NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except per share amounts)
NOTE A—ORGANIZATION AND BASIS OF PRESENTATION
Organization
U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) is a global performance materials company and a leading producer of commercial silica used in the oil and gas industry and in a wide range of industrial applications. In addition, through our subsidiary EP Minerals, LLC ("EPM"), we are an industry leader in the production of industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite. During our 121-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 T - Segment Reporting for more information on our reportable segments.
Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements for the quarter ended September 30, 2021 included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). They do not contain certain information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020; therefore, the unaudited Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the nine-month period ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021. In the opinion of management, all adjustments necessary for a fair presentation have been included. Such adjustments are of a normal, recurring nature.
The unaudited Condensed 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.
Throughout this report we refer to (i) our unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets,” (ii) our unaudited Condensed Consolidated Statements of Operations as our “Income Statements,” and (iii) our unaudited Condensed Consolidated Statements of Cash Flows as our “Cash Flows.”
Reclassifications
Certain reclassifications of prior period presentations were made to conform to the current period presentation.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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 credit losses; 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. 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.
New Accounting Pronouncements Recently Adopted
None.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting followed by ASU 2021-01, Reference Rate Reform (Topic 848): Scope, issued in January 2021 to provide clarifying guidance regarding the scope of Topic 848. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Generally, the guidance is to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022. As of September 30, 2021, we have not elected to use the optional guidance and continue to evaluate the options provided by ASU 2020-04 and ASU 2021-01. See Note J - Debt for discussion of the use of the adjusted LIBOR rate in connection with borrowings under our senior secured revolving credit facility.
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.
Diluted net earnings per share assumes the conversion of contingently convertible securities and stock options under the treasury stock method, if dilutive. Contingently convertible securities and stock options are excluded from the calculation of fully diluted earnings per share if they are anti-dilutive, including when we incur a loss from continuing operations.
The following table shows the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
2021
|
|
2020
|
Numerator:
|
|
|
|
|
|
|
|
Net loss attributable to U.S. Silica Holdings, Inc.
|
|
$
|
(19,995)
|
|
|
$
|
(13,962)
|
|
$
|
(14,745)
|
|
|
$
|
(118,661)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
74,523
|
|
|
73,688
|
|
74,267
|
|
|
73,601
|
|
Diluted effect of stock awards
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Weighted average shares outstanding assuming dilution
|
|
74,523
|
|
|
73,688
|
|
74,267
|
|
|
73,601
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to U.S. Silica Holdings, Inc.:
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.27)
|
|
|
$
|
(0.19)
|
|
$
|
(0.20)
|
|
|
$
|
(1.61)
|
|
Diluted loss per share
|
|
$
|
(0.27)
|
|
|
$
|
(0.19)
|
|
$
|
(0.20)
|
|
|
$
|
(1.61)
|
|
Potentially dilutive shares were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share because we were in a net 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. Such potentially dilutive shares and stock awards excluded from the calculation of diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
2021
|
|
2020
|
Potentially dilutive shares excluded
|
|
1,523
|
|
|
348
|
|
1,706
|
|
|
173
|
|
Stock options excluded
|
|
667
|
|
|
826
|
|
584
|
|
|
826
|
|
Restricted stock and performance share unit awards excluded
|
|
92
|
|
|
2,667
|
|
67
|
|
|
4,103
|
|
NOTE D—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) consists of fair value adjustments associated with accumulated adjustments for net experience losses and prior service costs related to employee benefit plans and foreign currency translation adjustments, net of tax. The following table presents the changes in accumulated other comprehensive income (loss) by component (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2021
|
|
|
|
Foreign currency translation adjustments
|
|
Pension and other post-retirement benefits liability
|
|
Total
|
Beginning Balance
|
|
|
$
|
583
|
|
|
$
|
(9,062)
|
|
|
$
|
(8,479)
|
|
Other comprehensive (loss) gain before reclassifications
|
|
|
(707)
|
|
|
6,029
|
|
|
5,322
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
595
|
|
|
595
|
|
Ending Balance
|
|
|
$
|
(124)
|
|
|
$
|
(2,438)
|
|
|
$
|
(2,562)
|
|
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
During the first quarter of 2020, we settled multiple intellectual property and contractual lawsuits involving our SandBox Logistics unit and Arrows Up, LLC. As part of the settlement, SandBox Logistics took control of Arrows Up's existing business, including all equipment and sand logistics contracts, while also receiving a cash payment.
We accounted for the acquisition of Arrows Up, LLC under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Estimates of fair value included in the Condensed Consolidated Financial Statements represented our best estimates and valuations. In accordance with the acquisition method of accounting, the fair values were subject to adjustment until we completed our analysis, which was during the first quarter of 2021. This business combination resulted in a bargain purchase pursuant to ASC 805-30-25 because no consideration was paid for the fair value of assets acquired and liabilities assumed. The fair value of assets acquired, which included cash, accounts receivable, inventories, lease right-of-use assets, and property plant, and equipment, was $20.1 million. The fair value of liabilities assumed, which included lease liabilities and other long-term liabilities, was $2.5 million. A gain on bargain purchase of $17.6 million was recorded in "Other income, net, including interest income" in the Condensed Consolidated Statement of Operations.
