBI through the merger of New Birmingham Merger Corp., a Nevada corporation and wholly owned subsidiary of the Company, with and into NBI, followed immediately by the merger of NBI with and into NBI Merger Subsidiary II, Inc., a Delaware corporation and wholly owned subsidiary of the Company, which subsequently changed its name to Tyler Silica Company (the “NBI Acquisition”). NBR is a regional sand producer located near Tyler, Texas. The acquisition of NBI increased our regional frac sand product offering in our Oil & Gas Proppants business segment.
The consideration paid to the stockholders of NBI at the closing of the NBI Acquisition was approximately
$213.7 million
, consisting of
$107.2 million
in cash (net of
$9.0 million
cash acquired) and
2,630,513
shares of common stock valued at
$106.6 million
.
We have accounted for the acquisition of NBI under the acquisition method of accounting in accordance with ASC 805, Business Combinations, and have accounted for measurement period adjustments in accordance with ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. In accordance with the acquisition method of accounting, the allocation of consideration value was subject to adjustment until we completed our analysis in the third quarter of 2017
The following table sets forth the final allocation of the purchase price to NBI’s identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Initial Estimate
|
Measurement Period Adjustments
|
Purchase Price Allocation
|
Accounts receivable
|
$
|
2,680
|
|
$
|
—
|
|
$
|
2,680
|
|
Inventories
|
3,494
|
|
—
|
|
3,494
|
|
Other current assets
|
428
|
|
—
|
|
428
|
|
Income tax deposits
|
6,657
|
|
(217
|
)
|
6,440
|
|
Property, plant and mine development
|
210,913
|
|
(4,281
|
)
|
206,632
|
|
Identifiable intangible assets
|
1,600
|
|
—
|
|
1,600
|
|
Goodwill
|
86,228
|
|
4,670
|
|
90,898
|
|
Total assets acquired
|
312,000
|
|
172
|
|
312,172
|
|
Accounts payable, accrued expenses and other current liabilities
|
1,938
|
|
726
|
|
2,664
|
|
Deferred revenue
|
500
|
|
—
|
|
500
|
|
Notes payable
|
24,361
|
|
243
|
|
24,604
|
|
Capital lease liabilities
|
3,331
|
|
—
|
|
3,331
|
|
Asset retirement obligations
|
710
|
|
—
|
|
710
|
|
Deferred tax liabilities
|
67,435
|
|
(797
|
)
|
66,638
|
|
Total liabilities assumed
|
98,275
|
|
172
|
|
98,447
|
|
Net assets acquired
|
$
|
213,725
|
|
$
|
—
|
|
$
|
213,725
|
|
In addition to the changes in the balances reflected above, we recorded an adjustment to depreciation expense of
$(0.6) million
during the year ended December 31, 2017.
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
Approximate Fair Value
|
Estimated Useful Life
|
|
(in thousands)
|
(in years)
|
Customer relationships
|
$
|
1,600
|
|
13
|
Goodwill in this transaction is attributable to planned growth in regional frac sand markets and synergies expected to be achieved from integrating the operations of our operating subsidiary, U.S. Silica Company (“U.S. Silica”), and NBI. The goodwill amount is included in our Oil & Gas Proppants business segment. Both customer relationships and goodwill are not expected to be deductible for tax purposes.
We incurred
$1.4 million
of acquisition-related charges which are included in selling, general and administrative expenses during the year ended December 31, 2016. Additionally, we incurred
$1.7 million
related to the inventory write-up values in cost of goods sold during the year ended December 31, 2016.
Revenue and earnings for NBR after the acquisition date are not presented as the business was integrated into our operations subsequent to the acquisition and therefore impracticable to quantify.
Sandbox Acquisition:
On August 22, 2016, we completed the purchase of all of the outstanding units of membership interest of Sandbox Enterprises, LLC, a Texas limited liability company ("Sandbox" or the “Sandbox Acquisition”). Sandbox earns revenues from providing “last mile” transportation services to companies in the oil and gas industry. Sandbox has operations in Texas (Midland/Odessa, Kenedy, Dallas/Fort Worth, Tyler); Morgantown, West Virginia; western North Dakota; northeast of Denver, Colorado; Oklahoma City, Oklahoma; Cambridge, Ohio and Mansfield, Pennsylvania, where its major customers are located.
The consideration paid to the unit-holders was approximately
$241.1 million
, consisting of
$69.5 million
in cash (net of
$1.3 million
cash acquired) and
4,195,180
shares of our common stock valued at
$171.7 million
.
The following table sets forth the allocation of the purchase price to Sandbox’s identifiable tangible and intangible assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Allocation of Purchase price:
|
(in thousands)
|
Accounts receivable
|
$
|
13,392
|
|
Prepaid expenses and other
|
1,465
|
|
Property, plant and mine development
|
32,336
|
|
Identifiable intangible assets
|
120,144
|
|
Goodwill
|
86,100
|
|
Total assets acquired
|
253,437
|
|
Accounts payable
|
4,122
|
|
Deferred revenue
|
4,902
|
|
Accrued expenses and other current liabilities
|
3,292
|
|
Total liabilities assumed
|
12,316
|
|
Net assets acquired
|
$
|
241,121
|
|
The acquired intangible assets and the related estimated useful lives consist of the following:
|
|
|
|
|
|
|
Approximate Fair Value
|
Estimated Useful Life
|
|
(in thousands)
|
(in years)
|
Indefinite lived intangible assets - Trade names
|
$
|
17,844
|
|
Indefinite
|
Definite lived intangible assets - Technology and intellectual property
|
57,700
|
|
15
|
Definite lived intangible asset - Customer relationships
|
44,600
|
|
13
|
Total fair value of identifiable intangible assets
|
$
|
120,144
|
|
|
Goodwill in this transaction is attributable to expected growth in frac sand demand at the wellhead and synergies expected to be achieved from integrating the operations of U.S. Silica and Sandbox. The goodwill amount is included in our Oil & Gas Proppants business segment. Goodwill and all intangible assets identified above are expected to be deductible for tax purposes.
Our 2016 Income Statement included revenue of
$31.0 million
associated with Sandbox following the date of acquisition. Sandbox's impact on our net loss was not significant for the year ended December 31, 2016. We incurred
$3.0 million
of acquisition-related charges which are included in selling, general and administrative expenses on the Income Statement for the year ended December 31, 2016.
The cost related to the issuance of the
6,825,693
shares of common stock to complete the
two
acquisitions totaled
$0.3 million
, which is included in additional paid-in capital on our Consolidated Statements of Stockholders' Equity for the year ended December 31, 2016.
Combined Unaudited Pro Forma Results
The results of NBI's and Sandbox’s operations have been included in the consolidated financial statements subsequent to the acquisition dates. The following unaudited pro forma consolidated financial information reflects the results of operations as if the NBI Acquisition and Sandbox Acquisition had occurred on January 1, 2015, after giving effect to certain purchase accounting adjustments. These adjustments mainly include incremental depreciation expense related to the fair value adjustment of property, plant, equipment and mine development, amortization expense related to identifiable intangible assets and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands, except per share amounts):
|
|
|
|
|
|
For the year ended December 31,
|
|
2016
|
Sales
|
$
|
615,552
|
|
Net income (loss)
|
$
|
(45,161
|
)
|
Basic earnings (loss) per share
|
$
|
(0.69
|
)
|
Diluted earnings (loss) per share
|
$
|
(0.69
|
)
|
NOTE F—ACCOUNTS RECEIVABLE
At
December 31, 2018
and
December 31, 2017
, accounts receivable (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Trade receivables
|
$
|
198,435
|
|
|
$
|
217,649
|
|
Less: Allowance for doubtful accounts
|
(6,751
|
)
|
|
(7,100
|
)
|
Net trade receivables
|
191,684
|
|
|
210,549
|
|
Other receivables
(1)
|
23,802
|
|
|
2,037
|
|
Total accounts receivable
|
$
|
215,486
|
|
|
$
|
212,586
|
|
|
|
|
|
|
|
|
(1
|
)
|
At December 31, 2018, other receivables include $16.0 million of refundable alternative minimum tax credits.
|
Changes in our allowance for doubtful accounts (in thousands) during the years ended
December 31, 2018
and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Beginning balance
|
$
|
7,100
|
|
|
$
|
7,042
|
|
Bad debt provision
|
315
|
|
|
1,529
|
|
Write-offs
|
(664
|
)
|
|
(1,471
|
)
|
Ending balance
|
$
|
6,751
|
|
|
$
|
7,100
|
|
Our ten largest customers accounted for approximately
48%
,
58%
and
52%
of total sales during the year ended
December 31, 2018
,
2017
and
2016
, respectively. Sales to one of our customers accounted for
15%
of our total sales during the year ended
December 31, 2018
. Sales to two of our customers accounted for
15%
and
12%
of our total sales during the year ended
December 31, 2017
. Sales to one of our customers accounted for
13%
of our total sales during the year ended
December 31, 2016
. No other customers accounted for 10% or more of our total sales. At
December 31, 2018
, one of our customers' accounts receivable represented
18%
of our total trade accounts receivable, net of allowance. At
December 31, 2017
, two of our customers' accounts receivable represented
19%
and
11%
of our total trade accounts receivable, net of allowance. No other customers accounted for 10% or more of our total trade accounts receivable.
NOTE G—INVENTORIES
At
December 31, 2018
and
December 31, 2017
, inventories (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Supplies
|
$
|
41,453
|
|
|
$
|
21,277
|
|
Raw materials and work in process
|
68,474
|
|
|
28,034
|
|
Finished goods
|
52,160
|
|
|
43,065
|
|
Total inventories
|
$
|
162,087
|
|
|
$
|
92,376
|
|
NOTE H—PROPERTY, PLANT AND MINE DEVELOPMENT
At
December 31, 2018
and
December 31, 2017
, property, plant and mine development (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Mining property and mine development
|
$
|
995,759
|
|
|
$
|
586,242
|
|
Asset retirement cost
|
12,732
|
|
|
14,184
|
|
Land
|
55,502
|
|
|
36,552
|
|
Land improvements
|
67,729
|
|
|
45,878
|
|
Buildings
|
64,515
|
|
|
56,330
|
|
Machinery and equipment
|
958,357
|
|
|
590,566
|
|
Furniture and fixtures
|
3,599
|
|
|
2,953
|
|
Construction-in-progress
|
167,933
|
|
|
189,970
|
|
|
2,326,126
|
|
|
1,522,675
|
|
Accumulated depletion, depreciation and amortization
|
(499,823
|
)
|
|
(353,520
|
)
|
Total property, plant and mine development, net
|
$
|
1,826,303
|
|
|
$
|
1,169,155
|
|
At
December 31, 2018
and
December 31, 2017
, the aggregate cost of machinery and equipment acquired under capital leases was
$0.5 million
and
$0.9 million
, respectively, reduced by accumulated depreciation of
$0.2 million
and
$0.2 million
, respectively. The amount of interest costs capitalized in property, plant and mine development was
$6.7 million
and
$1.6 million
for the year ended
December 31, 2018
and
2017
, respectively.
