UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Fiscal Year Ended December 31, 2017 |
For the Fiscal Year Ended December 31, 2020
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-35416001-35416
U.S. Silica Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 26-3718801 |
| (State or other jurisdiction of
Incorporation or Organization)
| | (I.R.S. Employer
Identification No.)
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8490 Progress Drive,24275 Katy Freeway, Suite 300600
Frederick, Maryland 21701Katy, Texas 77494
(Address of Principal Executive Offices) (Zip Code)
(301) 682-0600(281) 258-2170
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Act:
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| Title of each class: | Trading Symbol: | Name of each exchange on which registered: |
| Common Stock, par value $0.01 per share | SLCA | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Securities Act: None
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ¨ No ¨þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | | ¨ | | Accelerated filer | | ý |
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| Non-accelerated filer | | ¨ | | Smaller reporting company | | ☐ |
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Large accelerated filer | | þ | | Accelerated filerEmerging growth company | | ¨ |
Non-accelerated filer | | ¨ | | Smaller reporting company | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No þ
The aggregate market value of the outstanding common stock held by non-affiliates of the registrant as of June 30, 2017,2020, the last business day of the registrant’s most recently completed second fiscal quarter, was $2,870,547,820$250,637,123 based on the closing price of $35.49$3.61 per share, as reported on the New York Stock Exchange.
Exchange, on such date.
As of February 16, 2018, 80,539,94522, 2021, 74,296,160 shares of the common stock, par value $0.01 per share, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K Certain sections of the Proxy Statement for the 20182021 Annual Meeting of Shareholders for U.S. Silica Holdings, Inc. (the “2021 Proxy Statement”) are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated.
U.S. Silica Holdings, Inc.
FORM 10-K
For the Fiscal Year Ended December 31, 20172020
TABLE OF CONTENTS
Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that are subject to riskswithin the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and uncertainties.Section 27A of the Securities Act of 1933, as amended. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. meaning.
For example, all statements we make relating to our estimated and projected costs and cost reduction programs; reserve and finished products estimates; demand for our products; the strategies of our customers; anticipated expenditures, cash flows, growth rates and financial results,results; our plans and objectives for future operations, growth or initiatives,initiatives; strategies orand their anticipated effect on our performance and liquidity; and the expected outcome or impact of pending or threatened litigation are forward-looking statements.
All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
fluctuations in demand for commercial silica;
the cyclical nature of our customers’ businesses;
operatingexpect. These risks thatand uncertainties include, but are beyond our control, such as changes in the price and availability of transportation, natural gas or electricity; unusual or unexpected geological formations or pressures; cave-ins, pit wall failures or rock falls; or unanticipated ground, grade or water conditions;
our dependence on five of our plants for a significant portion of our sales;
the level of activity in the natural gas and oil industries;
decreased demand for frac sand or the development of either effective alternative proppants or new processesnot limited to, replace hydraulic fracturing;
federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related regulatory action or litigation affecting our customers’ operations;
our rights and ability to mine our properties and our renewal or receipt of the required permits and approvals from governmental authorities and other third parties;
our ability to implement our capacity expansion plans within our current timetable and budget and our ability to secure demand for our increased production capacity, and the actual operating costs once we have completed the capacity expansion;
our ability to succeed in competitive markets;
loss of, or reduction in, business from our largest customers;
increasing costs or a lack of dependability or availability of transportation services and transload network access or infrastructure;
extensive regulation of trucking services;
our ability to recruit and retain truckload drivers;
increases in the prices of, or interruptions in the supply of, natural gas and electricity, or any other energy sources;
increases in the price of diesel fuel;
diminished access to water;
our ability to successfully complete acquisitions or integrate acquired businesses;
our ability to make capital expenditures to maintain, develop and increase our asset base and our ability to obtain needed capital or financing on satisfactory terms;
our substantial indebtedness and pension obligations;
restrictions imposed by our indebtedness on our current and future operations;
contractual obligations that require us to deliver minimum amounts of frac sand or purchase minimum amounts of services;
the accuracy of our estimates of mineral reserves and resource deposits;
a shortage of skilled labor and rising costs in the mining industry;
our ability to attract and retain key personnel;
our ability to maintain satisfactory labor relations;
our reliance on patents, trade secrets and contractual restrictions to protect our proprietary rights;
our significant unfunded pension obligations and post-retirement health care liabilities;
our ability to maintain effective quality control systems at our mining, processing and production facilities;
seasonal and severe weather conditions;
fluctuations in our sales and results of operations due to seasonality and other factors;
interruptions or failures in our information technology systems;
the impact of a terrorist attack or armed conflict;
extensive and evolving environmental, mining, health and safety, licensing, reclamation and other regulation (and changes in their enforcement or interpretation);
silica-related health issues and corresponding litigation;
our ability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property; and
other factors included and disclosedthose described in Part I, Item 1A, “Risk Factors”"Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K.10-K and those described from time to time in our future reports filed with the Securities and Exchange Commission (the "SEC").
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could causeAs a result, forward-looking statements are not guarantees of future performance, and you should not place undue reliance on any forward-looking statements we make.
If one or more of the risks described above or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual results to differoutcomes may vary materially from those reflected in our expectations, or cautionaryforward-looking statements. The forward-looking statements are disclosed under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”included in this Annual Report on Form 10-K.10-K are made only as of the date hereof. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the SecuritiesSEC, and Exchange Commission (the “SEC”) andour other public communications. You should evaluate all forward-looking statements made in this Annual Report on Form 10-K in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
PART I.I
Unless we state otherwise, or the context otherwise requires, the terms “we,” “us,” “our,” “U.S. Silica,” “the Company,” “our business,” and “our company” refer to U.S. Silica Holdings, Inc. and its consolidated subsidiaries as a combined entity. Adjusted EBITDA as used herein is a non-GAAP measure. For a detailed description of Adjusted EBITDA and a reconciliation to the most comparable GAAP measure, please see the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – How We Evaluate Our Business – Adjusted EBITDA.”
Our Company
Business Overview
We are one of the largest domestic producersa global performance materials company and a leading producer of commercial silica used in a specialized mineral that is a critical input into a varietywide range of attractive end markets.industrial applications and in the oil and gas industry. In addition, through our subsidiary EP Minerals, LLC ("EPM") we are an industry leader in the production of products derived from diatomaceous earth, perlite, engineered clays, and non-activated clays.
During our 118-year121-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver over 239 products400 diversified product types to customers across theseour end markets. As of December 31, 2017,2020, we operate 19operated 23 production facilities across the United States andStates. We control 765489 million tons
of reserves of commercial silica, which can be processed to make 323197 million tons of finished products that meet American Petroleum Institute ("API") frac sand specifications.specifications, and 79 million tons of reserves of diatomaceous earth, perlite, and clays.
On August 16, 2016, we completed the acquisition of New Birmingham, Inc. ("NBI"), a regional sand producer located near Tyler, Texas. On August 22, 2016, we completed the acquisition of Sandbox Enterprises, LLC ("Sandbox" or the “Sandbox Acquisition”) as a “last mile” logistics solution for frac sand in the oil and gas industry.
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 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.
For more information regarding these acquisitions, see Note D - Business Combinations to our Financial Statements in Part II, Item 8 to this Annual Report on Form 10-K.
Our operations are organized into two reportable segments based on end markets served:served and the manner in which we analyze our operating and financial performance: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. InWe believe our largest end market, oil and gas proppants, our frac sand is used to stimulate and maintain the flow of hydrocarbons in oil and natural gas wells. We produce a wide range of frac sand sizes and are capable of efficient delivery of large quantities of API grade frac sand to most of the major U.S. shale basins via our logistics network. Our silica is also used as an economically irreplaceable raw material in a wide range of industrial applications, including glassmaking and chemical manufacturing. Additionally, in recent years a number of attractive new end markets have developed for our high-margin, performance silica products, including high-performance glass, specialty coatings, polymer additives and geothermal energy systems. Our segments are complementary because our ability to sell to a wide range of customers across end markets in these segments allows us to maximize recovery rates in our mining operations and optimize our asset utilization and reduce the cyclicalityutilization.
For a description of our earnings.key business acquisitions during the past three years, see the discussion under Note E - Business Combinations to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Corporate History
U.S. Silica Holdings, Inc. was incorporated under the laws of the State of Delaware on November 14, 2008. U.S. Silica Company, which has been a domestic producer of commercial silica for 118 years, became a wholly-owned subsidiary of the Company on November 25, 2008. On January 31, 2012, we completed our initial public offering of our common stock.
Our Business Strategy and Strengths
We attribute our success to the following strengths:
•Large-scale producer with a diverse and high-quality reserve base. Our 19 geographically dispersed production facilities control 765 million tons of reserves, including API size frac sand and large quantities of silica with distinct characteristics, giving us the ability to sell over 239 products to customers in bothWe believe our Oil & Gas Proppants segment and Industrial & Specialty Products segment. Our large-scale production, logistics capabilities and long reserve life make us a preferred commercial silica supplier to our customers. Our consistent, reliable supply of large quantities of silicareserves gives our customers the security to customize their production processes around our commercial silica.products. Furthermore, our relatively large scale providesand wide product portfolio provide us earnings diversification and a larger addressable market.
the ability to reach broader market segments.•Geographically advantaged footprint with intrinsic transportation advantages. The We believe the strategic location of our facilities and our logistics capabilities enable uscontribute to enjoy highour customer retention rates and our ability to reach broader market segments. We continue to strategically position our supply chain in order to deliver sand according to our customers' needs, whether at a larger addressable market.
plant, a transload, or the wellhead. In our Oil & Gas Proppants segment, our network of frac sand production facilities with access to barge and Class I rail, either onsite or by truck, andcombined with the strategic locations of our transloads, serveenable us to create an addressable market that includesserve every major U.S. shale basin. Additionally, our SandBox Logistics service ("SandBox") extends our delivery capability directly to our customers' wellhead locations and provides a lower cost logistics solution. We believe we are one of the few frac sand producers capable of cost-effectively delivering API grade frac sand to most of the major U.S. shale basins by on-site rail.
On August 16, 2017, we completed the acquisition of MS Sand, a frac sand mining and logistics company based in St. Louis, Missouri.
In July 2017, we purchased a new Greenfield site near Lamesa, Texas, which depending on market conditions, could become operational as early as the second quarter of 2018 and add approximately 2.6 million tons of annual frac sand capacity.
In May 2017, we purchased a new Greenfield site in Crane County, Texas, which depending on market conditions, could become operational as early as the first quarter of 2018 and add approximately 4 million tons of annual frac sand capacity.
On August 16, 2016, we acquired NBI, the ultimate parent company of NBR Sand, LLC, a regional sand producer located near Tyler, Texas. This facility allows customers to ship regional sand directly to the wellheads in the Texas and Louisiana basins by truck, which provides us with a delivered cost advantage.
On August 22, 2016, we completed the acquisition of Sandbox, a provider of logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry. Sandbox provides “last mile” logistics to oil and gas companies. 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, which allowed us to expand our frac sand offering directly to customers' wellhead locations.
Additionally, due to the high weight-to-value ratio of many silica products in our Industrial & Specialty Products segment, the proximity of our facilities to our customers’ facilities often results in us being their sole supplier. This advantage has enabled us to enjoy strong customer retention in this segment, with our top five Industrial & Specialty Products segment customers purchasing from us for an average of over 50 years.
Diatomaceous earth, clay, and perlite facilities are located near major highways and export corridors to optimize the cost of operations and shipment. Products can be shipped via bulk truck, rail or packaged. We utilize experienced in-house international logistics operations using a broad base of steamship partners to enable efficient and cost-effective exports to approximately 100 countries.
•Low-cost operating structure. We focus on building and operating facilities with low delivered cost that will allowcosts to enable us to be successful throughbetter manage market cycles.downturns. We believe the combination of the following factors contributes to our goal of having a low-cost structure and our high margins:
•our ownership of the vast majority of our reserves, resulting in mineral royalty expense that was less than 0.1%0.5% of our sales in 2017;2020;
•the close proximityoptimal positioning of our mines toand their respective processing plants, which allows for aenabling cost-efficient and highly automated production process;processes;
•the active management of our processing expertise,product mix at each of our plants as we seek to maximize our profit margins which enablesrequires us to create over 239 products with unique characteristics while minimizing waste;use our expertise in balancing key variables such as mine geology, processing capacity, transportation availability, customer requirements, and pricing;
•our integrated logistics management expertise and geographically advantaged facility network, which enables us to reliably ship products by the most cost-effective method available, whether domestic or overseas; we transport products by truck, rail or barge to meet the needs of our customers, whetherincluding at in-basin transload locations orand directly at wellhead locations via our SandboxSandBox operations;
•our large customer base across numerous end markets, which allows us to maximize our mining recovery rate and asset utilization; and
•our large overall and plant-level operating scale.
•Focus on safety and positive relationships with our customers and the communities in which we operate.We believe that we have built a strong reputation during our 118-year operating history. Our customers know us for our dependability and our high-quality, innovative products, as we have a long track record of timely deliveryfocus on the safety of our products according to customer specifications.employees and maintain safe and responsible operations. We also have an extensive network of technical resources, including materials science and petroleum engineering expertise, which enables us to collaborate with our customers to develop new products and improve the performance of their existing applications. Webelieve we are also well known in the communities in which we operate as a preferred employer and a responsible corporate citizen, which generally serves us well in hiring new employees and securing difficult to obtain permits for expansions and new facilities.
•Strong reputation with our customers.We believe we have built a strong reputation during our 121-year operating history. We have a long track record of timely delivery of our products according to customer specifications, which we believe contributes to a reputation for dependability. We also have an extensive network of technical resources, including materials science and petroleum engineering expertise, which enables us to collaborate with our customers to develop products to improve the performance of their existing applications.
•Commitment to innovation. Our research and development teams work to enhance our existing products and develop new, patentable products. We expect this will increase our presence and market share in certain specialty products end markets and allow us to enter new markets. We manage a robust pipeline of new products in various stages of development.
•Experienced management team. The members of our senior management team bring significant experience to the dynamic environment in which we operate. Their expertise covers a range of disciplines, including industry-specific
operating and technical knowledge as well as experience managing high-growth businesses.knowledge. We believe we have assembled a flexible, creative and responsive team that can quickly adapt to the rapidly evolving unconventional oil and natural gas drilling landscape.changing market conditions.
Our Business Strategy
The key drivers of our growth strategy include:
Expand our Oil & Gas Proppantsproduction capacity and product portfolio.We continue to consider and execute several initiatives to increase our frac sand production capacity and augment our proppant product portfolio. We are evaluating Greenfield opportunities and are expanding production capacities and maximizing production efficiencies of our existing facilities.
Increase our presence and product offering in industrial and specialty products end markets. Our research and business development teams work in tandem with our customers to develop new products, which we expect will either increase our presence and market share in certain industrial and specialty products end markets or allow us to enter new markets. We manage a robust pipeline of new products in various stages of development. Some of these products have already come to market, resulting in a positive impact on our financial results. We continue to work toward offering more value-driven industrial and specialty products that will enhance the profitability of the business. For instance, on April 1, 2017, we completed the White Armor acquisition, a product line of cool roof granules used in industrial roofing applications.
Optimize product mix and further develop value-added capabilities to maximize margins.We continue to actively manage our product mix at each of our plants to ensure we maximize our profit margins. This requires us to use our proprietary expertise in balancing key variables, such as mine geology, processing capacities, transportation availability, customer requirements and pricing. We expect to continue investing in ways to increase the value we provide to our customers by expanding our product offerings, improving our supply chain management, upgrading our information technology, and creating a world class customer service model.
Expand our supply chain network and leverage our logistics capabilities to meet our customers’ needs in each strategic oil and gas basin.We continue to expand our logistics network to ensure product is available to meet the in-basin needs of our customers. This approach allows us to provide strong customer service and puts us in a position to take advantage of opportunistic spot market sales. Our plant sites are strategically located to provide access to key Class I railroads, which enables us to cost effectively send product to each of the strategic basins in North America. We can ship product by truck, barge and rail with an ability to connect to short-line railroads as necessary to meet our customers’ evolving in-basin product needs. We believe that our supply chain network and logistics capabilities are a competitive advantage that enables us to provide superior service for our customers. We expect to continue to make strategic investments and develop partnerships with transload operators and transportation providers that will enhance our portfolio of supply chain services that we can provide to customers. As of December 31, 2017, we have storage capacity at 56 transloads located near all of the major shale basins in the United States. Our acquisition of Sandbox extends our delivery capability directly to our customers' wellhead locations, which increases efficiency and provides a lower cost logistics solution for our customers. Sandbox has operations in 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.
Evaluate both Greenfield and Brownfield expansion opportunities and other acquisitions.We expect to continue leveraging our reputation, processing capabilities and infrastructure to increase production, as well as explore other opportunities to expand our reserve base.
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◦ | We may accomplish this by developing Greenfield projects, where we can capitalize on our technical knowledge of geology, mining and processing and our strong reputation within local communities. For instance, in May 2017, we purchased a new Greenfield site in Crane County, Texas, which depending on market conditions, could become operational as early as the first quarter of 2018 and add approximately 4 million tons of annual frac sand capacity. Additionally, in July 2017, we purchased a new Greenfield site near Lamesa, Texas, which depending on market conditions, could become operational as early as the second quarter of 2018 and add approximately 2.6 million tons of annual frac sand capacity. |
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◦ | We are continuing to actively pursue acquisitions to grow by taking advantage of our asset footprint, our management’s experience with high-growth businesses, and our strong customer relationships. Our primary objective is to acquire assets with differing levels of frac sand qualities that are complementary to our Oil & Gas Proppants segment, with a focus on mining, processing and logistics to further enhance our
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market presence. We prioritize acquisitions that provide opportunities to realize synergies (and, in some cases, the acquisition may be immediately accretive assuming synergies), including entering new geographic and frac sand product markets, acquiring attractive customer contracts and improving operations. On August 16, 2016, we completed our acquisition of NBI, the ultimate parent company of NBR Sand, LLC, a regional sand producer located near Tyler, Texas. On August 22, 2016, we completed the acquisition of Sandbox, a provider of logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry. On August 16, 2017, we completed our acquisition of MS Sand, a frac sand mining and logistics company based in St. Louis, Missouri. We are in active discussions to acquire additional assets fitting this strategy, which, if completed, could be “significant” under Regulation S-X and could require additional sources of financing. There can be no assurance that we will reach a definitive agreement and complete any of these potential transactions. See the risk factors disclosed in Item 1A of Part I of this Annual Report on Form 10-K, including the risk factor entitled, “If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.”
•Maintain financial strength and flexibility.We intend to maintain financial strength and flexibility to enable us to better manage through industry downturns and pursue acquisitions and new growth opportunities as they arise. In March 2016,connection with the EPM acquisition, on May 1, 2018, we completedentered into a public offeringThird Amended and Restated Credit Agreement (the "Credit Agreement") with BNP Paribas, as administrative agent, and the lenders named therein. The Credit Agreement increased our then existing senior debt by establishing a new $1.380 billion senior secured credit facility, consisting of 10,000,000 sharesa $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. For more information on the Credit Agreement see Note K - Debt to our common stock for total cash net proceedsConsolidated Financial Statements in Part II, Item 8 of $186.2 million. In November 2016, we executed another offering of 10,350,000 shares of common stock raising net cash proceeds of $467.0 million.this Annual Report on Form 10-K. As of December 31, 2017,2020, we had $384.6$150.9 million of cash on hand and $45.5$52.0 million of availability under the Revolver with the consent of our revolving credit facility (the "Revolver").
lenders.Our Products and Services
In order to serve a broad range of end markets, we produce and sell a variety of commercial silica, products,diatomaceous earth, clay and perlite products. We also offer services including whole graintransportation, equipment rental and ground products, as well as other industrial mineral products that we believe complement our commercial silica products.contract labor.
Whole Grain Silica Products—We sell whole grain commercial silica products in a range of shapes, sizes and purity levels. We sell whole grain silica that has a round shape and high crush strength to be used as frac sand in connection with oil and natural gas recovery, and we have the capability to produce resin coated sand.
recovery. We also sell whole grain silica products in a range of size distributions, grain shapes and chemical purity levels to our customers involved in the manufacturing of glass products, including a low-iron whole grain product sold to manufacturers of architectural and solar glass applications. In addition, we sell several grades of whole grain round silica to the foundry industry and provide whole grain commercial silica to the building products industry. Sales
Performance Material Products—We sell engineered performance materials made from diatomaceous earth (DE), clay and perlite. DE is used in filtration for foods and beverages, pharmaceuticals and swimming pools. DE is also used as a functional additive for paint and coatings, plastics and rubber, and agriculture. Perlite (hydrated volcanic glass) is used mainly for filtration. Calcium bentonite clay from Mississippi is used for bleaching, catalysis and adsorption in edible oil processing, aromatics purification, and industrial and chemical applications.
Services—We offer services through the provision of whole grain commercial silica productstransportation, equipment rental and coated proppants accounted for approximately 91%, 86%,contract labor services, primarily through SandBox, to companies in the oil and 88% of our total sales revenue for 2017, 2016 and 2015, respectively.gas industry.
Ground Silica Products—Our ground commercial silica products are inherently inert, white and bright, with high purity. We market ourAdditionally, we sell ground silica in sizes ranging from 40 to 250 micronsand industrial minerals products for use in plastics, rubber, polishes, cleansers, paints, glazes, textile fiberglassa wide variety of products.
Our Industry and precision castings. We also produce and market fine ground silica in sizes ranging from 5 to 40 microns for use in premium paints, specialty coatings, sealants, silicone rubber and epoxies. We believe we are currently the only commercial silica producer in the United States that manufactures a 5-micron product. Sales of ground silica products accounted for approximately 7%, 12%, and 9% of our total sales revenue for 2017, 2016 and 2015 respectively.Primary End Markets
Industrial Mineral Products—We also produce and sell certain other industrial mineral products, such as aplite and magnesium silicate. Aplite is a mineral used to produce container glass and insulation fiberglass and is a source of alumina that has a low melting point and a low tendency to form defects in glass. We also produce and sell a highly selective adsorbent made from a mixture of silica and magnesium, used extensively in preparative and analytical chromatography. Sales of our other industrial mineral products accounted for approximately 2%, 2%, and 3% of our total sales revenue for 2017, 2016 and 2015, respectively.
Our Industry
The commercial silica industry consists of businesses that are involved in the mining, processing and distribution of commercial silica. Commercial silica, also referred to as “silica,” “industrial sand and gravel,” “sand,” “silica sand” and “quartz sand,” is a term applied to sands and gravels containing a high percentage of silica (silicon dioxide, SiO2) in the form of quartz. Commercial silica deposits occur throughout the United States, but mines and processing facilities are typically located near end markets and in areas with access to transportation infrastructure. Other factors affecting the feasibility of commercial silica
production include deposit composition, product quality specifications, land-use and environmental regulation, including
permitting requirements, access to electricity, natural gas and water and a producer’s expertise and know-how. New entrants face serious hurdles to establish their operations, including:
the difficulty of finding silica reserves suitable for use as frac sand, which, according to the API, must meet stringent technical specifications, including among others, sphericity, grain size, crush resistance, acid solubility, purity and turbidity;
the difficulty of securing contiguous reserves of silica large enough to justify the capital investment required to develop a mine processingand build a plant, product storage and rail track;
a lack of industry-specific geological, exploration, development and mining knowledge and experience, needed to enable the identification, acquisition and development of high-quality reserves;
the difficulty of identifying reserves with the above characteristics that either are located in close proximity to oil and natural gas reservoirs or have the rail access needed for low-cost transportation to major shale basins;
the difficulty of securing mining, production, water, air, refuse and other federal, state and localobtaining operating permits, from the proper authorities, a process that can require up to three years; and
the difficulty of assembling a large, diverse portfolio of customers to optimize operations.
Extraction ProcessesThe special properties of commercial silica such as chemistry, purity, grain size, color, inertness, hardness and resistance to high temperatures make it critical to a variety of industries. Commercial silica is a key input in the well completion process, specifically, in the hydraulic fracturing techniques used in unconventional oil and natural gas wells. In the Industrial and Specialty Products end markets, stringent quality requirements must be met when commercial silica is used as an ingredient to produce thousands of everyday products, including glass, building and foundry products and metal castings, as well as certain specialty applications such high-performance glass, specialty coatings, polymer additives and geothermal energy systems. Due to the unique properties of commercial silica, we believe it is an economically irreplaceable raw material in a wide range of industrial applications.
EPM's DE, perlite, montmorillonite clay and bentonite clay products are sold globally, where they are used in hundreds of applications. High quality DE possesses superior characteristics for filtration, functional additives, absorbents and adsorbents. The largest industries for these products include food and beverage, wine, beer, paint and coatings, biofuel, pharmaceuticals, chemical, oil and gas, plastics and rubber, automotive and agriculture. The perlite (hydrated volcanic glass) is used for filtration, lightweight construction, horticulture, and insulation. The calcium bentonite clay from Mississippi and calcium montmorillonite clay from Tennessee are thermally processed to produce powder and granular products for bleaching clays, absorbents, catalysis, and adsorbents.
Commercial silica deposits are formed from a variety of sedimentary processes and have distinct characteristics that range from hard sandstone rock to loose, unconsolidated dune sands. While the specific extraction method utilized depends primarily on the deposit composition, most silica is mined using conventional open-pit bench extraction methods and begins after clearing the deposit of any overlaying soil and organic matter. The silica deposit composition and chemical purity also dictate the processing methods and equipment utilized. For example, broken rock from a sandstone deposit may require one, two or three stages of crushing to liberate the silica grains required for most markets. Unconsolidated deposits may require little or no crushing, as silica grains are not tightly cemented together.
We conduct only surface mining operations and do not operate any underground mines, although we do lease underground reserves at our Festus, MO,Missouri, operation, which are being mined underground by a contractor. Mining methods at our facilities include conventional hard rock mining, hydraulic mining, surface or open-pit mining of loosely consolidated silica deposits and dredge mining. Hard rock mining involves drilling and blasting in order to break up sandstone into sizes suitable for transport to the processing facility by truck, slurry or conveyor. Hydraulic mining involves spraying high-pressure water to break up loosely consolidated sandstone at the mine face. Surface or open-pit mining involves using earthmoving equipment, such as bucket loaders, to gather silica deposits for processing. Lastly, dredging involves gathering silica deposits from mining ponds and transporting them by slurry pipelines for processing. We may also use slurry pipelines in our hydraulic and open-pit mining efforts to expedite processing. Silica mining and processing typically has less of an environmental impact than the mining and processing of other minerals, in part because it uses fewer chemicals. Our processing plants are equipped to receive the mined sand, wash away impurities, eliminate oversized or undersized particles and remove moisture through a multi-stage drying process. Our 19 production facilities are located primarily in the eastern half of the United States, with operations in Alabama, Illinois, Louisiana, Michigan, Missouri, New Jersey, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin. Each of our facilities operates year-round, typically in shift schedules designed to optimize facility utilization in accordance with market demand. Our facilities receive regular preventative maintenance, and we make additional capital investments in our facilities as required to support customer volumes and internal performance goals. For more information related to our production facilities, see Item 2, “Properties”.
We believe we have a broad and high quality mineral reserves base due to our strategically located mines and facilities. At December 31, 2017, we estimate that we had approximately 765 million tons of proven and probable mineral reserves. The quantity and nature of the mineral reserves at each of our properties are estimated by our mining engineers. Our mining engineers update our reserve estimates annually, making necessary adjustments for reserve usage at each location during the year and additions or reductions due to property acquisitions and dispositions, quality adjustments and mine plan updates. Before acquiring new reserves, we perform surveying, drill core analysis and other tests to confirm the quantity and quality of the acquired reserves. In some instances, we acquire the mineral rights to reserves without actually taking ownership of the properties. For more information related to our production facilities, deposits and reserves, see Item 2, “Properties”.
Production Processes
After extracting the ore, the silica is washed with water to remove fine impurities such as clay and organic particles. In some deposits, these fine contaminants or impurities are tightly bonded to the surface of the silica grain and require attrition scrubbing to be removed. Other deposits require the use of flotation to collect and separate contaminants from the silica. When
these contaminants are weakly magnetic, special high intensity magnets may be utilized in the process to improve the purity of the final commercial silica product. After the silica has been washed, most output is dried prior to sale.
The next step in the production process involves the classification of commercial silica products according to their chemical purity, particle shape and particle size distribution. Generally, commercial silica is produced and sold in either whole grain form or ground form. Whole grain silica generally ranges from 12 to 140 mesh. Mesh refers to the number of openings per linear inch on a sizing screen. Whole grain silica products are sold in a range of shapes, sizes and purity levels to be used in a variety of industrial applications, such as oil and natural gas hydraulic fracturing proppants, glass, foundry, building products, filtration and recreation. Some whole grain silica is further processed to ground silica of much smaller particle sizes, ranging from 5 to 250 microns. A micron is one-millionth of a meter.
Quality Control
We maintain a standardquality standards in all of excellence through our mining and processing facilities, some of which include ISOInternational Organization for Standardization ("ISO") 9001-registered quality systems. We use automated process control systems that efficiently manage the majority of the mining and processing functions, and we monitor the quality and consistency of our products by conducting hourly tests throughout the production process to detect variances. All of our major facilities operate a testing laboratory to evaluate and ensure the quality of our products and services. We also provide customers with documentation verifying that all products shipped meet customer specifications. These quality assurance functions are designed to ensure that we deliver quality products to our customers and maintain customer trust and loyalty.