In the three months ended March 31, 2021, we recorded a $0.1 million increase to accounts receivable, which was our final adjustment to the purchase price. The total adjustments during the measurement period of $2.4 million were recorded as a net decrease to the initial gain on bargain purchase and recorded in "Other (expense) income, net, including interest income" in the Condensed Consolidated Statement of Operations.
NOTE F—ACCOUNTS RECEIVABLE
Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of our accounts receivable, net of the allowance for credit losses, represents their estimated net realizable value. Accounts receivable (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Trade receivables
|
$
|
157,406
|
|
|
$
|
171,230
|
|
Less: Allowance for credit losses
|
(4,878)
|
|
|
(6,604)
|
|
Net trade receivables
|
152,528
|
|
|
164,626
|
|
Other receivables(1)
|
24,231
|
|
|
42,308
|
|
Total accounts receivable
|
$
|
176,759
|
|
|
$
|
206,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At September 30, 2021 and December 31, 2020, other receivables included $21.5 million and $37.4 million, respectively, of refunds related to NOL carryback claims filed for various tax years in accordance with certain provisions of the CARES Act.
|
We classify our trade receivables into the following portfolio segments: Oil & Gas Proppants and Industrial & Specialty Products, which also aligns with our reporting segments. We estimate the allowance for credit losses based on historical collection trends, the age of outstanding receivables, risks attributable to specific customers, such as credit history, bankruptcy or other going concern issues, and current economic and industry conditions. If events or circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past due balances are written off when we have exhausted our internal and external collection efforts and have been unsuccessful in collecting the amount due.
The following table reflects the change of the allowance for credit losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total
|
Beginning balance, December 31, 2020
|
$
|
5,684
|
|
|
$
|
920
|
|
|
$
|
6,604
|
|
Allowance for credit losses
|
(1,000)
|
|
|
52
|
|
|
(948)
|
|
Write-offs
|
(16)
|
|
|
(762)
|
|
|
(778)
|
|
Ending balance, September 30, 2021
|
$
|
4,668
|
|
|
$
|
210
|
|
|
$
|
4,878
|
|
Our ten largest customers accounted for 30% and 42% of total sales for the three and nine months ended September 30, 2021, respectively, and 23% and 32% for the three and nine months ended September 30, 2020, respectively. No customers accounted for 10% or more of our total sales for the three or nine months ended September 30, 2021 or 2020. At September 30, 2021, none of our customers' accounts receivable represented 10% or more of our total trade accounts receivable. At December 31, 2020, one of our customer's accounts receivable represented 24% of our total trade accounts receivable.
NOTE G—INVENTORIES
Inventories (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Supplies
|
$
|
44,618
|
|
|
$
|
42,329
|
|
Raw materials and work in process
|
37,752
|
|
|
33,723
|
|
Finished goods
|
34,035
|
|
|
28,632
|
|
Total inventories
|
$
|
116,405
|
|
|
$
|
104,684
|
|
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the Organization of the Petroleum Exporting Countries and other oil producing nations ("OPEC+") agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants segment. As a result of these events, we recorded impairment charges of zero and $6.7 million for the three and nine months ended September 30, 2020, respectively, primarily related to unused inventory at idled plants. These charges related to the Oil & Gas Proppants segment and were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. No impairment charges were recorded related to inventory for the nine months ended September 30, 2021.
NOTE H—PROPERTY, PLANT AND MINE DEVELOPMENT
Property, plant and mine development (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Mining property and mine development
|
$
|
788,415
|
|
|
$
|
788,287
|
|
Asset retirement cost
|
19,103
|
|
|
15,985
|
|
Land
|
55,275
|
|
|
54,710
|
|
Land improvements
|
76,248
|
|
|
76,002
|
|
Buildings
|
70,309
|
|
|
69,841
|
|
Machinery and equipment
|
1,178,631
|
|
|
1,171,382
|
|
Furniture and fixtures
|
3,932
|
|
|
4,071
|
|
Construction-in-progress
|
35,150
|
|
|
27,216
|
|
|
2,227,063
|
|
|
2,207,494
|
|
Accumulated depreciation, depletion, amortization and impairment charges
|
(949,930)
|
|
|
(839,402)
|
|
Total property, plant and mine development, net
|
$
|
1,277,133
|
|
|
$
|
1,368,092
|
|
Depreciation, depletion, and amortization expense related to property, plant and mine development was $37.1 million and $37.3 million for the three months ended September 30, 2021 and 2020, respectively, and $114.0 million and $106.6 million for the nine months ended September 30, 2021 and 2020, respectively.