On March 21, 2018, we completed the sale of
three
transload facilities located in the Permian, Eagle Ford, and Marcellus Basins to CIG Logistics (“CIG”) for total consideration of
$86.1 million
, including the assumption by CIG of
$2.2 million
of Company obligations. Total cash consideration was
$83.9 million
. The consideration includes receipt of a vendor incentive from CIG to enter into master transloading service arrangements. Of the total consideration,
$25.8 million
was allocated to the fair value of the transload facilities, which had a net book value of
$20.0 million
and resulted in a gain on sale of
$5.8 million
. The consideration included a related asset retirement obligation of
$2.1 million
and an equipment note of
$0.1 million
assumed by CIG. In addition,
$60.3 million
of the consideration received in excess of the facilities' fair value was allocated to vendor incentives to be recognized as a reduction of costs using a service-level methodology over the contract lives of the transloading service arrangements. At
December 31, 2018
, vendor incentives of
$12.5 million
and
$33.8 million
were classified in accounts payable and accrued expenses and in other long-term obligations, respectively, on our balance sheet.
Separately, on March 21, 2018, we accrued
$7.9 million
in contract termination costs for facilities contracts operated by third-parties, which will not transfer to CIG. During the second quarter of 2018, as a result of the final settlement of these contracts, we recorded a
$2.7 million
credit in selling, general and administrative expenses on our Income Statement.
During the second quarter of 2018, we recorded a
$16.2 million
asset impairment related to the closure of our resin coating facility and associated product portfolio.
During the fourth quarter of 2018, we experienced a declining shift in demand for Northern White sand caused by some of our customers shifting to local in-basin frac sands with lower logistics costs. Our largest customer at our Voca, Texas plant did not renew their contract, instead opting to sign a new contract with us for local in-basin frac sand. Additionally, Northern White Sand operations and reserves in Fairchild, Wisconsin and Peru, Illinois experienced a similar significant fourth quarter decline in demand due to customers' shift to local in-basin sand closer to their operations. Due to the resulting decline in
demand for our Northern White sand, we recognized
$97.0 million
and
$4.5 million
in long-lived asset and intangible impairments in our Oil & Gas Proppants business segment.
NOTE I—GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill (in thousands) by business segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas Proppants Segment
|
|
Industrial & Specialty Products Segment
|
|
Total
|
|
|
|
|
|
|
Goodwill
|
$
|
47,947
|
|
|
$
|
20,700
|
|
|
$
|
68,647
|
|
Impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
Balance at January 1, 2016
|
$
|
47,947
|
|
|
$
|
20,700
|
|
|
$
|
68,647
|
|
|
|
|
|
|
|
NBI acquisition
|
86,228
|
|
|
—
|
|
|
86,228
|
|
Sandbox acquisition
|
86,100
|
|
|
—
|
|
|
86,100
|
|
|
|
|
|
|
|
Goodwill
|
220,275
|
|
|
20,700
|
|
|
240,975
|
|
Impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2016
|
220,275
|
|
|
20,700
|
|
|
240,975
|
|
|
|
|
|
|
|
White Armor acquisition
|
—
|
|
|
3,912
|
|
|
3,912
|
|
NBI acquisition measurement period adjustment
|
4,670
|
|
|
—
|
|
|
4,670
|
|
MS Sand acquisition
|
52,187
|
|
|
—
|
|
|
52,187
|
|
MS Sand acquisition measurement period adjustment
|
(29,665
|
)
|
|
—
|
|
|
(29,665
|
)
|
|
|
|
|
|
|
Goodwill
|
247,467
|
|
|
24,612
|
|
|
272,079
|
|
Impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2017
|
247,467
|
|
|
24,612
|
|
|
272,079
|
|
|
|
|
|
|
|
MS Sand acquisition measurement period adjustment
|
2,800
|
|
|
—
|
|
|
2,800
|
|
EPMH acquisition
|
—
|
|
|
139,787
|
|
|
139,787
|
|
EPMH acquisition measurement period adjustment
|
—
|
|
|
10,841
|
|
|
10,841
|
|
Oil & Gas Sand impairment
|
(164,167
|
)
|
|
—
|
|
|
(164,167
|
)
|
|
|
|
|
|
|
Goodwill
|
250,267
|
|
|
175,240
|
|
|
425,507
|
|
Impairment losses
|
(164,167
|
)
|
|
—
|
|
|
(164,167
|
)
|
Balance at December 31, 2018
|
$
|
86,100
|
|
|
$
|
175,240
|
|
|
$
|
261,340
|
|
Goodwill and trade names are evaluated for impairment annually as of October 31, or more frequently when indicators of impairment exist. We performed our annual impairment test by performing a qualitative assessment of goodwill. In performing this qualitative assessment, we evaluated events and circumstances since the date of our last qualitative assessment, including macroeconomic conditions, industry and market conditions, and our overall financial performance. After assessing the totality of the events and circumstances, we determined that it was not more likely than not that the fair value of our reporting units was less than their carrying amount and no impairment existed.
Subsequent to our annual impairment test, we experienced a declining shift in demand for Northern White sand caused by some of our customers shifting to local in-basin frac sands with lower logistics costs. Our largest customer at our Voca, Texas plant did not renew their contract, instead opting to sign a new contract with us for local in-basin frac sand. Additionally, Northern White Sand operations and reserves in Fairchild, Wisconsin and Peru, Illinois experienced a similar significant fourth quarter decline in demand due to customers' shift to local in-basin sand closer to their operations.
As a result of these triggering events, we performed a quantitative analysis and determined that the goodwill of our Oil & Gas Sand reporting unit was impaired. We recognized goodwill impairment charges of
$164.2 million
and intangible
impairment charges of
$4.5 million
during the fourth quarter of 2018. The fair value of our reporting units was determined using a combination of the discounted cash flow method and the market multiples approach.
The changes in the carrying amount of intangible assets (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Estimated Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and intellectual property
|
15
|
|
$
|
83,616
|
|
|
$
|
(11,168
|
)
|
|
$
|
72,448
|
|
|
$
|
70,703
|
|
|
$
|
(5,917
|
)
|
|
$
|
64,786
|
|
Customer relationships
|
13 - 15
|
|
68,379
|
|
|
(13,541
|
)
|
|
54,838
|
|
|
61,229
|
|
|
(9,076
|
)
|
|
52,153
|
|
Total definite-lived intangible assets:
|
|
|
$
|
151,995
|
|
|
$
|
(24,709
|
)
|
|
$
|
127,286
|
|
|
$
|
131,932
|
|
|
$
|
(14,993
|
)
|
|
$
|
116,939
|
|
Trade names
|
|
|
66,640
|
|
|
—
|
|
|
66,640
|
|
|
33,068
|
|
|
—
|
|
|
33,068
|
|
Other
|
|
|
700
|
|
|
—
|
|
|
700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total intangible assets:
|
|
|
$
|
219,335
|
|
|
$
|
(24,709
|
)
|
|
$
|
194,626
|
|
|
$
|
165,000
|
|
|
$
|
(14,993
|
)
|
|
$
|
150,007
|
|
Measurement period adjustments related to the Company's EPMH acquisition impacted the gross carrying amounts of the technology and intellectual property and customer relationship intangibles by
$0.9 million
and
$(11.7) million
, respectively, and the trade names by
$13.0 million
. See
Note E - Business Combinations
.
Amortization expense was
$9.7 million
,
$8.8 million
and
$3.2 million
for the year ended
December 31, 2018
,
2017
, and
2016
, respectively.
The estimated amortization expense related to definite-lived intangible assets (in thousands) for the five succeeding years is as follows:
|
|
|
|
|
2019
|
$
|
12,396
|
|
2020
|
12,397
|
|
2021
|
12,396
|
|
2022
|
12,381
|
|
2023
|
12,376
|
|
NOTE J—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At
December 31, 2018
and
2017
, accounts payable and accrued liabilities (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Trade payables
|
$
|
178,804
|
|
|
$
|
148,772
|
|
Accrued salaries and wages
|
12,291
|
|
|
6,126
|
|
Accrued vacation liability
|
3,503
|
|
|
2,906
|
|
Current portion of liability for pension and post-retirement benefits
|
2,708
|
|
|
1,524
|
|
Accrued healthcare liability
|
2,702
|
|
|
1,837
|
|
Accrued property taxes and sales taxes
|
4,490
|
|
|
2,720
|
|
Other accrued liabilities
|
11,902
|
|
|
7,156
|
|
Accounts payable and accrued liabilities
|
$
|
216,400
|
|
|
$
|
171,041
|
|
Other accrued liabilities consist of customer rebates, royalties payable, employer related expenses, dividends payable and other items.
NOTE K—DEBT
At
December 31, 2018
and
2017
, debt (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Senior secured credit facility:
|
|
|
|
Revolver expiring May 1, 2023 (8.50% at December 31, 2018 and 5.75% at December 31, 2017)
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan facility—final maturity May 1, 2025 (6.56% at December 31, 2018 and 4.75%-5.25% December 31, 2017)
|
1,270,400
|
|
|
489,075
|
|
Less: Unamortized original issue discount
|
(6,511
|
)
|
|
(944
|
)
|
Less: Unamortized debt issuance cost
|
(31,310
|
)
|
|
(3,099
|
)
|
Note payable secured by royalty interest
|
26,511
|
|
|
24,740
|
|
Customer note payable
|
—
|
|
|
745
|
|
Equipment notes payable
|
321
|
|
|
719
|
|
Capital leases
|
344
|
|
|
706
|
|
Total debt
|
1,259,755
|
|
|
511,942
|
|
Less: current portion
|
(13,327
|
)
|
|
(6,867
|
)
|
Total long-term portion of debt
|
$
|
1,246,428
|
|
|
$
|
505,075
|
|
Revolving Line-of-Credit
We have a
$100.0 million
Revolver with
zero
drawn and
$4.8 million
allocated for letters of credit as of
December 31, 2018
, leaving
$95.2 million
available under the Revolver.