In addition, we have certain company-wide quality control mechanisms. We maintain a company-wide quality assurance database that facilitates easy access and analysis of product and process data from all plants. We also have fully staffed and equipped corporate laboratories that provide critical technical expertise, analytical testing resources and application development to promote product value and cost savings. The labs consist of different departments: a foundry lab, a paint and coatings lab, an analytical lab, a minerals-processing lab and an oil and gas lab. The foundry lab is fully equipped for analyzing foundry silica based on grain size distribution, acidity, acid demand value and turbidity, which is a measure of silica cleanliness. The paint and coatings lab provides formulation, application, and testing of paints, coatings and grouts for end use in fillers and extenders as well as building products. The analytical lab performs various analyses on products for quality control assessment. The minerals processing lab models plant production processes to test variations in deposits and improve our ability to meet customer requirements. The oil and gas lab performs testing and provides in-depth analysis of all types of hydraulic fracturing proppants to verify products meet specifications, such as API size and crush strength specifications. Additionally, this lab is responsible for the development of new resin coated products and the technical oversight of our Rochelle, Illinois facility.
Distribution
We ship our commercial silica products direct to our customers by truck, rail or barge and through our network of in-basin transloads. Recent trends in the oil and gas market and the expansion of our logistics footprint have resulted in more of our product volumes being transported by high-efficiency unit trains over the past two years. During 2017, we shipped 349 unit trains to both our transload sites and our customers. Our recent acquisition of Sandbox extends our delivery capability directly to our customers' wellhead locations. Sandbox provides “last mile” logistics to companies in the oil and gas industry, which increases efficiency and provides a lower cost logistics solution for our customers. 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.
For bulk commercial silica, transportation cost represents a significant portion of the overall product cost. Generally, we utilize trucks for shipments of 200 miles or less from our plant sites and to distribute our bagged products. Given the weight-to-value ratio of most of our products, the majority of our shipments outside this 200-mile radius are by rail. As a result, facility location is one of the most important considerations for producers and customers. Generally, our plant sites are strategically located to provide access to all Class I railroads or in strategic shale basins, which enables us to cost effectively send product to points of end use in North America.
We are continuously looking to increase the number of available transload points to which we have access. This approach allows us to provide strong customer service and puts us in a position to take advantage of opportunistic spot market sales. As of December 31, 2017, we have 56 transload facilities strategically located in or near all major shale basins in the United States. For more information related to our transload facilities, see Item 2, “Properties”.
Both we and our customers lease a significant number of railcars for shipping purposes, as well as to facilitate the short-term storage of our products, particularly our frac sand products. As of December 31, 2017, we leased a fleet of 7,111 railcars, of which no empty cars were in storage.
In addition to bulk shipments, commercial silica products can be packaged and shipped in 50 to 100 pound bags or bulk super sacks. Bag shipments are usually made to smaller customers with batch operations, warehouse distributor locations or for ocean container shipments made overseas. The products that are shipped in bags are often higher value products, such as ground and fine.
Primary End Markets
The special properties of commercial silica-chemistry, purity, grain size, color, inertness, hardness and resistance to high temperatures-make it critical to a variety of industries. Commercial silica is a key input in the well completion process, specifically, in the hydraulic fracturing techniques used in unconventional oil and natural gas wells. In the industrial and specialty products end markets, stringent quality requirements must be met when commercial silica is used as an ingredient to produce thousands of everyday products, including glass, building and foundry products and metal castings, as well as certain specialty applications such high-performance glass, specialty coatings, polymer additives and geothermal energy systems. Due to the unique properties of commercial silica, it is an economically irreplaceable raw material in a wide range of industrial applications. Our major end markets include:
Oil and Gas Proppants
Commercial silica is used as a proppant for oil and natural gas recovery in conventional and unconventional resource plays. Unconventional oil and natural gas production requires hydraulic fracturing and other well stimulation techniques to recover oil or natural gas that is trapped in the source rock and typically involves horizontal drilling. Frac sand is pumped down oil and natural gas wells at high pressures to prop open rock fissures in order to increase the flow rate of hydrocarbons from the wells. Proppants are also used in the "refracturing" process where older wells are restimulated using newer technologies and additional frac sand as a viable and lower-cost alternative to drilling new wells. The frac sand market experienced substantial growth from 2008 until 2014, driven by the growth in the use of hydraulic fracturing. From 2015 and through most of 2016, the frac sand market was negatively impacted due to reduced oil and gas drilling and completion activity in North America. Oil and gas drilling activity increased throughout 2017, leading to more completion activity. Leading indicators for completion activity suggest stabilization or even an increase in the near future.
Glass
Commercial silica is a critical input into and accounts for 55% to 75% of the raw materials in glass production. The glassmaking markets served by commercial silica producers include containers, flat glass, specialty glass and fiberglass. Demand typically varies within each of these end markets.
The container glass, flat glass and fiberglass end markets are generally mature end markets. Demand for container glass has historically grown in line with population growth, and we expect similar growth in the future. Flat glass and fiberglass tend to be correlated with construction and automotive production activity. While construction activity has improved during the past few years, automotive production activity has experienced recent declines. To the extent construction and domestic automotive production activity grow in the coming years, we expect that demand in these end markets will continue to increase. Some of the anticipated growth in the glass markets may be offset through the use of recycled glass.
Building Products
Commercial silica is used in the manufacturing of building products for commercial and residential construction. Whole grain commercial silica products are used in flooring compounds, mortars and grouts, specialty cements, stucco and roofing shingles. Ground commercial silica products are used by building products manufacturers in the manufacturing of certain fiberglass products and additionally as functional extenders and to add durability and weathering properties to cementious compounds. In addition, geothermal wells are an alternative energy source that requires specialized ground silica products in their well casings for effectiveness. The market for commercial silica used to manufacture building products is driven primarily by the demand in the construction markets. The historical trend for this market has been one of growth, especially in demand for cementious compounds for new construction, renovation and repair. We have seen an increase in permits and housing starts since 2012, and those gains continued in 2017. To the extent the housing market growth continues in the coming years, we expect that demand in this end market will increase.
Foundry
Commercial silica products are used in the production of molds for metal castings and in metal casting products. In addition, commercial whole grain silica is sold to coaters of foundry silica, or coated internally, who then sell their product to foundries for cores and shell casting processes. The demand for foundry silica primarily depends on the rate of automobile and light truck production, construction and production of heavy equipment like rail cars. Over the past decade, there has been some movement of foundry supply chains to Mexico and other offshore production areas. We have experienced increases in
foundry demand since 2011. During 2017, several of the foundry markets continued to see growth. To the extent production levels continue to strengthen in the coming years, we expect that demand in this end market will increase.
Chemicals
Both whole grain and ground silica products are used in the manufacturing of silicon-based chemicals, such as sodium silicate, that are used in a variety of applications, including food processing, detergent products, paper textile, specialty foundry applications and as inputs for some precipitated silicas. This end market is driven by the development of new products by the chemicals manufacturers, including specialty coatings and polymer additives as well as the growth of “green” tires. We expect this end market to grow as these manufacturers continue their product and applications development.
Fillers and Extenders
Commercial silica products are sold to producers of paints and coating products for use as fillers and extenders in architectural, industrial and traffic paints and are sold to producers of rubber and plastic for use in the production of epoxy molding compounds and silicone rubber. The commercial silica products used in this end market are most often ground silica, including finer ground classifications. The market for fillers and extenders is driven by demand in the construction and automotive production industries as well as by demand for materials in the housing remodeling industry. We have experienced increases in demand in these sectors since 2011. To the extent these industries continue to grow in the coming years, we expect demand to increase.
Our Customers
We sell our products to a variety of end markets. Our customers in the oil and gas proppants end market include major oilfield services companies and exploration and production companies that are engaged in hydraulic fracturing. Sales to the oil and gas proppants end market comprised approximately 82%49%, 65%69%, and 67%75% of our total sales revenue in 2017, 20162020, 2019 and 2015,2018, respectively.
OurDuring most of our 121-year history, our primary markets have historically been core industrial end markets with customers engaged in the production of glass, building and construction products, fillers and extenders, glass, foundry products, chemicals, and fillerssports and extenders.recreation products. Our diverse customer base drives high recovery rates across our production. We also benefit from strong and long-standing relationships with our customers in each of the industrial and specialty products end markets we serve. Through EPM, we also serve a variety of industrial mineral markets including pool filtration, paints and plastics, absorbents and food and beverage. Sales to our industrialIndustrial and specialty productsSpecialty Products end markets comprised approximately 18%51%, 35%31%, and 33%25% of our total sales revenue in 2017, 20162020, 2019 and 2015,2018, respectively.
Sales to our two largest customers, which are Oil & Gas Proppants customers, accounted for 15% and 12% of our total sales during the year ended December 31, 2017. No other customers accounted for 10% or more of our total sales.
Competition
Both of our reportingreportable segments operate in highly competitive markets that are characterized by a small number of large, national producers and a larger number of small, regional or local producers. According to a January 2018February 2021 publication by the United States Geological Survey, (“USGS”), in 2017,2020, there were 200180 producers of commercial silica with a combined 340280 active
operations in 3534 states within the United States. Competition in the industry acrossfor both of our reportingreportable segments is based on price, consistency and quality of product, site location, distribution capability, customer service, reliability of supply, breadth of product offering and technical support. AsBecause transportation costs arecan be a significant portion of the total cost to customers of commercial silica, in many instances transportation costs can represent more than 50% of delivered cost, the commercial silica market is typically local, and competition from beyond the local area is limited. Notable exceptions to this are the frac sand and fillers and extenders markets, where certain product characteristics are not available in all deposits and not all plants have the requisite processing capabilities, necessitating that some products be shipped for extended distances. Because the markets for our products are typically local, we also compete with smaller, regional or local producers. For more information regarding competition, see “Risk Factors—Risks Related to Our Business—Our future performance will depend on our ability to succeed in competitive markets, and on our ability to appropriately react to potential fluctuations in demand for and supply of our products.”Item 1A. Risk Factors.
Seasonality
Our business is affected to some extent by seasonal fluctuations in weather that impact our production levels and our customers' business needs. For example, during the second and third quarters we typically sell more commercial silica to our customers in the building products and recreation end markets due to increased construction activity resulting from more favorable weather. FirstIn the first and fourth quarters, we can generally experience lower sales, and sometimes production levels, largely from adverse weather hampering logistical capabilities and general decreased customer activity levels.
Intellectual Property
Other than operating licenses for our mining and processing facilities, there are no third-party patents, patent licenses or franchises material to our business. Our intellectual property primarily consists of trade secrets, know-how and trademarks, including our name US SILICA® and products with trademarked names such as OTTAWA WHITE®, MIN-U-SIL®, MYSTIC WHITEMystic White II®, Q-ROK®, SIL-CO-SIL®, PREMIUM HICKORY®White Armor®, US SILICA WHITE®EP Minerals®, InnoProp®Transcend®, and SANDBOX® among others. We own patents and have patent applications pending related to Sandbox,SandBox, our "last mile" logistics solution. AllMost of the issued patents have an expiration date after August 20, 2027 with a majority of issued patents expiring after December 21, 2031.dates ranging from 2027-2039. With respect to our other products, we principally rely on trade secrets, rather than patents, to protect our proprietary processes, methods, documentation and other technologies, as well as certain other business information. Although we do seek patents from time to time, for example for our ultra-high reflectance cool roofing granules, patent protection for other industrial and specialty products requires a costly and uncertain federal registration process with an uncertain outcome that would place our confidential information in the public domain. As a result, we typically utilize trade secrets to protect the formulations and processes we use to manufacture our products and to safeguard our proprietary formulations and methods. We believe we can effectivelystrive to protect our trade secrets indefinitely through the use of confidentiality agreements and other security measures.measures, understanding that these efforts may prove to be ineffective. See Item 1A. Risk Factors of this Annual Report on Form 10-K for more information.
Condition of Physical Assets and Insurance
Our business is capital intensive and requires ongoing capital investment for the replacement, modernization and/or expansion of equipment and facilities. For more information, see Part II, Item 7, “Management’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”Resources of this Annual Report on Form 10-K.
We maintain insurance policies against property loss and business interruption and insure against other risks that are typical in the operation of our business, in amounts that we believe to be reasonable. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can be no assurance that claims would be paid under such insurance policies in connection with a particular event. See Item 1A, “Risk Factors”.1A. Risk Factors of this Annual Report on Form 10-K for more information.
Commercial Team
Our commercial team consists of approximately 92 individuals responsible for all aspects of our sales process, including pricing, marketing, transportation and logistics, product development and general customer service. This necessitates a highly organized staff and extensive coordination between departments. For example, product development requires the collaboration of our market development team, sales team, our production facilities and our corporate laboratories. Our sales team interacts directly with our customers in determining their needs, our production facilities fulfill the orders and our corporate laboratories are responsible for ensuring that our products meet those needs.
Our commercial team can be divided into five units:
Sales—Our sales team is organized by both region and end market. We have an experienced group of dedicated sales team members for the oil and gas proppants and the industrial and specialty end markets. Our oil and gas proppants team is led out of our Houston office and is regionally positioned in the oil and gas markets across the U.S. This staff consists of experienced experts in the use of frac proppants in the oil and gas industry. Our industrial and specialty products sales team is strategically located near our major customers. As we make decisions to enter or expand our presence in certain end markets or regions, we will continue to add dedicated team members to support that growth.
Marketing—Our marketing team coordinates all of our new and existing customer outreach efforts and identifies emerging market trends and new product opportunities. This includes producing exhibits for trade shows and exhibitions, manufacturing product overview materials, participating in regional industry meetings and other trade associations and managing our advertising efforts in trade journals.
Transportation and Logistics—Our transportation and logistics team manages domestic and international shipments by directing inbound and outbound rail, barge and truck traffic, supervising equipment maintenance, coordinating with rail carriers to ensure equipment availability, ensuring compliance with shipping regulations and strategically planning for future growth. With our Sandbox acquisition we can deliver frac sand directly to wellheads.
Technical—Our technical team is anchored by our Industrial & Specialty Products laboratory in Berkeley Springs, West Virginia and our Oil & Gas laboratory in Houston, Texas. At these facilities, we perform a variety of analyses including:
analytical chemistry by X-Ray Fluorescence (“XRF”) and Inductively Coupled Plasma (“ICP”) spectroscopy;
particle characterization by sieve, SediGraph, Brunauer, Emmett and Teller (“BET”) surface area and microscopy;
ore evaluation by mineral processing, flotation and magnetic separation;
API frac sand evaluation, including crush resistance; and
American Foundry Society (“AFS”) green sand evaluation by various foundry sand tests.
Many other product analyses are performed locally at our 19 production facilities to support new product development, plant operations and customer quality requirements.
We also have a variety of other technical competencies including process engineering, equipment design, facility construction, maintenance excellence, environmental engineering, geology and mine planning and development. Effective integration of these capabilities has been a critical component of our business success and has allowed us to establish and maintain an extensive, high-quality silica sand reserve base, maximize the value of our reserves by producing and selling a wide range of high-quality products, optimize processing costs to provide strong value to customers and prioritize operating in a safe and environmentally sustainable manner.
Customer Service—Our customer service team is dedicated to creating an exceptional customer experience and making it easy to do business with our company. The organization aims to accomplish this by consistently exceeding our customers’ expectations, continually improving our performance, offering efficient and timely responses to customer needs, being available to our customers 24/7 and providing customers with personal points of contact on whom they can rely.
Employees
As of December 31, 2017,2020, we employed a workforce of 2,202approximately 1,613 employees, the majority of whom are hourly wage plant workers living in the areas surrounding our mining facilities. The majorityApproximately 31% of our hourly employees are represented by labor unions that include the Teamsters Union; United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union; Laborers International Union of North America; Glass, Molders, Pottery, Plastics and Allied Workers International Union; Cement, Lime, Gypsum and Allied Workers’ Division of International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers; and International Union of Operating Engineers A.F.L. - C.I.O. We believe that we maintain good relations with our workers and their respective unions and have not experienced any material strikes or work stoppages since 1987.
Human Capital Management
Our employees average approximately 8 yearsBoard of tenure with us,Directors believes that our long-term success depends on the talents of our employees, and we have an annualwork to attract, retain and motivate the highest quality workforce. The Chief Human Resources Officer ("CHRO") is responsible for developing and executing our human capital strategy. This includes talent attraction, acquisition, development and engagement, as well as the design of employee turnover ratecompensation and benefits programs. The CHRO is also responsible for developing and
implementing our diversity and inclusion framework. Management regularly updates our Board of 12%, excludingDirectors and our Compensation Committee on human capital trends and efforts to improve diversity. The Board of Directors in particular has requested updates on the impactfollowing topics:
Health and Safety: Our health and safety programs are industry leading and resulted in several company records in 2020.We require each of reductionsour locations to perform regular safety audits to ensure proper safety policies, program procedures, analyses and trainings are in workforce as partplace. In addition, we receive regular visits from inspectors on behalf of the restructuring actions.U.S. Mine Safety and Health Administration ("MSHA") and the U.S. Occupational Safety and Health Act ("OSHA"). We utilize a mixture of leading and lagging indicators to assess the health and safety performance of our operations. Lagging indicators include the OSHA Total Recordable Incident Rate ("TRIR") and the Lost Time (or Lost Workday) Incident Rate ("LTIR") based upon the number of incidents per 200,000 work hours. Leading indicators include reporting and closure of all near miss events and Environmental, Health and Safety ("EHS") coaching and engagement conversations. In 2020 we had a TRIR of 0.77, a LTIR of 0.11 and zero work-related fatalities.
COVID-19 Response: In 2020, our Board of Directors requested regular updates on our response to the COVID-19 pandemic. We instituted a number of protective measures in response to the COVID-19 outbreak, including eliminating all but essential third-party access to our facilities, encouraging employees to work from home to the extent their job function enables them to do so, encouraging the use of virtual employee meetings, implementing social distancing measures for those employees associated with our mining operations, and implementing other procedures in an effort to reduce the need for our truck drivers to exit their vehicles.This resulted in confirmed cases of COVID-19 at U.S. Silica remaining below the national average, and none of the confirmed cases among our employees in 2020 were attributed to transmission at work.
Diversity, Inclusion, and Belonging: We believe that a culture of inclusion, diversity, and belonging enables us to create, develop and fully leverage the strengths of our stable workforce has directly contributedworkforce. Current key initiatives include mandatory unconscious bias training for all employees, partnerships with diversity organizations, improving purchasing from Minority and Women Owned Businesses, utilizing an employee driven resource group, and diverse talent acquisition practices. We have implemented several measures that focus on ensuring accountabilities exist for making progress in diversity, and our senior leaders will have diversity and inclusion objectives embedded in their annual performance goals.
Training and Talent Development: We are committed to improved process efficienciesthe continued development of our people. Strategic talent reviews and safety, which in turn help drive cost reductions. We believe our labor rates compare favorablysuccession planning occur annually and across all business areas. The CEO and CHRO convene meetings with senior company leadership and the Board of Directors to other mining and manufacturing facilities in the same geographic areas. We maintain workers’ compensation coverage in amounts required by law and have no material claims pending. review top enterprise talent.We also offerprovide free training courses through LinkedIn Learning to all full-timesalaried employees, a competitive package of employee benefits, which includes medical, dental, life and disability coverage.along with key development programs.
Regulation and Legislation
Mining and Workplace Safety
Federal Regulation
The U.S. Mine Safety and Health Administration (“MSHA”) is the primary regulatory organization governing the commercial silica industry. Accordingly, MSHA regulates quarries, surface mines, underground mines and the industrial mineral processing facilities associated with quarries and mines. The mission of MSHA is to administer the provisions of the Federal Mine Safety and Health Act of 1977 (the "Mine Act") and to enforce compliance with mandatory safety and health standards. MSHA works closely with the Industrial Minerals Association, a trade association in which we have a significant leadership role, in pursuing this mission. As part of MSHA’s oversight, representatives perform at least two unannounced inspections annually for each above-ground facility. For additional information regarding mining and workplace safety, including MSHA safety and health violations and assessments in 2017,2020, see Item 4, “Mine4. Mine Safety Disclosures”.Disclosures.
We also are subject to the requirements of the U.S. Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA Hazard Communication Standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and the public. OSHA regulates the customers and users of commercial silica and provides detailed regulations requiring employers to protect employees from overexposure to silica bearing dust through the enforcement of permissible exposure limits and the OSHA Hazard Communication Standard.
Internal Controls
We adhere to a strict occupational health program aimed at controlling exposure to silica bearing dust, which includes dust sampling, a respiratory protection program, medical surveillance, training and other components. Our safety program is designed to ensure compliance with the standards of our Occupational Health and Safety Manual and MSHA regulations. For both health and safety issues, extensive training is provided to employees. We have safety committees at our plants made up of salaried and hourly employees. We perform annual internal health and safety audits and conduct annual crisis management drills to test our plants’ abilities to respond to various situations. Health and safety programs are administered by our corporate health and safety department with the assistance of plant Environmental, Health and Safety Coordinators.
Motor Carrier Regulation
Our trucking services are regulated by the U.S. Department of Transportation ("DOT"), the Federal Motor Carrier Safety Administration ("FMCSA") and by various state agencies. These regulatory authorities have broad powers, generally governing matters such as authority to engage in motor carrier operations, as well as motor carrier registration, driver hours of service, safety and fitness of transportation equipment and drivers, transportation of hazardous materials and periodic financial reporting. In addition, each driver is required to have a commercial driver’s license and may be subject to mandatory drug and alcohol testing. We may be audited periodically by these regulatory authorities to ensure that we are in compliance with various safety, hours-of-service, and other rules and regulations.
The transportation industry is subject to possible other regulatory and legislative changes (such as the possibility of more stringent environmental, climate change, security and/or occupational safety and health regulations, limits on vehicle weight and size and a mandate to implement electronic logging devices) that may affect the economics of our trucking services by requiring changes in operating practices or by changing the demand for motor carrier services or the cost of providing truckload or other transportation or logistics services.
Environmental Matters
We and the commercial silica industry in general are subject to extensive governmental regulationregulations on, among other things, matters such as permitting and licensing requirements, plant and wildlife protection, hazardous materials, air and water emissions and environmental contamination and reclamation. A variety of state, local and federal agencies enforce this regulation.these regulations.
Federal Regulation
At the federal level, we may be required to obtain permits under Section 404 of the Clean Water Act from the U.S. Army Corps of Engineers for the discharge of dredged or fill material into waters of the United States, including wetlands and streams, in connection with our operations. We also may be required to obtain permits under Section 402 of the Clean Water Act from the U.S. Environmental Protection Agency (“EPA”) (or the relevant state environmental agency in states where the permit program has been delegated to the state) for discharges of pollutants into waters of the United States, including discharges of wastewater or storm water runoff associated with construction activities. Failure to obtain these required permits or to comply with their terms could subject us to administrative, civil and criminal penalties as well as injunctive relief.
The federal Safe Drinking Water Act (the “SDWA”) regulates the underground injection of substances through the Underground Injection Control Program (the “UIC Program”). Hydraulic fracturing generally has been exempt from federal regulation under the UIC Program, and the hydraulic fracturing process has been typically regulated by state or local governmental authorities. The EPA, however, has taken the position that certain aspects of hydraulic fracturing with fluids containing diesel fuel may be subject to regulation under the UIC Program, specifically as “Class II” UIC wells. In February 2014, the EPA released an interpretive memorandum to clarify UIC Program requirements under the SDWA for underground injection of diesel fuels in hydraulic fracturing for oil and gas extraction and issued technical guidance containing recommendations for EPA permit writers to consider in implementing these UIC “Class II” requirements. Among other things, the memorandum and technical guidance clarified that any owner or operator who injects diesel fuels in hydraulic fracturing for oil or gas extraction must obtain a UIC “Class II” permit before injection.
The U.S. Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. These regulatory programs may require us to install expensive emissions abatement equipment, modify our operational practices and obtain permits for our existing operations, and before commencing construction on a new or modified source of air emissions, such laws may require us to reduce emissions at existing facilities. As a result, we may be required to incur increased capital and operating costs because of these regulations. We could be subject to administrative, civil and criminal penalties as well as injunctive relief for noncompliance with air permits or other requirements of the U.S. Clean Air Act and comparable state laws and regulations.
As part of our operations, we utilize or store petroleum products and other substances such as diesel fuel, lubricating oils and hydraulic fluid. We are subject to applicable requirements regarding the storage, use, transportation and disposal of these substances, including the relevant Spill Prevention, Control and Countermeasure requirements that the EPA imposes on us.
Spills or releases may occur in the course of our operations, and we could incur substantial costs and liabilities as a result of such spills or releases, including those relating to claims for damage or injury to property and persons.
Additionally, some of our operations are located on properties that historically have been used in ways that resulted in the release of contaminants, including hazardous substances, into the environment, and we could be held liable for the remediation of such historical contamination. The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, and comparable state laws impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of hazardous substances into the environment. These persons include the owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to
liability for the costs of cleaning up the hazardous substances, for damages to natural resources, and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
In addition, the Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. In the course of our operations, we generate industrial solid wastes that may be regulated as hazardous wastes.
Our operations may also be subject to broad environmental review under the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies to evaluate the environmental impact of all “major federal actions” significantly affecting the quality of the human environment. The granting of a federal permit for a major development project, such as a mining operation, may be considered a “major federal action” that requires review under NEPA. Therefore, our projects may require review and evaluation under NEPA. As part of this evaluation, the federal agency considers a broad array of environmental impacts, including, among other things, impacts on air quality, water quality, wildlife (including threatened and endangered species), historical and archaeological resources, geology, socioeconomics and aesthetics. NEPA also requires the consideration of alternatives to the project. The NEPA review process, especially the preparation of a full environmental impact statement, can be time consuming and expensive. The purpose of the NEPA review process is to inform federal agencies’ decision-making on whether federal approval should be granted for a project and to provide the public with an opportunity to comment on the environmental impacts of a proposed project. While NEPA requires only that an environmental evaluation be conducted and does not mandate a result, a federal agency could decide to deny a permit, or impose certain conditions on its approval, based on its environmental review under NEPA, or a third party may challenge the adequacy of a NEPA review.
Federal agencies granting permits for our operations also must consider impacts to endangered and threatened species and their habitat under the Endangered Species Act. We also must comply with and are subject to liability under the Endangered Species Act, which prohibits and imposes stringent penalties for the harming of endangered or threatened species and their habitat. Federal agencies also must consider a project’s impacts on historic or archaeological resources under the National Historic Preservation Act, and we may be required to conduct archaeological surveys of project sites and to avoid or preserve historical areas or artifacts.
State and Local Regulation
Because our operations are located in numerous states, we are also subject to a variety of different state and local environmental review and permitting requirements. Some states in which our projects are located or are being developed have state laws similar to NEPA; thus, our development of new sites or the expansion of existing sites may be subject to comprehensive state environmental reviews even if they are not subject to NEPA. In some cases, the state environmental review may be more stringent than the federal review. Our operations may require state law based permits in addition to federal permits, requiring state agencies to consider a range of issues, many the same as federal agencies, including, among other things, a project’s impact on wildlife and their habitats, historic and archaeological sites, aesthetics, agricultural operations and scenic areas. Some states also have specific permitting and review processes for commercial silica mining operations, and states may impose different or additional monitoring or mitigation requirements than federal agencies. The development of new sites and our existing operations also are subject to a variety of local environmental and regulatory requirements, including land use, zoning, building and transportation requirements.
As demand for frac sand in the oil and natural gas industry has driven a significant increase in current and expected future production of commercial silica, some local communities have expressed concern regarding silica sand mining operations. These concerns have generally included exposure to ambient silica sand dust, truck traffic, water usage and blasting. In response, certain state and local communities have developed or are in the process of developing regulations or zoning restrictions intended to minimize dust from getting airborne, control the flow of truck traffic, significantly curtail the amount of practicable area for mining activities, provide compensation to local residents for potential impacts of mining activities and, in some cases, ban issuance of new permits for mining activities. To date, we have not experienced any material impact or disruption to our existing mining operations or planned capacity expansions as a result of these types of concerns.
We have a long history of positive engagement with the communities that surround our existing mining operations. We have an annual employee turnover rate of 12%, excluding the impact of reductions inbelieve our relatively stable workforce as part of the restructuring actions, and have had no significant strikes in more than 30 years, evidence of the strong relationship we have with our employees. We believe this strong relationship helpsemployees help foster good relations with the communities in which we operate. Although additional regulatory requirements could negatively impact our business, financial condition and results of operations, we believe our existing operations aremay be less likely to be negatively impacted by virtue of our good community relations.
Planned expansion of our mining and production capacity in new communities could be more significantly impacted by increased regulatory activity. Difficulty or delays in obtaining or inability to obtain new mining permits or increased costs of compliance with future state and local regulatory requirements could have a material negative impact on our ability to grow our business. In an effort to minimize these risks, we continue to be engaged with local communities in order to grow and maintain strong relationships with residents and regulators.
Costs of Compliance
We may incur significant costs and liabilities as a result of environmental, health and safety requirements applicable to our activities. Failure to comply with environmental laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory, cleanup and site restoration costs and liens, the denial or revocation of permits or other authorizations and the issuance of injunctions to limit or cease operations. Compliance with these laws and regulations may also increase the cost of the development, construction and operation of our projects and may prevent or delay the commencement or continuance of a given project. In addition, claims for damages to persons or property may result from environmental and other impacts of our activities.
The process for performing environmental impact studies and reviews for federal, state and local permits for our operations involves a significant investment of time and monetary resources. We cannot control the permit approval process. We cannot predict whether all permits required for a given project will be granted or whether such permits will be the subject of significant opposition. The denial of a permit essential to a project or the imposition of conditions with which it is not practicable or feasible to comply could impair or prevent our ability to develop a project. Significant opposition and delay in the environmental review and permitting process also could impair or delay our ability to develop a project. Additionally, the passage of more stringent environmental laws could impair our ability to develop new operations and have an adverse effect on our financial condition and results of operations.operations We do not expect any material capital expenditures due to current regulatory compliance obligations.
Availability of Reports; Website Access; Other Information
Our Internet address is http://www.ussilica.com. Through “Investors” — “SEC Filings”“Financial Information” on our home page, we make available free of charge our Annual Reportannual reports on Form 10-K, our quarterly reports on Form 10-Q, our proxy statements, our current reports on Form 8-K, SEC Forms 3, 4 and 5 and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports filed with the SEC are also made available to read and copy at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information about the Public Reference Room may be obtained by contacting the SEC at 1-800-SEC-0330. Reports filed with the SEC are also made available on its website at http://www.sec.gov.