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the OPEC+ agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants segment. As a result of these events, we recorded impairment charges of zero and $11.6 million for the three and nine months ended September 30, 2020, respectively, related primarily to our Kosse, Texas facility, which was idled. These impairment charges related to the Oil & Gas Proppants segment and were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. No material impairment charges were recorded related to property, plant and mine development for the nine months ended September 30, 2021.
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
|
|
Totals
|
Balance at December 31, 2020
|
$
|
—
|
|
|
$
|
185,649
|
|
|
$
|
185,649
|
|
Impairment loss
|
—
|
|
|
—
|
|
|
—
|
|
Balance at September 30, 2021
|
$
|
—
|
|
|
$
|
185,649
|
|
|
$
|
185,649
|
|
Goodwill and trade names are evaluated for impairment annually as of October 31, or more frequently when indicators of impairment exist. 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.
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the OPEC+ agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants segment. As a result of these triggering events, we performed a quantitative analysis and determined that the goodwill of our Oil & Gas reporting unit was impaired. We recognized goodwill impairment charges of $86.1 million during the first quarter of 2020, which were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. There were no triggering events during the first nine months of 2021, therefore, no impairment charges were recorded related to goodwill for the nine months ended September 30, 2021.
The changes in the carrying amount of intangible assets (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
December 31, 2020
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Impairments
|
Net
|
Gross Carrying Amount
|
Accumulated Amortization
|
Impairments
|
Net
|
|
|
|
|
|
|
|
|
|
Technology and intellectual property
|
$
|
71,177
|
|
$
|
(23,886)
|
|
$
|
—
|
|
$
|
47,291
|
|
$
|
71,052
|
|
$
|
(18,854)
|
|
$
|
(1,373)
|
|
$
|
50,825
|
|
Customer relationships
|
66,999
|
|
(26,785)
|
|
—
|
|
40,214
|
|
66,999
|
|
(23,182)
|
|
—
|
|
43,817
|
|
Total definite-lived intangible assets:
|
$
|
138,176
|
|
$
|
(50,671)
|
|
$
|
—
|
|
$
|
87,505
|
|
$
|
138,051
|
|
$
|
(42,036)
|
|
$
|
(1,373)
|
|
$
|
94,642
|
|
Trade names
|
64,240
|
|
—
|
|
—
|
|
64,240
|
|
65,390
|
|
—
|
|
(1,150)
|
|
64,240
|
|
Other
|
700
|
|
—
|
|
—
|
|
700
|
|
700
|
|
—
|
|
—
|
|
700
|
|
Total intangible assets:
|
$
|
203,116
|
|
$
|
(50,671)
|
|
$
|
—
|
|
$
|
152,445
|
|
$
|
204,141
|
|
$
|
(42,036)
|
|
$
|
(2,523)
|
|
$
|
159,582
|
|
Estimated useful life of technology and intellectual property is 15 years. Estimated useful life of customer relationships is a range of 13 - 20 years.
Amortization expense was $2.4 million and $7.3 million for the three and nine months ended September 30, 2021 and $2.5 million and $7.9 million for the three and nine months ended September 30, 2020, respectively.
The estimated amortization expense related to definite-lived intangible assets (in thousands) for the five succeeding years is as follows:
|
|
|
|
|
|
2021 (remaining three months)
|
$
|
2,422
|
|
2022
|
9,669
|
|
2023
|
9,664
|
|
2024
|
9,665
|
|
2025
|
9,664
|
|
NOTE J—DEBT
Debt (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Senior secured credit facility:
|
|
|
|
Revolver expiring May 1, 2023 (4.13% at September 30, 2021 and 4.19% at December 31, 2020)
|
$
|
—
|
|
|
$
|
25,000
|
|
Term Loan—final maturity May 1, 2025 (5.00% at September 30, 2021 and 5.00% at December 31, 2020)
|
1,225,200
|
|
|
1,234,800
|
|
Less: Unamortized original issue discount
|
(3,605)
|
|
|
(4,376)
|
|
Less: Unamortized debt issuance cost
|
(16,458)
|
|
|
(20,259)
|
|
Insurance financing notes payable
|
6,636
|
|
|
4,187
|
|
Finance leases (See Note P - Leases)
|
3,803
|
|
|
350
|
|
Total debt
|
1,215,576
|
|
|
1,239,702
|
|
Less: current portion
|
(20,484)
|
|
|
(42,042)
|
|
Total long-term portion of debt
|
$
|
1,195,092
|
|
|
$
|
1,197,660
|
|
Senior Secured Credit Facility
On May 1, 2018, we entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement"), which increased our existing senior debt by entering into a new $1.380 billion senior secured credit facility, consisting of a $1.280 billion term loan (the "Term Loan") and a $100 million revolving credit facility (the "Revolver") (collectively the "Credit Facility) 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, limit 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 September 30, 2021 and December 31, 2020, we are in compliance with all covenants in accordance with our senior secured Credit Facility.