Senior Secured Credit Facility
At
December 31, 2018
, contractual maturities of our senior secured Credit Facility (in thousands) are as follows:
|
|
|
|
|
2019
|
$
|
12,800
|
|
2020
|
12,800
|
|
2021
|
12,800
|
|
2022
|
12,800
|
|
2023
|
12,800
|
|
Thereafter
|
1,206,400
|
|
Total
|
$
|
1,270,400
|
|
On May 1, 2018, we entered into the Credit Agreement, which increases our existing senior debt by entering into a new
$1.380 billion
senior secured Credit Facility, consisting of a
$1.280 billion
Term Loan and a
$100 million
Revolver that may also be used for swingline loans or letters of credit, and we may elect to increase the term loan in accordance with the terms of the Credit Agreement. Borrowings under the Credit Agreement will bear interest at variable rates as determined at our election, at LIBOR or a base rate, in each case, plus an applicable margin. In addition, under the Credit Agreement, we are required to pay a per annum facility fee and fees for letters of credit. The Credit Agreement is secured by substantially all of our assets and of our domestic subsidiaries' assets and a pledge of the equity interests in such entities. The Term Loan matures on May 1, 2025, and the Revolver expires May 1, 2023. We capitalized
$38.7 million
in debt issuance costs and original issue discount as a result of the new Credit Agreement.
The Credit Facility contains covenants that, among other things, govern our ability, and certain of our subsidiaries' abilities, to create, incur or assume indebtedness and liens, to make acquisitions or investments, to sell assets and to pay dividends. The Credit Agreement also requires us to maintain a consolidated 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
30%
of the Revolver commitment. These covenants are subject to a number of important exceptions and qualifications. The Credit Agreement includes events of default and other affirmative and negative covenants that are usual for facilities and transactions of this type. As of
December 31, 2018
, and
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 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:
|
|
|
|
|
2019
|
$
|
1,750
|
|
2020
|
1,750
|
|
2021
|
1,750
|
|
2022
|
1,750
|
|
2023
|
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
December 31, 2018
, the note payable had a balance of
$26.5 million
. The increase in the note payable amount is due to interest paid-in-kind. The effective interest rate based on the updated projected future cash payments was
20%
at
December 31, 2018
.
NOTE L—DEFERRED REVENUE
We enter into certain customer supply agreements which give the customers the right to purchase certain products for a discounted price at certain volumes over an average initial contract term of
one
to
fifteen
years. The advance payments represent future purchases and are recorded as deferred revenue, recognized as revenue over the contract term of each supply agreement. During the year ended
December 31, 2018
we received advances of
$31.6 million
, including a customer's purchase of an interest in our sand reserves in Lamesa, Texas, which secured them a long-term supply of sand. At
December 31, 2018
and
2017
, the total deferred revenue balance was
$113.3 million
and
$118.4 million
, respectively, of which
$31.6 million
and
$36.1 million
was classified as current on our Balance Sheets.
NOTE M—ASSET RETIREMENT OBLIGATIONS
Mine reclamation 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
December 31, 2018
and
2017
, we had a liability of
$18.4 million
and
$19.0 million
, respectively, in other long-term obligations related to our asset retirement obligations. Changes in the asset retirement obligations (in thousands) during the years ended
December 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31, 2017
|
Beginning balance
|
$
|
19,032
|
|
|
$
|
11,159
|
|
Accretion
|
1,214
|
|
|
879
|
|
Additions and revisions of prior estimates
|
(319
|
)
|
|
6,994
|
|
Addition related to EPMH acquisition
|
2,733
|
|
|
—
|
|
EPMH measurement period adjustment
|
(2,131
|
)
|
|
—
|
|
Disposal related to sale of transloads
|
(2,116
|
)
|
|
—
|
|
Ending balance
|
$
|
18,413
|
|
|
$
|
19,032
|
|
During the year ended December 31, 2017, in connection with the annual review of our reclamation obligations, we determined that some of our estimates required revision due primarily to the additions of new plant and transload facilities and other changes in cost estimates and settlement dates at various sites. These additions and changes in estimates resulted in an additional
$7.0 million
of asset retirement obligations.
NOTE N—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
December 31, 2018
and
2017
, 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 instruments 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
December 31, 2018
, 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. See
Note O - Derivative Instruments
for more information.
NOTE O—DERIVATIVE INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
We enter into interest rate swap agreements in connection with our Term Loan facility to add stability to interest expense and to manage our exposure to interest rate movements. The derivative instruments are recorded on the balance sheet within other long-term assets or liabilities at their fair values. As of
December 31, 2018
, the fair value of our interest rate swaps was
$1.5 million
and
$0.7 million
and classified within other long-term obligations on our balance sheet, and the fair value of our interest rate cap was
zero
. At
December 31, 2017
, the fair value of our interest rate cap was
zero
. We have designated the interest rate swap agreements as qualified cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and recognized in earnings in the same period or periods during which the hedged transaction affects earnings.
The following table summarizes the fair value of our derivative instruments (in thousands, except contract/notional amount). See
Note N - Fair Value Accounting
for more information regarding the estimated fair values of our derivative instruments at
December 31, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Maturity
Date
|
|
Contract/Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
Maturity Date
|
|
Contract/Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
LIBOR
(1)
interest rate swap agreement
|
2020
|
|
|
$440
|
million
|
|
$
|
(1,475
|
)
|
|
$
|
(1,475
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LIBOR
(1)
interest rate swap agreement
|
2020
|
|
|
$200
|
million
|
|
$
|
(663
|
)
|
|
$
|
(663
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LIBOR
interest rate cap agreement
|
2019
|
|
|
$249
|
million
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
2019
|
|
|
|
$249
|
million
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
Agreements fix the LIBOR interest rate base to
2.74%
On May 1, 2018, as a result of entering into the new Credit Agreement, we determined the existing interest rate cap derivative no longer qualified for hedge accounting. During the year ended
December 31, 2018
we recognized
$76 thousand
of deferred losses in accumulated other comprehensive loss into earnings.
During the year ended
December 31, 2018
, we had
no
ineffectiveness for the interest rate swap derivatives.
The following table summarizes the effect of derivative instruments (in thousands) on our income statements and our consolidated statements of comprehensive income for the years ended
December 31, 2018
,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Deferred losses from derivatives in OCI, beginning of period
|
$
|
(76
|
)
|
|
$
|
(32
|
)
|
|
$
|
(81
|
)
|
Gain (loss) recognized in OCI from derivative instruments
|
(1,622
|
)
|
|
(45
|
)
|
|
(32
|
)
|
Loss reclassified from Accumulated OCI
|
77
|
|
|
1
|
|
|
81
|
|
Deferred losses from derivatives in OCI, end of period
|
$
|
(1,621
|
)
|
|
$
|
(76
|
)
|
|
$
|
(32
|
)
|
NOTE P—EQUITY-BASED COMPENSATION
In July 2011, we adopted the U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan (the “2011 Plan”), which was amended and restated in May 2015. The 2011 Plan provides for grants of stock options, restricted stock, performance share units and other incentive-based awards. We believe our 2011 Plan aligns the interests of our employees and directors with those of our common stockholders. At
December 31, 2018
, we have
3,447,363
shares of common stock that may be issued under the 2011 Plan. We use a combination of treasury stock and new shares if necessary to satisfy option exercises or vesting of restricted awards and performance share units.
Stock Options
The following table summarizes the status of, and changes in, our stock option awards during the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Weighted
Average
Remaining Contractual Term in Years
|
Outstanding at December 31, 2017
|
908,919
|
|
|
$
|
28.46
|
|
|
$
|
7,008
|
|
|
6.1 years
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Exercised
|
(4,167
|
)
|
|
14.65
|
|
|
—
|
|
|
|
Forfeited
|
(918
|
)
|
|
31.30
|
|
|
—
|
|
|
|
Expired
|
(1,838
|
)
|
|
$
|
31.30
|
|
|
$
|
—
|
|
|
|
Outstanding at December 31, 2018
|
901,996
|
|
|
$
|
28.52
|
|
|
$
|
18,566
|
|
|
4.8 years
|
Exercisable at December 31, 2018
|
901,996
|
|
|
$
|
28.52
|
|
|
$
|
18,566
|
|
|
4.8 years
|
There were
no
grants of stock options during the years ended
December 31, 2018
,
2017
and
2016
.
There were
4,167
,
43,774
and
326,884
stock options exercised during the year ended
December 31, 2018
,
2017
and
2016
, respectively. The total intrinsic value of stock options exercised was
$0.1 million
,
$1.2 million
and
$7.6 million
for the year ended
December 31, 2018
,
2017
and
2016
, respectively. Cash received from stock options exercised during the year ended
December 31, 2018
,
2017
and
2016
was
$0.1 million
,
$0.8 million
and
$4.8 million
, respectively. The tax benefit realized from stock option exercises was
$14 thousand
,
$0.4 million
and
$2.9 million
for the year ended
December 31, 2018
,
2017
and
2016
, respectively.
We recognized
$1.4 million
,
$2.5 million
and
$3.0 million
of equity-based compensation expense related to options during the year ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
, there was
$34 thousand
of unrecognized compensation expense related to these options. We account for forfeitures as they occur.
Restricted Stock and Restricted Stock Unit Awards
The following table summarizes the status of, and changes in, our unvested restricted stock awards during the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2017
|
461,346
|
|
|
$
|
30.76
|
|
Granted
|
415,110
|
|
|
21.57
|
|
Vested
|
(256,012
|
)
|
|
28.66
|
|
Forfeited
|
(32,867
|
)
|
|
30.82
|
|
Unvested, December 31, 2018
|
587,577
|
|
|
$
|
25.18
|
|
We granted
415,110
,
156,164
and
364,710
restricted stock and restricted stock unit awards during the year ended
December 31, 2018
,
2017
and
2016
, respectively. The fair value of the awards was based on the market price of our stock at date of grant.
We recognized
$7.6 million
,
$7.1 million
and
$5.7 million
of equity-based compensation expense related to restricted stock awards during the year ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
, there was
$9.5 million
of unrecognized compensation expense related to these restricted stock awards, which is expected to be recognized over a weighted-average period of
2.0
years.