Copies of our Corporate Governance Guidelines, our Audit Committee Charter, Compensation Committee Charter, and Nominating and Governance Committee Charter, the Code of Conduct for our Board and Code of Conduct and Ethics for our employees (including our chief executive officer, chief financial officer and corporate controller) can also be found on our website. We will disclose any amendments or waivers to our Code of Conduct and Ethics applicable to the chief executive officer, chief financial officer and corporate controller in the “Investors” section of our website. Stockholders may also request a free copy of these documents from: U.S. Silica Holdings, Inc., attn.: Investor Relations, 8490 Progress Drive,24275 Katy Freeway, Suite 300, Frederick, Maryland 21701 or view them on600, Katy, Texas 77494.
Information about our website at IR@ussilica.com.
Executive Officers
Bryan A. Shinn, age 59, has served as our Chief Executive Officer and a member of the RegistrantBoard since January 2012. He also served as our President from March 2011 to January 2020. Prior to assuming this position, Mr. Shinn was our Senior Vice President of Sales and Marketing from October 2009 to February 2011. Before joining us, Mr. Shinn was employed by the E. I. du Pont de Nemours and Company from 1983 to September 2009, where he held a variety of key leadership roles in operations, sales, marketing and business management, including Global Business Director and Global Sales Director. Mr. Shinn earned a B.S. in Mechanical Engineering from the University of Delaware.
Donald A. Merril, age 56, has served as an Executive Vice President since July 2016 and as our Chief Financial Officer since January 2013. He had previously served as our Vice President of Finance from October 2012 until his appointment as Chief Financial Officer. Previously, Mr. Merril had served as Senior Vice President and Chief Financial Officer of Myers Industries Inc. from January 2006 through August 2012. Prior to serving at Myers Industries, Mr. Merril held the role of Vice President and Chief Financial Officer, Rubbermaid Home Products Division at Newell Rubbermaid Inc. from 2003 through 2005. Mr. Merril earned a B.S. in Accounting from Miami University.
Michael L. Winkler, age 56, has served as an Executive Vice President since July 2016 and as our Chief Operating Officer since December 2013. He served as a Vice President from June 2011 until July 2016 and as our Vice President of Operations from June 2011 until December 2013. Before joining us, Mr. Winkler was Vice President of Operations for Campbell Soup Company from August 2007 to June 2011 and held various positions with Mars Inc. from 1996 to August 2007, including Plant Manager-Columbus Plant and Director of Industrial Engineering. Mr. Winkler earned a B.S. in Industrial Engineering from the University of Wisconsin-Platteville and an M.B.A. from the University of North Texas.
John P. Blanchard, age 44,47, has served as our Senior Vice President and President, Industrial & Specialty Products since July 2016, having served as Vice President and General Manager, Industrial & Specialty Products from September 2011 until July 2016. Mr. Blanchard possesses over 20 years’ experience in a variety of industries, including nonwovens, composites, building materials and pharmaceuticals. Prior to joining us, Mr. Blanchard held various positions of increasing responsibility with Johns Manville from 2005 to September 2011, including Global Business Director from December 2010 to September 2011 and Global Business Manager from February 2008 to December 2010. Mr. Blanchard earned a B.S. in Chemical Engineering from Michigan Technological University and an M.B.A. from the University of Michigan.
Bradford B. Casper,Zach Carusona, age 43, has served as an Executive Vice President since July 2016 and as our Chief Commercial Officer since May 2015. He served as our Vice President of Strategic Planning from May 2011 until his promotion to Chief Commercial Officer in May 2015. Before joining us, Mr. Casper was at Bain & Company, Inc., where he held various positions from 2002 to May 2011 in the United States, Australia and Hong Kong, most recently serving as a Principal from July 2010 to May 2011. Mr. Casper earned a B.S. in Accounting from the University of Illinois at Urbana-Champaign and an M.B.A. from the Wharton School at the University of Pennsylvania.
Christine C. Marshall, age 56,34, has served as our Senior Vice President Chief Legal Officer and Corporate SecretaryPresident, Specialty Minerals since July 2016. Ms. Marshall joined us as our General Counsel and Corporate Secretary in November 2012. Prior to joining us, Ms. Marshall served as Vice President and General Counsel of the Security Technologies Sector of Ingersoll Rand Company from September 2010 to January 2012. From 2005 to 2010, Ms. Marshall held various positions of increasing responsibility with Tyco International, including General Counsel of Tyco Flow Control Americas from January 2008 to May 2010. Ms. Marshall earned a B.A. degree from Harvard University and a J.D. degree from Georgetown University School of Law.
Donald A. Merril, age 53, has served as an Executive Vice President since July 2016 and as our Chief Financial Officer since January 2013.December 2018. He had previously served as our Vice President of Finance from October 2012 until his appointment as Chief Financial Officer. Previously, Mr. Merril had served as Senior Vice President and Chief Financial Officer of Myers Industries Inc. from January 2006 through August 2012. Prior to serving at Myers Industries, Mr. Merril held the role of Vice President and Chief Financial Officer, Rubbermaid Home Products Division at Newell Rubbermaid Inc. from 2003 through 2005. Mr. Merril has a B.S. in Accounting from Miami University.
David D. Murry, age 56, has served as a Senior Vice President since Julyfor Business Development of SandBox Logistics from August 2016 until December 2018, as the Director, Strategic Planning from June 2015 to August 2016, and as our Chief Human Resources Officer since October 2011. He served as our Vice President of Talent Management from October 2011 until July 2016. Prior to joining us, Mr. Murry was the Director of Human Resources and Talent Management for Arkema, a diversified chemicals company, from October 2005 to October 2011. He has held positions of increasing leadership with Armstrong, Dell, and Alcoa. Mr. Murry earned a B.S. in Mining Engineering from Texas A&M University and a Master’s of Science in Management from Antioch University.
Bryan A. Shinn, age 56, has served as our President since March 2011 and as our Chief Executive Officer and a member of the Board since January 2012. Prior to assuming this position, Mr. Shinn was our Senior Vice President of Sales and Marketing from October 2009 to February 2011. Before joining us, Mr. Shinn was employed by the E. I. du Pont de Nemours and Company from 1983 to September 2009, where he held a variety of key leadershipvarious roles in operations, sales, marketingour strategy group from 2011 through 2015. Mr. Carusona earned an MBA from the Kellogg School of Management at Northwestern University, and business management, including Global Business Director and Global Sales Director. Mr. Shinn earned a B.S. in Mechanical Engineering from the University of Delaware.Illinois, Urbana-Champaign.
Billy Ray SmithJ. Derek Ussery, age 47, has served36, was appointed as aour Senior Vice President and President, Oil &and Gas sincein November 2019. Prior to his appointment, Mr. Ussery was the Chief Operating Officer of SandBox Logistics from January 2018, having2019 to November 2019. He previously served as Vice President, of Oil & Gas since joining usNorth America ESG at Tetra Technologies, from May 2018 to December 2018. From April 2013 to May 2018, he served in March 2017. Before joining us, Mr. Smith had held various positionsroles of increasing responsibility with Halliburton Company,Key Energy Services, culminating in his position as Vice President for the Eastern Region. Mr. Ussery earned a global energy services company, since 1995 including as North America Technology Director from October 2015 to March 2017, Director of North America Operations from September 2014 to October 2015, Global Technical Sales and Marketing Manager from April 2014 to September 2014 and Senior Business Development Manager of Halliburton Australia from May 2012 to April 2014. Mr. Smith earned his B.S. in Petroleum EngineeringB.B.A. from Texas TechA&M University.
Michael L. Winkler, D. Lynnette Crowder, age 53, has41, was appointed U.S. Silica’s Senior Vice President, and Chief Human Resources Officer in November 2019. Ms. Crowder previously served in roles of increasing responsibility with WestRock Company, from July 2015 until October 2019, and with MeadWestVaco Corporation from March 2010 until the company became part of WestRock Company in July 2015. Most recently she served as an Executive Vice President since July 2016 and as our Chief Operating Officer since December 2013. He served as a Vice President from June 2011 until July 2016 and as our Vice Presidentthe Division Leader of Operations from June 2011 until December 2013. Before joining us, Mr. Winkler was Vice President of OperationsHuman Resources for Campbell Soup Company from August 2007 to June 2011 and held various positions with Mars Inc. from 1996 to August 2007, including Plant Manager-Columbus Plant and Director of Industrial Engineering. Mr. WinklerWestrock Company. Ms. Crowder earned a B.S. in IndustrialMechanical Engineering from the University of Wisconsin-PlattevilleVirginia Tech and an M.B.A. from the University of North Texas.Virginia.
Stacy Russell, age 50, was appointed U.S. Silica’s Senior Vice President, General Counsel and Secretary in January 2020. Prior to her appointment, Ms. Russell was the General Counsel for our Oil and Gas Segment. She was previously Of Counsel at Boyar Millar from July 2018 to May 2019. From October 2010 to January 2018, she served as the Managing Counsel for the Litigation and HSE law groups at Halliburton Company. Ms. Russell earned B.A. in Government from the University of Texas and her J.D. from the University of Houston.
Our operations and financial results are subject to various risks and uncertainties, including those described below and elsewhere in this Annual Report on Form 10-K. You should carefully consider the risk factors set forth below as well as the other information contained in this Annual Report on Form 10-K in connection with evaluating us. our business and our securities. The categorization of risks set forth below is meant to help you better understand the risks facing our business and is not intended to limit consideration of the possible effects of these risks to the listed categories, nor is it meant to imply that one category of risks is more material than another. Any adverse effects related to the risks discussed below may, and likely will, adversely affect many aspects of our business.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our stock price, business, results of operations or financial condition. Certain statements in “Risk Factors”these risk factors are forward-looking statements.
Risks Related to Our BusinessMarket, Competition, & Sales
The demand for commercial silica fluctuates, which could adversely affect our results of operations.
Demand in the end markets served by our customers is influenced by many factors, including the following:
demand for oil, natural gas and petroleum products;
fluctuations in energy, fuel, oil and natural gas prices and the availability of such fuels;
the use of alternative proppants, such as ceramic proppants, in the hydraulic fracturing process;
global and regional economic, political and military events and conditions;
changes in residential and commercial construction demands, driven in part by fluctuating interest rates and demographic shifts;
demand for automobiles and other vehicles;
the substitution of plastic or other materials for glass;
the use of recycled glass in glass production;
competition from offshore producers of glass products;
changes in demand for our products due to technological innovations, including the development and use of new processes for oil and gas production that do not require proppants;
changes in laws and regulations (or the interpretation thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;
prices, availability and other factors relating to our products; and
increases in costs of labor and labor strikes.
We cannot predict or control the factors that affect demand for our products. Negative developments in the above factors, among others, could cause the demand for commercial silica or other minerals to decline, which could adversely affect our business, financial condition,Our results of operations cash flowscontinue to be adversely affected by the ongoing COVID-19 pandemic.
Public health crises, pandemics and prospects.
Ourepidemics, such as the ongoing COVID-19 pandemic, have adversely impacted and are expected to continue to adversely impact our operations, are subject to the cyclical nature of our customers’ businesses, and we may not be able to mitigate that risk.
The substantial majorityoperations of our customers are engaged in industries that have historically been cyclical, such as glassmaking, building products, foundry and oil and natural gas recovery. During periods of economic slowdown, our customers often reduce their production and also reduce capital expenditures and defer or cancel pending projects. Such developments occur even among customers that are not experiencing financial difficulties.
Demand in many of the end markets for commercial silica is driven byglobal economy, including the construction and automotive industries. For example, the flat glass market depends on the automotive and commercial and residential construction and remodeling markets. The market for commercial silica used to manufacture building products is driven primarily by demand in the construction markets. The demand for foundry silica depends on the rate of automobile, light truck and heavy equipment production as well as construction. The demand for frac sand is driven byworldwide demand for oil and natural gas. Whengas and the level of demand for our services, particularly in our Oil and Gas Proppants segment. Fear of such events has also altered the level of capital spending by oil and natural gas prices decrease, as they did throughout 2015 and into 2016,companies for exploration and production companies may reduceactivities and adversely affected global economies and financial markets, resulting in an economic downturn
that has affected demand for our services. For instance, the outbreak of COVID-19 and its development into a pandemic has caused governmental authorities to impose mandatory closures, seek voluntary closures and impose restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Though we are currently deemed an essential business and, as a result, are exempt from many orders in their exploration, development, productioncurrent form, the impact of the COVID-19 pandemic and well completion activities. The reduced level of such activities could resultmeasures to prevent its spread has materially and adversely affected our businesses in a corresponding declinenumber of ways.
In March 2020, we put in the demand for frac sand and an oversupplyplace a number of frac sand. In periods where sources of supply of frac sand exceed market demand, market prices for frac sand may decline and our results of operations and cash flows may decline or be volatile or otherwise adversely affected. In addition, given that silica transportation represents one of our customers’ largest costs, if,protective measures in response to economic pressures,the COVID-19 outbreak, including eliminating all but essential third-party access to our customers choosefacilities, encouraging employees to movework from home to the extent their production offshore,job function enables them to do so, encouraging the increased logistics costs coulduse of virtual employee meetings, implementing social distancing measures for those employees associated with our mining operations, and implementing other procedures in an effort to reduce demandthe need for our products. Continued weakness in the industries we serve has had,truck drivers to exit their vehicles. A further extended period of remote work arrangements could strain our business continuity plans, introduce operational risk and may in the future have, an adverse effect on sales ofimpair our products andability to manage our results of operations. A continued or renewed economic downturn in one or more of the industries or geographic regions that we serve, or in the worldwide economy, could cause actual results of operations to differ materially from historical and expected results.
business. Our operations are subject to operating risks that are often beyond our control and could adversely affect production levels and costs, and such risks may not be covered by insurance.
Our mining, processing and production facilities are subject to risks normally encountered in the commercial silica industry. These risks include:
changes in the price and availability of transportation and transload network access;
changes in the price and availability of natural gasdelayed or electricity;
unusual or unexpected geological formations or pressures;
pit wall failures, underground roof falls or surface rock falls;
unanticipated ground, grade or water conditions;
inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;
environmental hazards;
industrial accidents;
physical plant security breaches;
changes in laws and regulations (or the interpretation thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;
nonperformance of contractual obligations;
inability to acquire or maintain necessary permits or mining or water rights;
restrictions on blasting operations;
inability to obtain necessary production equipment or replacement parts;
reduction in the amount of water available for silica production;
technical difficulties or key equipment failures;
labor disputes;
cybersecurity breaches;
late delivery of supplies;
fires, explosions or other accidents; and
facility shutdowns in response to environmental regulatory actions.
Any of these risks could result in damage to, or destruction of, our mining properties or production facilities, personal injury, environmental damage, delays in mining or processing, losses or possible legal liability. Any prolonged downtime or shutdownssuspended at our mining properties or production facilities could have a material adverse effect on us.
Not all of these risks are reasonably insurable, and our insurance coverage contains limits, deductibles, exclusions and endorsements. Our insurance coverage may not be sufficient to meet our needsany time in the event of losschanges to applicable government orders or the interpretation of existing orders.
The COVID-19 outbreak may significantly worsen during the upcoming months, which may cause governmental authorities to consider further restrictions on business and any such losssocial activities. In the event governmental authorities increase restrictions, the re-opening of the economy may be further curtailed. We have a material adverse effect on us.experienced, and expect to continue to experience, some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, including many sectors to which we provide services or raw materials.
A significant portion
The ultimate extent of our sales is generated at fivethe impact of our plants. Any adverse developments at any of those plants or in the end markets those plants serve could have a material adverse effectCOVID-19 on our business, financial condition and results of operations.
A significant portionoperations will depend largely on future developments, including the duration and spread of our sales are generated at our plants located in Ottawa, Illinois; Mill Creek, Oklahoma; Utica, Illinois; Sparta, Wisconsin;the outbreak within the United States and Tyler, Texas. These plants represented a combined 51%, 51%,the related impact on the oil and 62%gas industry, the impact of our total revenue in 2017, 2016governmental actions designed to prevent the spread of COVID-19 and 2015, respectively. Any adversethe development at these plants or in the end markets these plants serve, including adverse developments due to catastrophic events or weather, decreased demand for commercial silica products, a decrease in theand availability of transportation services or adverse developments affecting our customers, could have a material adverse effect on our financial conditioneffective treatments and resultsvaccines, all of operations.which cannot be predicted with certainty at this time.
Our businessfrac sand mining and financial performancelogistics operations depend on the level of activity in the oil and natural gas industries.industries, which experience substantial volatility.
Our operations that produce and transport frac sand are materially dependent on the levels of activity in natural gas and oil exploration, development and production. More specifically, the demand for the frac sand we produce is closely related to the number of natural gas and oil wells completed in geological formations where sand-based proppants are used in fracture treatments. These activity levels are affected by both short- and long-term trends in natural gas and oil prices. In recent years, natural gas and oil prices and, therefore, the level of exploration, development and production activity, have experienced significant fluctuations. volatility.
When oil and natural gas prices decrease exploration and production companies may reduce their exploration, development, production and well completion activities. During such periods, demand for our products and services which supply oil and natural gas wells, including our transportation and logistics solutions, may decline, leading to a decline in the market price of frac sand due to an oversupply of frac sand. When demand for frac sand increases, there may not be a corresponding increase in the prices for our products or our customers may not increase use of our products, which could have a material adverse effect on our business, financial condition, and results of operations.
Worldwide economic, political and military events, including war, terrorist activity, events in the Middle East and initiatives by the Organization of the Petroleum Exporting Countries (“OPEC”), have contributed, and are likely to continue to contribute, to oil and natural gas price volatility. Additionally, warmer than normal winters in North America and other weather patterns may adversely impact the short-term demand for natural gas and, therefore, demand for our products. Reduction in demand for natural gas to generate electricity could also adversely impact the demand for frac sand. A prolonged reduction in natural gas and oil prices would generally depress the level of natural gas and oil exploration, development, production and well completion activity and result in a corresponding decline in the demand for the frac sand we produce. Such a decline could result in us selling fewer tons of frac sand at lower prices or selling lower priced products, which would have a material adverse effect on our results of operations and financial condition. When demand for frac sand increases, there may not be a corresponding increase in the prices for our products or our customers may not switch back to higher priced products, which could have a material adverse effect on our results of operations and financial condition. In addition, any future decreasesdecrease in the rate at which oil and natural gas reserves are discovered or developed, whether due to increased governmental regulation, limitations on exploration and
drilling activity, technological innovations that result in new processes for oil and gas production that do not require proppants, or other factors, could adversely affect the demand for our products, even in a stronger natural gas and oil price environment. The continued or future occurrence of any of these risks could have a material adverse effect on our business, financial condition, and results of operations.
Our industrial materials operations are subject to the cyclical nature of our customers’ businesses.
The majority of our industrial products customers are engaged in industries that have historically been cyclical, such as glassmaking, building products, foundry products, and paint. During periods of economic slowdown in one or more of the industries or geographic regions we serve or in the worldwide economy, our customers often reduce their production and capital
expenditures by deferring or canceling pending projects, even if such customers are not experiencing financial difficulties. These developments can have an adverse effect on sales of our products and our results of operations.
Demand in many of the end markets for our industrial products is driven by cyclical industries, such as construction and automotive. For example, the flat glass market depends on the automotive and commercial and residential construction and remodeling markets; the market for commercial silica used to manufacture building products is driven primarily by demand in the construction markets; the market for foundry silica depends on the rate of automobile, light truck and heavy equipment production as well as construction; and the market for diatomaceous earth, perlite, clay and cellulose is driven by agricultural, food and beverage, chemical industries, filtration, catalyst and absorbent applications. When demand from one of these cyclical industries decreases, demand for the products we sell to customers in that industry may also decrease. When demand from one of these cyclical industries increases, however, there may not be a corresponding increase in the prices for our products or our customers may not increase the use of our products due to factors such as the use of recycled glass in glass production; substitution of our products for other materials; changes in residential and commercial construction demands, driven in part by fluctuating interest rates and demographic shifts; prices, availability and other factors relating to our products; competitors both locally and internationally; and other factors.
Weakness in the industries we serve has had, and may in the future have, an adverse effect on sales and our results of operations. A continued or renewed economic downturn in one or more of the industries or geographic regions that we serve, or in the worldwide economy, could cause actual results of operations to differ materially from historical and expected results.
Our sales, profitability and operations could be materially affected by weather conditions, seasonality and other factors.
Our sales and profitability from period to period are affected by a variety of factors, including weather conditions and seasonal periods. As a result, our results of operations may fluctuate on a quarterly basis and relative to corresponding periods in prior years. For example, we sell more of our products in the second and third quarters in the building products and recreation end markets due to the seasonal rise in construction driven by more favorable weather conditions. Conversely, we sell fewer of our products in the first and fourth quarters in these end markets due to reduced construction and recreational activity largely as a result of adverse weather conditions. These fluctuations in our operating results may render period-to-period comparisons less meaningful, and investors in our securities should not rely on the results of any one period as an indicator of performance in any other period.
In addition, severe seasonal or weather conditions may impact our operations by causing weather-related damage to our facilities and equipment or preventing us from delivering equipment, personnel or products to job sites, any of which could force us to delay or curtail services and potentially breach our contractual obligations or result in a stronger natural gasloss of productivity, an increase in operating costs or other losses that may not be covered by applicable insurance policies. Severe weather conditions may also interfere with our customers’ operations, which could reduce our customers’ demand for our products. If any of these risks were to occur, it could have a material adverse effect on our business, financial condition, and oil price environment.results of operations. Moreover, changing weather patterns, due to climate-warming trends and other effects of climate change or other causes, may lead to the increased frequency, severity or unpredictability of extreme weather events, which could intensify these risks.
A significant portion of our sales is generated at five of our plants. Any adverse developments at any of those plants or in the end markets those plants serve could have a material adverse effect on our business, financial condition, and results of operations.
A significant portion of our sales are generated at our plants located in Ottawa, Illinois; Lamesa, Texas; Lovelock, Nevada; Pacific, Missouri; and Vale, Oregon. These plants represented a combined 35% of our total sales in 2020. Any adverse development at these plants or in the end markets these plants serve, including adverse developments due to catastrophic events or weather, decreased demand for commercial silica products, or a decrease in the availability of transportation services or adverse developments affecting our customers, could have a material adverse effect on our business, financial condition, and results of operations.
We may be adversely affected by decreased demand for frac sand or the development of either effective alternative proppants or new processes to replace hydraulic fracturing.
Frac sand is a proppant used in the completion and re-completion of natural gas and oil wells through hydraulic fracturing. Frac sand is the most commonly used proppant and is less expensive than ceramic proppant, which is also used in hydraulic fracturing to stimulate and maintain oil and natural gas production. A significant shift in demand from frac sand to other proppants, such as ceramic proppants, could have a material adverse effect on our financial condition and results of operations. Thethe development and use of other effective alternative proppants, or the
development of new processes to replace hydraulic fracturing altogether, could also cause a decline in demand for the frac sand we produce and could have a material adverse effect on our financial condition and results of operations.
Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related regulatory action or litigation could result in increased costs and additional operating restrictions or delays for our customers, which could negatively impact our business, financial condition, and results of operations.
A significant portion of our business supplies frac sand to hydraulic fracturing operators in the oil and natural gas industry. Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing operations. Increased regulation of hydraulic fracturing may adversely impact our business, financial condition and results of operations.
The federal Safe Drinking Water Act (the “SDWA”) regulates the underground injection of substances through the Underground Injection Control Program (the “UIC Program”). Hydraulic fracturing generally has been exempt from federal regulation under the UIC Program, and the hydraulic fracturing process has been typically regulated by state or local governmental authorities. The EPA, however, has taken the position that certain aspects of hydraulic fracturing with fluids containing diesel fuel may be subject to regulation under the UIC Program, specifically as “Class II” UIC wells. In February 2014, the EPA released an interpretive memorandum to clarify UIC Program requirements under the SDWA for underground injection of diesel fuels in hydraulic fracturing for oil and gas extraction and issued technical guidance containing recommendations for EPA permit writers to consider in implementing these UIC “Class II” requirements. Among other things, the memorandum and technical guidance clarified that any owner or operator who injects diesel fuels in hydraulic fracturing for oil or gas extraction must obtain a UIC “Class II” permit before injection.
The EPA also issued final rules in 2012 that included the first federal air standards for natural gas and oil wells that are hydraulically fractured, along with other requirements for several other sources of pollution in the oil and gas industry that had not been regulated at the federal level. Building on the 2012 rules, the EPA announced in May 2016 additional regulations to reduce methane and smog-forming emissions from new, modified or reconstructed sources in the oil and natural gas industry. In June 2017, the EPA issued two proposals to stay certain of these requirements and reconsider the entirety of the 2016 rules; however, the rules currently remain in effect.
In May 2016, the EPA also finalized rules regarding criteria for aggregating multiple small surface sites into a single source for air-quality permitting purposes applicable to the oil and natural gas industry.
In addition, the EPA published in May 2014 an advance notice of proposed rulemaking regarding Toxic Substances Control Act reporting of the chemical substances and mixtures used in hydraulic fracturing. In June 2016, the EPA finalized effluent limit guidelines that waste water from shale resource extraction operations must meet before discharging to publicly owned wastewater treatment plants. Subsequently, compliance dates for certain sources have been extended by the EPA..
In March 2015, the federal Bureau of Land Management ("BLM") published a final rule that established new or more stringent standards for hydraulic fracturing on federal and Indian land. After several rounds of litigation, BLM rescinded this rule in December 2017; however, the rescission is currently being challenged in court. BLM also issued final rules to reduce methane emissions from venting, flaring, and leaks during oil and gas operations on public lands in November 2016; however, in December 2017, BLM postponed compliance requirements for certain provisions of the 2016 methane venting rule. BLM’s December 2017 delay decision is also currently being challenged in court.
In addition, the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, a committee of the U.S. House of Representatives (the “House”) conducted an investigation of hydraulic fracturing practices and a subcommittee of the Secretary of Energy Advisory Board (the “SEAB”) of the U.S. Department of Energy was tasked with recommending steps to improve the safety and environmental performance of hydraulic fracturing. As part of these studies, the EPA, the House committee and the SEAB subcommittee requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. These studies could potentially spur initiatives to further regulate hydraulic fracturing under the SDWA or otherwise. In December 2016, the EPA issued a final assessment of the
potential environmental effects of hydraulic fracturing on drinking water and groundwater that found hydraulic fracturing may in some cases result in impacts to drinking water resources. Additionally, from time to time, legislation is introduced before the U.S. Congress to provide for federal regulation of hydraulic fracturing under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. If this or similar legislation becomes law, the legislation could establish an additional level of federal regulation that may lead to additional permitting requirements or other operating restrictions, making it more difficult to complete natural gas and oil wells in shale formations. This could increase our customers’ costs of compliance and doing business or otherwise adversely affect the hydraulic fracturing services they perform, which may negatively impact demand for our frac sand products.
In addition, various state, local and foreign governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing through additional permitting requirements, operational restrictions, disclosure requirements and temporary or permanent bans on hydraulic fracturing. A number of local municipalities across the United States have instituted measures resulting in temporary or permanent bans on or otherwise limiting or delaying hydraulic fracturing in their jurisdictions. Such moratoriums and bans could make it more difficult to conduct hydraulic fracturing operations and increase our customers’ cost of doing business, which could negatively impact demand for our frac sand products. A number of states have also enacted legislation or issued regulations which impose various disclosure requirements on hydraulic fracturing operators. The availability of information regarding the constituents of hydraulic fracturing fluids could make it easier for third parties opposing the hydraulic fracturing process to initiate individual or class action legal proceedings based on allegations that specific chemicals used in the hydraulic fracturing process could adversely affect groundwater and drinking water supplies or otherwise cause harm to human health or the environment. Moreover, disclosure to third parties or to the public, even if inadvertent, of our customers’ proprietary chemical formulas could diminish the value of those formulas and result in competitive harm to our customers, which could indirectly impact our business, financial condition and results of operations.
The adoption of new laws or regulations at the federal, state, local or foreign levels imposing reporting obligations on, or otherwise limiting or delaying, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells in shale formations, increase our customers’ costs of compliance and doing business and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for our frac sand products. In addition, heightened political, regulatory and public scrutiny of hydraulic fracturing practices could potentially expose us or our customers to increased legal and regulatory proceedings, and any such proceedings could be time-consuming, costly or result in substantial legal liability or significant reputational harm. Any such developments could have a material adverse effect on our business, financial condition and results of operations, whether directly or indirectly. For example, we could be directly affected by adverse litigation involving us, or indirectly affected if the cost of compliance limits the ability of our customers to operate in the geographic areas we serve.
Our operations are dependent on our rights and ability to mine our properties and on our having renewed or received the required permits and approvals from governmental authorities and other third parties.
We hold numerous governmental, environmental, mining and other permits, water rights and approvals authorizing operations at each of our facilities. A decision by a governmental agency or other third party to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. Expansion of our existing operations is also predicated on securing the necessary environmental or other permits, water rights or approvals, which we may not receive in a timely manner or at all. In addition, our facilities are located near existing and proposed third-party industrial operations that could affect our ability to fully extract, or the manner in which we extract, the mineral deposits to which we have mining rights.
Title to, and the area of, mineral properties and water rights may also be disputed. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that we do not have title to one or more of our properties or lack appropriate water rights could cause us to lose any rights to explore, develop and extract any minerals on that property, without compensation for our prior expenditures relating to such property. Our business may suffer a material adverse effect in the event one or more of our properties are determined to have title deficiencies.
In some instances, we have received access rights or easements from third parties, which allow for a more efficient operation than would exist without the access or easement. A third party could take action to suspend the access or easement, and any such action could be materially adverse to our results of operations or financial condition.
We may not be able to successfully implement capacity expansion plans within our projected timetable, the actual costs of any capacity expansion may exceed our estimated costs and we may not be able to secure demand for the incremental production capacity. In addition, actual operating costs once we have completed the capacity expansion may be higher than anticipated.