Term Loan
At September 30, 2021, contractual maturities of our Term Loan (in thousands) are as follows:
|
|
|
|
|
|
2021 (remaining three months)
|
$
|
3,200
|
|
2022
|
12,800
|
|
2023
|
12,800
|
|
2024
|
12,800
|
|
2025
|
1,183,600
|
|
Thereafter
|
—
|
|
Total
|
$
|
1,225,200
|
|
Revolving Line-of-Credit
We have a $100.0 million Revolver with zero drawn and $22.2 million allocated for letters of credit as of September 30, 2021, leaving $77.8 million available under the Revolver.
Based on our consolidated leverage ratio of 4.96:1.00 as of September 30, 2021, we may draw up to approximately $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver.
Insurance Financing Notes Payable
During the third quarter of 2021, we renewed our insurance policies and financed the payments through notes payable with a stated interest rate of 2.9%. These payments will be made in installments throughout a nine-month period and, as such, were classified as current debt. As of September 30, 2021, the notes payable had a balance of $6.6 million.
NOTE K—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 such 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. Liabilities related to our asset retirement obligations are reflected in other long-term liabilities on our balance sheets. Changes in the asset retirement obligations (in thousands) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
Beginning balance
|
$
|
24,717
|
|
|
$
|
25,825
|
|
Accretion
|
1,046
|
|
|
1,098
|
|
Additions and revisions of estimates
|
3,397
|
|
|
(890)
|
|
Ending balance
|
$
|
29,160
|
|
|
$
|
26,033
|
|
NOTE L—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 September 30, 2021 and December 31, 2020, approximated their reported carrying values.
Long-Term Debt, Including Current Maturities
We believe that the fair values of our long-term debt, including current maturities, approximated their carrying values based on their effective interest rates compared to current market rates.
NOTE M—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 effective May 2015, amended and restated effective February 1, 2020, and amended and restated effective May 13, 2021. 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 September 30, 2021, we had 2,581,828 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 nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
|
|
Weighted
Average
Remaining Contractual Term in Years
|
Outstanding at December 31, 2020
|
826,215
|
|
|
$
|
29.05
|
|
|
|
|
3.1 years
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
(10,164)
|
|
|
$
|
10.33
|
|
|
|
|
|
Forfeited
|
(113,333)
|
|
|
$
|
24.76
|
|
|
|
|
|
Expired
|
(36,000)
|
|
|
$
|
14.58
|
|
|
|
|
|
Outstanding at September 30, 2021
|
666,718
|
|
|
$
|
30.84
|
|
|
|
|
2.7 years
|
Exercisable at September 30, 2021
|
666,718
|
|
|
$
|
30.84
|
|
|
|
|
2.7 years
|
There were no grants of stock options during the three and nine months ended September 30, 2021 and 2020.
There were zero and 10,164 stock options exercised during the three and nine months ended September 30, 2021. The total intrinsic value of stock options exercised was $44 thousand for the nine months ended September 30, 2021. Cash received from stock options exercised during the nine months ended September 30, 2021 was $105 thousand. The tax benefit realized from stock option exercises was $11 thousand for the nine months ended September 30, 2021. There were no stock options exercised during the three and nine months ended September 30, 2020.
As of September 30, 2021 and 2020, there was no 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 nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2020
|
1,779,826
|
|
|
$
|
6.22
|
|
Granted
|
748,844
|
|
|
$
|
10.04
|
|
Vested
|
(971,934)
|
|
|
$
|
5.45
|
|
Forfeited
|
(19,299)
|
|
|
$
|
11.81
|
|
Unvested, September 30, 2021
|
1,537,437
|
|
|
$
|
8.34
|
|
We granted 53,383 and 748,844 restricted stock and restricted stock unit awards during the three and nine months ended September 30, 2021, respectively. We granted 49,696 and 1,541,473 restricted stock and restricted stock units during the three and nine months ended September 30, 2020, respectively. The fair value of the awards was based on the market price of our stock at date of grant.
We recognized $1.7 million and $5.0 million of equity-based compensation expense related to restricted stock and restricted stock units during the three and nine months ended September 30, 2021, respectively. We recognized $2.7 million and $6.6 million of equity-based compensation expense related to restricted stock and restricted stock units during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, there was $8.8 million of unrecognized compensation expense related to these restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 1.9 years.
We also granted cash awards during the nine months ended September 30, 2020. These awards will vest over a period of three years and will be settled in cash. As such, these awards have been classified as liability instruments. We recognized $39.0 thousand and $0.6 million of expense related to these awards for the three and nine months ended September 30, 2021, respectively. We recognized $0.1 million and $0.2 million of expense related to these awards for the three and nine months ended September 30, 2020, respectively. The liability for these awards is included in accounts payable and other accrued expenses on our balance sheets. These awards will be remeasured at fair value each reporting period with resulting changes
reflected in our income statements. Estimated unrecognized expense related to these awards is $0.8 million over a period of 1.3 years.