Performance Share Unit Awards
The following table summarizes the status of, and changes in, our performance share unit awards during the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2017
|
881,416
|
|
|
$
|
42.16
|
|
Granted
|
261,500
|
|
|
31.24
|
|
Vested
|
(225,000
|
)
|
|
41.99
|
|
Forfeited
|
(79,728
|
)
|
|
40.45
|
|
Unvested, December 31, 2018
|
838,188
|
|
|
$
|
39.44
|
|
We granted
261,500
,
90,501
and
850,143
of performance share unit awards during the year ended
December 31, 2018
,
2017
and
2016
, respectively. The grant date weighted average fair value of these awards was estimated to be
$31.24
,
$67.69
and
$39.36
for the year ended
December 31, 2018
,
2017
and
2016
, respectively, and the number of units that will vest will depend on the percentage ranking of the Company's total shareholder return ("TSR") compared to the TSRs for each of the companies in the peer group over the
three
year period from January 1, 2018 through December 31, 2020 for the 2018 grant, from January 1, 2017 through December 31, 2019 for the 2017 grant, and from January 1, 2016 through December 31, 2018 for the 2016 grant. The related compensation expense is recognized on a straight-line basis over the vesting period.
The grant date fair value for these awards was estimated using a Monte Carlo simulation model. The Monte Carlo simulation model requires the use of highly subjective assumptions. Our key assumptions in the model included the price and the expected volatility of our common stock and our self-determined peer group companies’ stock, risk-free rate of interest, dividend yields and cross-correlations between our common stock and our self-determined peer group companies' stock.
We recognized
$13.3 million
,
$15.5 million
and
$3.3 million
of compensation expense related to performance share unit awards during the year ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
, there was
$7.5 million
of unrecognized compensation expense related to these performance share unit awards, which is expected to be recognized over a weighted-average period of
1.7
year.
NOTE Q—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
Operating Lease Minimum Rental Payments
|
|
Minimum Purchase Commitments
|
2019
|
$
|
74,884
|
|
|
$
|
23,243
|
|
2020
|
59,490
|
|
|
15,406
|
|
2021
|
40,302
|
|
|
8,307
|
|
2022
|
31,853
|
|
|
5,640
|
|
2023
|
22,596
|
|
|
4,915
|
|
Thereafter
|
40,148
|
|
|
6,084
|
|
Total future lease and purchase commitments
|
$
|
269,273
|
|
|
$
|
63,595
|
|
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
$100.2 million
,
$68.3 million
and
$54.1 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Minimum Purchase Commitments
We enter into service agreements with our transload 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.
Contingent Liability on Royalty Agreement
On May 17, 2017, we purchased reserves in Crane County, Texas, for
$94.4 million
cash consideration plus contingent consideration. The contingent consideration is a royalty that is based on the tonnage shipped to third-parties. Because the contingent consideration is dependent on future tonnage sold, the amounts of which are uncertain, it is not currently possible to estimate the fair value of these future payments. The contingent consideration will be capitalized at the time a payment is probable and reasonably estimable, and the related depletion expense will be adjusted prospectively.
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 year ended
December 31, 2018
,
2017
and
2016
,
twenty
,
zero
and
two
claims, respectively, were brought against U.S. Silica. As of
December 31, 2018
, there were
74
active silica-related products liability claims pending in which U.S. Silica is a defendant. Although the outcomes of these claims cannot be predicted with 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
December 31, 2018
and
2017
, other non-current assets included
zero
for insurance for third-party products liability claims and other long-term obligations included
$0.9 million
and
$1.0 million
, respectively, for third-party products liability claims.
NOTE R— PENSION AND POST-RETIREMENT BENEFITS
We maintain single-employer noncontributory defined benefit pension plans covering certain employees. There have been no new entrants to the US Silica Company plan since May 2009 and to the EP Management Corporation plan since January 2007 for salaried participants and January 2010 for hourly participants when the plans were frozen to all new employees. The plans provide benefits based on each covered employee’s years of qualifying service. Our funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for the plans consistent with a goal of appropriate minimization of the unfunded projected benefit obligations. The pension plans use a benefit level per year of service for covered hourly employees and a final average pay method for covered salaried employees. The plans use the projected unit credit cost method to determine the actuarial valuation.
We employ a total rate of return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.
We employ a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed to check for reasonability and appropriateness.
In addition, we provide defined benefit post-retirement health care and life insurance benefits to some employees. Covered employees become eligible for these benefits at retirement after meeting minimum age and service requirements. The projected future cost of providing post-retirement benefits, such as healthcare and life insurance, is recognized as an expense as employees render services. We previously maintained a Voluntary Employees’ Beneficiary Association trust that was used to
partially fund health care benefits for future retirees. Benefits were funded to the extent contributions were tax deductible, which under current legislation is limited. In 2017, the trust terminated upon depletion of its assets, which were used in accordance with trust terms. In general, retiree health benefits are paid as covered expenses are incurred.
Net pension benefit cost (in thousands) consisted of the following for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
|
$
|
1,307
|
|
|
$
|
1,037
|
|
|
$
|
1,078
|
|
Interest cost
|
|
4,632
|
|
|
3,971
|
|
|
4,067
|
|
Expected return on plan assets
|
|
(5,969
|
)
|
|
(5,265
|
)
|
|
(5,495
|
)
|
Net amortization and deferral
|
|
2,526
|
|
|
1,773
|
|
|
1,592
|
|
Net pension benefit costs
|
|
$
|
2,496
|
|
|
$
|
1,516
|
|
|
$
|
1,242
|
|
Net post-retirement benefit cost (in thousands) consisted of the following for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
|
$
|
102
|
|
|
$
|
107
|
|
|
$
|
132
|
|
Interest cost
|
|
740
|
|
|
753
|
|
|
876
|
|
Expected return on plan assets
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Special termination benefit
|
|
—
|
|
|
—
|
|
|
21
|
|
Net post-retirement benefit costs
|
|
$
|
842
|
|
|
$
|
859
|
|
|
$
|
1,028
|
|
The changes in benefit obligations and plan assets (in thousands), as well as the funded status (in thousands) of our pension and post-retirement plans at
December 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Benefit obligation at January 1,
|
$
|
122,052
|
|
|
$
|
116,145
|
|
|
$
|
22,771
|
|
|
$
|
24,393
|
|
Service cost
|
1,307
|
|
|
1,037
|
|
|
102
|
|
|
107
|
|
Interest cost
|
4,632
|
|
|
3,971
|
|
|
740
|
|
|
753
|
|
Actuarial (gain) loss
|
(10,263
|
)
|
|
6,824
|
|
|
(965
|
)
|
|
(1,576
|
)
|
Benefits paid
|
(8,202
|
)
|
|
(6,685
|
)
|
|
(1,499
|
)
|
|
(1,280
|
)
|
Amendments
|
—
|
|
|
760
|
|
|
—
|
|
|
—
|
|
Other
(1)
|
29,374
|
|
|
—
|
|
|
421
|
|
|
374
|
|
Benefit obligation at December 31,
|
$
|
138,900
|
|
|
$
|
122,052
|
|
|
$
|
21,570
|
|
|
$
|
22,771
|
|
Fair value of plan assets at January 1,
|
$
|
92,067
|
|
|
$
|
83,850
|
|
|
$
|
—
|
|
|
$
|
14
|
|
Actual return on plan assets
|
(6,204
|
)
|
|
12,757
|
|
|
—
|
|
|
(1
|
)
|
Employer contributions
|
3,350
|
|
|
2,145
|
|
|
1,078
|
|
|
893
|
|
Benefits paid
|
(8,202
|
)
|
|
(6,685
|
)
|
|
(1,499
|
)
|
|
(1,280
|
)
|
Other
(1)
|
21,385
|
|
|
—
|
|
|
421
|
|
|
374
|
|
Fair value of plan assets at December 31,
|
$
|
102,396
|
|
|
$
|
92,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Plan assets less than benefit obligations at December 31 recognized as liability for pension and other post-retirement benefits
|
$
|
(36,504
|
)
|
|
$
|
(29,985
|
)
|
|
$
|
(21,570
|
)
|
|
$
|
(22,771
|
)
|
|
|
|
|
(1
|
)
|
Includes opening pension benefit obligation and plan assets balances related to the May 1, 2018, EPMH acquisition.
|
The accumulated benefit obligation for the defined benefit pension plans, which excludes the assumption of future salary increases, totaled
$138.9 million
and
$122.1 million
at
December 31, 2018
and
2017
, respectively.
The amendments in 2018 and 2017 reflect plan changes, including increases in the benefit multiplier for certain participants.
We also sponsor unfunded, nonqualified pension plans. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans were
$1.5 million
,
$1.5 million
and
zero
, respectively, at
December 31, 2018
and
$1.6 million
,
$1.6 million
and
zero
. respectively, at
December 31, 2017
.
Future estimated annual benefit payments (in thousands) for pension and post-retirement benefit obligations at
December 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
|
Post-retirement
|
|
Pension
|
|
Before
Medicare
Subsidy
|
|
After
Medicare
Subsidy
|
2019
|
$
|
10,022
|
|
|
$
|
1,553
|
|
|
$
|
1,394
|
|
2020
|
9,166
|
|
|
1,592
|
|
|
1,433
|
|
2021
|
9,236
|
|
|
1,653
|
|
|
1,496
|
|
2022
|
9,394
|
|
|
1,691
|
|
|
1,535
|
|
2023
|
9,380
|
|
|
1,686
|
|
|
1,528
|
|
2024-2028
|
47,737
|
|
|
8,262
|
|
|
7,442
|
|
Our best estimate of expected contributions to the pension and post-retirement medical benefit plans for the 2019 fiscal year are
$4.5 million
and
$1.4 million
, respectively.
The amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost (in thousands) during the following fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
Pension
|
|
Post-retirement
|
|
Total
|
Net actuarial loss
|
$
|
1,034
|
|
|
$
|
—
|
|
|
$
|
1,034
|
|
Prior service cost
|
534
|
|
|
—
|
|
|
534
|
|
|
$
|
1,568
|
|
|
$
|
—
|
|
|
$
|
1,568
|
|
The total amounts in accumulated other comprehensive income (loss) related to net actuarial loss, net of tax, for the pension and post-retirement plans was
$17.6 million
and
$13.5 million
as of
December 31, 2018
and
2017
, respectively. The total amounts in accumulated other comprehensive income (loss) related to prior service cost, net of tax, for the pension and post-retirement plans, was
$2.8 million
and
$0.5 million
as of
December 31, 2018
and
2017
, respectively.