We undertake projects from time to time to expand our production capacity. The completion of these projects may be affected by market conditions and demand for our products. In addition, under our current business plan, we expect to fund any expansion plans through a combination of cash on our balance sheet and cash generated from our operating and financing activities. If the assumptions on which we base our estimated capital expenditures change or are inaccurate, we may require additional funding. Such funding may not be available on terms acceptable to us, or at all. Moreover, actual operating costs once we have completed a capacity expansion may be higher than initially anticipated. We also may not secure off-take commitments for the incremental production from our capacity expansion plans, and we may not be able to secure adequate demand for the incremental production. Furthermore, substantial investments in transportation infrastructure may be required to effectively execute the capacity expansion, and we may not be successful in expanding our logistical capabilities to accommodate the additional production capacity.
Any failure to successfully implement any capacity expansion plans due to an inability to obtain necessary permits, insufficient funding, delays, unanticipated costs, adverse market conditions or other factors, or failure to realize the anticipated benefits of our capacity expansion plans, including securing demand for the incremental production, could have a material adverse effect on our business, financial condition and results of operations.
Our future performance will depend on our ability to succeed in competitive markets, and on our ability to appropriately react to potential fluctuations in demand for and supply of our products.
We operate in a highly competitive market that is characterized by a small number of large, national producers and a larger number of small, regional or local producers. Competition in the industry is based on price, consistency and quality of product, site location, distribution capability, customer service, reliability of supply, breadth of product offering and technical support. AsBecause transportation costs are a significant portion of the total cost to customers of commercial silica-insilica (in many instances transportation costs can represent more than 50% of delivered cost-thecost), the commercial silica market is typically local, and competition from beyond the local area is limited. Notable exceptions to this are the frac sand and fillers and extenders markets, where certain product characteristics are not available in all deposits and not all plants have the requisite processing capabilities, necessitating that some products be shipped for extended distances.
We compete with national producers such as Fairmount Santrol Holdings Inc., Unimin Corporation, Hi-Crush Partners LP and Emerge Energy Services LP. Our competitors may have greater financial and other resources than we do, may develop technology superior to ours or may have production facilities that are located closer to key customers than ours.
Because the markets for our products are typically local, we also compete with smaller, regional or local producers in addition to the other national producers. There typically is an increasing number of small producers servicing the frac sand market when there is increased demand for hydraulic fracturing services. If demand for hydraulic fracturing services decreases and the supply of frac sand available in the market increases, prices in the frac sand market could continue to materially decrease as less-efficient producers exit the market, selling frac sand at below market prices. Furthermore, our competitors may choose to consolidate, which could provide them with greater financial and other resources than us and negatively impact demand for our frac sand products. In addition, oil and natural gas exploration and production companies and other providers of hydraulic fracturing services couldmay acquire their own frac sand reserves, expand their existing frac sand production capacity or otherwise fulfill their own proppant requirements, and existing or new frac sand producers could add to or expand their frac sand production capacity, which would negatively impact demand for our frac sand products. We
With regards to our international sales and operations, our performance is also subject to currency exchange fluctuations. In addition, our ability to sell and deliver our products to, and collect payment from, our international customers depends on fund transfer and trade restrictions and import/export duties, the ability to import and export goods, and fluctuating policies on tariffs on a number of goods that could impact our operations. These factors and uncertainties may cause our international customers to seek out producers who are not be ablelocated in the United States to fulfill their commercial silica requirements or may otherwise make it more difficult for us to compete successfully against either our larger or smaller competitors in the future, and competition could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.with international producers.
If our customers delay or fail to pay a significant amount of our outstanding receivables, it could have a material adverse effect on our business, liquidity, consolidatedfinancial condition, and results of operations, and financial condition.operations.
We bill our customers for our products in arrears and are, therefore, subject to credit risks if our customers delayingdelay or failingfail to pay our invoices. In weak economic environments, we may experiencehave experienced increased delays or failures due to, among other reasons, a reduction in our customers’ cash flow from operations and theirability to access the credit markets. In addition, some of our customers have experienced financial difficulties, including insolvency or bankruptcy proceedings, in which cases we have not been able to collect sums owed to us or have received significantly less than expected, and we may be required to refund pre-petition amounts paid to us during a specified period prior to the credit markets.bankruptcy filing. Furthermore, we may experience longer collection cycles with our international customers due to foreign fund transfer restrictions, and we may have difficulty enforcing agreements and collecting accounts receivable from our international customers through a foreign country’s legal system. If our customers delay or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our business, liquidity consolidatedfinancial condition, and results of operations, and financial condition.operations.
Some of our customers may experience financial difficulties, including insolvency. If a customer cannot provide us with reasonable assurance of payment, we will fully reserve the outstanding accounts receivable balance for the customer and only recognize revenue when we collect payment for our products shipped, assuming all other criteria for revenue recognition have been met. Although we will continue to try to obtain payments from these customers, it is likely that one or more of these customers will not pay us for our products. With respect to customers that are in bankruptcy proceedings, we similarly may not be able to collect sums owed to us by these customers and we also may be required to refund pre-petition amounts paid to us during the preference period (typically 90 days) prior to the bankruptcy filing.
A large portion of our sales is generated by our top ten customers, and the loss of or a significant reduction in purchases by our largest customers could adversely affect our results of operations.
Our top ten largest customers made up 58%accounted for approximately 34%, 52%,43% and 56%48% of our total sales revenue during the years ended December 31, 2017, 2016,2020, 2019 and 2015,2018, respectively. As a result of December 31, 2017, we had 23 long-term, competitively-bid minimum purchase supply agreements with 19 customers in the oil and gas proppants end market six of which were among our top ten overall customers. These agreements have initial terms expiring between 2018 and 2022. While some of our largest customers have entered into supply agreements with us,conditions, competition or other factors, these customers may not continue to purchase the same levels of our commercial silica products in the future, due to a variety of reasons, contract requirements notwithstanding. For example, some of our topif at all. Substantial reductions in purchase volumes across these customers could go out of business or, alternatively, be acquired by other companies that purchase the same products and services provided by us from other third-party providers. Our customers could also seek to capture and develop their own sources of commercial silica. If any of our major customers substantially reduces or altogether ceases purchasing our commercial silica products, depending on market conditions, we could sufferhave a material adverse effect on our business, financial condition, and results
of operations.
Operational Risks
Our operations cash flowsare subject to risks and prospects.dangers inherent to mining, some of which are beyond our control, and some of which may not be covered by insurance.
Our mining, processing and production facilities are subject to risks normally encountered in the commercial silica and earth minerals industries, many of which are not in our control. In addition to the long-term minimum purchase supply agreements may negatively impactother risks described in these risk factors, these risks include:
•unanticipated ground, grade or water conditions;
•unusual or unexpected geological formations or pressures;
•pit wall failures, underground roof falls or surface rock falls;
•environmental hazards;
•physical plant security breaches;
•inability to acquire or maintain necessary permits or mining or water rights;
•failure to maintain dust controls and meet restrictions on respirable crystalline silica dust;
•restrictions on blasting operations;
•failures in quality control systems or training programs;
•technical difficulties or key equipment failures;
•inability to obtain necessary mining or production equipment or replacement parts;
•fires, explosions or industrial accidents or other accidents; and
•facility shutdowns in response to environmental regulatory actions.
Any of these risks could result in damage to, or destruction of, our mining properties or production facilities, personal injury, environmental damage, delays in mining or processing, losses or possible legal liability. Any prolonged downtime or shutdowns at our mining properties or production facilities could have a material adverse effect on our business, financial condition, and results of operations. Some
Not all of these risks are reasonably insurable, and our insurance coverage contains limits, deductibles, exclusions and endorsements. Our insurance coverage may not be sufficient to meet our needs in the event of loss and any such loss may have a material adverse effect on our business, financial condition, and results of operations.
Diminished access to water may adversely affect our operations.
The mining and processing activities in which we engage at a number of our long-term agreementsfacilities require significant amounts of water, and some of our facilities are for sales at fixed priceslocated in areas that are adjusted only for certainwater-constrained. We may not be able obtain water rights sufficient to service our current activities or to service any properties we may develop or acquire in the future. Moreover, the amount of water we are entitled to use pursuant to our water rights must be determined by the appropriate regulatory authorities, and these authorities may amend the regulations affecting our water rights, increase the cost increases. As a result,of maintaining our water rights or reduce or eliminate our existing water rights, in periods with increasing prices,which case we may be unable to retain these rights. Furthermore, our salesexisting water rights could grow at a slower rate than industry spot prices.be disputed. Any such changes in laws, regulations or government policy and related interpretations pertaining to water rights or any successful claim that we lack appropriate water rights may alter our operating costs or the environment in which we do business, which may negatively affect our financial condition and results of operations.
Increasing costs, a lack of dependability or availability of transportation services, transload network access or infrastructure or an oversupply of transportation services could have a material adverse effect on our business.business, financial condition, and results of operations.
Because of the relatively low cost of producing commercial silica, transportation and related costs, including freight charges, fuel surcharges, transloading fees, switching fees, railcar lease costs, demurrage costs and storage fees, tend to be a significant component of the total delivered cost of sales. The high relative cost of transportation related expense tends to favor manufacturers located in close proximity to the customer. In addition, whenAs a result, if we expand our commercial silica production to new geographic markets, we could need increased transportation services and transload network access.access and would be subject to higher overall costs for these services. We contract with truck, rail and barge services to move commercial silica from our production facilities to transload sites and our customers, and increased costs under these contracts could adversely affect our results of operations. In addition, we bear the risk of non-delivery under our contracts. Labor disputes, derailments, adverse weather conditions or other environmental events, an increasingly tightshortages in the railcar leasing market andor changes to rail freight systems
could interrupt or limit available transportation services. A significant increase in transportation service rates, a reduction in the dependability or availability of transportation or transload services, or relocation of our customers’ businesses to areas farther from our plants or transloads could impair our ability to deliver our products economically to our customers and to expand ourto new markets. Further, reduced demand for commercial silica could resultsometimes results in railcar over-capacity, requiring us to pay railcar storage fees while, at the same time, continuing to incurmake lease costspayments for those railcars in storage, which couldcan have a material adverse effect on our business, financial condition, and results of operations, cash flows and prospects.operations.
Seasonal and severe weather conditions could have a material adverse impact on our business.
Our business could be materially adversely affected by weather conditions. Severe weather conditions may affect our customers’ operations thus reducing their need for our products. Weather conditions may impact our operations, resulting in weather-related damage to our facilities and equipment or an inability to deliver equipment, personnel and products to job sites in accordance with contract schedules. In addition, climate change may lead to the increased frequency and severity of extreme weather events. Any such interference with our operations could force us to delay or curtail services and potentially breach our contractual obligations or result in a loss of productivity and an increase in our operating costs.
Our production process consumesconsume large amounts of natural gas, electricity and electricity.diesel fuel. An increase in the price or a significant interruption in the supply of these or any other energy sources could have a material adverse effect on our business, financial condition, orand results of operations.
Energy costs, primarily natural gas and electricity, represented approximately 4%, 4% and 3% of our total sales in 2017.2020, 2019 and 2018, respectively. Natural gas is the primary fuel source used for drying in the commercial silica production processprocess. In addition, our operations are dependent on earthmoving equipment, railcars and as such, ourtractor trailers, and diesel fuel costs are a significant component of the operating expense of these vehicles. To the extent that we perform these services with equipment that we own, we are responsible for buying and supplying the diesel fuel needed to operate these vehicles, which currently represents less than 1% of total cost of sales. To the extent that these services are provided by independent contractors, we may be subject to fuel surcharges that attempt to recoup increased diesel fuel expenses. Our profitability is impacted by the price and availability of natural gas we purchase from third parties.these energy sources. The price and supply of diesel fuel and natural gas are unpredictable and can fluctuate significantly based on international political and economic circumstances, as well as other events outside our control, such as changes in supply and demand due to weather conditions, actions by OPEC and other oil and natural gas producers, regional production patterns and environmental concerns. In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for energy, which may be passed on to us in whole or in part.part or could reduce supply. In the past, the price of natural gas has been extremely volatile, and we believe this volatility may continue. In order to manage this risk, we may hedge natural gas prices through the use of derivative financial instruments, such as forwards, swaps and futures. However, these measures carry riskdifferent risks (including nonperformance by counterparties) and do not in any event entirely eliminate
the risk of decreased margins as a result of natural gasenergy price increases. A significant increase in the price of energy that is not recovered through an increase in the price of our products or covered through our hedging arrangements or an extended interruption in the supply of natural gas or electricity to our production facilitiesthe energy sources we use could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
Increases in the price of diesel fuel may adversely affect our results of operations.
Diesel fuel costs generally fluctuate with increasing and decreasing world crude oil prices, and accordingly are subject to political, economic and market factors that are outside of our control. Our operations are dependent on earthmoving equipment, railcars and tractor trailers, and diesel fuel costs are a significant component of the operating expense of these vehicles. We use earthmoving equipment in our mining operations, and we ship the vast majority of our products by either railcar or tractor trailer. To the extent that we perform these services with equipment that we own, we are responsible for buying and supplying the diesel fuel needed to operate these vehicles. To the extent that these services are provided by independent contractors, we may be subject to fuel surcharges that attempt to recoup increased diesel fuel expenses. To the extent we are unable to pass along increased diesel fuel costs to our customers, our results of operations could be adversely affected.
Diminished access to water may adversely affect our operations.
The mining and processing activities in which we engage at a number of our facilities require significant amounts of water, and some of our facilities are located in areas that are water-constrained. We have obtained water rights that we currently use to service the activities on our various properties, and we plan to obtain all required water rights to service other properties we may develop or acquire in the future. However, the amount of water that we are entitled to use pursuant to our water rights must be determined by the appropriate regulatory authorities in the jurisdictions in which we operate. Such regulatory authorities may amend the regulations regarding such water rights, increase the cost of maintaining such water rights or eliminate our current water rights, and we may be unable to retain all or a portion of such water rights. These new regulations, which could also affect local municipalities and other industrial operations, could have a material adverse effect on our operating costs and effectiveness if implemented. Such changes in laws, regulations or government policy and related interpretations pertaining to water rights may alter the environment in which we do business, which may negatively affect our financial condition and results of operations.
If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.
Our business strategy includes supplementing internal growth by pursuing acquisitions of complementary businesses. Any acquisition involves potential risks, including, among other things:
the validity of our assumptions about mineral reserves, future production, sales, capital expenditures, operating expenses and costs, including synergies;
an inability to successfully integrate the businesses we acquire;
the use of a significant portion of our available cash or borrowing capacity to finance acquisitions and the subsequent decrease in our liquidity;
a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;
the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;
the diversion of management’s attention from other business concerns;
an inability to hire, train or retain qualified personnel both to manage and to operate our growing business and assets;
the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;
unforeseen difficulties encountered in operating in new geographic areas;
customer or key employee losses at the acquired businesses; and
the accuracy of data obtained from production reports and engineering studies, geophysical and geological analyses and other information used when deciding to acquire a property, the results of which are often inconclusive and subject to various interpretations.
If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.
We will be required to make substantial capital expenditures to maintain, develop and increase our asset base. The inability to obtain needed capital or financing on satisfactory terms, or at all, could have an adverse effect on our growth and profitability.
Although we currently use a significant amount of our cash reserves and cash generated from our operations to fund the maintenance and development of our existing mineral reserves and our acquisitions of new mineral reserves, we may depend on the availability of credit to fund future capital expenditures. Our ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering, the covenants contained in our existing credit facilities or future debt agreements, adverse market conditions or other contingencies and uncertainties that are beyond our control. Our failure to obtain the funds necessary to maintain, develop and increase our asset base could adversely impact our growth and profitability.
Even if we are able to obtain financing or access the capital markets, incurring additional debt may significantly increase our interest expense and financial leverage, and our level of indebtedness could restrict our ability to fund future development and acquisition activities. In addition, the issuance of additional common stock in an equity offering may result in significant stockholder dilution.
Our substantial indebtedness and pension obligations could adversely affect our financial flexibility and our competitive position.
We have, and we will continue to have, a significant amount of indebtedness. As of December 31, 2017, we had $511.2 million of outstanding indebtedness. Under our senior secured credit facility, as of December 31, 2017, we had a $50.0 million line-of-credit, of which $4.5 million is being used for outstanding letters of credit, leaving $45.5 million of borrowing availability. Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. We also have, and will continue to have, significant pension obligations. As of December 31, 2017,our unfunded pension obligations totaled $30.0 million. Our substantial indebtedness and pension obligations could have other important consequences to you and significant effects on our business. For example, they could:
increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and pension obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from exploiting business opportunities;
make it more difficult to satisfy our financial obligations, including payments on our indebtedness;
place us at a disadvantage compared to our competitors that have less debt and pension obligations; and
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
Our senior secured credit facility contains certain restrictions and financial covenants that may restrict our business and financing activities
Our existing senior secured credit facility contains, and any future financing agreements that we may enter into will likely contain, operating and financial restrictions and covenants that may restrict our ability to finance future operations or capital needs or to engage in, expand or pursue our business activities.
Our ability to comply with these restrictions and covenants is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our senior secured credit facility, a significant portion of our indebtedness may become immediately due and payable and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our senior secured credit facility are secured by substantially all of our assets, and if we are unable to repay our indebtedness under our senior secured credit facility, the lenders could seek to foreclose on our assets.
We may incur substantial debt in the future to enable us to maintain or increase our production levels and to otherwise pursue our business plan. This debt may impair our ability to operate our business.
Our business plan requires a significant amount of capital expenditures to maintain and grow our production levels. If commercial silica prices were to decline for an extended period of time, if the costs of our acquisition and development operations were to increase substantially or if other events were to occur which reduced our sales or increased our costs, we may be required to borrow significant amounts in the future to enable us to finance the expenditures necessary to replace the reserves we produce. The cost of the borrowings and our obligations to repay the borrowings could have important consequences to us, including:
our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms, or at all;
covenants contained in our existing and future credit and debt arrangements will require us to meet financial tests that may affect our flexibility in planning for, and reacting to, changes in our business, including possible acquisition opportunities;
we will need a substantial portion of our cash flow to make principal and interest payments on our indebtedness and to improve the funded status of our defined benefit pension plan, reducing the funds that would otherwise be available for operations and future business opportunities; and
our debt level will make us more vulnerable than our less leveraged competitors to competitive pressures or a downturn in our business or the economy generally.
Our ability to service our indebtedness will depend on, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying business activities, acquisitions, investments and/or capital expenditures; selling assets; restructuring or refinancing our indebtedness; or seeking additional equity capital or bankruptcy protection. We may not be able to affect any of these remedies on satisfactory terms or at all.
Certain of our contracts contain provisions requiring us to deliver minimum amounts of frac sand or purchase minimum amounts of services.products that meet certain specifications. Noncompliance with these contractual obligations may result in penalties or termination of the agreement.agreements.
In certain instances, we commit to deliver products or purchase services, under penalty of nonperformance. These obligations can require that we deliver products or services that meet certain specifications that a customer may designate. Our inability to meet the minimumthese contract requirements may permit the counterparty to terminate the agreements, return products that fail to meet a customer’s quality specifications, or require us to pay a fee. The amount of the fee would be based onequal to the difference between the minimum amount contracted for and the amount delivereddelivered. Further, we may not be able to sell some of our products developed for one customer to a different customer because the products may be customized to meet specific customer quality specifications, and even if we are able to sell these products to another customer, our margin on these products may be reduced. Moreover, any inability to deliver products or purchased.services that meet customer requirements could harm our relationships with these customers and our reputation generally. In such events, our business, financial condition and results of operations may be materially adversely affected.
Inaccuracies in our estimates of mineral reserves and resource deposits, or deficiencies in our title to those deposits, could result in lower than expected sales andour inability to mine the deposits or require us to pay higher than expected costs.
We base our mineral reserve and resource estimates on engineering, economic and geological data assembled and analyzed by our mining engineers, which are reviewed periodically by outside firms. However, commercial silica reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from available drilling data, which may prove unreliable. There are numerous uncertainties inherent in estimating quantities and qualities of commercial silica reserves and non-reserve commercial silica deposits and costs to mine recoverable reserves, including many factorsof which are beyond our control. Estimates of economically recoverable commercial silica reserves necessarily depend on a number of factorscontrol and assumptions, allany of which may vary considerably fromcould cause actual results such as:to differ materially from our expectations. These uncertainties include:
•geological and mining conditions and/or effects from prior mining that may not be fully identified by available data or that may differ from experience;
•assumptions regarding the effectiveness of our mining, quality control and training programs;
•assumptions concerning future prices of commercial silica products, operating costs, mining technology improvements, development costs and reclamation costs; and
•assumptions concerning future effects of regulation, including the issuance of required permits and taxes by governmental agencies.
In addition, title to, and the area of, mineral properties and water rights may also be disputed. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that we do not have title to one or more of our properties or lack appropriate water rights could cause us to lose any rights to explore, develop and extract any minerals on that property, without compensation for our prior expenditures relating to such property. Any inaccuracy in our estimates related to our mineral reserves and non-reserve mineral deposits, or our title to such deposits, could result in lower than expected sales andour inability to mine the deposits or require us to pay higher than expected costs.
AOur business and operations could suffer in the event of cybersecurity breaches, information technology system failures, or network disruptions.
We rely on our information technology systems to process transactions, summarize our operating results and manage our business. Our information technology systems are subject to damage or interruption from power outages; computer and telecommunications failures; computer viruses; cyberattack or other security breaches; catastrophic events, such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism; and usage errors by our employees. If our information technology systems are damaged or cease to function properly, we may need to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations.
We have been the target of cyberattacks, and while to date none of these incidents has had a material impact on us, we expect to continue to be targeted in the future. Our management team updates our Board of Directors quarterly on material cybersecurity risks facing the Company. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the current global economic and political environment, the outsourcing of some of our business operations, the ongoing shortage of skilled labor together with rising labor costsqualified cybersecurity professionals, and the interconnectivity and interdependence of third parties to our systems.
The systems we employ to detect and prevent cyberattacks may be insufficient to protect us from an incident or to allow us to minimize the magnitude and effects of such incident for a significant period of time. The occurrence of a cyberattack, breach, unauthorized access, misuse, computer virus or other cybersecurity event could jeopardize our systems or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our customers, our counterparties, third-party service providers or borrowers that is processed and stored in, and transmitted through, our computer systems and networks. Any such event could result in significant losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial condition or results of operations.
Mine closures entail substantial costs, and if we close one or more of our mines sooner than anticipated, our results of operations may be adversely affected.
We base our assumptions regarding the life of our mines on detailed studies that we perform from time to time, but our studies and assumptions do not always prove to be accurate. If we close any of our mines sooner than expected, sales will decline unless we are able to increase production at any of our other mines, which may not be possible. The closure of an open pit mine may also involve significant fixed closure costs, including accelerated employment legacy costs, severance-related obligations, reclamation and other environmental costs and the costs of terminating long-term obligations, including energy contracts and equipment leases. We accrue for the costs of reclaiming open pits, stockpiles, tailings ponds, roads and other mining industry may furthersupport areas over the estimated mining life of our properties. If we were to reduce the estimated life of any of our mines, the fixed mine closure costs could be applied to a shorter period of production, which would increase operatingproduction costs whichper ton produced and could materially and adversely affect our results of operations.operations and financial condition.
Efficient
Applicable statutes and regulations require that mining using modern techniquesproperty be reclaimed following a mine closure in accordance with specified standards and an approved reclamation plan. The plan addresses matters such as removal of facilities and equipment, requires skilled laborers, preferablyre-grading, prevention of erosion and other forms of water pollution, re-vegetation and post-mining land use. Complying with several years of experiencethese plans has had, and proficiency in multiple mining tasks, including processing of mined minerals. If the shortage of experienced labor continues or worsens or if we are unablewill continue to train the necessary number of skilled laborers, there could be an adverse impacthave, a significant effect on our labor productivitybusiness. Some environmental laws impose substantial penalties for noncompliance with a reclamation plan, and others, such as the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), impose strict, retroactive and joint and several liability for the remediation of releases of hazardous substances. We may be required to post a surety bond or other form of financial assurance equal to the anticipated cost of reclamation as set forth in the approved reclamation plan. The inability to acquire, maintain or renew such financial assurances could subject us to fines or the revocation of our operating permits. The establishment of the final mine closure reclamation liability is based on permit requirements and requires various estimates and assumptions,
principally associated with reclamation costs and production levels. If our abilityaccruals for expected reclamation and other costs associated with mine closures for which we will be responsible were later determined to growbe insufficient, our business, mayresults of operations and financial condition would be limited.adversely affected.
Our business may suffer if we lose,Legal & Compliance Risks
We are subject to numerous environmental regulations that impose significant costs and liabilities, which could increase under potential future regulations or are unable to attract and retain, key personnel.more stringent enforcement of existing regulations.
We dependare subject to a large extentvariety of federal, state and local environmental laws and regulations affecting the mining and mineral processing industry, including, among others, those relating to environmental permitting and licensing, plant and wildlife protection, wetlands protection, air and water emissions, greenhouse gas emissions, water pollution, waste management, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, hazardous materials and natural resources. These laws and regulations have had, and will continue to have, a significant effect on our business. Some environmental laws impose substantial penalties for noncompliance, and others, such as CERCLA, impose strict, retroactive and joint and several liability for the servicesremediation of releases of hazardous substances.
The denial of a permit essential to our senior management team and other key personnel. Members of our senior management and other key employees have extensive experience and expertise in evaluating and analyzing industrial mineral properties, maximizing production from such properties, marketing industrial mineral production and developing and executing financing and hedging strategies. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individualsoperations or the failureimposition of conditions with which it is not practicable or feasible to attract additional personnel, as needed,comply could have a material adverse effect on our operations and could leadbusiness. Significant opposition to higher labor costs ora permit by neighboring property owners, members of the use of less-qualified personnel. In addition, if any of our executivespublic or other key employees werethird parties or delay in the environmental review and permitting process also could impair or delay our operations.
Moreover, environmental requirements, and the interpretation and enforcement of these requirements, change frequently and have tended to join a competitor or form a competing company, webecome more stringent over time. Future environmental laws and regulations could lose customers, suppliers, know-how and key personnel. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent onrestrict our ability to continueexpand our facilities or extract our mineral deposits or could require us to attract, employ and retain highly skilled personnel.
Difficulty in truckload driver and independent contractor recruitment and retention may have a materially adverse effect on our business.
With respect to our trucking services, difficulty in attracting or retaining qualified drivers and independent contractors could have a materially adverse effect on our growth and profitability. The truckload transportation industry periodically experiences a shortage of qualified drivers, particularly during periods of economic expansion, in which alternative employment opportunities are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchaseacquire costly equipment or for students who seek financial aid for driving school. Our independent contractors are responsible for paying for their own equipment, fuel, andto incur other operating costs, and significant increasesexpenses in these costs could cause them to seek higher compensation from us or seek other opportunities within or outside the trucking industry. The trucking industry suffers from a high driver turnover rate, which requires us to continually recruit a substantial number of drivers to operate our equipment. If we were unable to attract qualified drivers and contract with independent contractors, we could be forced to, among other things, limit our growth, decrease the number of our tractors in service, adjust our driver compensation package or independent contractor compensation, or pay higher rates to third-party truckload carriers, which could adversely affect our profitability and results of operations if not offset by a corresponding increase in customer rates.
Our profitability could be negatively affected if we fail to maintain satisfactory labor relations.
As of December 31, 2017, various labor unions represented approximately 22% of our employees. If we are unable to renegotiate acceptable collective bargaining agreements with these labor unions in the future, we could experience, among other things, strikes, work stoppages or other slowdowns by our workers and increased operating costs as a result of higher wages, health care costs or benefits paid to our employees. An inability to maintain good relationsconnection with our workforcebusiness. The costs associated with complying with such requirements, could causehave a material adverse effect on our business, financial condition, and results of operations.
For example, greenhouse gas emission regulation is becoming more rigorous, and concerns about climate change could cause this trend to continue or intensify. We rely upon patents, trade secretsexpect to be required to report annual greenhouse gas emissions from our operations to the Environmental Protection Agency (“EPA”), and contractualadditional greenhouse gas emission -related requirements are in various stages of development at the international, federal, state, regional and local levels. The U.S. Congress has considered, and may adopt in the future, various legislative proposals to address climate change, including a nationwide limit on greenhouse gas emissions. Any regulation of greenhouse gas emissions, including, for example, through a cap-and-trade system, technology mandate, emissions tax, reporting requirement, new permit requirement or other program, could curtail our operations, significantly increase our operating costs, impair demand for our products or otherwise adversely affect our business, financial condition, reputation, and performance.
Additionally, various state, local and foreign governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing through additional permitting requirements, operational restrictions, disclosure requirements and temporary or permanent bans on hydraulic fracturing. A significant portion of our business supplies frac sand to hydraulic fracturing operators in the oil and natural gas industry. Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing operations. There is significant federal oversight of these operations by the EPA, Bureau of Land Management (“BLM”), and Department of Energy (“DOE”). A number of local municipalities across the United States have also instituted measures resulting in temporary or permanent bans on or otherwise limiting or delaying hydraulic fracturing in their jurisdictions. Additionally, a number of states have enacted legislation or issued regulations that impose various disclosure requirements on hydraulic fracturing operators. Such moratoriums, bans, disclosure obligations, and other regulatory actions could make it more difficult to conduct hydraulic fracturing operations and increase our customers’ cost of doing business, which could negatively impact demand for our frac sand products. In addition, heightened political, regulatory and public scrutiny of hydraulic fracturing practices could potentially expose us or our customers to increased legal and regulatory proceedings, and any such proceedings could be time-consuming, costly or result in substantial legal liability or significant reputational harm. Any such developments could have a material adverse effect on our business, financial condition and results of operations, whether directly or indirectly.
If we or our customers are not able to obtain and maintain necessary permits, our results of operations could suffer.