Performance Share Unit Awards
The following table summarizes the status of, and changes in, our performance share unit awards during the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Grant Date Weighted
Average Fair Value
|
Unvested, December 31, 2020
|
1,513,648
|
|
|
$
|
12.36
|
|
Granted
|
776,153
|
|
|
$
|
11.52
|
|
Vested
|
(17,352)
|
|
|
$
|
31.24
|
|
Forfeited/Cancelled
|
(185,876)
|
|
|
$
|
29.74
|
|
Unvested, September 30, 2021
|
2,086,573
|
|
|
$
|
10.36
|
|
We granted zero and 776,153 performance share unit awards during the three and nine months ended September 30, 2021, respectively. We granted zero and 1,020,161 performance share unit awards during the three and nine months ended September 30, 2020, respectively. 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 $3.8 million and $8.4 million of compensation expense related to performance share unit awards during the three and nine months ended September 30, 2021, respectively. We recognized $2.7 million and $5.7 million of compensation expense related to performance share unit awards during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, there was $10.3 million of unrecognized compensation expense related to these performance share unit awards, which is expected to be recognized over a weighted-average period of 1.9 years.
We also granted cash awards during the nine months ended September 30, 2020. These awards will vest over a period of three years and will be settled in cash. As such, these awards have been classified as liability instruments. We recognized $0.5 million and $0.7 million of expense related to these awards for the nine months ended September 30, 2021 and 2020, respectively. The liability for these awards is included in accounts payable and other accrued expenses on our balance sheets. These awards will be remeasured at fair value each reporting period with resulting changes reflected in our income statements. Estimated unrecognized expense related to these awards is $0.7 million over a period of 1.3 years.
NOTE N—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at September 30, 2021 (in thousands):
|
|
|
|
|
|
|
Minimum Purchase Commitments
|
2021 (remaining three months)
|
$
|
5,825
|
|
2022
|
11,908
|
|
2023
|
9,986
|
|
2024
|
4,997
|
|
2025
|
2,486
|
|
Thereafter
|
11,092
|
|
Total future purchase commitments
|
$
|
46,294
|
|
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 nine months ended September 30, 2021, two new claims were brought against U.S. Silica. As of September 30, 2021, there were 44 active silica-related product 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 liabilities 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 September 30, 2021 and December 31, 2020, other non-current assets included zero for insurance for third-party product liability claims. As of September 30, 2021 and December 31, 2020 other long-term liabilities included $0.9 million and $1.0 million, respectively, for third-party product liability claims.
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 September 30, 2021, there was $36.8 million in bonds outstanding, of which $32.8 million related 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 licenses, permits, and tax collection.
NOTE O—PENSION AND POST-RETIREMENT BENEFITS
We maintain a single-employer noncontributory defined benefit pension plan covering certain employees. The plan is frozen to all new employees. The plan provides benefits based on each covered employee’s years of qualifying service. Our funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for the plan consistent with a goal of appropriate minimization of the unfunded projected benefit obligations. The pension plan uses a benefit level per year of service for covered hourly employees and a final average pay method for covered salaried employees. The plan uses the projected unit credit cost method to determine the actuarial valuation.
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. In general, retiree health benefits are paid as covered expenses are incurred. Expenses incurred other than service costs are reported in Other income (expense) in our Condensed Consolidated Statements of Operations.
Net pension benefit cost (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
2021
|
|
2020
|
Service cost
|
$
|
585
|
|
|
$
|
199
|
|
$
|
2,196
|
|
|
$
|
1,515
|
|
Interest cost
|
532
|
|
|
356
|
|
2,012
|
|
|
2,349
|
|
Expected return on plan assets
|
(1,509)
|
|
|
(531)
|
|
(4,369)
|
|
|
(3,394)
|
|
Net amortization and deferral
|
567
|
|
|
276
|
|
2,468
|
|
|
2,078
|
|
Net pension benefit costs
|
$
|
175
|
|
|
$
|
300
|
|
$
|
2,307
|
|
|
$
|
2,548
|
|
Net post-retirement benefit cost (in thousands) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
2021
|
|
2020
|
Service cost
|
$
|
(21)
|
|
|
$
|
28
|
|
$
|
18
|
|
|
$
|
65
|
|
Interest cost
|
(99)
|
|
|
235
|
|
106
|
|
|
426
|
|
Unrecognized prior service cost
|
(1,547)
|
|
|
—
|
|
(1,547)
|
|
|
—
|
|
Unrecognized net (gain)/loss
|
(106)
|
|
|
—
|
|
(106)
|
|
|
—
|
|
|
|
|
|
|
|
|
Net post-retirement benefit costs
|
(1,773)
|
|
|
$
|
263
|
|
$
|
(1,529)
|
|
|
$
|
491
|
|
We contributed $0.2 million and $2.8 million to the qualified pension plan for the three and nine months ended September 30, 2021, respectively, and $2.2 million and $4.2 million for the three and nine months ended September 30, 2020, respectively. Our best estimates of expected contributions to the pension and post-retirement medical benefit plans for the 2021 fiscal year are $2.8 million and $1.2 million, respectively.