The following weighted-average assumptions were used to determine our obligations under the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Discount rate
|
4.4
|
%
|
|
3.7
|
%
|
|
4.3
|
%
|
|
3.7
|
%
|
Long-term rate of compensation increase
|
3.0%-3.5%
|
|
|
3.5
|
%
|
|
N/A
|
|
|
N/A
|
|
Long-term rate of return on plan assets
|
6.25%-7.15%
|
|
|
6.8
|
%
|
|
N/A
|
|
|
7.0
|
%
|
Health care cost trend rate:
|
|
|
|
|
|
|
|
Pre-65 initial rate/ultimate rate
|
N/A
|
|
|
N/A
|
|
|
7.3%/4.5%
|
|
|
7.3%/4.5%
|
|
Pre-65 ultimate year
|
N/A
|
|
|
N/A
|
|
|
—
|
|
|
—
|
|
Post-65 initial rate/ultimate rate
|
N/A
|
|
|
N/A
|
|
|
8.0%/4.5%
|
|
|
8.0%/4.5%
|
|
Post-65 ultimate year
|
N/A
|
|
|
N/A
|
|
|
2026/2027
|
|
|
2025/2026
|
|
The weighted average discount rate used to determine the projected pension and post-retirement obligations was updated to
4.4%
at December 31, 2018 from
3.7%
at December 31, 2017. The discount rate reflects the expected long-term rates of return with maturities comparable to payments for the plan obligations utilizing Aon Hewitt's AA Above Medium Curve.
In 2016, we changed the method utilized to estimate the service cost and interest cost components of net periodic benefit costs for our defined benefit pension and other post-retirement benefit plans. Historically, we estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to use a spot rate approach in the estimation of these components of benefit cost by applying the specific rates along the yield curve to the relevant projected cash flows, as we believe this provides a better estimate of service and interest costs. We consider this a change in estimate and, accordingly, have accounted for it prospectively starting in 2016. This change does not affect the measurement of our total benefit obligation.
Mortality tables used for pension benefits and post-retirement benefits plans are the following:
|
|
|
|
|
|
Pension and Post-retirement Benefits
|
|
2018
|
|
2017
|
Healthy Lives
|
RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2018
|
|
RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2017
|
Disabled Lives
|
RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2018
|
|
RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2017
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point
|
|
Increase
|
|
Decrease
|
Effect on total of service and interest cost
|
$
|
109
|
|
|
$
|
(92
|
)
|
Effect on post-retirement benefit obligation
|
2,291
|
|
|
(1,967
|
)
|
The major investment categories and their relative percentage of the fair value of total plan assets as invested at
December 31, 2018
, and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
(1)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Equity securities
|
42.1
|
%
|
|
51.8
|
%
|
|
—
|
%
|
|
—
|
%
|
Debt securities
|
55.5
|
%
|
|
46.3
|
%
|
|
—
|
%
|
|
—
|
%
|
Cash
|
2.4
|
%
|
|
1.9
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
|
(1
|
)
|
Retiree health benefits are paid by the Company as covered expenses are incurred.
|
The fair values of the pension plan assets (in thousands) at
December 31, 2018
, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
2,449
|
|
|
$
|
—
|
|
|
$
|
2,449
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Diversified emerging markets
|
6,638
|
|
|
—
|
|
|
—
|
|
|
6,638
|
|
Foreign large blend
|
11,689
|
|
|
—
|
|
|
—
|
|
|
11,689
|
|
Large-cap blend
|
14,226
|
|
|
—
|
|
|
—
|
|
|
14,226
|
|
Mid-cap blend
|
6,819
|
|
|
—
|
|
|
—
|
|
|
6,819
|
|
Small-cap blend
|
522
|
|
|
—
|
|
|
—
|
|
|
522
|
|
Real estate
|
3,192
|
|
|
—
|
|
|
—
|
|
|
3,192
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
43,745
|
|
|
—
|
|
|
—
|
|
|
43,745
|
|
U.S. Treasuries
|
8,486
|
|
|
—
|
|
|
—
|
|
|
8,486
|
|
Mortgage-backed securities
|
—
|
|
|
3,578
|
|
|
—
|
|
|
3,578
|
|
Asset-backed securities
|
—
|
|
|
1,052
|
|
|
—
|
|
|
1,052
|
|
Net asset
|
$
|
95,317
|
|
|
$
|
7,079
|
|
|
$
|
—
|
|
|
$
|
102,396
|
|
The fair values of the pension plan assets (in thousands) at
December 31, 2017
, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,727
|
|
|
$
|
—
|
|
|
$
|
1,727
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Diversified emerging markets
|
8,300
|
|
|
—
|
|
|
—
|
|
|
8,300
|
|
Foreign large blend
|
11,856
|
|
|
—
|
|
|
—
|
|
|
11,856
|
|
Large-cap blend
|
15,643
|
|
|
—
|
|
|
—
|
|
|
15,643
|
|
Mid-cap blend
|
8,334
|
|
|
—
|
|
|
—
|
|
|
8,334
|
|
Real estate
|
3,591
|
|
|
—
|
|
|
—
|
|
|
3,591
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
28,108
|
|
|
—
|
|
|
—
|
|
|
28,108
|
|
U.S. Treasuries
|
10,846
|
|
|
—
|
|
|
—
|
|
|
10,846
|
|
Mortgage-backed securities
|
—
|
|
|
2,615
|
|
|
—
|
|
|
2,615
|
|
Asset-backed securities
|
—
|
|
|
1,047
|
|
|
—
|
|
|
1,047
|
|
Net asset
|
$
|
86,678
|
|
|
$
|
5,389
|
|
|
$
|
—
|
|
|
$
|
92,067
|
|
We contribute to
three
multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. These plans allow multiple employers to pool their pension resources and realize efficiencies associated with the daily administration of the plan. Multiemployer plans are generally governed by a board of trustees composed of management and labor representatives and are funded through employer contributions. However, in most cases, management is not directly represented.
The risks of participating in multiemployer plans differ from single employer plans as follows: 1) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, 2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and 3) if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
A summary of each multiemployer pension plan for which we participate is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Fund
|
EIN/ Pension
Plan No.
|
|
Pension Protection Act
Zone Status
(1)
|
|
FIP/RP Status
Pending/
Implemented
|
|
Company
Contributions
(in thousands)
|
|
Surcharge
Imposed
|
|
Expiration
Date of
CBA
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2016
|
|
LIUNA
|
52-6074345/001
|
|
Red
|
|
Red
|
|
Yes
|
|
$
|
573
|
|
|
$
|
223
|
|
|
$
|
167
|
|
|
Yes
|
|
5/31/2020
|
IUOE
|
36-6052390/001
|
|
Green
|
|
Green
|
|
No
|
|
1,385
|
|
|
40
|
|
|
28
|
|
|
No
|
|
7/31/2022
|
CSSS
(2)
|
36-6044243/001
|
|
Red
|
|
Red
|
|
Yes
|
|
51
|
|
|
51
|
|
|
51
|
|
|
NA
|
|
NA
|
|
|
(1)
|
The Pension Protection Act of 2006 defines the zone status as follows: green—healthy, yellow—endangered, orange—seriously endangered and red—critical.
|
|
|
(2)
|
In 2011, we withdrew from the Central States, Southeast and Southwest Areas Pension Plan. The withdrawal liability of
$1.0 million
will be paid in monthly installments of
$4,000
until 2031.
|
Our contributions to individual multiemployer pension funds did not exceed
5%
of the fund’s total contributions for the years ended
December 31, 2018
,
2017
and
2016
. Additionally, our contributions to multiemployer post-retirement benefit plans were immaterial for all periods presented in the accompanying consolidated financial statements.
We also sponsor a defined contribution plan covering certain employees. We contribute to the plan in two ways. For certain employees not covered by the defined benefit plan, we make a contribution equal to
4%
of their salary. We may also contribute an employee discretionary match of
50 cents
for each dollar contributed by an employee, up to
4%
of their earnings. Finally, for some employees, we make a catch-up match of
one
dollar for each dollar contributed by an employee, up to
6%
of catch-up contributions. Contributions were
$2.6 million
,
$3.0 million
and
$2.4 million
for the years ended
December 31, 2018
,
2017
and 2016, respectively.
NOTE S— OBLIGATIONS UNDER GUARANTEES
We have indemnified our insurers against any loss they may incur in the event that holders of surety bonds, issued on our behalf, execute the bonds. As of
December 31, 2018
, there was
$34.4 million
in bonds outstanding. The majority of these bonds,
$29.8 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 T— INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, (1) bonus depreciation that will allow for full expensing of qualified property; (2) reduction of the U.S. federal corporate tax rate; (3) elimination of the corporate alternative minimum tax; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; and (7) limitations on net operating losses generated after December 31, 2017, to 80 percent of taxable income.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed the accounting for the tax effects of the Tax Act. In August 2018, the Internal Revenue Service released Tax Act guidance on limitations on executive compensation which clarified transition rules for certain compensation agreements in existence on November 2, 2017. Based on the issued guidance, we recorded a discrete tax expense of
$0.7 million
to remove deferred tax assets on certain executive compensation agreements that were not eligible for transition relief.
The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we were required to adjust deferred tax assets and liabilities as of December 22, 2017. Accordingly, for the year ended December 31, 2017, we recorded a decrease related to deferred tax assets and liabilities of
$45.0 million
and
$80.8 million
, respectively, with a corresponding net adjustment to deferred income tax benefit of
$35.8 million
.
Under the Tax Act, net operating loss (NOL) deductions arising in tax years beginning after December 31, 2017 can only offset up to 80 percent of future taxable income. The Act also prohibits NOL carrybacks, but allows indefinite carryforwards for NOLs arising in tax years beginning after December 31, 2017. Net operating losses arising before January 1, 2018 are accounted for under the previous tax rules that imposed no limit on the amount of the taxable income that can be set off using NOLs and that can be carried back 2 years and carried forward 20 years.
The Tax Act repeals the corporate alternative minimum tax (AMT), effective for tax years beginning after December 31, 2017, but allows an entity to claim portions of any unused AMT credits over the next four years to offset its regular tax liability. An entity with unused AMT credits as of December 31, 2017 can first use these credits to offset its regular tax for 2017 and can then claim up to 50 percent of the remaining AMT credits in 2018, 2019, and 2020, with all remaining AMT credits refundable in 2021.