We hold numerous governmental, environmental, mining and other permits and approvals authorizing operations at each of our facilities. Our future success depends on, among other things, our ability, and the ability of our customers, to obtain and
maintain the necessary permits and licenses required to conduct operations. In order to obtain permits and renewals of permits in the future, we may be required to prepare and present data to governmental authorities pertaining to the impact that any proposed exploration or production activities may have on the environment. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to conduct operations. Additionally, obtaining or renewing required permits is sometimes delayed, conditioned or prevented due to community opposition, opposition from other parties, the location of existing or proposed third-party operations, or other factors beyond our control. The denial of a new or renewed permit essential to our operations, delays in obtaining such a permit or the imposition of conditions in order to acquire the permit could impair our ability to continue operations at the affected facilities, delay those operations, or involve significant unplanned costs, any of which could adversely affect our business, performance and financial condition.
We are subject to regulations that impose stringent health and safety standards on numerous aspects of our operations.
Multiple aspects of our operations are subject to health and safety standards, including our mining operations, our trucking operations, and employee exposure to crystalline silica.
Our mining operations are subject to the Mine Safety and Health Act of 1977 (“Mine Act”), as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment and other matters. Our operating locations are regularly inspected by the Mine Safety & Health Administration (“MSHA”) for compliance with the Mine Act.
The Department of Transportation (“DOT”) and various state agencies exercise broad powers over our trucking services, generally governing matters including authorization to engage in motor carrier service, equipment operation, safety, and financial reporting. In addition, our operations must comply with the Fair Labor Standard Act, which governs such matters as wages and overtime, and which is administered by the Department of Labor (“DOL”). We may be audited periodically by the DOT or the DOL to ensure that we are in compliance with these safety, hours-of-service, wage and other rules and regulations.
We are also subject to laws and regulations relating to human exposure to crystalline silica. Several federal and state regulatory authorities, including MSHA and OSHA, may continue to propose changes to their regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits, required controls and personal protective equipment. Our failure to comply with existing or new health and safety standards, or changes in such standards or the interpretation or enforcement thereof, could require us or our customers to modify operations or equipment, shut down some or all operating locations, impose significant restrictions on our ability to conduct operations or otherwise have a material adverse effect on our business, financial condition, and results of operations.
Silica-related health issues and litigation could have a material adverse effect on our business, reputation and results of operations.
The inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is evidence of an association between crystalline silica exposure or silicosis and lung cancer and possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may continue to be, a significant issue confronting the commercial silica industry. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability from the use of silica, may have the effect of discouraging our customers’ use of our silica products. The actual or perceived health risks of mining, processing and handling silica could materially and adversely affect silica producers, including us, through reduced use of silica products, the threat of product liability or employee lawsuits, increased scrutiny by federal, state and local regulatory authorities of us and our customers or reduced financing sources available to the commercial silica industry.
Since at least 1975, we and/or our predecessors have been named as a defendant, usually among many defendants, in numerous product liability lawsuits brought by or on behalf of current or former employees of our customers alleging damages caused by silica exposure. Almost all of the claims pending against us arise out of the alleged use of our silica products in foundries or as an abrasive blast media, involve various other defendants and have been filed in the States of Texas, Louisiana and Mississippi, although some cases have been brought in many other jurisdictions over the years. For further information about material pending proceedings, see Item 3. Legal Proceedings. The silica-related litigation brought against us to date and associated litigation costs, settlements and verdicts have not resulted in a material liability to us to date, and we presently maintain insurance policies where available. However, we continue to have silica exposure claims filed against us, including claims that allege silica exposure for periods or in areas not covered by insurance, and the costs, outcome and impact to us of any pending or future claims is not certain. Any such pending or future claims or inadequacies of our insurance coverage could have a material adverse effect on our business, reputation, financial condition, and results of operations.
Due to the international nature of parts of our business, we are subject to both U.S. and foreign regulations that could negatively impact our business.
In addition to U.S. laws and regulations, we are also subject to regulation in non-U.S. jurisdictions in which we conduct business, including with respect to environmental, employee and other matters. The requirements for compliance with these laws and regulations may be unclear or indeterminate and may involve significant costs, including additional capital expenditures or increased operating expenses, or require changes in business practice, in each case that could result in reduced profitability for our business. Our need to comply with these foreign laws and regulations may provide an advantage to competitors who are not subject to comparable restrictions or may restrict our ability to take advantage of growth opportunities. In addition, because the laws and regulations in different jurisdictions can vary substantially, we may be required to undertake different steps or otherwise experience increased costs or other challenges in order to comply with the laws and regulations in each of the multiple jurisdictions in which we operate.
In addition, the United States regulates our international operations through various statutes, including the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit U.S. -based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We operate in parts of the world that experience government corruption to some degree, and, in certain circumstances, compliance with anti-corruption laws may conflict with local customs and practices. Although we maintain policies, procedures and controls and deliver training designed to ensure compliance with anti-corruption laws, such efforts may not be sufficient to protect us from liability under these laws.
If we are found to be liable for regulatory violations related to our proprietary rights. international operations, we could suffer from criminal or civil penalties or other sanctions, any of which could have a material adverse effect on our business, financial condition, and results of operations.
Strategic & General Business Risks
We must effectively manage our production capacity so that we can appropriately react to fluctuations in demand for our products.
To meet rapidly changing demand in the markets we serve, we must effectively manage our resources and production capacity. During periods of decreasing demand we must be able to appropriately align our cost structure with prevailing market conditions and effectively manage our mining operations. Our ability to rapidly and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in the near term and by our need to continue to invest in maintaining reserves and production capabilities. Conversely, when upturns occur in the markets we serve, we may have difficulty rapidly and effectively increasing our production capacity or incur substantial costs related to restarting idled facilities or executing other expansion plans. A failure to timely and appropriately adapt our resources, costs and production capacity to changes in our business environment could have a material adverse effect on our business, financial condition, and results of operations.
If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited, and our financial condition may be adversely affected.
Our business strategy includes supplementing internal growth by pursuing acquisitions of complementary businesses. Any acquisition involves potential risks, including, among other things:
•the validity of our assumptions about mineral reserves, future production, sales, capital expenditures, operating expenses and costs, including synergies;
•an inability to successfully integrate the businesses we acquire;
•the use of a significant portion of our available cash or borrowing capacity to finance acquisitions and the subsequent decrease in our liquidity, or the use of equity securities to fund an acquisition and the resulting dilution to our existing stockholders;
•a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;
•the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;
•the diversion of management’s attention from other business concerns;
•an inability to hire, train or retain qualified personnel to manage and operate any growth in our business and assets;
•the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;
•unforeseen difficulties encountered in operating in new geographic areas or other new markets;
•customer or key employee losses at the acquired businesses; and
•the accuracy of data obtained from production reports and engineering studies, geophysical and geological analyses and other information used when deciding to acquire a property, the results of which are often inconclusive and subject to various interpretations.
If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited, and our financial condition may be adversely affected.
We may need to recognize impairment charges related to goodwill, identifiable intangible assets, and fixed assets, in which case our net earnings and net worth could be materially adversely affected.
Under the acquisition method of accounting, net assets acquired are recorded at fair value as of the acquisition date, with any excess purchase price allocated to goodwill. Our acquisitions have resulted in significant balances of goodwill and identifiable intangible assets. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate, impairment in our financial performance and/or future outlook or decline in our market capitalization due to other factors, the estimated fair value of our long-lived assets or goodwill decreases, we may determine that one or more of our long-lived assets or our goodwill is impaired. Any such impairment charge would be determined based on the estimated fair value of the assets and could have a material adverse effect on our financial condition, and results of operations.
Failure to protect our intellectual property rights may undermine our competitive position, and protecting our rights or defending against third-party allegations of infringement may be costly.
Our commercial success depends on our proprietary information and technologies, know-how and other intellectual property. Because of the technical nature of our business, we rely primarily on patents, trade secrets, trademarks and contractual restrictions to protect our intellectual property rights. The measures we take to protect our patents, trade secrets and other intellectual property rights may be insufficient. In addition, certain non-U.S. jurisdictions where we operate offer limited intellectual property protections relative to the United States. Failure to protect, monitor and control the use of our existing intellectual property rights could cause us to lose our competitive advantage and incur significant expenses. It is possible that our competitors or others could independently develop the same or similar technologies or otherwise obtain access to our unpatented technologies. In such case, our patents and trade secrets would not prevent third parties from competing with us. As a result, our results of operations may be adversely affected. Furthermore, third parties or employees may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could also harm our business and results of operations.rights. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available.
In addition, third parties may claim that our products infringe or otherwise violate their patents or other proprietary rights and seek corresponding damages or injunctive relief. Defending ourselves against such claims, with or without merit, could be time-consuming and result in costly litigation. An adverse outcome in any such litigation could subject us to significant liability to third parties (potentially including treble damages) or temporary or permanent injunctions prohibiting the manufacture or sale of our products, the use of our technologies or the conduct of our business. Any adverse outcome could also require us to seek licenses from third parties (which may not be available on acceptable terms, or at all) or to make substantial one-time or ongoing royalty payments. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation. In addition, we may not have insurance coverage in connection with such litigation and may have to bear all costs arising from any such litigation to the extent we are unable to recover them from other parties. Any of these outcomes could have a material adverse effect on our business, financial condition, and results of operations.
Capital Resources & Stock Ownership Risks
We will need substantial additional capital to maintain, develop and increase our asset base, and the inability to obtain needed capital or financing, on satisfactory terms, or at all, whether due to restrictions in our Credit Agreement or otherwise, could have an adverse effect on our growth and profitability.
Our business plan requires a significant amount of capital expenditures to maintain and grow our production levels over the long term. Although we currently use a significant amount of our cash reserves and cash generated from our operations to
fund the maintenance and development of our existing mineral reserves and our acquisitions of new mineral reserves, we may need to depend on external sources of capital to fund future capital expenditures if commercial silica prices were to decline for an extended period of time, if the costs of our acquisition and development operations were to increase substantially or if other events were to occur that reduce our sales or increase our costs. Our ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering, adverse market conditions or other contingencies and uncertainties that are beyond our control. Our failure to obtain the funds necessary to maintain, develop and increase our asset base could adversely impact our growth and profitability.
In addition, our existing Credit Agreement contains, and any future financing agreements we may enter into could also contain, operating and financial restrictions and covenants that may limit our ability to finance future operations or capital needs or to engage in, expand or pursue our business activities.
Our ability to comply with these restrictions and covenants is uncertain and will be affected by the levels of cash flowsflow from our operations and prospects.events and circumstances beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our Credit Agreement, a significant portion of our indebtedness may become immediately due and payable and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our Credit Agreement are secured by substantially all of our assets, and if we are unable to repay our indebtedness or satisfy our other obligations under our Credit Agreement, the lenders could seek to foreclose on our assets.
Even if we are able to obtain financing or access the capital markets, incurring additional debt may significantly increase the risks associated with our existing indebtedness, as discussed elsewhere in these risk factors. In addition, the issuance of additional common stock in an equity offering may result in significant stockholder dilution. Further, we may incur substantial costs in pursuing any capital-raising transactions, including investment banking, legal and accounting fees, which may not be adequately offset by the proceeds from the transaction.
Our substantial indebtedness and pension obligations could adversely affect our financial flexibility and our competitive position.
We have, and we expect to maintain in the near term, a significant amount of indebtedness. On May 1, 2018, we entered into the Credit Agreement, which consists of a $1.280 billion Term Loan and a $100 million Revolver that may also be used for swingline loans or letters of credit.
As of December 31, 2020, we had $1.235 billion of outstanding indebtedness under the Term Loan and we were using $23.0 million for outstanding letters of credit in addition to $25.0 million drawn, leaving $52.0 million of borrowing availability under the Revolver with the consent of our lenders.
In addition to our indebtedness, we also have, and will continue to have, significant pension obligations. The substantial level of these obligations increases the risk that we may be unable to generate cash sufficient to pay amounts owed under these obligations when due. In such a case, we may be forced to reduce or delay business activities, acquisitions, investments and/or capital expenditures; sell assets; restructure or refinance our indebtedness; or seek additional equity capital or bankruptcy protection, and we may not be able to affect any of these remedies when necessary, on satisfactory terms or at all. Our level of indebtedness and pension obligations could also have important consequences to you and significant effects on our business, including:
•increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;
•requiring us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and pension obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes, including dividend payments;
•restricting us from exploiting business opportunities;
•making it more difficult to satisfy our financial obligations, including payments on our indebtedness;
•disadvantaging us when compared to our competitors that have less debt and pension obligations; and
•increasing our borrowing costs or otherwise limiting our ability to borrow additional funds for the execution of our business strategy.
In addition, the amounts owed under the Credit Agreement use LIBOR as a benchmark for establishing the rate at which interest accrues. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost to us of this indebtedness.
We may have to utilize significant cash to meet our unfunded pension obligations and post-retirement health care liabilities and these obligations are subject to increase.
Many of our employees participate in our defined benefit pension plans.In 2017,2020, we made no contribution payments totaling $5.5 million toward reducing the unfunded liability of our defined benefit pension plans. Declines in interest rates or the market values of the securities held by the plans or other adverse changes could materially increase the underfunded status of our plans and affect the level and timing of required cash contributions. To the extent we continue to use cash to reduce these unfunded liabilities, the amount of cash available for our working capital needs would be reduced. In addition, under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Pension Benefit Guaranty Corporation (“PBGC”) has the authority to institute proceedings to terminate a pension plan if (1) the plan has not met the minimum funding requirements, (2) the plan cannot pay current benefits when due, (3) a lump sum payment has been made to a participant who is a substantial owner of the sponsoring company (andin certain other technical conditions exist) or (4) the loss to the PBGC is reasonably expected to increase unreasonably over time if the plan is not terminated.circumstances. In the event our tax-qualified pension plans are terminated by the PBGC, we could be liable to the PBGC for the underfunded amount, which could trigger default provisions in our credit facilities. As of December 31, 2017, our pension obligation was $122.1 million (with plan assets of $92.1 million). The amount of cash ultimately required to fund these obligations will vary based on a number of factors including future return on assets, mortality rates and other such actuarial assumptions. Based on current assumptions, we expect to pay $7.2 million in the year 2018, a total of $14.7 million for the two-year period from 2019 through 2020, a total of $15.0 million for the two-year period from 2021 through 2022 and a total of $38.0 million thereafter.Credit Agreement.
We also have a post-retirement health and life insurance plan for many of our employees and former employees. The post-retirement benefit plan is unfunded.unfunded, and retiree health benefits are generally paid as covered expenses are incurred. We derive post-retirement benefit expense from an actuarial calculation based on the provisions of the plan and a number of assumptions provided by us including information about employee demographics, retirement age, future health care costs, turnover, mortality, discount rate, amount and timing of claims and a health care inflation trend rate. Weus. Although 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,retirees, the trust terminated in 2017 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. Our post-retirement healthcare obligations were $22.8 million as of December 31, 2017. Based on current assumptions, we expect to pay $1.4 million in the year 2018, a total of $2.7 million for the two-year period from 2019 through 2020, a total of $2.9 million for the two-year period from 2021 through 2022 and a total of $7.2 million thereafter.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations.”
Failure to maintain effective quality control systems at our mining, processing and production facilities could have a material adverse effect on our business and operations.
The performance, quality and safety of our products are critical to the success of our business. These factors depend significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program and our ability to ensure that our employees adhere to the quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our business, financial condition, results of operations and reputation.
Our sales and profitability fluctuate on a seasonal basis and are affected by a variety of other factors.
Our sales and profitability are affected by a variety of factors, including actions of competitors, changes in general economic conditions, weather conditions and seasonal periods. As a result, our results of operations may fluctuate on a quarterly basis and relative to corresponding periods in prior years, and any of these factors could adversely affect our business
and cause our results of operations to decline. For example, we sell moresatisfaction of our products in the secondobligations under our post-retirement benefit plan increases our expenses and third quarters in the building productsreduces our cash available for other uses.
See Note Q - Pension and recreation end markets due to the seasonal rise in construction driven by more favorable weather conditions. We sell fewer of our products in the first and fourth quarters due to reduced construction and recreational activity largely as a result of adverse weather conditions. Any unanticipated decrease in demand for our products during the second and third quarters could have a material adverse effect on our sales and profitability.
We may be subject to interruptions or failuresPost-Retirement Benefits in our Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for more information technology systems.about these plans.
We rely on our information technology systems to process transactions, summarize our operating results and manage our business. Our information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber attack or other security breaches, catastrophic events, such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations.
We may be the target of attempted cyber attacks, computer viruses, malicious code, phishing attacks, denial of service attacks and other information security threats. To date, cyber attacks have not had a material impact on our financial condition, results or business; however, we could suffer material financial or other losses in the future and we are not able to predict the severity of these attacks. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the current global economic and political environment, our prominent size and scale and our role in the financial services industry, the outsourcing of some of our business operations, the ongoing shortage of qualified cyber security professionals, and the interconnectivity and interdependence of third parties to our systems. The occurrence of a cyber attack, breach, unauthorized access, misuse, computer virus or other malicious code or other cyber security event could jeopardize or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our customers, our counterparties, third-party service providers or borrowers that is processed and stored in, and transmitted through, our computer systems and networks. The occurrence of such an event could also result in damage to our software, computers or systems, or otherwise cause interruptions or malfunctions in our, our customers’, our counterparties’ or third parties’ operations. This could result in significant losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial condition or results of operations.
The reliability and capacity of our information technology systems is critical to our operations and the implementation of our growth initiatives. Any material disruption in our information technology systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, and results of operations.
A terrorist attack or armed conflict could harm our business.
Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States could adversely affect the U.S. and global economies and could prevent us from meeting financial and other obligations. We could experience loss of business, delays or defaults in payments from payors or disruptions of fuel supplies and markets if pipelines, production facilities, processing plants or refineries are direct targets or indirect casualties of an act of terror or war. Such activities could reduce the overall demand for oil and natural gas, which, in turn, could also reduce the demand for our products and services. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.
Risks Related to Environmental, Mining and Other Regulation
We and our customers are subject to extensive environmental and health and safety regulations which impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.
We are subject to a variety of federal, state and local regulatory environmental requirements affecting the mining and mineral processing industry, including among others, those relating to employee health and safety, environmental permitting and licensing, air and water emissions, greenhouse gas emissions, water pollution, waste management, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, hazardous materials and natural resources. These laws, regulations and permits have had, and will continue to have, a significant effect on our business. Some environmental laws impose substantial penalties for noncompliance, and others, such as CERCLA, impose strict, retroactive and joint and several liability for the remediation of releases of hazardous substances. Liability under CERCLA, or similar state and local laws, may be imposed as a result of conduct that was lawful at the time it occurred or for the conduct of, or conditions
caused by, prior operators or other third parties. Failure to properly handle, transport, store or dispose of hazardous materials or otherwise conduct our operations in compliance with environmental laws could expose us to liability for governmental penalties, cleanup costs and civil or criminal liability associated with releases of such materials into the environment, damages to property or natural resources and other damages, as well as potentially impair our ability to conduct our operations. In addition, future environmental laws and regulations could restrict our ability to expand our facilities or extract our mineral deposits or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. Future events, including changes in any environmental requirements (or their interpretation or enforcement) and the costs associated with complying with such requirements, could have a material adverse effect on us.
Any failure by us to comply with applicable environmental laws and regulations may cause governmental authorities to take actions that could adversely impact our operations and financial condition, including:
issuance of administrative, civil and criminal penalties;
denial, modification or revocation of permits or other authorizations;
imposition of injunctive obligations or other limitations on our operations, including cessation of operations; and
requirements to perform site investigatory, remedial or other corrective actions.
Moreover, environmental requirements, and the interpretation and enforcement thereof, change frequently and have tended to become more stringent over time. For example, greenhouse gas emission regulation is becoming more rigorous. We expect to be required to report annual greenhouse gas emissions from our operations to the EPA, and additional greenhouse gas emission related requirements at the supranational, federal, state, regional and local levels are in various stages of development. The U.S. Congress has considered, and may adopt in the future, various legislative proposals to address climate change, including a nationwide limit on greenhouse gas emissions. In addition, the EPA has issued regulations, including the “Tailoring Rule,” that subject greenhouse gas emissions from certain stationary sources to the Prevention of Significant Deterioration and Title V provisions of the federal Clean Air Act. Any such regulations could require us to modify existing permits or obtain new permits, implement additional pollution control technology, curtail operations or increase significantly our operating costs. Any regulation of greenhouse gas emissions, including, for example, through a cap-and-trade system, technology mandate, emissions tax, reporting requirement or other program, could adversely affect our business, financial condition, reputation, operating performance and product demand.
In addition to environmental regulation, we are subject to laws and regulations relating to human exposure to crystalline silica. Several federal and state regulatory authorities, including MSHA and OSHA, may continue to propose changes in their regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits and required controls and personal protective equipment. For instance, in June 2016, OSHA issued final regulations that will reduce permissible exposure limits to 50 micrograms of respirable crystalline silica per cubic meter of air, averaged over an 8-hour day.
We may not be able to comply with any new laws and regulations that are adopted, and any new laws and regulations could have a material adverse effect on our operating results by requiring us to modify our operations or equipment or shut down some or all of our plants. Additionally, our customers may not be able to comply with any new laws and regulations, and any new laws and regulations could have a material adverse effect on our customers by requiring them to shut down old plants or to relocate plants to locations with less stringent regulations farther away from our facilities. We cannot at this time reasonably estimate our costs of compliance or the timing of any costs associated with any new laws and regulations, or any material adverse effect that any new standards will have on our customers and, consequently, on our operations.
We are subject to various lawsuits relating to the actual or alleged exposure of persons to silica. See “Risks Related to Our Business-Silica-related health issues and litigation could have a material adverse effect on our business, reputation or results of operations.”
We are subject to the Federal Mine Safety and Health Act of 1977, which imposes stringent health and safety standards on numerous aspects of our operations.
Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations.
Silica-related health issues and litigation could have a material adverse effect on our business, reputation or results of operations.
The inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is evidence of an association between crystalline silica exposure or silicosis and lung cancer and a possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may continue to be, a significant issue confronting the commercial silica industry. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability from the use of silica, may have the effect of discouraging our customers’ use of our silica products. The actual or perceived health risks of mining, processing and handling silica could materially and adversely affect silica producers, including us, through reduced use of silica products, the threat of product liability or employee lawsuits, increased scrutiny by federal, state and local regulatory authorities of us and our customers or reduced financing sources available to the commercial silica industry.
Since at least 1975, we and/or our predecessors have been named as a defendant, usually among many defendants, in numerous products liability lawsuits brought by or on behalf of current or former employees of our customers alleging damages caused by silica exposure. As of February 16, 2018, there were a total of 60 active silica-related products liability claims pending in which we were a defendant and 1 inactive claim. Almost all of the claims pending against us arise out of the alleged use of our silica products in foundries or as an abrasive blast media, involve various other defendants and have been filed in the states of Texas, Louisiana and Mississippi, although some cases have been brought in many other jurisdictions over the years.
Prior to the fourth quarter of 2012, we had insurance policies for both our predecessors that covered certain claims for alleged silica exposure for periods prior to certain dates in 1985 and 1986 (with respect to various insurance). As a result of a settlement with a former owner and its insurers in the fourth quarter of 2012, some of these policies are no longer available to us and we will not seek reimbursement for any defense costs or claim payments from these policies. Other insurance policies, however, continue to remain available to us and will continue to make such payments on our behalf. The silica-related litigation brought against us to date and associated litigation costs, settlements and verdicts have not resulted in a material liability to us to date. However, we continue to have silica exposure claims filed against us, including claims that allege silica exposure for periods not covered by insurance, and the costs, outcome and impact to us of any pending or future claims is not certain. Any such pending or future claims or inadequacies of our insurance coverage could have a material adverse effect on our business, reputation, financial condition, results of operations, cash flows and prospects. For further information, see “Business-Legal Proceedings.”
We and our customers are subject to other extensive regulations, including licensing, plant and wildlife protection and reclamation regulation, which impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.
In addition to the regulatory matters described above, we and our customers are subject to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection, wetlands protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment and the effects that mining and hydraulic fracturing have on groundwater quality and availability. Our future success depends, among other things, on the quantity of our commercial silica and other mineral deposits and our ability to extract these deposits profitably, and our customers being able to operate their businesses as they currently do.
In order to obtain permits and renewals of permits in the future, we may be required to prepare and present data to governmental authorities pertaining to the impact that any proposed exploration or production activities may have on the environment. Certain approval procedures may require preparation of archaeological surveys, endangered species studies and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site. Finally, obtaining or renewing required permits is sometimes delayed or prevented due to community opposition and other factors beyond our control. The denial of a permit essential to our operations or the imposition of conditions with which it is not practicable or feasible to comply could impair or prevent our ability to develop or expand a site. Significant opposition to a permit by neighboring property owners, members of the public or other third parties or delay in the environmental review and permitting process also could impair or delay our ability to develop or expand a site. New legal requirements, including those related to the protection of the environment, could be adopted that could materially adversely affect our mining operations (including our ability to extract mineral deposits), our cost structure or our customers’ ability to use our commercial silica products. Such current or future regulations could have a material adverse effect on our business and we may not be able to obtain or renew permits in the future.
Our inability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations.
We are generally obligated to restore property in accordance with regulatory standards and our approved reclamation plan after it has been mined. We are required under federal, state and local laws to maintain financial assurances, such as surety bonds, to secure such obligations. The inability to acquire, maintain or renew such assurances, as required by federal, state and local laws, could subject us to fines and penalties as well as the revocation of our operating permits. Such inability could result from a variety of factors, including:
the lack of availability, higher expense or unreasonable terms of such financial assurances;
the ability of current and future financial assurance counterparties to increase required collateral; and
the exercise by financial assurance counterparties of any rights to refuse to renew the financial assurance instruments.
Our inability to acquire, maintain or renew necessary financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations.
Mine closures entail substantial costs, and if we close one or more of our mines sooner than anticipated, our results of operations may be adversely affected.
We base our assumptions regarding the life of our mines on detailed studies that we perform from time to time, but our studies and assumptions do not always prove to be accurate. If we close any of our mines sooner than expected, sales will decline unless we are able to increase production at any of our other mines, which may not be possible. The closure of an open pit mine also involves significant fixed closure costs, including accelerated employment legacy costs, severance-related obligations, reclamation and other environmental costs and the costs of terminating long-term obligations, including energy contracts and equipment leases. We accrue for the costs of reclaiming open pits, stockpiles, tailings ponds, roads and other mining support areas over the estimated mining life of our property. If we were to reduce the estimated life of any of our mines, the fixed mine closure costs would be applied to a shorter period of production, which would increase production costs per ton produced and could materially and adversely affect our results of operations and financial condition.
Applicable statutes and regulations require that mining property be reclaimed following a mine closure in accordance with specified standards and an approved reclamation plan. The plan addresses matters such as removal of facilities and equipment, re-grading, prevention of erosion and other forms of water pollution, re-vegetation and post-mining land use. We may be required to post a surety bond or other form of financial assurance equal to the cost of reclamation as set forth in the approved reclamation plan. The establishment of the final mine closure reclamation liability is based on permit requirements and requires various estimates and assumptions, principally associated with reclamation costs and production levels. If our accruals for expected reclamation and other costs associated with mine closures for which we will be responsible were later determined to be insufficient, our business, results of operations and financial condition would be adversely affected.
Our trucking services are highly regulated, and increased direct and indirect costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business.
The Department of Transportation (DOT) and various state agencies exercise broad powers over our trucking services, generally governing matters including authorization to engage in motor carrier service, equipment operation, safety, and financial reporting. In the future, we may become subject to new or more restrictive regulations, such as regulations relating to engine exhaust emissions, hours of service that our drivers may provide in any one time period, security and other matters, which could substantially impair equipment productivity and increase our costs. In addition, our operations most comply with the Fair Labor Standard Act, which governs such matters as wages and overtime, and which is administered by the Department of Labor (DOL). We may be audited periodically by the DOT or the DOL to ensure that we are in compliance with various safety, hours-of-service, wage and other rules and regulations. If we were found to be out of compliance, the DOT or the DOL could restrict or otherwise impact our trucking services, which would adversely affect our profitability and results of operations.
Risks Related to the Ownership of Our Common Stock
Our stock price and trading volume has been and could continue to be volatile, and you may not be able to resell shares of your common stock when desired, at or above the price you paid.paid, or at all.
The stock market has experienced and continues to experience extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the underlying businesses. TheseIn 2020, our stock closed at a high of $7.95 per share and a low of $0.85 per share. In 2020, market volatility was especially high due to the COVID-19 pandemic. In addition, broad market fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.
In addition to the other risks described in this section, the market price of our common stock may fluctuate significantly in response to a number of factors, mostmany of which we cannot control, including:
including inaccurate or unfavorable research or ratings published by industry analysts about our business, or a cessation of coverage of us by industry analysts; quarterly variations in our operating results compared to market expectations;
announcements of acquisitions ofby others in or investments in other businesses and propertiesaffecting our industry or dispositions;
changes in preferences of our customers;
announcements of new services or products or significant price reductions by us or our competitors;
size of the public float;
stock price performance of our competitors;
fluctuations in stock market prices and volumes;
default on our indebtedness or foreclosure on our properties;
actions by competitors;
changes our acquisition of, investment in our management team or key personnel;
changes in ratingsdisposition of other businesses; and financial estimates by securities analysts;
negative earningsother global or other announcements by us or other industrial companies;
downgrades in our credit ratings or the credit ratings of our competitors;
issuances of capital stock; and
globalregional economic, political, legal and regulatory factors unrelatedthat may not be directly related to our performance.
Numerous factors affect our business and cause variations in our operating results and affect our net sales, including overall economic trends, our ability to identify and respond effectively to customer preferences, actions by competitors, pricing, the level of customer service that we provide, changes in product mix or sales channels, our ability to source and distribute products effectively and weather conditions.
Volatility in the market price or trading volume of our common stock may prevent investors from being ablemake it difficult or impossible for you to sell theiryour common stock at or above the price at which you purchased the stock. As a result, you may suffer a loss on your investment.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, reduce our profits, divert our management’s attention and resources and harm our business.