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. Our contributions to individual multiemployer pension funds did not exceed 5% of the fund’s total contributions for the three and nine months ended September 30, 2021 and 2020. Additionally, our contributions to multiemployer post-retirement benefit plans were immaterial for all periods presented in the accompanying condensed 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. For all other eligible employees, we make a contribution up to 6% of eligible earnings. Contributions were $1.5 million and $4.4 million for the three and nine months ended September 30, 2021, respectively, and $0.8 million and $3.6 million for the three and nine months ended September 30, 2020, respectively.
NOTE P— LEASES
We lease railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. The majority of our leases have remaining lease terms of one year to 20 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We have lease agreements with lease and non-lease components, the latter of which are generally accounted for separately.
Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
Classification
|
|
September 30,
2021
|
December 31, 2020
|
Assets
|
|
|
|
|
Operating
|
Lease right-of-use assets
|
|
$
|
41,136
|
|
$
|
37,130
|
|
Finance
|
Lease right-of-use assets
|
|
3,730
|
|
339
|
|
Total leased assets
|
|
|
$
|
44,866
|
|
$
|
37,469
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
Current portion of operating lease liabilities
|
|
$
|
15,846
|
|
$
|
17,388
|
|
Finance
|
Current portion of long-term debt
|
|
1,048
|
|
55
|
|
Non-current
|
|
|
|
|
Operating
|
Operating lease liabilities
|
|
76,806
|
|
76,361
|
|
Finance
|
Long-term debt, net
|
|
2,755
|
|
295
|
|
Total lease liabilities
|
|
|
$
|
96,455
|
|
$
|
94,099
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
Operating
|
|
|
6.9 years
|
6.9 years
|
Finance
|
|
|
3.6 years
|
2.9 years
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating
|
|
|
5.7%
|
5.8%
|
Finance
|
|
|
5.1%
|
5.0%
|
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the OPEC+ agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants segment. As a result of these events, we recorded impairment charges of $0.2 million and $3.4 million for the three and nine months ended September 30, 2020, respectively, primarily related to railcar leases, various equipment leases, and an office building lease. These charges related to the Oil & Gas Proppants segment and were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. No impairment charges were recorded related to leased assets for the nine months ended September 30, 2021.
The components of lease expense (in thousands) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Costs
|
Classification
|
Three Months Ended
September 30, 2021
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2020
|
Operating lease costs(1)
|
Cost of sales
|
$
|
8,097
|
|
$
|
5,711
|
|
$
|
24,994
|
|
$
|
21,417
|
|
Operating lease costs(2)
|
Selling, general and administrative
|
447
|
|
415
|
|
1,468
|
|
1,420
|
|
Total (3)
|
|
$
|
8,544
|
|
$
|
6,126
|
|
$
|
26,462
|
|
$
|
22,837
|
|
|
|
|
|
|
|
|
|
|
(1) Included short-term operating lease costs of $4.6 million and $12.9 million for the three and nine months ended September 30, 2021, respectively. Included short-term operating lease costs of $0.3 million and $7.5 million for the three and nine months ended September 30, 2020, respectively.
|
(2) Included short-term operating lease costs of $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. Included short-term operating lease costs of $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively.
|
(3) Not included were expenses for finance leases of $0.6 million and $0.9 million for the three and nine months ended September 30, 2021.