We evaluate our deferred tax assets periodically to determine if valuation allowances are required. Ultimately, the realization of deferred tax assets is dependent upon generation of future taxable income during those periods in which temporary differences become deductible and/or credits can be utilized. To this end, management considers the level of historical taxable income, the scheduled reversal of deferred tax liabilities, tax-planning strategies and projected future taxable income. Based on these considerations, and the carry-forward availability of a portion of the deferred tax assets, management believes it is more likely than not that we will realize the benefit of the deferred tax assets.
Income (loss) before income taxes (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
(232,597
|
)
|
|
$
|
136,526
|
|
|
$
|
(77,745
|
)
|
Foreign
|
2,644
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
(229,953
|
)
|
|
$
|
136,526
|
|
|
$
|
(77,745
|
)
|
Income tax (expense) benefit (in thousands) consisted of the following for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
Federal
|
$
|
1,076
|
|
|
$
|
(10,754
|
)
|
|
$
|
60
|
|
State
|
(2,496
|
)
|
|
(1,167
|
)
|
|
(274
|
)
|
Foreign
|
(518
|
)
|
|
—
|
|
|
—
|
|
|
(1,938
|
)
|
|
(11,921
|
)
|
|
(214
|
)
|
Deferred:
|
|
|
|
|
|
Federal
|
25,578
|
|
|
22,641
|
|
|
32,944
|
|
State
|
5,492
|
|
|
(2,040
|
)
|
|
3,959
|
|
Foreign
|
—
|
|
|
—
|
|
|
—
|
|
|
31,070
|
|
|
20,601
|
|
|
36,903
|
|
Income tax benefit
|
$
|
29,132
|
|
|
$
|
8,680
|
|
|
$
|
36,689
|
|
Income tax (expense) benefit (in thousands) differed from the amount that would be provided by applying the U.S. federal statutory rate for the years ended
December 31, 2018
,
2017
and
2016
due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Income tax (expense) benefit computed at U.S. federal statutory rate
|
$
|
48,290
|
|
|
$
|
(47,784
|
)
|
|
$
|
27,211
|
|
Decrease (increase) resulting from:
|
|
|
|
|
|
Statutory depletion
|
12,090
|
|
|
20,259
|
|
|
4,734
|
|
Goodwill impairment
|
(29,157
|
)
|
|
—
|
|
|
—
|
|
Prior year tax return reconciliation
|
530
|
|
|
219
|
|
|
435
|
|
State income taxes, net of federal benefit
|
2,592
|
|
|
(2,267
|
)
|
|
2,369
|
|
Adjustment to deferred taxes from the Tax Act rate reduction
|
—
|
|
|
35,772
|
|
|
—
|
|
Equity compensation
|
(653
|
)
|
|
2,602
|
|
|
2,003
|
|
Other, net
|
(4,560
|
)
|
|
(121
|
)
|
|
(63
|
)
|
Income tax benefit
|
$
|
29,132
|
|
|
$
|
8,680
|
|
|
$
|
36,689
|
|
The largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory percentage depletion. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes. For the year ended December 31, 2018, the tax effect of the goodwill impairment described in
Note I - Goodwill and Intangible Assets
is a significant permanent item in the effective tax rate calculation.
Deferred tax assets and liabilities are recognized for the estimated future tax effects, based on enacted tax laws, of temporary differences between the values of assets and liabilities recorded for financial reporting and for tax purposes and of net operating loss and other carry forwards.
The tax effects of the types of temporary differences and carry forwards that gave rise to deferred tax assets and liabilities (in thousands) at
December 31, 2018
and
2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Gross deferred tax assets:
|
|
|
|
Net operating loss carry forward and state tax credits
|
$
|
11,089
|
|
|
$
|
22,783
|
|
Pension and post-retirement benefit costs
|
13,303
|
|
|
13,710
|
|
Alternative minimum tax credit carry forward
|
15,971
|
|
|
30,401
|
|
Property, plant and equipment
|
5,474
|
|
|
5,750
|
|
Accrued expenses
|
27,025
|
|
|
10,755
|
|
Inventories
|
774
|
|
|
4,354
|
|
Third-party products liability
|
231
|
|
|
249
|
|
Stock-based compensation expense
|
8,199
|
|
|
8,785
|
|
Note payable
|
3,724
|
|
|
3,133
|
|
Other
|
8,116
|
|
|
5,095
|
|
Total deferred tax assets
|
93,906
|
|
|
105,015
|
|
Gross deferred tax liabilities:
|
|
|
|
Land and mineral property basis difference
|
(165,002
|
)
|
|
(78,520
|
)
|
Fixed assets and depreciation
|
(55,596
|
)
|
|
(51,556
|
)
|
Intangibles
|
(10,346
|
)
|
|
(4,795
|
)
|
Other
|
(201
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(231,145
|
)
|
|
(134,871
|
)
|
Net deferred tax liabilities
|
$
|
(137,239
|
)
|
|
$
|
(29,856
|
)
|
We have federal net operating loss carry forwards of approximately
$41.9 million
at
December 31, 2018
. The losses will expire in years
2027 through 2036
. The losses are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized. Under the Tax Act, net operating loss (NOL) deductions arising in tax years beginning after
December 31, 2017 can only offset up to 80 percent of future taxable income. The Act also prohibits NOL carrybacks, but allows indefinite carryforwards for NOLs arising in tax years beginning after December 31, 2017. Net operating losses arising before January 1, 2018 are accounted for under the previous tax rules that imposed no limit on the amount of the taxable income that can be set off using NOLs (except for a 90 percent limit for AMT carryforwards) and that can be carried back 2 years and carried forward 20 years.
At
December 31, 2018
and
2017
, we have an alternative minimum tax credit carry forward of approximately
$16.0 million
and
$30.4 million
, respectively. The Tax Act repeals the corporate alternative minimum tax (AMT), effective for tax years beginning after December 31, 2017, but allows an entity to claim portions of any unused AMT credits over the next four years to offset its regular tax liability. An entity with unused AMT credits as of December 31, 2017 can first use these credits to offset its regular tax for 2017 and can then claim up to 50 percent of the remaining AMT credits in 2018, 2019, and 2020, with all remaining AMT credits refundable in 2021. Based on the Tax Act repeal of AMT,
$16.0 million
was reclassified from deferred tax assets to other receivables. See
Note F - Accounts Receivable
.
At the end of each reporting period as presented, there were no material amounts of interest and penalties recognized in the statement of operations or balance sheets. We have no material unrecognized tax benefits or any known material tax contingencies at
December 31, 2018
or
December 31, 2017
and do not expect this to change significantly within the next twelve months. Tax returns filed with the IRS for the years 2015 through 2017 along with tax returns filed with numerous state entities remain subject to examination.
NOTE U— REVENUE
We consider sales disaggregated at the product and service level by business segment to depict how the nature, amount, timing and uncertainty of revenues and cash flow are impacted by changes in economic factors. The following table disaggregates our sales by major source for the year ended
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2018
|
Category
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total Sales
|
Product
|
|
$
|
888,509
|
|
|
$
|
394,290
|
|
|
$
|
1,282,799
|
|
Service
|
|
294,482
|
|
|
17
|
|
|
294,499
|
|
Total Sales
|
|
$
|
1,182,991
|
|
|
$
|
394,307
|
|
|
$
|
1,577,298
|
|
The following tables reflect the changes in our contract assets, which we classify as unbilled receivables and our contract liabilities, which we classify as deferred revenues, for the year ended
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
Unbilled Receivables
|
December 31, 2017
|
|
$
|
5,245
|
|
Reclassifications to billed receivables
|
|
(11,157
|
)
|
Revenues recognized in excess of period billings
|
|
6,002
|
|
December 31, 2018
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
December 31, 2017
|
|
$
|
118,414
|
|
Revenues recognized from balances held at the beginning of the period
|
|
(33,381
|
)
|
Revenues deferred from period collections on unfulfilled performance obligations
|
|
31,625
|
|
Revenues recognized from period collections
|
|
(3,339
|
)
|
December 31, 2018
|
|
$
|
113,319
|
|
We have elected to use the practical expedients allowed under ASC 606-10-50-14, pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations and when we expect to recognize such revenue. The majority of our remaining performance obligations are primarily comprised of unfulfilled product, transportation
service, and labor service orders, all of which hold a remaining duration of less than
one
year. The long term portion of deferred revenue primarily represents a combination of refundable and nonrefundable customer prepayments for which related current performance obligations do not yet exist, but are expected to arise, before the expiration of the contract. Our residual unfulfilled performance obligations are comprised primarily of long-term equipment rental arrangements in which we recognize revenues equal to what we have a right to invoice. Generally, no variable consideration exists related to our remaining performance obligations and no consideration is excluded from the associated transaction prices.
NOTE V— RELATED PARTY TRANSACTIONS
An employee, who was an officer of one of our operating subsidiaries prior to the third quarter of 2018, holds an ownership interest in a transportation brokerage and logistics services vendor, from which we made purchases of approximately
$2.9 million
,
$4.7 million
, and
$0.8 million
for the year ended
December 31, 2018
,
2017
, and
2016
, respectively.
NOTE W— 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
400
product types 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 directly related to 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, segment contribution margin is a non-GAAP measure and 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 GAAP. The other accounting policies of each of the
two
reportable segments are the same as those in
Note B - Summary of Significant Accounting Policies
to these Consolidated Financial Statements.