Holders of our common stock may not receive dividends on our common stock.
Holders of our common stock are entitled to receive only such dividends as our board of directors may declare out of funds legally available for such payments. Our board of directors elected to suspend the dividend after paying a dividend in March 2020, and we have yet to resume paying a dividend. Applicable Delaware law provides that we may pay dividends only out of a surplus, as determined under Delaware law, or, if there is no surplus, out of net profits for the fiscal year in which the dividend was declared and for the preceding fiscal year if certain specified conditions are met. Any determination to pay dividends and other distributions in cash, stock or property by us in the future will be at the discretion of our board of directors and will be dependent on then-existing conditions, including business conditions, our financial condition, results of operations, liquidity, capital requirements, the ability of our subsidiaries to pay us dividends or make other distributions to us, contractual restrictions (including restrictive covenants contained in the Credit Agreement or other debt agreements) and any other factors our board of directors deems relevant. We are not required to declare future cash dividends on our common stock, and our board of directors may determine not to do so at any time.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our Board.board of directors. These provisions:
•authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders ofour common stock;
•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
•provide that the Boardour board of directors is expressly authorized to make, alter or repeal our bylaws; and
•establish advance notice requirements for nominations for elections to our Boardof directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.meetings; and
Our certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (the “DGCL”), and will •prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless Boardboard or stockholder approval is obtained prior to the acquisition.
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
Labor & Employment Risks
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about
Our business may suffer if we are unable to attract and retain members of our business, our stock price and trading volume could decline.workforce.
The trading market for our common stock depends in part
We depend to a large extent on the researchservices of our senior management team and reports that securitiesother key personnel. These employees have extensive experience and expertise in evaluating and analyzing industrial mineral properties, maximizing production from such properties, marketing industrial mineral production and developing and executing financing and hedging strategies.
Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the failure to attract additional personnel as needed could have a material adverse effect on our operations and could lead to higher labor costs or the use of less-qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and other personnel. Our operations also rely on skilled laborers using modern techniques and equipment to mine efficiently. We may be unable to train or attract the necessary number of skilled laborers to maintain our operating costs.
With respect to our trucking services, the industry analysts publish aboutperiodically experiences a shortage of qualified drivers, particularly during periods of economic expansion, in which alternative employment opportunities are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment or for students who seek financial aid for driving school. Our independent contractors are responsible for paying for their own equipment, fuel, and other operating costs, and significant increases in these costs could cause them to seek higher compensation from us or seek other opportunities within or outside the trucking industry. The trucking industry suffers from a high driver turnover rate, which requires us to continually recruit a substantial number of drivers to operate our business. If one or more of the analysts who covers us downgradesequipment and could negatively affect our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or failsoperations and expenses if we are unable to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Holders of our common stock may not receive dividends on our common stock.
Holders of our common stock are entitled to receive only such dividends as our Board may declare out of funds legally available for such payments. We are incorporated in Delaware and are governed by the DGCL. The DGCL allows a corporation to pay dividends only out of a surplus, as determined under Delaware law or, if there is no surplus, out of net profits for the fiscal year in which the dividend was declared and for the preceding fiscal year. Under the DGCL, however, we cannot pay dividends out of net profits if, after we pay the dividend, our capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. While management and our Board remain committed to evaluating additional ways of creating shareholder value, any determination to pay dividends and other distributions in cash, stock or property by us in the future will be at the discretion of our Board anddo so. Our success will be dependent on then-existing conditions, includingour ability to continue to attract, employ and retain highly skilled personnel at all levels of our operations.
Our profitability could be negatively affected if we fail to maintain satisfactory labor relations.
As of December 31, 2020, various labor unions represented approximately 31% of our hourly employees. If we are unable to renegotiate acceptable collective bargaining agreements with these labor unions in the future, we could experience, among other things, strikes, work stoppages or other slowdowns by our workers and increased operating costs as a result of higher wages, health care costs or benefits paid to our employees. An inability to maintain good relations with our workforce could cause a material adverse effect on our business, conditions, our financial condition, and results of operations, liquidity, capital requirements, contractual restrictions including restrictive covenants contained in debt agreements and other factors. While we have declared and paid a quarterly cash dividend on our common stock as described under Part II, Item 5 of this Annual Report on Form 10-K, we are not required to declare future cash dividends on our common stock.operations.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
Our corporate headquarters is located in Frederick, Maryland.Katy, Texas. In addition, we maintain corporate support centers and sales offices in Reno, Nevada and Chicago, Illinois and Houston, Texas.Illinois.
As of December 31, 2017,2020, we operate 19operated 23 production facilities located primarily in the eastern half of the United States, with operations in Alabama, Georgia, Illinois, (3), Louisiana, Michigan, Missouri (2), New Jersey, Oklahoma, Mississippi, Nebraska, Nevada (3), Oregon, Pennsylvania, South Carolina, Tennessee (2), Texas (3)(2), Virginia, and West Virginia and Wisconsin. We own two sites in the development stage in Texas, and two undeveloped sites located in Wisconsin and Arkansas.Virginia. We also own three transload sites and operate additionalseveral transload sites via service contracts with our transload operating partners.
Additionally, we operate corporate laboratories located at our Berkeley Springs, West Virginia and Houston, Texas facilities thatReno, Nevada. These locations provide critical technical expertise, analytical testing resources and application development to promote product value and cost savings.
We generally own our principal production properties, although some land is leased. Substantially all of our owned assets are pledged as security under our senior secured credit facility;the Credit Agreement; for additional information regarding our indebtedness see Note JK - Debt and Capital Leases to our Consolidated Financial Statements in Part II, Item 88. of this Annual Report on Form 10-K for information related to our credit facilities.10-K.
Corporate offices, including sales locations are leased. In general, we consider our facilities, taken as a whole, to be suitable and adequate for our current operations.
Our Production Facilities
The following is a detailed description of our 1923 production facilities, our two sites in development state, and our currently undeveloped sites.facilities.
Crane County, Texas
Our Crane County facility is currently in development,a fully automated, state-of-the-art facility that features a 4 million ton per year plant with a wet plant, intermediate stockpile, dry plant, screening plant, and will useloadout. The facility uses natural gas and electricity to produce whole grain silica through surface mining methods. The reserves at Crane County contain windblown dune sand lying above ancient dunes of clayey sand, all of the Quaternary in age. The facility is located approximately 25 miles southwest of Odessa, Texas in Crane County and is located 5 miles south of U.S. Interstate 20 on a main Farm-to-Market Road. Once the product is processed,The facility's location in West Texas allows it will be shippedto ship local in-basin sand by truck.
We acquired the Crane County facility in connection with the purchase ofpurchased 3200 acres of ranch land in May 2017. The fully automated, state-of-the-art2017, on which the Crane County facility may becomewas built and became operational as early asduring the first quarter of 20182018. The facility primarily produces a range of API/ISO certified frac sand grades. The total net book value of the Crane County facility's real property and fixed assets as of December 31, 2020 was $198.7 million.
Lamesa, Texas
Our Lamesa facility is a fully-automated, state-of-the-art facility that currently features a 46 million ton per year plant with a wet plant, intermediate stockpile, dry plant, screening plant, and loadout.
The plant will primarily produce a range of API/ISO certified frac sand grades. The Crane County plant's location in West Texas allows it to ship regional sand by truck.
Lamesa, Texas
Our Lamesa facility is currently in development, and will useuses natural gas and electricity to produce whole grain silica through surface mining methods. The reserves at Lamesa contain windblown dune sand lying above ancient dunes of clayey sand, all of the Quaternary in age. The facility is located in Dawson County, approximately 55 miles north of Midland, Texas and 60 miles south of Lubbock, Texas. The site is located 13 miles north and west of Lamesa, Texas using state, farm-to-market and private roads. U.S. Route 87 runs through Lamesa and directly leads north to Lubbock and south to Midland. Once the product is processed,The facility's location in West Texas allows it will be shippedto ship local in-basin sand by truck.
We acquired the Lamesa facility in connection with the purchase ofpurchased 3500 acres of ranch land in 2017.July 2017, on which the Lamesa facility was built and became operational during the third quarter 2018. The fully automated, state-of-the-art facility will become operational as early as second quarter 2018 and features a 2.6 million ton per year plant with a wet plant, intermediate stockpile, dry plant, screening plant, and loadout. The plant will primarily produceproduces a range of API/ISO certified frac sand grades. The Crane County plant's location in West Texas allows it to ship regional sand by truck.total net book value of the Lamesa facility's real property and fixed assets as of December 31, 2020 was $183.5 million.
Festus, Missouri
The Festus facility uses natural gas and electricity to produce whole grain silica from a sandstone reserve that we lease.lease, subject to the lease's expiration on June 30, 2048. The ore is mined by a contractor using both surface and underground hard-rock mining methods. The reserves are part of the St.
Peter Sandstone Formation that stretches north-south from Minnesota to Missouri and east-west from Illinois to Nebraska and South Dakota. The facility is located approximately 30 miles south of St. Louis and is accessible by major highways including U.S. Interstate 55. Once the product is appropriately processed, it is packaged in bulk and shipped by truck to either barge or rail.
We acquired the Festus facility in August 2017 in connection with the closing of our MS Sand acquisition in August 2017. To dateSince acquiring the operationfacility, we completed an expansion to increase capacity. While the Festus facility's production techniques and distribution model enable it to serve all major silica markets, the primary production has producedbeen frac sand for oil and gas proppants. Since acquiring the facility we have begun an expansion to increase capacity. The Festus operation’s production techniques and distribution model allowtotal net book value of the Festus facility to serve all major silica markets. facility's real property and fixed assets as of December 31, 2020 was $29.0 million.
Ottawa, Illinois
Our surface mines in Ottawa use natural gas and electricity to produce whole grain and ground silica through a variety of mining methods, including hard rock mining, mechanical mining and hydraulic mining. The reserves are part of the St. Peter Sandstone Formation that stretches north-south from Minnesota to Missouri and east-west from Illinois to Nebraska and South Dakota. The facility is located approximately 80 miles southwest of Chicago and is accessible by major highways including U.S. Interstate 80. Once the product is appropriately processed, it is shipped either in bulk or packaged form by rail by either the CSX Corporation or the BNSF Railway Company (via the Illinois Railway short line), truck or barge.
We acquired the Ottawa facility in 1987 by merger with the Ottawa Silica Company, which had historically used the property to produce whole grain and ground silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including washing, hydraulic sizing, grinding, screening and blending. These production techniques allow the Ottawa facility to meet a wide variety of focused specifications on product composition from customers. As such, the Ottawa facility services multiple end markets, such as glass, building products, foundry, fillers and extenders, chemicals and oil and gas proppants. In November 2009, we expanded the frac sand capacity of this facility by 500,000 tons. During the fourth quarter of 2011, we completed a follow-on expansion project that added an additional 900,000 tons of frac sand capacity.
Voca, Texas
Our surface mines at the Voca facility use propane and electricity to produce whole grain silica through hard rock mining. The majority of reserves in Voca are sandstonestotal net book value of the MiddleOttawa facility's real property and Lower Hickory membersfixed assets as of the Riley Formation in central Texas. The facility is located approximately 110 miles northwest of Austin, Texas in McCulloch County and is accessible by state highways. Once product is processed, it is shipped primarily by customer truck.
We acquired the Voca facility upon the closing of our Cadre Services, Inc. ("Cadre") acquisition in July 2014. The fully automated, state-of-the-art facility became operational in 2011 and features one of the industry’s largest on-site storage capacities. The plantDecember 31, 2020 was recently expanded in 2014 and produces a range of API/ISO certified frac sand grades. The Voca plant’s location in central Texas allows it to economically serve oil & gas customers in the Permian basin.
Tyler, Texas
Our Tyler facility uses natural gas and electricity to produce whole grain silica through surface mining methods. The reserves at Tyler contain mostly unconsolidated sand of the Queen City Sand formation (Eocene Age). The facility is located approximately 9 miles north of Tyler, Texas in Smith County and is located immediately adjacent to U.S. Interstate 20. Once product is processed, it is shipped by truck.
We acquired the Tyler facility in connection with the closing of the acquisition of NBI in August 2016. The fully automated, state-of-the-art facility became operational in 2011 and features one of the industry’s largest on-site storage capacities. The plant was recently expanded in 2014 and produces a range of API/ISO certified frac sand grades. The Tyler plant's location in Northeast Texas allows it to ship regional sand directly to the wellheads in the Texas and Louisiana basins by truck.$86.4 million.
Mill Creek, Oklahoma
Our surface mines in Mill Creek use natural gas and electricity to produce whole grain, ground and fine ground silica through hydraulic mining. The reserves are part of the Oil Creek Formation in south central Oklahoma. The facility is located approximately 100 miles southeast of Oklahoma City and is accessible by major highways including U.S. Interstate 35. Once the product is appropriately processed, it is packaged in bulk and shipped either by rail by BNSF Railway Company or by truck.
We acquired the Mill Creek facility in 1987 by merger with the Pennsylvania Glass Sand Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including hydraulic sizing, fluid bed drying, grinding and air sizing. These production techniques allow the Mill Creek facility to meet a wide variety of focused specifications on product composition from customers. As such, the Mill Creek facility services multiple end markets, such as glass, foundry, fillers and extenders, building products and oil and gas proppants.
Sparta, Wisconsin
Our facility at Sparta uses natural gas and electricity to produce whole grain silica products through dredging. The reserve geology is that of high purity alluvial sands with the primary erosional source being the Wonewoc Formation. The Wonewoc Sandstone Formation is known for its round, coarse grains and superior crush strength properties, which makes it an ideal substrate for oil and gas proppants. The Sparta property was acquired on December 30, 2011, and site development began in April 2012. The property is located 25 miles northeast of La Crosse; approximately 120 miles northwest of Madison, Wisconsin; and is readily accessible by both U.S. Interstate 90 and the Canadian Pacific railroad.
Utica, Illinois
Our surface mine at the Utica facility uses natural gas and electricity to produce whole grain silica products through surface mining. The reserves are parttotal net book value of the St. Peter Formation sandstone stretches north-south from Minnesota to Missouri and east-west from Illinois to Nebraska and South Dakota. We acquired the UticaMill Creek facility's real property and plant in 2015 from Quality Sand Products LLC. The facility is located approximately 80 miles southwestfixed assets as of Chicago and is accessible by major highways including U.S. Interstate 80. Once the product is appropriately processed, it is shipped by truck or on the nearby Union Pacific Railroad.December 31, 2020 was $17.6 million.
Mapleton Depot, Pennsylvania
Our surface mines in Mapleton Depot use natural gas, fuel oil and electricity to produce whole grain silica through hard rock mining. The reserves are part of the Ridgeley (sometimes called the Oriskany) Sandstone Formation in central Pennsylvania. The facility is located approximately 40 miles northwest of Harrisburg and is accessible by major highways including U.S. Interstates 99, 80 and 76 and U.S. Routes 22 and 322. Once the product is appropriately processed, it is packaged in bulk and shipped either by rail by Norfolk Southern Corporation or by truck.
We acquired the Mapleton Depot facility in 1987 by merger with the Pennsylvania Glass Sand Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including hydraulic sizing, fluid bed drying, scalping and a low iron circuit. These production techniques allow the Mapleton Depot facility to meet a wide variety of focused specifications on product composition from customers. As such, the Mapleton Depot facility services multiple end markets, such as glass, specialty glass, building products, recreation, and oil and gas proppants. The total net book value of the Mapleton Depot facility's real property and fixed assets as of December 31, 2020 was $13.6 million.
Pacific, Missouri
Our surface mines at the Pacific facility use natural gas and electricity to produce whole grain, ground and fine ground silica through a variety of mining methods, including hard rock and hydraulic mining. The reserves are part of the St. Peter Sandstone Formation that stretches north-south from Minnesota to Missouri and east-west from Illinois to Nebraska and South Dakota. The facility is located approximately 50 miles southwest of St. Louis and is accessible by major highways including U.S. Interstate 44. Once the product is appropriately processed, it is packaged in bulk and shipped either by rail directly by Union Pacific Corporation and through open switching on the same line by BNSF Railway Company or by truck.
We acquired the Pacific facility in 1987 by merger with the Pennsylvania Glass Sand Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility we have renovated and upgraded its production capabilities to enable it to produce multiple products through
various processing methods, including hydraulic sizing, fluid bed drying, grinding, dry screening, classifying and microsizing. In August 2010, we expanded this facility’s processing capabilities to include the processing of frac sand. These production techniques allow the Pacific facility to meet a wide variety of focused specifications on product composition from customers. As such, the Pacific facility services multiple end markets, such as glass, foundry, fillers and extenders and oil and gas proppants.
Kosse, Texas
Our surface mine in Kosse uses mechanical mining to extract sand ore from the reserve. The plant uses natural gas and electricity to produce whole grain silica. The reserves are parttotal net book value of the Simsboro memberPacific facility's real property and fixed assets as of the Rockdale Formation in central Texas. The facility is located approximately 90 miles south of Dallas and is accessible by major highways including U.S. Interstates 45 and 35. Once the product is appropriately processed, it is shipped by truck.
We acquired the Kosse facility in 1987 by merger with the Ottawa Silica Company, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including washing, hydraulic sizing, fluid bed drying, and dry screening. These production techniques allow the Kosse facility to meet a wide variety of focused specifications on product composition from customers. As such, the Kosse facility services multiple end markets, such as building products, recreation, and oil and gas proppants.December 31, 2020 was $51.3 million.
Berkeley Springs, West Virginia
Our surface mines at the Berkeley Springs facility use hard rock mining methods to produce high-purity sandstone. The plant uses natural gas, propane, fuel oil and electricity to make whole grain, ground, and fine ground silica. Berkeley Springs also produces a synthetic magnesium-silica product called Florisil.
The reserves are part of the Ridgeley Sandstone Formation along the Warm Springs Ridge in eastern West Virginia. The facility is located approximately 100 miles northwest of Baltimore and is accessible by major highways including U.S. Interstate 70. Once the product is appropriately processed, it is packaged in bulk and shipped by rail by the CSX Corporation or truck.
We acquired the Berkeley Springs facility in 1987 by merger with the Pennsylvania Glass Sand Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including primary, secondary and tertiary crushing, grinding, flotation, dewatering, fluid bed drying, mechanical screening and rotary drying processing. These production techniques allow the Berkeley Springs facility to meet a wide variety of focused specifications from customers producing specialty epoxies, resins and polymers, geothermal energy equipment and fiberglass. As such, the Berkeley Springs facility services multiple end markets, such as glass, building products, foundry, chemicals and fillers and extenders. The total net book value of the Berkeley Springs facility's real property and fixed assets as of December 31, 2020 was $20.0 million.
Columbia, South Carolina
Our surface mines in Columbia use natural gas, fuel oil and electricity to produce whole grain, ground and fine ground silica through dune mining.silica. The reserves are part of the Tuscaloosa Formation in central South Carolina. The facility is located approximately 10 miles southwest of Columbia and is accessible by major highways including U.S. Interstates 26 and 20. Once the product is appropriately processed, it is bagged or shipped in bulk either by rail by Norfolk Southern Corporation or by truck.
We acquired the Columbia facility in 1987 by merger with the Pennsylvania Glass Sand Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including hydraulic sizing, fluid bed drying, scalping and grinding. These production techniques allow the Columbia facility to meet a wide variety of focused specifications on product composition from customers. As such, the Columbia facility services multiple end markets, such as glass, building products, fillers and extenders, filtration and oil and gas proppants. The total net book value of the Columbia facility's real property and fixed assets as of December 31, 2020 was $20.6 million.
Dubberly, Louisiana
Our surface mines in Dubberly use natural gas and electricity to produce whole grain silica through dredge mining. The reserves are part of the Sparta Formation. The facility is located approximately 30 miles east of Shreveport and is accessible by major highways including U.S. Interstate 20 and state Highway 532. Once the product is appropriately processed, it is bagged or shipped in bulk by truck.
We acquired the Dubberly facility in 1987 by merger with the Ottawa Silica Company, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various
processing methods, including screening, washing, fluid bed drying and conditioning to remove heavy and iron bearing minerals. These production techniques allow the Dubberly facility to meet a wide variety of focused specifications on product composition from customers. As such, the Dubberly facility services multiple end markets, such as glass, foundry and building products. The total net book value of the Dubberly facility's real property and fixed assets as of December 31, 2020 was $2.9 million.
Montpelier, Virginia
Our surface mines in Montpelier use fuel oil and electricity to produce aplite through hard rock mining. The reserves are part of an igneous rock complex that is unique to this location. The facility is located approximately 20 miles northwest of Richmond and is accessible by major highways including U.S. Interstates 64 and 95. Once the product is appropriately processed, it is packaged in bulk and shipped either by rail by Norfolk Southern Corporation or CSX Corporation or by truck.
We acquired the Montpelier facility in 1993 from The Feldspar Company, which had historically used the property to produce aplite for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including hydraulic crushing and sizing, washing, fluid bed drying and grinding. These production techniques allow the Montpelier facility to meet a wide variety of focused specifications on product composition from customers. As such, the Montpelier facility services multiple end markets, such as glass, building products and recreation. The total net book value of the Montpelier facility's real property and fixed assets as of December 31, 2020 was $13.9 million.
Hurtsboro, Alabama
Our surface mines in Hurtsboro use propane and electricity to produce whole grain silica. Sand feed for processing is trucked in from surrounding mine locations. The reserves are mined from the Cusseta member of the lower Ripley Formation. The facility is located approximately 75 miles east of Montgomery and is accessible by major highways including U.S. Interstate 85 and state Highway 431. Once the product is appropriately processed, it is shipped in bulk by truck.
We acquired the Hurtsboro facility in 1988 from Warrior Sand & Gravel Company, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including trucking in sand from surrounding locations, hydraulic sizing, screening and fluid bed drying. These production techniques allow the Hurtsboro facility to meet a wide variety of focused specifications on product composition from customers. As such, the Hurtsboro facility services multiple end markets, such as foundry, building products and recreation. The total net book value of the Hurtsboro facility's real property and fixed assets as of December 31, 2020 was $0.4 million.
Jackson, Tennessee
Our surface mines in Jackson use natural gas and electricity to produce whole grain and ground silica. Sand is purchased from a local dredging company whose reserves are alluvial sands associated with an ancient river system. The facility is located approximately 75 miles east of Memphis and is accessible by major highways including U.S. Interstate 40. Once the product is appropriately processed, it is shipped in bulk by truck.
We acquired the Jackson facility in 1997 from Nicks Silica Company, which had historically used the property to produce whole grain and ground silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities, turning it into one of our premier grinding facilities and enabling it to produce multiple products through various processing methods, including rotary drying, screening and grinding. These production techniques allow the Jackson facility to meet a wide variety of focused specifications on product composition from customers. As such, the Jackson facility services multiple end markets, such as fiberglass, building products, ceramics, fillers and extenders and recreation. The total net book value of the Jackson facility's real property and fixed assets as of December 31, 2020 was $1.2 million.
Mauricetown, New Jersey
Our surface mines near the Mauricetown facility use natural gas, fuel oil and electricity, to produce whole grain silica through dredge mining. The reserves are mined from alluvial sands in the Maurice River Valley and are similar to those found
in the Cohansey, Bridgeton and Cape May deposits. The facility is located approximately 50 miles south of Philadelphia and is accessible by major highways including U.S. Interstate 295 and state Highway 55. Once the product is appropriately processed, it is packaged in bags or bulk and shipped either by rail by Winchester & Western Railroad or by truck.
We acquired the Mauricetown facility in 1999 from Unimin Corporation, which had historically used the property to produce whole grain silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities, including the construction of a new wet processing plant, to enable it to
produce multiple products through various processing methods, including washing, hydraulic sizing, fluid bed drying, rotary drying and scalping. These production techniques allow the Mauricetown facility to meet a wide variety of focused specifications on product composition from customers. As such, the Mauricetown facility services multiple end markets, such as foundry, filtration, building products and recreation. The total net book value of the Mauricetown facility's real property and fixed assets as of December 31, 2020 was $13.9 million.
Rockwood, Michigan
Our surface mines at the Rockwood facility useuses natural gas and electricity to produce whole grain silica. Rockwood's own surface mining reserves are part of the Sylvania Formation and are notable for their low iron content, making them particularly valuable to customers producing specialty glass for architectural or alternative energy applications. Currently, sandstone ore is purchased from twoa local construction material companiescompany from those companies’ reserves.that company's surface mining operation. The facility is located approximately 30 miles southwest of Detroit and is accessible by major highways including U.S. Interstate 75. Once the product is appropriately processed, it is packaged in bulk and shipped by rail via the Canadian National Railway or truck.
We acquired the Rockwood facility in 1987 by merger with the Ottawa Silica Company, which had historically used the property to produce whole grain and ground silica for customers in industrial and specialty products end markets. Since acquiring the facility, we have renovated and upgraded its production capabilities to enable it to produce multiple products through various processing methods, including fluid bed drying, dry screening and classifying. These production techniques allow the Rockwood facility to meet a wide variety of focused specifications on product composition from customers. As such, the Rockwood facility services multiple end markets, such as glass, building products, oil and gas proppants and chemicals. DuringThe total net book value of the fourthRockwood facility's real property and fixed assets as of December 31, 2020 was $11.3 million.
Millen, Georgia
Our Millen facility has a natural gas kiln that enables the production of specialty industrial products that require high temperature heat treatments. These products are sold to customers that produce finished goods for the building products and residential construction markets. Our initial production commenced in 2019 and the facility became fully operational during the second quarter of 2011, we completed2020. The facility is located southeast of Atlanta, Georgia in Jenkins County in close proximity to high quality kaolin and silica deposits that are used as raw materials. The site can ship bulk or packaged material via truck and the Norfolk Southern railway.
We acquired the Millen facility on December 31, 2018. The facility was constructed in 2014 as a ceramic proppant facility. Our process and packaging modifications have enabled the production of cool roof granules and other specialty industrial products. The total net book value of the Millen facility's real property and fixed assets as of December 31, 2020 was $21.3 million.
Lovelock, Nevada
Our Lovelock facility is the world's largest producing diatomaceous earth (DE) plant. The facility is 90 miles northeast of Reno, Nevada next to Interstate 80. The plant has full rail service on the UPRR, but primarily produces packaged products. The plant’s proximity to the port of Oakland, California allows it to be the primary export plant for filter aids and fillers. Its three kilns produce calcined and flux-calcined filter aids and functional additives. It has an annual capacity of approximately 156,000 tons. A perlite expander was installed in 1994, and the site crushes and screens perlite ore from our open-pit Popcorn Mine as a raw material for the Blair, Nebraska facility as well as selling expanded perlite ore for use as a filter aid and has an annual capacity of approximately 15,000 tons. The facility uses DE ore from the open-pit Colado mine, soda ash, natural gas, and electricity to manufacture products used as filtration media across many industries including brewing, corn wet milling, oil and gas, wineries, potable water, swimming pools and petrochemicals. In addition, filler products are used as an anti-block in polyethylene film and flattening agents in paint.
The Lovelock facility was initially commissioned in 1959. We acquired the Lovelock facility in connection with the completion of 250,000the acquisition of EPMH in May 2018. The total net book value of the Lovelock facility's real property and fixed assets as of December 31, 2020 was $29.0 million.
Vale, Oregon
Our Vale facility is the world’s third largest DE facility. Two kilns can produce calcined and flux-calcined diatomaceous earth (DE) for use as filter aids, functional additives, and low iron brewing grades of filter aids. It has an annual capacity of approximately 120,000 tons and uses DE ore from the open-pit Celatom mine, natural gas, electricity and soda ash.
The facility was originally commissioned in 1985, with the second kiln added in 1997. We acquired the Vale facility in connection with the completion of the acquisition of EPMH in May 2018. The total net book value of the Vale facility's real property and fixed assets as of December 31, 2020 was $20.6 million.
Clark, Nevada
The Clark facility utilizes a rotary kiln to produce granular DE products utilized in the soil amendment, absorbent, and carrier markets. In addition, a flash dryer process is utilized in producing natural DE powders in support of the functional additive and natural insecticide/animal feed markets. The Clark facility has an annual frac sand capacity of approximately 70,000 tons and utilizes DE ore from its surface mining, natural gas and electricity. It is located adjacent to the Truckee River, immediately accessible by Interstate 80 and serviced via the Union Pacific Railroad.
In 1945, EPM (Eagle-Picher at that time) acquired the DE deposits 20 miles east of Reno, Nevada in what is known today as Clark, Nevada. We acquired the Clark facility in connection with the completion of the acquisition of EPMH in May 2018. The total net book value of the Clark facility's real property and fixed assets as of December 31, 2020 was $22.1 million.
Fernley, Nevada
Our Fernley facility surface-mines DE and has a rotary kiln for granular DE products. The facility utilizes electricity and recycled oil to manufacture granular products used in absorbent products, soil amendments, fertilizer and pet litter. It has an annual capacity of approximately 50,000 tons and is located near Interstate 80, fifteen miles east of Fernley, Nevada.
EPM purchased the facility from Moltan Corporation in 2013. We acquired the Fernley facility in connection with the completion of the acquisition of EPMH in May 2018. The total net book value of the Fernley facility's real property and fixed assets as of December 31, 2020 was $3.3 million.
Blair, Nebraska
Our Blair facility uses natural gas, electricity, and perlite ore from our open-pit Popcorn mine that has been initially processed at our Lovelock facility. Products produced are used in the industry as a filter media in the manufacturing of bio-fuels and food grade oils.
Our Blair facility began producing perlite in 2014. We acquired the Blair facility in connection with the completion of the acquisition of EPMH in May 2018. The total net book value of the Blair facility's real property and fixed assets as of December 31, 2020 was $1.9 million.
Jackson, Mississippi
Our Jackson facility, located approximately at the Rockwood facility by installing an entirely new processing circuit.