|
Supplemental cash flow information (in thousands) related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
19,728
|
|
$
|
51,859
|
|
Financing cash flows for finance leases
|
|
$
|
456
|
|
$
|
—
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new lease liabilities:
|
|
|
|
Operating leases
|
|
$
|
15,444
|
|
$
|
10,650
|
|
Finance leases
|
|
$
|
3,834
|
|
$
|
—
|
|
Maturities of lease liabilities (in thousands) as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
Operating leases
|
Finance leases
|
2021 (remaining three months)
|
$
|
5,554
|
|
$
|
302
|
|
2022
|
21,455
|
|
1,209
|
|
2023
|
20,869
|
|
1,199
|
|
2024
|
17,061
|
|
764
|
|
2025
|
13,583
|
|
605
|
|
Thereafter
|
41,752
|
|
71
|
|
Total lease payments
|
$
|
120,274
|
|
$
|
4,150
|
|
Less: Interest
|
23,614
|
|
347
|
|
Less: Other operating expenses
|
4,008
|
|
—
|
|
Total
|
$
|
92,652
|
|
$
|
3,803
|
|
NOTE Q— INCOME TAXES
For interim period reporting, we record income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. At the end of each interim period, we update the estimated annual effective tax rate, and if the estimated tax rate changes based on new information, we make a cumulative adjustment in the period. We record the tax effect of an unusual or infrequently occurring item in the interim period in which it occurs as a discrete item of tax.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permitted NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning after 2017 and before 2021. In addition, the CARES Act allowed NOLs generated after 2017 and before 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. As a result, during 2020, we carried the NOL generated in 2019 back to offset the taxable income in the 2014 tax year generating a refund of $36.6 million. This refund was received during the second quarter of 2020. We also amended our 2018 tax return to generate an NOL by electing bonus depreciation. We then carried the NOL generated in 2018 back to offset the taxable income in prior years generating a refund of $26.3 million, of which $4.9 million was received during the fourth quarter of 2020. At September 30, 2021, the remaining $21.5 million of this refund was included in accounts receivable in our balance sheets. The deferred tax assets related to the NOLs generated in 2018 and 2019 were recorded at the statutory income tax rate for 2018 and 2019, which was 21% for both years. As a result of the carry back of these NOLs to prior years, the NOLs will be utilized at the statutory income tax rate for pre-2018, which was 35%. This increase in the tax rate at which the 2018 and 2019 NOLs will be utilized results in a deferred tax benefit. Accordingly, for the
year ended December 31, 2020, we recorded a deferred tax benefit of $22.3 million. Pursuant to ASC 740, this was recorded as a discrete component of the tax benefit.
The CARES Act also accelerated the ability of companies to receive refunds of alternative minimum tax (“AMT”) credits related to tax years beginning in 2018 and 2019. AMT credits were presented as a receivable or a deferred tax asset in the prior period balance sheets. The presentation of refundable AMT credits in the balance sheet was reclassified during 2020 from deferred tax assets to accounts receivable to reflect the timing of when the credits were expected to be monetized. AMT credits in the amount of $16.0 million were included in accounts receivable on our balance sheets as of December 31, 2020, and were received in full during the first quarter of 2021.
For the three and nine months ended September 30, 2021, we had a tax benefit of $6.1 million and tax expense of $1.2 million, respectively. For the three and nine months ended September 30, 2020, we had tax benefits of $4.1 million and $63.8 million, respectively. The effective tax rates were 23% and (8)% for the three and nine months ended September 30, 2021, respectively. The effective tax rates were 22% and 35% for the three and nine months ended September 30, 2020, respectively. Without discrete items, which primarily consist of tax expense related to equity compensation and state tax expense, the effective tax rates for both the three and nine months ended September 30, 2021 would have been 24%. Without discrete items, the effective tax rates for the three and nine months ended September 30, 2020 would have been 26% and 24%, respectively.
During the three and nine months ended September 30, 2021, we recorded tax expense related to equity compensation of zero and $0.5 million, respectively. During the three and nine months ended September 30, 2020, we recorded tax expense related to equity compensation of $0.3 million and $1.7 million, respectively.
NOTE R— 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
Three Months Ended
September 30, 2020
|
Category
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total Sales
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total Sales
|
Product
|
|
$
|
90,684
|
|
|
$
|
125,450
|
|
|
$
|
216,134
|
|
|
$
|
49,508
|
|
|
$
|
110,129
|
|
|
$
|
159,637
|
|
Service
|
|
51,164
|
|
|
—
|
|
|
51,164
|
|
|
16,835
|
|
|
—
|
|
|
16,835
|
|
Total Sales
|
|
$
|
141,848
|
|
|
$
|
125,450
|
|
|
$
|
267,298
|
|
|
$
|
66,343
|
|
|
$
|
110,129
|
|
|
$
|
176,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
Nine Months Ended
September 30, 2020
|
Category
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total Sales
|
|
Oil & Gas Proppants
|
|
Industrial & Specialty Products
|
|
Total Sales
|
Product
|
|
$
|
313,438
|
|
|
$
|
362,173
|
|
|
$
|
675,611
|
|
|
$
|
217,943
|
|
|
$
|
324,055
|
|
|
$
|
541,998
|
|
Service
|
|
143,404
|
|
|
—
|
|
|
143,404
|
|
|
76,610
|
|
|
—
|
|
|
76,610
|
|
Total Sales
|
|
$
|
456,842
|
|
|
$
|
362,173
|
|
|
$
|
819,015
|
|
|
$
|
294,553
|
|
|
$
|
324,055
|
|
|
$
|
618,608
|
|
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 nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled Receivables
|
|
|
September 30, 2021
|
September 30, 2020
|
Beginning Balance
|
|
$
|
47,982
|
|
$
|
20,144
|
|
Reclassifications to billed receivables
|
|
(94,273)
|
|
(350)
|
|
Revenues recognized in excess of period billings
|
|
57,323
|
|
1,226
|
|
Ending Balance
|
|
$
|
11,032
|
|
$
|
21,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
|
September 30, 2021
|
September 30, 2020
|
Beginning Balance
|
|
$
|
33,692
|
|
$
|
50,634
|
|
Revenues recognized from balances held at the beginning of the period
|
|
(11,162)
|
|
(7,259)
|
|
Revenues deferred from period collections on unfulfilled performance obligations
|
|
4,361
|
|
4,782
|
|
Revenues recognized from period collections
|
|
(3,102)
|
|
(3,815)
|
|
Ending Balance
|
|
$
|
23,789
|
|
$
|
44,342
|
|
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.