The following table presents sales and segment contribution margin (in thousands) for the reportable segments and other operating results not allocated to the reported segments for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Sales:
|
|
|
|
|
|
|
Oil & Gas Proppants
|
|
$
|
1,182,991
|
|
|
$
|
1,020,365
|
|
|
$
|
362,550
|
|
Industrial & Specialty Products
|
|
394,307
|
|
|
220,486
|
|
|
197,075
|
|
Total sales
|
|
1,577,298
|
|
|
1,240,851
|
|
|
559,625
|
|
Segment contribution margin:
|
|
|
|
|
|
|
Oil & Gas Proppants
|
|
357,846
|
|
|
301,972
|
|
|
11,445
|
|
Industrial & Specialty Products
|
|
155,084
|
|
|
88,781
|
|
|
78,988
|
|
Total segment contribution margin
|
|
512,930
|
|
|
390,753
|
|
|
90,433
|
|
Operating activities excluded from segment cost of sales
(1)
|
|
(98,761
|
)
|
|
(16,722
|
)
|
|
(7,618
|
)
|
Selling, general and administrative
|
|
(146,971
|
)
|
|
(107,056
|
)
|
|
(67,172
|
)
|
Depreciation, depletion and amortization
|
|
(148,832
|
)
|
|
(97,233
|
)
|
|
(68,134
|
)
|
Goodwill and other asset impairments
|
|
(281,899
|
)
|
|
—
|
|
|
—
|
|
Interest expense
|
|
(70,564
|
)
|
|
(31,342
|
)
|
|
(27,972
|
)
|
Other income (expense), net, including interest income
|
|
4,144
|
|
|
(1,874
|
)
|
|
2,718
|
|
Income tax benefit (expense)
|
|
29,132
|
|
|
8,680
|
|
|
36,689
|
|
Net income (loss)
|
|
$
|
(200,821
|
)
|
|
$
|
145,206
|
|
|
$
|
(41,056
|
)
|
Less: Net income (loss) attributable to non-controlling interest
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to U.S. Silica Holdings, Inc.
|
|
$
|
(200,808
|
)
|
|
$
|
145,206
|
|
|
$
|
(41,056
|
)
|
|
|
|
(1)
|
2018 increase driven by plant capacity expansion expenses and amortization of purchase accounting inventory fair value step-up.
|
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. At
December 31, 2018
, goodwill of
$261.3 million
has been allocated to these segments with
$86.1 million
assigned to Oil & Gas Proppants and
$175.2 million
to Industrial & Specialty Products. At December 31, 2017, goodwill of
$272.1 million
had been allocated to these segments with
$247.5 million
assigned to Oil & Gas Proppants and
$24.6 million
to Industrial & Specialty Products.
NOTE X— UNAUDITED SUPPLEMENTARY DATA
The following table sets forth our unaudited quarterly consolidated statements of operations (in thousands, except per share data) for each of the four quarters in the years ended
December 31, 2018
and
2017
. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements and includes all adjustments, consisting only of normal recurring adjustments that are necessary to present fairly the financial information for the fiscal quarters presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
2018
|
(Unaudited)
|
Sales:
|
|
|
|
|
Product
|
$
|
294,788
|
|
$
|
345,957
|
|
$
|
348,635
|
|
$
|
293,419
|
|
Service
|
74,525
|
|
81,476
|
|
74,537
|
|
63,961
|
|
Cost of sales (excluding depreciation, depletion and amortization):
|
|
|
|
|
Product
|
207,239
|
|
236,236
|
|
270,370
|
|
241,624
|
|
Service
|
53,671
|
|
56,609
|
|
51,966
|
|
45,414
|
|
Operating expenses:
|
|
|
|
|
Selling, general and administrative
|
34,591
|
|
42,232
|
|
37,980
|
|
32,168
|
|
Depreciation, depletion and amortization
|
28,592
|
|
36,563
|
|
37,150
|
|
46,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other asset impairments
|
—
|
|
16,184
|
|
—
|
|
265,715
|
|
Total operating expenses
|
63,183
|
|
94,979
|
|
75,130
|
|
344,410
|
|
Operating income (loss)
|
45,220
|
|
39,609
|
|
25,706
|
|
(274,068
|
)
|
Other (expense) income:
|
|
|
|
|
Interest expense
|
(7,070
|
)
|
(20,214
|
)
|
(21,999
|
)
|
(21,281
|
)
|
Other income (expense), net, including interest income
|
665
|
|
1,081
|
|
1,062
|
|
1,336
|
|
Total other expense
|
(6,405
|
)
|
(19,133
|
)
|
(20,937
|
)
|
(19,945
|
)
|
Income (loss) before income taxes
|
38,815
|
|
20,476
|
|
4,769
|
|
(294,013
|
)
|
Income tax benefit
|
(7,521
|
)
|
(2,832
|
)
|
1,547
|
|
37,938
|
|
Net income (loss)
|
31,294
|
|
17,644
|
|
6,316
|
|
(256,075
|
)
|
Less: Net income (loss) attributable to non-controlling interest
|
—
|
|
—
|
|
—
|
|
(13
|
)
|
Net income (loss) attributable to U.S. Silica Holdings, Inc.
|
$
|
31,294
|
|
$
|
17,644
|
|
$
|
6,316
|
|
$
|
(256,062
|
)
|
|
|
|
|
|
Earnings (loss) per share, basic
|
$
|
0.39
|
|
$
|
0.23
|
|
$
|
0.08
|
|
$
|
(3.44
|
)
|
Earnings (loss) per share, diluted
|
$
|
0.39
|
|
$
|
0.22
|
|
$
|
0.08
|
|
$
|
(3.44
|
)
|
Weighted average shares outstanding, basic
|
79,496
|
|
77,784
|
|
77,365
|
|
74,485
|
|
Weighted average shares outstanding, diluted
|
80,309
|
|
78,480
|
|
77,859
|
|
74,485
|
|
Dividends declared per share
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
|
|
|
|
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
2017
|
(Unaudited)
|
Sales:
|
|
|
|
|
Product
|
$
|
203,251
|
|
$
|
235,891
|
|
$
|
281,138
|
|
$
|
290,114
|
|
Service
|
41,546
|
|
54,574
|
|
63,885
|
|
70,452
|
|
Cost of sales (excluding depreciation, depletion and amortization):
|
|
|
|
|
Product
|
162,183
|
|
162,238
|
|
187,634
|
|
202,466
|
|
Service
|
25,292
|
|
34,726
|
|
40,155
|
|
52,126
|
|
Operating expenses:
|
|
|
|
|
Selling, general and administrative
|
22,341
|
|
25,839
|
|
29,542
|
|
29,334
|
|
Depreciation, depletion and amortization
|
21,599
|
|
23,626
|
|
24,673
|
|
27,335
|
|
Total operating expenses
|
43,940
|
|
49,465
|
|
54,215
|
|
56,669
|
|
Operating income (loss)
|
13,382
|
|
44,036
|
|
63,019
|
|
49,305
|
|
Other (expense) income:
|
|
|
|
|
Interest expense
|
(7,646
|
)
|
(8,105
|
)
|
(8,347
|
)
|
(7,244
|
)
|
Other income (expense), net, including interest income
|
(4,928
|
)
|
638
|
|
1,308
|
|
1,108
|
|
Total other expense
|
(12,574
|
)
|
(7,467
|
)
|
(7,039
|
)
|
(6,136
|
)
|
Income (loss) before income taxes
|
808
|
|
36,569
|
|
55,980
|
|
43,169
|
|
Income tax benefit
|
1,714
|
|
(7,110
|
)
|
(14,707
|
)
|
28,783
|
|
Net income (loss)
|
2,522
|
|
29,459
|
|
41,273
|
|
71,952
|
|
Less: Net income (loss) attributable to non-controlling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
Net income (loss) attributable to U.S. Silica Holdings, Inc.
|
$
|
2,522
|
|
$
|
29,459
|
|
$
|
41,273
|
|
$
|
71,952
|
|
|
|
|
|
|
Earnings (loss) per share, basic
|
$
|
0.03
|
|
$
|
0.36
|
|
$
|
0.51
|
|
$
|
0.95
|
|
Earnings (loss) per share, diluted
|
$
|
0.03
|
|
$
|
0.36
|
|
$
|
0.50
|
|
$
|
0.95
|
|
Weighted average shares, basic
|
80,983
|
|
81,087
|
|
81,121
|
|
75,539
|
|
Weighted average shares, diluted
|
82,244
|
|
81,945
|
|
81,783
|
|
75,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
NOTE Y— PARENT COMPANY FINANCIALS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
|
(in thousands)
|
ASSETS
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
107,151
|
|
|
$
|
230,647
|
|
Due from affiliates
|
100,094
|
|
|
146,683
|
|
Total current assets
|
207,245
|
|
|
377,330
|
|
Investment in subsidiaries
|
850,099
|
|
|
1,024,511
|
|
Total assets
|
$
|
1,057,344
|
|
|
$
|
1,401,841
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current Liabilities:
|
|
|
|
Accrued expenses and other current liabilities
|
$
|
217
|
|
|
$
|
106
|
|
Dividends payable
|
4,823
|
|
|
5,229
|
|
Total current liabilities
|
5,040
|
|
|
5,335
|
|
Deferred income taxes, net
|
—
|
|
|
—
|
|
Total liabilities
|
5,040
|
|
|
5,335
|
|
Stockholders’ Equity:
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
Common stock
|
818
|
|
|
812
|
|
Additional paid-in capital
|
1,169,383
|
|
|
1,147,084
|
|
Retained earnings
|
67,854
|
|
|
287,992
|
|
Treasury stock, at cost
|
(178,215
|
)
|
|
(25,456
|
)
|
Accumulated other comprehensive loss
|
(15,020
|
)
|
|
(13,926
|
)
|
Total U.S. Silica Holdings, Inc. stockholders’ equity
|
1,044,820
|
|
|
1,396,506
|
|
Non-controlling interest
|
7,484
|
|
|
—
|
|
Total stockholders' equity
|
1,052,304
|
|
|
1,396,506
|
|
Total liabilities and stockholders’ equity
|
$
|
1,057,344
|
|
|
$
|
1,401,841
|
|
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands, except per share amounts)
|
Sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
|
|
|
|
|
Selling, general and administrative
|
254
|
|
|
252
|
|
|
184
|
|
Other
|
—
|
|
|
—
|
|
|
10
|
|
Total operating expenses
|
254
|
|
|
252
|
|
|
194
|
|
Operating loss
|
(254
|
)
|
|
(252
|
)
|
|
(194
|
)
|
Other income (expense)
|
|
|
|
|
|
Interest income
|
2,784
|
|
|
3,854
|
|
|
1,046
|
|
Other income, net, including interest income
|
—
|
|
|
—
|
|
|
—
|
|
Total other income (expense)
|
2,784
|
|
|
3,854
|
|
|
1,046
|
|
Income before income taxes and equity in net earnings of subsidiaries
|
2,530
|
|
|
3,602
|
|
|
852
|
|
Income tax benefit (expense)
|
(696
|
)
|
|
(1,453
|
)
|
|
(344
|
)
|
Income before equity in net earnings of subsidiaries
|
1,834
|
|
|
2,149
|
|
|
508
|
|
Equity in earnings of subsidiaries, net of tax
|
(202,655
|
)
|
|
143,057
|
|
|
(41,564
|
)
|
Net income (loss)
|
(200,821
|
)
|
|
145,206
|
|
|
(41,056
|
)
|
Less: Net income (loss) attributable to non-controlling interest
|
(13
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to U.S. Silica Holdings, Inc.