Rochelle, Illinois
Our Rochelle siteintersection of Interstate 20 and Interstate 55, uses natural gas, electricity, water, and sulfuric acid to process calcium bentonite from our open-pit mine (Fowlkes Mine) located in Monroe County, approximately 170 miles from the Jackson facility. Once the calcium bentonite is a resin coated sand processing plant.processed into finished product, the product is shipped to the animal feed, oleo bleaching/filtration or refinery catalyst/purification markets. The Rochelle property was purchased in 2011, and we spent 2011 and 2012 planning and constructing a resin coating facility on the property.
The Rochelle facility has two process lines, each with the capacity to coat 200 million pounds, or 100,000 tons, of substrate. The facility has the flexibility to coat numerous substrates using novolac or polyurethane coating technology. Sand can be received andproducts are shipped both byvia bulk truck and rail leaving Jackson on the CN Railway. Packaged shipments are also made by common carriers for the North/South American markets and intermodal carriers to help meet customer requirements. Onethe ports of New Orleans, Louisiana or Mobile, Alabama for shipments to multiple overseas countries.
The processing facility sits on land leased from BASF, the former owner of the competitive strengths ofsite. EPM purchased the facility is the capability to ship by the BNSF and Union Pacific railroads to many key locations throughout United States.
Fairchild, Wisconsin
Fairchild is a sandstone deposit with over 39 million tons of proven reserves near the town of Fairchild, Wisconsin.associated mining operations from BASF in July 2017. We acquired the reservesJackson facility in 2014 from Forenergy, LLC and performed additional exploration and permitting onconnection with the sitecompletion of the acquisition of EPMH in 2015. There is no facility currently onMay 2018. The total net book value of the Jackson facility's real property and it is currently being permitted for operations. We receivedfixed assets as of December 31, 2020 was $22.9 million.
Middleton, Tennessee
The Middleton facility surface-mines montmorillonite clay, a non-metallic reclamation permit in July 2015 from Eau Claire County.high calcium bentonite, and has two rotary kilns that have a capacity of roughly 150,000 tons per year. The reserve is comprised of high purity sands of the Wonewoc Formation. The Wonewoc Sandstone Formation is known for its round, coarse grainsfacility uses natural gas, electricity, and superior crush strength properties, which makes it an ideal oilsulfuric acid to process ore. With on-
site milling, screening, and gas proppant. The propertymultiple packaging capabilities, this plant serves several different industries including agriculture, sports fields, and absorbents. This facility is located approximately 3080 miles southeasteast of Eau ClaireMemphis, Tennessee and 5060 miles northsouth of our Sparta plant; it is accessible byJackson, Tennessee.
EPM purchased the Union Pacific rail linemines and highways including U.S. Interstate 94 and state Highways 10 and 12.
Batesville, Arkansas
Batesville is a sandstone deposit with over 34 million tons of probable reserves nearprocessing facility from the town of Batesville, Arkansas.Moltan Company in early 2013. We acquired the reservesMiddleton facility in 2010 from White Buck, LLC. There is no facility onconnection with the completion of the acquisition of EPMH in May 2018. The total net book value of the Middleton facility's real property and it is not currently fully permitted. The deposit has high purity sandstone and can provide a long-term supplement to the reserves at our Mill Creek operations. The reserves are partfixed assets as of the St. Peter Sandstone deposit, which is part of the same formation being mined at our Ottawa and Pacific operations. The property is located approximately 85 miles northeast of Little Rock and is accessible by highways including state Highways 67 and 167.December 31, 2020 was $8.9 million.
Our Reserves
We believe we have a broad and high-quality mineral reservesreserve base due to our strategically located mines and facilities. “Reserves” are defined by SEC Industry Guide 7 as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Industry Guide 7 divides reserves between “proven (measured) reserves” and “probable (indicated) reserves” which are defined as follows:
•Proven (measured) reserves. Reserves for which (1) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (2) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
•Probable (indicated) reserves. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
We categorize our reserves as proven or probable in accordance with these SEC definitions. We estimate that we had a total of approximately 765568 million tons of proven and probable mineable mineral reserves as of December 31, 2017.2020. Compared to 467586 million tons of proven and probable mineable mineral reserves we had as of December 31, 2016,2019, the increasedecrease of 29818 million tons was primarily due to greenfield development projects at Crane Countyadjustments and Lamesamining, partly offset by the addition of diatomaceous earth, clay, and our Mississippi Sand acquisitionsperlite reserves during the year ended December 31, 2017. 2020.
The quantity and nature of the mineral reserves at each of our properties are estimated by our internal Geology and Mine Planning department.departments. Our geology and mining engineer updatesstaff update our reserve estimates annually, making necessary adjustments for operations at each location during the year and additions or reductions due to property acquisitions and dispositions, quality adjustments and mine plan updates. Before acquiring new reserves, we perform surveying, drill core analysis and other tests to confirm the quantity and quality of the to-be acquired reserves. In some instances, we acquire the mineral rights to reserves without actually taking ownership of the properties.
Description of Deposits
The following is a description of the nature of our silica sand and aplite deposits for each of our reserve locations:
Crane County, Texas
The deposit has a minimum silica (SiO2) content of 98%. The controlling attributes are grain crush strength and size distribution. All areas of the deposit are characterized by clean, low-clay content sand in windblown dunes. In many areas, a more clayey sand lies beneath the clean sand. In all cases the sand is unconsolidated.
Lamesa, Texas
The deposit has a minimum silica (SiO2) content of 98%. The controlling attributes are grain crush strength and size distribution. All areas of the deposit are characterized by clean, low-clay content sand in windblown dunes. In many areas, a more clayey sand lies beneath the clean sand. In all cases the sand is unconsolidated.
Festus, Missouri
The deposit has a minimum silica (SiO2) content of 98%. The controlling attributes are grain crush strength and size distribution. The top half of the deposit tends to have a coarser grain size distribution and exhibits stronger rock.
Ottawa, Illinois
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are grain crush strength, iron (Fe2O3) content and grain size distribution. Iron is concentrated near the surface, where orange iron staining is evident and also increases where the bottom contact becomes concentrated in iron pyrite. Maximum average full facefull-face iron content is 0.045%. The deposit tends to runexhibit a coarser grain size distribution in the top half of deposit.
Voca, Texas
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are sand grain crush strength and size distribution. The majority of the sand reserves are hosted within the Hickory Sandstone, the basal member of the Riley Formation. The Cambrian age Hickory sandstone member consists chiefly of yellow, brown, or red sandstone overlying Pre-Cambrian granites.
Tyler, Texas
The deposit has a minimum silica (SiO2) content of 98%. The controlling attributes are crush strength and size distribution of the sand grains. The Queen City Sand formation, an Eocene Age unconsolidated sand deposit, makes up the Tyler reserves. The Queen City Sand consists mainly of white, brown, and grayish-green sand found mostly as loose particles.
Mill Creek, Oklahoma
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are iron (Fe2O3) content, calcium (CaO) content and grain size distribution. The sand/overburden contact is occasionally concentrated in calcium and any sand with greater than 0.03% CaO is removed during the overburden removal process. Sand with iron greater than 0.03% Fe2O3 is not mined.
Sparta, Wisconsin
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are sand grain crush strength and size distribution. A thin layer of silt overlies the 50 to 100 foot thick sand deposit. The deposit is unconsolidated and well graded and can be used to manufacture three main API product grades, 40/70, 30/50, and 20/40 as well as the non-API 100-mesh product.
Utica, Illinois
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are sand grain crush strength and size distribution. The deposit is well graded and can produce a variety of products.
Mapleton Depot, Pennsylvania
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is iron (Fe2O3) as most sales have low iron specifications. Higher-iron ore is stockpiled and used when oil and gas proppant production is required or is blended when very low iron ore is available.
Pacific, Missouri
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are iron (Fe2O3) and calcium (CaO) content. Calcium can be concentrated at the upper sand contact with overlying carbonate cap rock. This enriched calcium zone is known from drill sample results and is stripped during the overburden removal process. Average full mining face washed sand samples are less than 0.03% iron and 0.05% calcium.
Kosse, Texas
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are iron content (Fe2O3), sand grain crush strength and size distribution. Multiple areas of deposit can be mined at any one time to assure consistency of ore and to smooth out variability of attributes. Maximum sand irons are 0.045%.
Berkeley Springs, West Virginia
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is iron (Fe2O3). Ore that is higher than 0.06% iron is not mined. Ore less than 0.06% iron is mined and blended for feed to plant.
Columbia, South Carolina
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are iron content (Fe2O3) and percentage of clay/slimes. Clay content increases at depth and generally the pit bottom follows a marker bed at 250-foot elevation where clay content is in excess of 11%. Generally, sand having iron values greater than 0.03% is not mined.
Dubberly, Louisiana
The deposit has a minimum silica (SiO2) content of 99%. The controlling attributes are iron (Fe2O3) content and grain size distribution. Mining full-face average for iron is 0.045%. Fine and coarse areas are blended to meet the grain size average.
Montpelier, Virginia
The Montpelier anorthosite contains andesine feldspar which is mined and processed to create an alumina rich product. The general term aplite is used to denote the product. The controlling attributes are titanium (TiO2), aluminum (AI2O3), iron (Fe2O3) and phosphorous (P2O5).
The Montpelier anorthosite is approximately 1,000 million years in age and intruded into the older Precambrian Sabot Gneiss. The overall dome shape of the orebody has been altered by multiple structural and metamorphic events that result in the present day foliated and folded deposit. The deposit is highly weathered and soft near the surface. Hardness and strength increase with depth.
Aplite is used as a flux agent in glass making and is sold to the same glass end markets and used in the same processes and in a similar manner as our silica product.
Hurtsboro, Alabama
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is grain size distribution. Sand reserves are located on the crests of rolling hills and mining occurs from multiple pits and faces within pits to assure optimum grain size distribution is available to meet the market product mix.
Jackson, Tennessee
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute of iron (Fe2O3) content is managed through keeping clay overburden from intermixing with the sand and maintaining adequate washing of sand in the wet processing of the sand.
Mauricetown, New Jersey
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is grain size distribution. Occasional zones high in clay are avoided in the course of dredge mining.
Rockwood, Michigan
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is iron content (Fe2O3). Mineable sand must have less than 0.01% Fe2O3.
Fairchild, WisconsinMiddleton, Tennessee and Mississippi
The deposits are calcium montmorillonite clays hosted in the Porters Creek formation (a deltaic clay deposit on the east flank of the Mississippi embayment) with ore types of low to high density black and brown clay interbedded with sand and silt laminations.
Clark, Nevada
The deposits are composed of freshwater diatomaceous earth, capped with basalt, and interbedded with volcanic ash and tephra units. The deposits are primarily amorphous silicate (SiO2) composition with controlling trace attributes.
Colado Mine - Lovelock, Nevada
The deposits are composed of freshwater diatomaceous earth with the primary diatom species of Melosira granulata, typically capped with basalt, and interbedded with volcanic ash and tephra units. The deposits are primarily amorphous silicate (SiO2) composition with controlling trace attributes.
Fernley, Nevada
The deposits are composed of freshwater diatomaceous earth interbedded with minor volcanic ash and tephra units. The deposits are primarily amorphous silicate (SiO2) composition with controlling trace attributes.
Fowlkes Mine - Aberdeen, Mississippi
The deposit occurs in the Tombigbee Sand in Mississippi and is composed of 90% clay, 100% of which is montmorillonite. It holds approximately 1/3 bound water by volume and is dark gray in color, frequently with a greenish tint. It is primarily of the calcium/magnesium type of bentonite. Tombigbee Sand bentonite contains byproducts of volcanic ash degradation and leading evidence suggests the ash came from volcanic vents on the Sharkey Platform, 130 miles to the southwest. The clay deposit contains calcareous concretions that have to be removed as part of the mining operations.
Hazen Mine, Nevada
The diatomaceous earth deposits are primarily amorphous silicate (SiO2) composition with controlling trace attributes.
Popcorn Mine, Nevada
Perlite is an aqueous rich volcanic glass which was deposited beneath sea water and quenched. Upon crushing and heating, perlite's high-water saturation permits rapid expansion or popping.
Celatom Mine - Vale, Oregon
The deposits are composed of freshwater diatomaceous earth with the primary diatom species of Melosira granulata, interbedded with volcanic ash and clay units. The deposits are primarily amorphous silicate (SiO2) composition with controlling trace attributes.
Cheto Mine - Sanders, Arizona
The deposit has a minimum silica content (SiO2) of 68%, alumina content (Al2O3) of 17%, calcium (CaO) content of 99%around 3%, and magnesium (MgO) content of around 5%. The controlling attributes are sand grain crush strength and size distribution. Topsoil, clay and eroded sand coverIt is classified of the 40 to 100 feet thick sandstone formation. montmorillonite type, primarily of the calcium/magnesium type of bentonite.
Sequoya Mine - Fallon, Nevada
The deposit is well gradeda greenfield diatomite deposit currently in the process of permitting. This a deposit of fresh water diatoms deposits. Melosira granulata is the primary species of diatom present with varying degreesminor traces of consolidation.
Batesville, Arkansas
The deposit has a minimum silica (SiO2) content of 99%. The controlling attribute is iron (Fe2O3) content, sand grain crush strengthvolcanic ash and size distribution. The deposit has two horizons; a low iron horizon where sand has less than 0.009% Fe2O3 and a regular iron horizon where sand has greater than 0.009% Fe2O3.basalt detritus.
Mineral Rights
The mineral rights and access to mineral reserves for the majority of our operations are secured through land that is owned in fee. There are no underlying agreements and/or royalties associated with Berkeley Springs, Dubberly, Jackson, Lamesa, Mauricetown, Montpelier, Ottawa, Pacific, Rockwood, Sparta, Tyler, Utica, Vocaour locations other than those listed below. None of our operations, except as listed below, are on government land and, Batesville.accordingly, we do not have any other government leases or associated mining claims.
The mineral rights and access to mineral reserves at our Mill Creek operation are a combination of land owned in fee and one mineral lease. A non-participating royalty is paid to the original sellers of the fee property that covers almost all of the reserves. The lease agreements involve an annual minimum payment and a non-participating per-ton production royalty payment.payments extending through 2024.
The Columbia operation mineral reserves and rights are secured under a long-term mineral lease. The lease includes an annual minimum payment and a production royalty based on gross revenue.revenue expiring on April 24, 2021.
The Hurtsboro operation mineral reserves and rights are secured under twothree mineral leases. BothThey are long-term leases that include an annual minimum payment and a production royalty payment based on average selling price.price expiring from May 2024 through July 2029. These mineral leases
are renewed for 2 to 10 year periods and have been renewed in the past, and it is expected that if mining is still occurring on these properties the leases can be extended again.
The mineral rights and access to mineral reserves at our Kosse operation are a combination of land owned in fee and one long-term mineral lease. The lease is for 25 acres and a minimum royalty is paid annually.
The Mapleton Depot operation mineral reserves and rights are secured under twothree long-term mineral leases. One of the leases is with a Commission of the Pennsylvania State government. Annual minimum royalty is nominal, and production royalty payments are based on selling price with a minimum per-ton royalty.royalty expiring from June 2021 through August 2025.
The Festus operation leases its reserves from another company that is also the mining contractor for those reserves. There is a royalty associated with the mineral lease agreement.agreement expiring on December 31, 2048.
When our Fairchild andthe Crane County operation mineral reserves were acquired, we entered into a royalty agreementsagreement with the companiescompany that sold us the land. The non-participating royalty interest is perpetual and based on tons of frac sand sold. Currently the Fairchild site remains undeveloped, while the Crane County site is
The Clark operation mineral reserves and rights are secured by a combination of land owned in development.fee, unpatented placer claims and a mineral lease. A lease covers unpatented placer claims expiring on December 12, 2022 and includes a minimum royalty and production royalty clause with credits.
NoneThe Fernley operation mineral reserves and rights are secured by a combination of our operations, exceptland owned in fee and unpatented placer claims.
The Fowlkes operation mineral reserves and rights are secured by a combination of land leased, for Mapleton Depot,which royalty obligations expired in November 2018, and land owned in fee simple.
The Hazen Mine mineral reserves and rights are secured by a combination of land owned in fee and unpatented placer claims. A mineral lease covers unpatented placer claims on governmentfederal lands expiring September 12, 2030, with royalty obligations.
The Popcorn Mine mineral reserves and rights are secured by lode claims.
The Colado Mine mineral reserves and rights are secured by owned claims on federal land and accordingly, we do not have any other government leases or associated mining claims.an evergreen land lease.
The Celatom Mine mineral reserves and rights are secured by a combination of land owned in fee, unpatented placer claims, unpatented mill site claims and mineral leases. Some of the leased unpatented mineral rights are state owned.
The Cheto Mine mineral reserves and rights consist of leased private land for which a minimum annual royalty is owed as well as a per ton royalty with a credit back against the minimum annual royalty.
The Fallon Mine mineral reserves and rights are secured by unpatented placer claims on federal lands.
Summary of Reserves
We follow SEC Industry Guide 7 in determining our mineral reserves. Exploration samples are evaluated in our laboratory facilities to assess product quality and mining/processing parameters. Members of our sales management team assess the salability of the product(s). Geologic, topographic and site data are used to create a geologic model and mining plan. We prepare an analysis of operating costs, capital costs and long-term anticipated sales volume and price to ensure the economic viability of the reserve. In performing feasibility economic analysis for purposes of categorizing proven and probable reserves, we considered a range of average sales price assumptions: for commercial silica, from $20 per ton for some of our Oil & Gas Proppants sands to a range of $65 to $80 per ton for high-quality glass sand in our Industrial & Specialty Products segment; for diatomaceous earth, from $65 to $1015 per ton; for clay, from $20 to $2500 per ton; and for perlite, $300 to $1200 per ton. Reserve estimates are updated when necessary to account for new geologic, mining, sales or cost data.
The following table provides information on our production facilities that have reserves as well as our undeveloped sites in Fairchild, Wisconsin and Batesville, Arkansas, as of December 31, 2017.2020. Included is the location and area of the facility; the type, amount and ownership status of its reserves; and the primary end markets that it serves. Our facility in Rochelle, Illinois has no reserves.
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| Mine/Plant Location | | Acreage Owned/Leased | | Proven Reserves | | Probable Reserves | | Combined Proven and Probable Reserves | | Estimated Processing Recovery Percentages | | 2020 Tons Mined | | Primary End Markets Served |
| | | (in acres) | | (tonnage data in thousands) | | |
| Crane County, TX | | 3,200 owned | | 119,710 | | | 47,500 | | | 167,210 | | | 85 | % | | 697 | | | Oil and gas proppants(3) |
| Lamesa, TX | | 3,523 owned | | 88,750 | | | 6,800 | | | 95,550 | | | 85 | % | | 3,271 | | | Oil and gas proppants(3) |
| Festus, MO | | 635 leased | | 14,160 | | | 7,411 | | | 21,571 | | | 84 | % | | 1,290 | | | Oil and gas proppants(3) |
| Ottawa, IL | | 2,100 owned | | 91,172 | | | 26,932 | | | 118,104 | | | 89 | % | | 1,953 | | | Oil and gas proppants(3), glass, chemicals, foundry(4) |
| Mill Creek, OK | | 2,174 owned
16 mineral lease | | 16,453 | | | — | | | 16,453 | | | 61 | % | | 1,235 | | | Oil and gas proppants(3), glass, foundry, building products(4) |
| Mapleton Depot, PA | | 1,761 owned
194 mineral lease
98 access lease | | 1,410 | | | 2,100 | | | 3,510 | | | 81 | % | | 265 | | | Glass, building products(4) |
| Pacific, MO | | 524 owned | | 11,378 | | | 7,994 | | | 19,372 | | | 83 | % | | 922 | | | Oil and gas proppants(3), glass, foundry, fillers and extenders(4) |
| Berkeley Springs, WV | | 4,435 owned | | 8,123 | | | — | | | 8,123 | | | 72 | % | | 275 | | | Glass, building products, fillers and extenders(4) |
| Columbia, SC | | 648 leased
204 owned | | 3,399 | | | — | | | 3,399 | | | 72 | % | | 346 | | | Glass, building products, fillers and extenders(4) |
| Dubberly, LA | | 356 owned
| | 4,088 | | | — | | | 4,088 | | | 82 | % | | 106 | | | Glass, foundry, building products(4) |
Montpelier(1), VA | | 824 owned | | — | | | 12,408 | | | 12,408 | | | 39 | % | | 196 | | | Glass, building products(4) |
| Hurtsboro, AL | | 117 owned
1,108 mineral lease | | 59 | | | — | | | 59 | | | 83 | % | | 125 | | | Foundry, building products(4) |
| Mauricetown, NJ | | 707 owned | | 11,248 | | | — | | | 11,248 | | | 55 | % | | 155 | | | Filtration, foundry, building products(4) |
Rockwood (2), MI | | 872 owned | | 8,363 | | | — | | | 8,363 | | | 60 | % | | — | | | Glass, building products(4) |
| Middleton, TN | | 1,178 owned | | 2,552 | | | 8,950 | | | 11,502 | | | 66 | % | | 216 | | | Absorbent for automotive, industrial(4) |
| Clark, NV | | 2,690 owned 2,813 leased | | 1,931 | | | 1,496 | | | 3,427 | | | 78 | % | | 68 | | | Absorbents, catalysts, supports filtration(4) |
| Fernley, NV | | 5,668 owned | | 1,139 | | | 4,826 | | | 5,965 | | | 60 | % | | 46 | | | Absorbent for automotive, industrial(4) |
|
| | | | | | | | | | | | | | | | |
| Mine/Plant Location | | Acreage Owned/Leased | | Proven Reserves | | Probable Reserves | | Combined Proven and Probable Reserves | | 2017 Tons Mined | | Primary End Markets Served |
| | | (in acres) | | (tonnage data in thousands) | | |
| Crane County | | 3200 owned | | 123,900 |
| | 47,500 |
| | 171,400 |
| | — |
| | Oil and gas proppants |
| Lamesa | | 3523 owned | | 102,900 |
| | 16,300 |
| | 119,200 |
| | — |
| | Oil and gas proppants |
| Festus | | 635 leased | | 18,114 |
| | 7,411 |
| | 25,525 |
| | 901 |
| | Oil and gas proppants |
| Ottawa | | 2,100 owned | | 127,871 |
| | — |
| | 127,871 |
| | 4,367 |
| | Oil and gas proppants, glass, chemicals, foundry |
| Voca | | 1,061 owned | | 29,823 |
| | 41,900 |
| | 71,723 |
| | 2,424 |
| | Oil and gas proppants |
| Tyler | | 1,356 owned | | 19,128 |
| | 20,100 |
| | 39,228 |
| | 1,617 |
| | Oil and gas proppants |
| Mill Creek | | 2,174 owned 16 mineral lease | | — |
| | 11,533 |
| | 11,533 |
| | 2,084 |
| | Oil and gas proppants, glass, foundry, building products |
| Sparta | | 660 owned | | 24,926 |
| | 2,740 |
| | 27,666 |
| | 1,565 |
| | Oil and gas proppants |
| Utica | | 148 owned | | 7,243 |
| | — |
| | 7,243 |
| | 2,048 |
| | Oil and gas proppants |
| Mapleton | | 1,761 owned 194 mineral lease 98 access lease | | 2,672 |
| | 2,100 |
| | 4,772 |
| | 738 |
| | Glass, building products |
| Pacific | | 524 owned | | 16,129 |
| | 7,994 |
| | 24,123 |
| | 719 |
| | Oil and gas proppants, glass, foundry, fillers and extenders |
| Kosse | | 1,053 owned 25 mineral lease | | 10,830 |
| | — |
| | 10,830 |
| | — |
| | Oil and gas proppants, building products, recreational products |
| Berkeley | | 4,435 owned | | 1,727 |
| | 6,000 |
| | 7,727 |
| | 534 |
| | Glass, building products, fillers and extenders |
| Columbia | | 648 lease 204 owned | | 4,742 |
| | — |
| | 4,742 |
| | 439 |
| | Glass, building products, fillers and extenders |
| Dubberly | | 356 owned
| | 4,525 |
| | — |
| | 4,525 |
| | 278 |
| | Glass, foundry, building products |
Montpelier(1) | | 824 owned | | — |
| | 12,965 |
| | 12,965 |
| | 224 |
| | Glass, building products |
| Hurtsboro | | 117 owned 1,108 mineral lease | | 478 |
| | — |
| | 478 |
| | 149 |
| | Foundry, building products |
| Jackson | | 132 owned | | — |
| | — |
| | — |
| | 145 |
| | Fiberglass, building products |
| Mauricetown | | 1,279 owned | | 11,814 |
| | — |
| | 11,814 |
| | 270 |
| | Filtration, foundry, building products |
Rockwood (2) | | 872 owned | | 8,363 |
| | — |
| | 8,363 |
| | — |
| | Glass, building products |
| Fairchild | | 632 owned | | 38,975 |
| | — |
| | 38,975 |
| | — |
| | — |
| Batesville | | 477 owned | | — |
| | 34,732 |
| | 34,732 |
| | — |
| | — |
| Total | | | | 554,160 |
| | 211,275 |
| | 765,435 |
| | 18,502 |
| | |
| |
(1) | Montpelier’s reserves are comprised entirely of the mineral aplite. |
| |
(2) | Rockwood's products were produced from or sourced from a third party. It did not mine any of its reserves in 2017. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fowlkes Mine - Aberdeen, MS | | 502 owned / 146 leased | | — | | | 1,229 | | | 1,229 | | | 100 | % | | 74 | | | Edible oil, petrochemical, animal feed(4) |
| Hazen Mine, NV | | 120 owned 1,135 leased | | 350 | | | 84 | | | 434 | | | 90 | % | | 11 | | | Calcium silicate insulation(4) |
| Popcorn Mine, NV | | 200 owned | | 4,331 | | | 1,790 | | | 6,121 | | | 93 | % | | 9 | | | Filtration for wine, sugar, enzymes(4) |
| Colado Mine, - Lovelock, NV | | 3,773 owned 7,025 leased | | 2,396 | | | 2,298 | | | 4,694 | | | 83 | % | | 151 | | | Filtration for brewing, wine, swimming pools, sweeteners; additives for coatings, LDPE film(4)
|
| Celatom Mine - Vale, OR | | 4,998 owned 2,120 leased | | 16,495 | | | 27,571 | | | 44,066 | | | 90 | % | | 105 | | | Filtration for brewing, wine, swimming pools, sweeteners; additives for coatings(4)
|
| Cheto Mine - Sanders, AZ | | 10,240 leased | | — | | | 598 | | | 598 | | | 100 | % | | 13 | | | Static desiccant(4) |
| Sequoyah Mine - Fallon, NV | | 840 owned | | 111 | | | 755 | | | 866 | | | 70 | % | | — | | | Filtration for brewing, wine, swimming pools, sweeteners; additives for coatings, LDPE film(4) |
| Total | | | | 407,618 | | | 160,742 | | | 568,360 | | | | | 11,529 | | | |
(1)Montpelier’s reserves are comprised entirely of the mineral aplite.
(2)Rockwood's products were produced, or sourced, from a third party. It did not mine any of its reserves in 2020.
(3)Oil & Gas Proppants segment
(4)Industrial & Specialty Products segment
Our Properties and Logistics Network
InWe continue to strategically position our supply chain in order to expanddeliver sand according to our customers' needs, whether at a plant, a transload, or at the wellhead. We believe that our supply chain network and leverage our logistics capabilities to meet our customers’ needs in oil and gas basins, we continue to expand our transload network to ensure product is available to meet the in-basin needs of our customers. This approach allowsare a competitive advantage that enables us to provide strong customersuperior service for our customers and putspositions us in a position to take advantage of opportunistic spot market sales. As of December 31, 2017,2020, we have 56had 19 transload facilities strategically located in or near all the major shale basins in the United States. MostAll of our transloads are operated by third-party transload service providers via service agreements, which include both longer term contracts (generally 2 to 5 years) and month-to-month arrangements.
We lease a significant number of railcars for shipping purposes and for short-term storage of our products, particularly our frac sand products. As of December 31, 2017,2020, we had a leased a fleet of 7,1115,900 railcars, of which no empty cars1,779 railcars were in storage.
Our recent acquisition of Sandbox extendsSandBox extended our delivery capability directly to our customers' wellhead locations. SandboxSandBox provides “last mile” logistics to companies in the oil and gas industry, which increases efficiency and provides a lower cost logistics solution for our customers. SandboxSandBox 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, Ohiothe major United States oil and Mansfield, Pennsylvania,gas producing regions, including the Permian Basin, Eagle Ford Shale, Mid-Con, Rocky Mountains and the Marcellus/Utica Shale, where its majorlargest customers are located. We expect we will continue to make strategic investments and develop partnerships with transload operators and transportation providers that will enhance our portfolio of supply chain services that we can provide to customers.
The map below shows the location of our production facilities, transload facilities, SandBox operation sites and Sandbox operation sites:Corporate offices:
In addition to the mattermatters described below, we are subject to various legal proceedings, claims, and governmental inspections, audits or investigations arising out ofincidental to our business, which can cover matters such as general commercial, governmental regulations, antitrust and trade regulations, product liability, environmental, intellectual property, employment and other actions.matters. Although the outcomes of these ordinary routine claims cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on our financial position or results of operations.
Prolonged inhalation of excessive levels of respirable crystalline silica dust can result in silicosis, a disease of the lungs. Breathing large amounts of respirable silica dust over time may injure a person’s lungs by causing scar tissue to form. Crystalline silica in the form of quartz is a basic component of soil, sand, granite and most other types of rock. Cutting, breaking, crushing, drilling, grinding and abrasive blasting of or with crystalline silica containing materials can produce fine silica dust, the inhalation of which may cause silicosis, lung cancer and possibly other diseases including immune system disorders such as scleroderma. Sources of exposure to respirable crystalline silica dust include sandblasting, foundry manufacturing, crushing and drilling of rock, masonry and concrete work, mining and tunneling, and cement and asphalt pavement manufacturing.