During the second quarter of 2021, we entered into an agreement to settle a customer dispute regarding fees related to minimum purchase commitments from 2014-2020. As a result of this settlement, we recognized approximately $49.0 million in revenue as of June 30, 2021. As of June 30, 2021, $43.9 million was included in unbilled receivables and $1.1 million was included in billed receivables related to this settlement. These amounts were received in full during the third quarter of 2021.
Foreign Operations
The following table includes information related to our foreign operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2020
|
Total Sales
|
|
$
|
23,781
|
|
$
|
22,084
|
|
$
|
71,133
|
|
$
|
65,948
|
|
Pre-tax income
|
|
$
|
2,852
|
|
$
|
3,220
|
|
$
|
12,024
|
|
$
|
11,299
|
|
Net income
|
|
$
|
2,253
|
|
$
|
2,544
|
|
$
|
9,499
|
|
$
|
8,927
|
|
Foreign operations constituted approximately $31.8 million and $32.8 million of consolidated assets as of September 30, 2021 and 2020, respectively.
NOTE S— RELATED PARTY TRANSACTIONS
There were no related party transactions during the three and nine months ended September 30, 2021 or 2020.
NOTE T— 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 600 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 selling, general, and administrative costs, corporate costs, plant capacity expansion expenses, and facility closure costs. 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 the Consolidated Financial Statements in Item 8 of our 2020 Annual Report on Form 10-K.
The following table presents sales and segment contribution margin (in thousands) for the reportable segments and other operating results not allocated to the reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
2021
|
|
2020
|
Sales:
|
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
141,848
|
|
|
$
|
66,343
|
|
$
|
456,842
|
|
|
$
|
294,553
|
|
Industrial & Specialty Products
|
125,450
|
|
|
110,129
|
|
362,173
|
|
|
324,055
|
|
Total sales
|
267,298
|
|
|
176,472
|
|
819,015
|
|
|
618,608
|
|
Segment contribution margin:
|
|
|
|
|
|
|
Oil & Gas Proppants
|
25,723
|
|
|
31,478
|
|
129,937
|
|
|
90,540
|
|
Industrial & Specialty Products
|
41,003
|
|
|
42,353
|
|
126,981
|
|
|
120,821
|
|
Total segment contribution margin
|
66,726
|
|
|
73,831
|
|
256,918
|
|
|
211,361
|
|
Operating activities excluded from segment cost of sales
|
(6,876)
|
|
|
(4,951)
|
|
(15,295)
|
|
|
(26,405)
|
|
Selling, general and administrative
|
(30,956)
|
|
|
(27,216)
|
|
(84,689)
|
|
|
(96,394)
|
|
Depreciation, depletion and amortization
|
(39,981)
|
|
|
(40,069)
|
|
(122,494)
|
|
|
(115,604)
|
|
Goodwill and other asset impairments
|
(11)
|
|
|
(222)
|
|
(49)
|
|
|
(108,044)
|
|
Interest expense
|
(17,796)
|
|
|
(19,274)
|
|
(53,425)
|
|
|
(63,730)
|
|
Other income (expense), net, including interest income
|
2,580
|
|
|
(409)
|
|
4,999
|
|
|
15,592
|
|
Income tax benefit (expense)
|
6,140
|
|
|
4,094
|
|
(1,172)
|
|
|
63,785
|
|
Net loss
|
$
|
(20,174)
|
|
|
$
|
(14,216)
|
|
$
|
(15,207)
|
|
|
$
|
(119,439)
|
|
Less: Net loss attributable to non-controlling interest
|
(179)
|
|
|
(254)
|
|
(462)
|
|
|
(778)
|
|
Net loss attributable to U.S. Silica Holdings, Inc.
|
$
|
(19,995)
|
|
|
$
|
(13,962)
|
|
$
|
(14,745)
|
|
|
$
|
(118,661)
|
|
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 both September 30, 2021 and December 31, 2020, goodwill of $185.6 million has been allocated to these segments with zero assigned to Oil & Gas Proppants and $185.6 million to Industrial & Specialty Products.
NOTE U— SUBSEQUENT EVENTS
We evaluated subsequent events through the date the consolidated financial statements were available for issuance and did not identify any events requiring disclosure.