|
(200,808
|
)
|
|
145,206
|
|
|
(41,056
|
)
|
|
|
|
|
|
|
Net income (loss)
|
(200,821
|
)
|
|
145,206
|
|
|
(41,056
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
Unrealized gain (loss) on investments (net of tax of z
er
o, zero, and $(4) for 2018, 2017 and 2016, respectively)
|
—
|
|
|
—
|
|
|
(6
|
)
|
Unrealized gain (loss) on derivatives (net of tax of $(470) $(27) and $29 for 2018, 2017, and 2016, respectively)
|
(1,545
|
)
|
|
(44
|
)
|
|
49
|
|
Foreign currency translation adjustment (net of tax of $
(19
6) $2 and zero for 2018, 2017 and 2016, respectively)
|
(614
|
)
|
|
(6
|
)
|
|
—
|
|
Pension and other post-retirement benefits liability a
djus
tment (net of tax of $339, $1,205 and $152 for 2018, 2017 and 2016, respectively)
|
1,065
|
|
|
2,000
|
|
|
252
|
|
Comprehensive income (loss)
|
(201,915
|
)
|
|
147,156
|
|
|
(40,761
|
)
|
Less: Comprehensive income (loss) attributable to non-controlling interest
|
$
|
(13
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Comprehensive income (loss) attributable to U.S. Silica Holdings, Inc.
|
$
|
(201,902
|
)
|
|
$
|
147,156
|
|
|
$
|
(40,761
|
)
|
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
Treasury Stock
|
|
Additional Paid-In Capital
|
|
Retained Earnings - Present
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total U.S. Silica, Inc., Stockholders' Equity
|
Non-controlling Interest
|
Total
Stockholders’
Equity
|
Balance at January 1, 2016
|
$
|
539
|
|
|
$
|
(15,845
|
)
|
|
$
|
194,670
|
|
|
$
|
220,974
|
|
|
$
|
(16,171
|
)
|
|
$
|
384,167
|
|
$
|
—
|
|
$
|
384,167
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,056
|
)
|
|
—
|
|
|
(41,056
|
)
|
—
|
|
(41,056
|
)
|
Issuance of common stock (stock offerings net of issuance costs of $25,732)
|
272
|
|
|
—
|
|
|
931,016
|
|
|
—
|
|
|
—
|
|
|
931,288
|
|
—
|
|
931,288
|
|
Unrealized gain on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
49
|
|
—
|
|
49
|
|
Unrealized loss on short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
—
|
|
(6
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
252
|
|
|
252
|
|
—
|
|
252
|
|
Cash dividend declared ($0.25 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,893
|
)
|
|
—
|
|
|
(16,893
|
)
|
—
|
|
(16,893
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
12,107
|
|
|
—
|
|
|
—
|
|
|
12,107
|
|
—
|
|
12,107
|
|
Excess tax benefit from equity-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
—
|
|
148
|
|
Proceeds from options exercised
|
—
|
|
|
8,465
|
|
|
(3,640
|
)
|
|
—
|
|
|
—
|
|
|
4,825
|
|
—
|
|
4,825
|
|
Issuance of restricted stock
|
—
|
|
|
1,437
|
|
|
(1,437
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Shares withheld for employee taxes related to vested restricted stock and stock units
|
—
|
|
|
2,074
|
|
|
(3,665
|
)
|
|
—
|
|
|
—
|
|
|
(1,591
|
)
|
—
|
|
(1,591
|
)
|
Balance at December 31, 2016
|
$
|
811
|
|
|
$
|
(3,869
|
)
|
|
$
|
1,129,051
|
|
|
$
|
163,173
|
|
|
$
|
(15,876
|
)
|
|
$
|
1,273,290
|
|
$
|
—
|
|
$
|
1,273,290
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
145,206
|
|
|
—
|
|
|
145,206
|
|
—
|
|
145,206
|
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
(44
|
)
|
—
|
|
(44
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
—
|
|
(6
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
2,000
|
|
—
|
|
2,000
|
|
Cash dividend declared ($0.25 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,387
|
)
|
|
—
|
|
|
(20,387
|
)
|
—
|
|
(20,387
|
)
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
25,050
|
|
|
—
|
|
|
—
|
|
|
25,050
|
|
—
|
|
25,050
|
|
Proceeds from options exercised
|
—
|
|
|
1,190
|
|
|
(392
|
)
|
|
—
|
|
|
—
|
|
|
798
|
|
—
|
|
798
|
|
Issuance of restricted stock
|
—
|
|
|
1,859
|
|
|
(1,859
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Shares withheld for employee taxes related to vested restricted stock and stock units
|
1
|
|
|
386
|
|
|
(4,766
|
)
|
|
—
|
|
|
—
|
|
|
(4,379
|
)
|
—
|
|
(4,379
|
)
|
Repurchase of common stock
|
—
|
|
|
(25,022
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,022
|
)
|
—
|
|
(25,022
|
)
|
Balance at December 31, 2017
|
$
|
812
|
|
|
$
|
(25,456
|
)
|
|
$
|
1,147,084
|
|
|
$
|
287,992
|
|
|
$
|
(13,926
|
)
|
|
$
|
1,396,506
|
|
$
|
—
|
|
$
|
1,396,506
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(200,808
|
)
|
|
—
|
|
|
(200,808
|
)
|
(13
|
)
|
(200,821
|
)
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,545
|
)
|
|
(1,545
|
)
|
—
|
|
(1,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(614
|
)
|
|
(614
|
)
|
—
|
|
(614
|
)
|
Pension and post-retirement liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,065
|
|
|
1,065
|
|
—
|
|
1,065
|
|
Cash dividend declared ($0.25 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,330
|
)
|
|
—
|
|
|
(19,330
|
)
|
—
|
|
(19,330
|
)
|
Contributions from non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
7,497
|
|
7,497
|
|
Common stock-based compensation plans activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
—
|
|
|
—
|
|
|
22,337
|
|
|
—
|
|
|
—
|
|
|
22,337
|
|
—
|
|
22,337
|
|
Proceeds from options exercised
|
—
|
|
|
93
|
|
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
61
|
|
—
|
|
61
|
|
Shares withheld for employee taxes related to vested restricted stock and stock units
|
6
|
|
|
(4,383
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(4,383
|
)
|
—
|
|
(4,383
|
)
|
Repurchase of common stock
|
—
|
|
|
(148,469
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148,469
|
)
|
—
|
|
(148,469
|
)
|
Balance at December 31, 2018
|
$
|
818
|
|
|
$
|
(178,215
|
)
|
|
$
|
1,169,383
|
|
|
$
|
67,854
|
|
|
$
|
(15,020
|
)
|
|
$
|
1,044,820
|
|
$
|
7,484
|
|
$
|
1,052,304
|
|
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands, except per share amounts)
|
Operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
(200,821
|
)
|
|
$
|
145,206
|
|
|
$
|
(41,056
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Undistributed (Income) loss from equity method investment, net
|
202,655
|
|
|
(143,057
|
)
|
|
41,564
|
|
Other
|
—
|
|
|
—
|
|
|
(30
|
)
|
Changes in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
(295
|
)
|
|
48
|
|
|
353
|
|
Net cash provided by operating activities
|
1,539
|
|
|
2,197
|
|
|
831
|
|
Investing activities:
|
|
|
|
|
|
Proceeds from sales and maturities of short-term investments
|
—
|
|
|
—
|
|
|
21,872
|
|
Investment in subsidiary
|
—
|
|
|
(143,654
|
)
|
|
(188,177
|
)
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(143,654
|
)
|
|
(166,305
|
)
|
Financing activities:
|
|
|
|
|
|
Dividends paid
|
(19,912
|
)
|
|
(20,377
|
)
|
|
(15,125
|
)
|
Repurchase of common stock
|
(148,469
|
)
|
|
(25,022
|
)
|
|
—
|
|
Proceeds from options exercised
|
61
|
|
|
798
|
|
|
4,603
|
|
Tax payments related to shares withheld for vested restricted stock and stock units
|
(4,383
|
)
|
|
(4,379
|
)
|
|
(1,590
|
)
|
Issuance of common stock (secondary offering)
|
—
|
|
|
—
|
|
|
678,791
|
|
Issuance of treasury stock
|
—
|
|
|
—
|
|
|
221
|
|
Costs of common stock issuance
|
—
|
|
|
—
|
|
|
(25,733
|
)
|
Contributions from non-controlling interest
|
7,497
|
|
|
—
|
|
|
—
|
|
Net financing activities with subsidiaries
|
40,171
|
|
|
(113,294
|
)
|
|
106
|
|
Net cash provided by (used in) financing activities
|
(125,035
|
)
|
|
(162,274
|
)
|
|
641,273
|
|
Net increase (decrease) in cash and cash equivalents
|
(123,496
|
)
|
|
(303,731
|
)
|
|
475,799
|
|
Cash and cash equivalents, beginning of period
|
230,647
|
|
|
534,378
|
|
|
58,579
|
|
Cash and cash equivalents, end of period
|
$
|
107,151
|
|
|
$
|
230,647
|
|
|
$
|
534,378
|
|
Non-cash financing activities:
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
Interest
|
$
|
(2,784
|
)
|
|
$
|
(3,853
|
)
|
|
$
|
(1,046
|
)
|
Non-cash transactions
|
|
|
|
|
|
Common stock issued for business acquisitions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
278,229
|
|
Notes to Condensed Financial Statements of Registrant (Parent Company Only)
These condensed parent company only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, because the restricted net assets of the subsidiaries of U.S. Silica Holdings, Inc. (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the Company. The ability of the Company's operating subsidiaries to pay dividends may be restricted due to the terms of the Company's senior Credit Facility, as discussed in
Note K - Debt
to these financial statements.
These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements; the only exceptions are that (a) the parent company accounts for its subsidiaries using the equity method of accounting, (b) taxes are allocated to the parent from the subsidiary using the separate return method, and (c) intercompany loans are not eliminated. In the parent company financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. These condensed parent company financial statements should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in this report.
No
cash dividends were paid to the parent by its consolidated entities for the years presented in the condensed financial statements.
NOTE Z— SUBSEQUENT EVENTS
On January 4, 2019, we paid a cash dividend of
$0.0625
per share to common stockholders of record on December 14, 2018, which had been declared by our Board of Directors on November 13, 2018.
On February 15, 2019, Our Board of Directors declared a quarterly cash dividend of
$0.0625
per share to common stockholders of record at the close of business on March 14, 2019, payable on April 4, 2019.