Since at least 1975, we and/or our predecessors have been named as a defendant, usually among many defendants, in numerous lawsuits brought by or on behalf of current or former employees of our customers alleging damages caused by silica exposure. Prior to 2001, the number of silicosis lawsuits filed annually against the commercial silica industry remained relatively stable and was generally below 100, but between 2001 and 2004 the number of silicosis lawsuits filed against the commercial silica industry substantially increased. This increase led to greater scrutiny of the nature of the claims filed, and in June 2005 the U.S. District Court for the Southern District of Texas issued an opinion in the former federal silica multi-district litigation remanding almost all of the 10,000 cases then pending in the multi-district litigation back to the state courts from which they originated for further review and medical qualification, leading to a number of silicosis case dismissals across the United States. In conjunction with this and other favorable court rulings establishing “sophisticated user” and “no duty to warn” defenses for silica producers, several states, including Texas, Ohio and Florida, have passed medical criteria legislation that requires proof of actual impairment before a lawsuit can be filed.
As a result of the above developments, the filing rate of new claims against us over the past few years has decreased to below pre-2001 levels, and we were named as a defendant in zero, two,one, one, and zerotwenty new silicosis cases filed in 2015, 20162020, 2019 and 2017,2018, respectively. The main driver of the increase in cases filed in 2018 is 16 claims arising out of a single location in Mississippi. As of December 31, 2017,2020, there were a total of 5952 active silica-related productsproduct liability claims pending in which we wereU.S. Silica is a defendant and 1 inactive claim.defendant. Almost all of the claims pending against us arise out of the alleged use of our silica products in foundries or as an abrasive blast media and involve various other defendants. Prior to the fourth quarter of 2012, we had insurance policies for both our predecessors that cover certain claims for alleged silica exposure for periods prior to certain dates in 1985 and 1986 (with respect to certain insurance). As a result of a settlement with a former owner and its insurers in the fourth quarter of 2012, some of these policies are no longer available to us and we will not seek reimbursement for any defense costs or claim payments from these policies. Other insurance policies, however, continue to remain available to us and will continue to make such payments on our behalf.
The silica-related litigation brought against us to date has not resulted in material liability to us. However, we continue to have silica-related productsproduct liability claims filed against us, including claims that allege silica exposure for periods for which we do not have insurance coverage. Any such pending or futureAlthough the outcomes of these claims or inadequaciescannot be predicted with certainty, in the opinion of our insurance coverage couldmanagement, it is not reasonably possible that the ultimate resolution of these matters will have a material adverse effect on our business, reputationfinancial position or results of operations.operations that exceeds the accrual amounts. For more information regarding silica-related litigation, see Part I, Item 1A “Risk Factors—Risks Related1A. Risk Factors of this Annual Report on Form 10-K and Note P - Commitments and Contingencies to Our Business—Silica-related health issues and litigation could have a material adverse effectour Consolidated Financial Statements in Part II, Item 8 of this Annual Report on our business, reputation or results of operations.” Form 10-K.
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| ITEM 4. | MINE SAFETY DISCLOSURES |
Safety is one of our core values and we strive for excellence in the achievement ofto achieve a workplace free of injuries and occupational illnesses. Our health and safety leadership team has developed comprehensive safety policies and standards, which include detailed standards and procedures for safe production addressingand address topics such as employee training, risk management, workplace inspection, emergency response, accident investigation and program auditing. We place special emphasis on the importance of continuous improvement in occupational health, personal injury avoidance and prevention, emergency preparedness, and property damage elimination. In addition to strong leadership and involvement from all levels of the organization, these programs and procedures form the cornerstone of our safety initiatives ensuring that employees are provided a safe and healthy environment and are intended as a means to reduce workplace accidents, incidents and losses,
comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety. While we want to have productive operations in full regulatory compliance, we know it is equally essential that we motivate and train our people to think, practice and feel a personal responsibility for health and safety on and off the job.
All of our production facilities, with the exception of our resin-coated sandBlair, Nebraska, facility, are classified as mines and are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA")MSHA under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).Act. MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations. The dollar penalties assessed for citations issued has also increased in recent years. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Annual Report filed on Form 10-K.
PART II.
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Shares of our common stock, traded under the symbol “SLCA,”“SLCA”, have been listed and publicly traded on the New York Stock Exchange since February 1, 2012, when our common stock was listed and began trading on the NYSE.
The following table sets forth for the indicated periods, the high and low sales prices, per share, for our common stock on the NYSE:
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| | | | | | | |
| | Sales Price |
| | High | | Low |
| Fiscal 2017 | | | |
| First Quarter | $ | 61.49 |
| | $ | 42.27 |
|
| Second Quarter | $ | 50.39 |
| | $ | 31.79 |
|
| Third Quarter | $ | 37.00 |
| | $ | 24.26 |
|
| Fourth Quarter | $ | 36.55 |
| | $ | 27.42 |
|
| Fiscal 2016 | | | |
| First Quarter | $ | 22.72 |
| | $ | 14.96 |
|
| Second Quarter | $ | 35.60 |
| | $ | 22.14 |
|
| Third Quarter | $ | 46.56 |
| | $ | 32.73 |
|
| Fourth Quarter | $ | 58.24 |
| | $ | 42.47 |
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Holders of Record
On February 16, 2018,22, 2021, there were 80,539,94574,296,160 shares of our common stock outstanding, which were held by approximately 123108 stockholders of record. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders,beneficial owners, we are unable to estimate the total number of stockholders represented by these record holders. For additional information related to ownership of our stock by certain beneficial owners and management, refer to Part III, Item 12, “Security12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
DividendDividends
We pay dividends on our common stock afterif the Board declares them. Management and the Board remain committed to evaluating additional ways of creating shareholder value. Any determination to pay dividends and other distributions in cash, stock, or property by U.S. Silica in the future will be at the discretion of the Board and will be dependent on then-existing conditions, including our business conditions, our financial condition, results of operations, liquidity, capital requirements, contractual restrictions including restrictive covenants contained in debt agreements and other factors.
In 2016 and 2017, we declared dividends as follows:
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| | | |
| Declaration date | Dividends per common share |
| February 22, 2016 | $ | 0.0625 |
|
| May 5, 2016 | $ | 0.0625 |
|
| July 21, 2016 | $ | 0.0625 |
|
| November 3, 2016 | $ | 0.0625 |
|
| February 16, 2017 | $ | 0.0625 |
|
| May 4, 2017 | $ | 0.0625 |
|
| July 21, 2017 | $ | 0.0625 |
|
| November 2, 2017 | $ | 0.0625 |
|
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
From time to time, we repurchase our common stock in the open market pursuant to programs approved by our Board of Directors, or the Board. We may repurchase our common stock for a variety of reasons, such as to offset dilution related to equity-based incentives and to optimize our capital structure.
In November 2017, the Board authorized us to repurchase up to $100.0 million of our common stock through December 11, 2018. We are authorized to repurchase, from time to time, shares of our outstanding common stock on the open market or in privately negotiated transactions. Stock repurchases will be funded using our available liquidity. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any additional amount of our common stock under the program. We intend to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. As part of the program, as of December 31, 2017, we have repurchased 727,081 shares of our common stock at an average price of $34.41 and are authorized to repurchase up to an additional $75.0 million of our common stock.
We consider several factors in determining when to make share repurchases including, among other things, our cash needs, the availability of funding, our future business plans and the market price of our stock. We expect that cash provided by future operating activities, as well as available liquidity, will be the sources of funding for our share repurchase program. BasedFor more information see Note D - Capital Structure and Accumulated Comprehensive Income (Loss) to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on the anticipated amounts to be generated from those sources of funds in relation to the remaining authorization approved by our Board under the June 2012 share repurchase program, we do not expect that future share repurchases will have a material impact on our short-term or long-term liquidity.Form 10-K.
The following table presents the total number of shares of our common stock that we purchased during the fourth quarter of 2017,2020, the average price paid per share, the number of shares that we purchasedrepurchased as part of our publicly announcedshare repurchase program, and the approximate dollar value of shares that still could have been purchasedrepurchased at the end of the applicable fiscal period pursuant to our share repurchase program:
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of
Shares Withheld or Forfeited | | Average Price
Paid Per
Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Program(1) | | Maximum Dollar Value of
Shares that May Yet
Be Purchased Under
the Program(1) |
| October 1, 2020 - October 31, 2020 | — | | | $ | — | | | — | | | 126,540,060 | |
| November 1, 2020 - November 30, 2020 | 1,943 | | (2) | $ | 2.90 | | | — | | | 126,540,060 | |
| December 1, 2020 - December 31, 2020 | 13,054 | | (2) | $ | 6.39 | | | — | | | 126,540,060 | |
| Total | 14,997 | | | $ | 5.85 | | | — | | | |
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program(1) | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program(1) |
| October 2017 | 164 |
| (2) | $ | 28.14 |
| | — |
| | |
| November 2017 | 12,923 |
| (2) | $ | 33.21 |
| | — |
| | |
| December 2017 | — |
| (2) | $ | — |
| | 727,081 |
| | |
| Total | 13,087 |
| | $ | 33.14 |
| | 727,081 |
| | $ | 75,000,000 |
|
| | | | | | | | |
(1)
| A program covering | |
| (1) | In May 2018, our Board of Directors authorized and announced the repurchase of up to $100$200 million of our common stock was approved by the Board in November 2017. This program expires on December 11, 2018. |
| stock. |
(2) | Representsshares withheld by U.S. Silica to pay taxes due upon the vesting of employee restricted stock and restricted stock units. units for the months ended October 31, November 30 and December 31, 2020, respectively. |
Securities Authorized for Issuance under Equity Compensation Plans
The table below contains information about securities authorized for issuance We did not repurchase any shares of common stock under our Amended and Restated 2011 Incentive Compensation Plan (the “2011 Plan”) as ofshare repurchase program during the three months ended December 31, 2017. The features of the 2011 Plan are disclosed further in Note N - Equity-based Compensation to our consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
|
| | | | | | | | | |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) | | Weighted-average exercise price of outstanding options, warrants and rights (B) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) (C) |
| Equity compensation plans approved by security holders | 908,919 |
| | $ | 28.46 |
| | 4,452,870 |
|
| Equity compensation plans not approved by security holders | — |
| | — |
| | — |
|
| Total | 908,919 |
| | 28.46 |
| | 4,452,870 |
|
U.S. Silica Holdings, Inc. Comparative Stock Performance Graph
The information contained in this U.S. Silica Holdings, Inc. Comparative Stock Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
The graph below compares the cumulative total shareholder return on our common stock to the cumulative total return on the Russell 3000 index and the Standard and Poor’s SmallCap 600 Energy Sector index, and the Standard and Poor's SmallCap 600 GICS Oil & Gas Equipment & Services Sub-Industry index,in each case assuming $100 was invested on JanuaryDecember 31, 2012, the first day our stock traded on the NYSE,2015 and the reinvestment of all dividends. We have elected to addinclude the Standard and Poor’s SmallCap 600 Energy Sector index this year because this index is used in relative total shareholder return performance share units that we have granted to employees.
Unregistered Sales of Equity Securities
None.
|
| | | | |
| ITEM 6. | SELECTED FINANCIAL DATA |
The following selected financial data should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data. Additionally, see Item 1A. Risk Factors and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for discussions of material uncertainties that might cause the data reflected in this table not to be indicative of our future financial condition or results of operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018(3) | | 2017(4) | | 2016(4) |
| | (amounts in thousands, excluding per share and per ton figures) |
| Statement of Operations Data: | | | | | | | | | |
| Sales | $ | 845,885 | | | $ | 1,474,477 | | | $ | 1,577,298 | | | $ | 1,240,851 | | | $ | 559,625 | |
| Operating (loss) income | (119,612) | | | (352,955) | | | (163,533) | | | 169,742 | | | (52,491) | |
| (Loss) income before income taxes | (175,147) | | | (428,908) | | | (229,953) | | | 136,526 | | | (77,745) | |
| Net (loss) income attributable to U.S. Silica Holdings, Inc. | (114,094) | | | (329,082) | | | (200,808) | | | 145,206 | | | (41,056) | |
| (Loss) earnings per share - basic | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | | | $ | 1.79 | | | $ | (0.63) | |
| (Loss) earnings per share - diluted | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | | | $ | 1.77 | | | $ | (0.63) | |
| Cash dividends declared per common share | $ | 0.02 | | | $ | 0.25 | | | $ | 0.25 | | | $ | 0.25 | | | $ | 0.25 | |
| Statement of Cash Flows Data: | | | | | | | | | |
| Net cash (used in) provided by: | | | | | | | | | |
| Operating activities | $ | (10,534) | | | $ | 144,046 | | | $ | 310,706 | | | $ | 222,013 | | | $ | 381 | |
| Investing activities | (27,564) | | | (120,393) | | | (1,066,879) | | | (491,529) | | | (201,657) | |
| Financing activities | $ | 3,278 | | | $ | (40,411) | | | $ | 574,104 | | | $ | (57,142) | | | $ | 635,424 | |
| Other Financial Data: | | | | | | | | | |
| Capital expenditures | $ | 34,461 | | | $ | 118,357 | | | $ | 339,815 | | | $ | 368,479 | | | $ | 46,450 | |
| Operating Data: | | | | | | | | | |
| Total tons sold | 11,130 | | | 18,788 | | | 18,059 | | | 15,128 | | | 9,875 | |
| Average selling price (per ton) | $ | 76.00 | | | $ | 78.48 | | | $ | 87.34 | | | $ | 82.02 | | | $ | 56.67 | |
Segment cost of goods sold (per ton)(1) | 48.94 | | | 55.76 | | | 58.94 | | | 56.19 | | | 47.51 | |
| Oil & Gas Proppants: | | | | | | | | | |
| Sales | $ | 414,897 | | | $ | 1,010,521 | | | $ | 1,182,991 | | | $ | 1,020,365 | | | $ | 362,550 | |
Segment contribution margin(2) | 142,041 | | | 248,594 | | | 357,846 | | | 301,972 | | | 11,445 | |
| Industrial & Specialty Products: | | | | | | | | | |
| Sales | $ | 430,988 | | | $ | 463,956 | | | $ | 394,307 | | | $ | 220,486 | | | $ | 197,075 | |
Segment contribution margin(2) | 159,176 | | | 178,215 | | | 155,084 | | | 88,781 | | | 78,988 | |
| Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 150,920 | | | $ | 185,740 | | | $ | 202,498 | | | $ | 384,567 | | | $ | 711,225 | |
| Total assets | 2,246,947 | | | 2,553,234 | | | 2,900,840 | | | 2,307,283 | | | 2,073,220 | |
| Total long-term debt, including current portion | 1,259,800 | | | 1,247,600 | | | 1,270,400 | | | 489,075 | | | 494,175 | |
| Total liabilities | 1,620,156 | | | 1,836,654 | | | 1,848,536 | | | 910,777 | | | 799,930 | |
| Total stockholders’ equity | $ | 626,791 | | | $ | 716,580 | | | $ | 1,052,304 | | | $ | 1,396,506 | | | $ | 1,273,290 | |
(1)Segment cost of goods sold (per ton) equals segment cost of goods sold, divided by total tons sold.
(2)Segment contribution margin is a financial measure that is not included or defined under generally accepted accounting principles in the United States (“GAAP”). For a detailed description of segment contribution margin and a reconciliation to its most comparable GAAP measure, please see the discussion sets forth our consolidated statementunder “How We Evaluate Our Business” in Item 7. Management’s Discussion and Analysis of operations data for the periods presented. TheFinancial Condition and Results of Operations.
(3)We acquired EP Minerals Holdings, Inc. on May 1, 2018, and have included their financial position and results of operations by segment are discussed in further detail followingour 2018 financial information above. As a result, our 2018 financial information may not be comparable to prior years. See Note E - Business Combinations to our Consolidated Financial Statements in Item 8. of this combined overview.Annual Report on Form 10-K for more information.
(4)We acquired White Armor and MS Sand on April 1, 2017 and August 16, 2017, respectively, and NBI and SandBox on August 16, 2016 and August 22, 2016, respectively, and have included their financial position and results of operations in our 2017 and 2016 financial information above. As a result, our 2017 and 2016 financial information may not be comparable to prior years.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017(5) | | 2016(5) | | 2015 | | 2014(2) | | 2013 |
| | (amounts in thousands, excluding per share and per ton figures) |
| Statement of Operations Data: | | | | | | | | | |
| Sales | $ | 1,240,851 |
| | $ | 559,625 |
| | $ | 642,989 |
| | $ | 876,741 |
| | $ | 545,985 |
|
| Operating income (loss) | 168,511 |
| | (53,531 | ) | | 26,672 |
| | 176,167 |
| | 111,241 |
|
| Income (loss) before income taxes | 136,526 |
| | (77,745 | ) | | 117 |
| | 158,723 |
| | 96,017 |
|
| Net income (loss) | 145,206 |
| | (41,056 | ) | | 11,868 |
| | 121,540 |
| | 75,256 |
|
| Earnings (loss) per share - basic | $ | 1.79 |
| | $ | (0.63 | ) | | $ | 0.22 |
| | $ | 2.26 |
| | $ | 1.42 |
|
| Earnings (loss) per share - diluted | $ | 1.77 |
| | $ | (0.63 | ) | | $ | 0.22 |
| | $ | 2.24 |
| | $ | 1.41 |
|
| Cash dividends declared per common share | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.44 |
| | $ | 0.50 |
| | $ | 0.38 |
|
| Statement of Cash Flows Data: | | | | | | | | | |
| Net cash provided by (used in): | | | | | | | | | |
| Operating activities | $ | 238,156 |
| | $ | 381 |
| | $ | 61,492 |
| | $ | 171,411 |
| | $ | 46,451 |
|
| Investing activities | (507,672 | ) | | (201,657 | ) | | 49 |
| | (190,906 | ) | | (135,113 | ) |
| Financing activities | $ | (57,142 | ) | | $ | 635,424 |
| | $ | (47,530 | ) | | $ | 208,964 |
| | $ | 105,896 |
|
| Other Financial Data: | | | | | | | | | |
| Capital expenditures | $ | 384,622 |
| | $ | 46,450 |
| | $ | 53,646 |
| | $ | 92,609 |
| | $ | 60,470 |
|
| Operating Data: | | | | | | | | | |
| Total tons sold | 15,128 |
| | 9,875 |
| | 10,025 |
| | 10,927 |
| | 8,161 |
|
| Average selling price (per ton) | $ | 82.02 |
| | $ | 56.67 |
| | $ | 64.14 |
| | $ | 80.24 |
| | $ | 66.90 |
|
Segment cost of goods sold (per ton)(1) | 56.19 |
| | 47.51 |
| | 48.27 |
| | 51.20 |
| | 42.04 |
|
| Oil & Gas Proppants: | | | | | | | | | |
| Sales | $ | 1,020,365 |
| | $ | 362,550 |
| | $ | 430,435 |
| | $ | 662,770 |
| | $ | 347,439 |
|
| Segment contribution margin | 301,972 |
| | 11,445 |
| | 88,928 |
| | 256,137 |
| | 145,916 |
|
| Industrial & Specialty Products: | | | | | | | | | |
| Sales | $ | 220,486 |
| | $ | 197,075 |
| | $ | 212,554 |
| | $ | 213,971 |
| | $ | 198,546 |
|
| Segment contribution margin | 88,781 |
| | 78,988 |
| | 70,137 |
| | 61,102 |
| | 56,983 |
|
| Balance Sheet Data: | | | | | | | | | |
Cash, cash equivalents and short-term investments (3) | $ | 384,567 |
| | $ | 711,225 |
| | $ | 298,926 |
| | $ | 338,209 |
| | $ | 148,577 |
|
Total assets (3)(4) | 2,307,283 |
| | 2,073,220 |
| | 1,108,619 |
| | 1,226,727 |
| | 853,547 |
|
Total long-term debt, including current portion (4) | 489,075 |
| | 494,175 |
| | 491,705 |
| | 495,086 |
| | 366,196 |
|
Total liabilities (3)(4) | 910,777 |
| | 799,930 |
| | 724,452 |
| | 822,911 |
| | 544,253 |
|
| Total stockholders’ equity | $ | 1,396,506 |
| | $ | 1,273,290 |
| | $ | 384,167 |
| | $ | 403,816 |
| | $ | 309,294 |
|
43
| | | | | |
(1) | Segment cost of goods sold (per ton) equals segment cost of goods sold, divided by total tons sold. |
| |
(2) | We acquired Cadre on July 31, 2014, and included Cadre's financial position and results of operations in our 2014 financial information above. As a result, our 2014 financial information may not be comparable to prior years. See Note D - Business Combinations to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information related to this acquisition. |
| |
(3) | In 2015, we changed the presentation of book overdraft from being classified as a liability to a reduction to our cash and cash equivalents. 2014 and 2013 cash and cash equivalents amounts presented are recasted to reflect this change. |
| |
(4) | 2014 and 2013 amounts include the reclassification of deferred debt issuance costs related to the adoption of ASU 2015-03. See Note B - Summary of Significant Accounting Policies to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information. |
| |
(5) | We acquired White Armor and MS Sand on April 1, 2017 and August 16, 2017, respectively, and NBI and Sandbox on August 16, 2016 and August 22, 2016, respectively, and have included their financial position and results of operations in our 2017 and 2016 financial information above. As a result, our 2017 and 2016 financial information may not be comparable to prior years. See Note D - Business Combinations to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information related to this acquisition. |
|
| |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with Item 6, "Selected6. Selected Financial Data",Data, the description of the business appearing in Item 1, “Business”, of this report,1. Business and the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K8. Financial Statements and the related notes included elsewhere in this report.Supplementary Data.
This discussion contains forward-looking statements, as a result of many factors, including those set forthdiscussed under Item 1, “Business—Forward-Looking Statements” and Item 1A, "Risk Factors", and elsewhere in this Annual Report on Form 10-K."Forward-Looking Statements". These statements are based on current expectations and assumptions thatand are subject to risks and uncertainties. Actual results could differ materially from those discussed in or implied by forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly under "Forward-Looking Statements" and in Item 1A, "Risk1A. Risk Factors."
Adjusted EBITDA and segment contribution margin as used herein are non-GAAP measures. For a detailed description of Adjusted EBITDA and segment contribution margin and reconciliations to their most comparable GAAP measures, please see the discussion below under “How We Evaluate Our Business.”
Overview
We are a performance materials company and one of the largest domestic producers of commercial silica used in the oil and gas industry and in a specialized mineral that is a critical input into a varietywide range of attractive end markets.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 118-year121-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver over 239 products400 diversified product types to customers across theseour end markets. As of December 31, 2017,2020, we operate 19operated 23 production facilities across the United States andStates. We control 765489 million tons of reserves of commercial silica, which can be processed to make 323197 million tons of finished products that meet American Petroleum Institute (API)API frac sand specifications.specifications, and 79 million tons of reserves of diatomaceous earth, perlite, and clays.
Our operations are organized into two reportable segments based on end markets served:served and the manner in which we analyze our operating and financial performance: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. OurWe believe our segments are complementary because our ability to sell to a wide range of customers across end markets in these segments allows us to maximize recovery rates in our mining operations and optimize our asset utilization and reduce the cyclicalityutilization.
Acquisitions
For a description of our earnings.
Acquisitions
On August 16, 2016, we completedkey business acquisitions during the acquisition of New Birmingham, Inc. (“NBI”),past three years, see 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. On August 22, 2016, we completed the acquisition (the "Sandbox Acquisition") of Sandbox Enterprises, LLC ("Sandbox") as a “last mile” logistics solution for frac sand in the oil and gas industry.
On April 1, 2017, we completed the acquisition of White Armor (the "White Armor acquisition"), a product line of cool roof granules used in industrial roofing applications. 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.
See accompanyingdiscussion under Note DE - Business Combinations to our Consolidated Financial Statements in Part 2,II, Item 8 of this Annual Report on Form 10-K for pro forma results and other details regarding these acquisitions.10-K.
Recent Trends and Outlook
Oil and gas proppants end market trends
Increased demand for frac sand has historically been drivenThe COVID-19 pandemic and related economic repercussions coupled with an inadequate supply response and exacerbated by the growthlack of global storage capacity, resulted in a precipitous decline in crude oil prices in 2020. While the useOrganization of hydraulic fracturing as a meansthe Petroleum Exporting Countries and other oil producing nations ("OPEC+") agreed in April to extract hydrocarbons from shale formations. According tocut production, downward pressure on commodity prices has remained and could continue for the IHS Markit Proppant IQ, Proppant Market Analysis 2017 Q4 release, published November 2017, U.S. raw sand proppant demand is expected to be 33% higher in 2017 than its previous peak in 2014,foreseeable future. These events have negatively affected and isare expected to continue to grow.negatively affect our Oil & Gas Proppants segment. Demand for our proppant and logistics services has declined as our customers reduce their capital budgets and drilling operations in response to lower oil prices.
DeclinesIn response to the effects of the pandemic on our Oil & Gas Proppants segment, we took a number of steps to reduce our costs of operations in 2020. We dramatically reduced all discretionary spending, reduced officer salaries for several months, lowered headcount, and closed or idled facilities as appropriate.
The extent to which our business will continue to be affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, additional actions by businesses and governments in response to the pandemic, the speed and effectiveness of responses to combat the virus, the extent of the resurgence in cases, and the effects of low oil prices beginning in 2015 reduced oil and gas drilling and completion activity in North America during 2015 and most of 2016. As of September 30, 2016,on the U.S. land rig count had fallen over 70% from its peak in 2014. Demand for frac sand fell in conjunction with the rig count and activity levels, partially offset by higher proppant per well to optimize recovery and production rates. The North American market for proppant stabilized and began to grow during the last quarter of 2016 due to increases in North America oil and gas drilling and completion activity. As of December 31, 2017, U.S. land rig count increased 43% since December 31, 2016. Driven by the corresponding increase in frac sand demand, sales, tons sold and average selling price all increased sequentially duringglobal economy generally.
During the three months ended December 31, 20172020, frac sand demand and tons sold increased sequentially compared to the three months ended September 30, 2017, June 30, 2017, and March 31, 2017,2020, as summarized below.
Average selling price per ton increased
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts in thousands, except per ton data | | | Percentage change for Three Months Ended |
| December 31, | | September 30, | | June 30, | | March 31, | | December 31, 2017 vs. September 30, 2017 | | September 30, 2017 vs. June 30, 2017 | | June 30, 2017 vs. March 31, 2017 |
| Oil & Gas Proppants | 2017 | | 2017 | | 2017 | | 2017 | | | |
| Sales | $ | 306,019 |
| | $ | 286,369 |
| | $ | 235,018 |
| | $ | 192,959 |
| | 7 | % | | 22 | % | | 22 | % |
| Tons Sold | 3,171 |
| | 3,147 |
| | 2,745 |
| | 2,532 |
| | 1 | % | | 15 | % | | 8 | % |
| Average Selling Price per Ton | $ | 96.51 |
| | $ | 91.00 |
| | $ | 85.62 |
| | $ | 76.21 |
| | 6 | % | | 6 | % | | 12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| in thousands, except per ton data | Three Months Ended | | Percentage Change for the Three Months Ended |
| Oil & Gas Proppants | December 31,
2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2020 vs. September 30, 2020 | | September 30, 2020 vs. June 30, 2020 | | June 30, 2020 vs. March 31, 2020 |
| Sales | $ | 120,344 | | | $ | 66,343 | | | $ | 72,495 | | | $ | 155,715 | | | 81 | % | | (8) | % | | (53) | % |
| Tons Sold | 1,901 | | | 1,282 | | | 1,112 | | | 3,202 | | | 48 | % | | 15 | % | | (65) | % |
| Average Selling Price per Ton | $ | 63.31 | | | $ | 51.75 | | | $ | 65.19 | | | $ | 48.63 | | | 22 | % | | (21) | % | | 34 | % |
However, if the recovery in
If oil and gas drilling and completion activity does not continue demand forto grow or if frac sand supply remains greater than demand, then we may decline, which could result in us sellingsell fewer tons, sellingsell tons at lower prices, or both. If we sell less frac sand or sell frac sand at lower prices, our revenue, net income, cash generated from operating activities, and liquidity would be adversely affected. Weaffected, and we could incur material asset impairments. If these events occur, we may evaluate actions to reduce costcosts and improve liquidity. For instance, depending on market conditions, we could implement additional cost improvement projects or reduce our capital spending by delaying or canceling capital projects.
We believe fluctuations in frac sand demand and price may occur as the market adjusts to changing supply and demand due to energy pricing fluctuations. We continue to expect long-term growth in oil and gas drilling in North American shale basins.
Oil and natural gas exploration and production companies' and oilfield service providers’ preferences and expectations have been evolving in recent years. A proppant supplier's logistics capabilities have become an important differentiating factor when competing for business, on both a spot and contract basis. Many of our customers increasingly seek convenient in-basin and wellhead proppant delivery capability from their proppant supplier. We believe that, over time, proppant customers will prefer to consolidate their purchases across a smaller group of suppliers with robust logistics capabilities and a broad offering of proppants.
Industrial and specialty products end market trends
Demand in the industrial and specialty products end markets ishas been relatively stable in recent years and is primarily influenced by key macroeconomic drivers such as housing starts, population growth, light vehicle sales, beer and wine production, repair and remodel activity and industrial production. The primary end markets served by our production used in Industrial & Specialty Products segment are building and construction products, fillers and extenders, filtration, glassmaking, absorbents, foundry, building products,and sports and recreation, glassmaking and filtration.recreation. We have been increasing our value-added product offerings in the industrial and specialty products end markets. Thesemarkets organically as well as through acquisitions, such as White Armor and EPM. Sales of these new higher margin product salesproducts have increased our Industrial & Specialty Products segment's profitability. For instance, on April 1, 2017,profitability in recent periods.
The COVID-19 pandemic has caused, and will likely continue to cause, severe economic, market and other disruptions worldwide, which began to affect our Industrial & Specialty Products segment in the second quarter of 2020. In addition, after the COVID-19 pandemic has subsided, we completedmay continue to experience adverse impacts in this segment as a result of any long-term economic recession or depression that may continue in the White Armor acquisition, a product line of cool roof granules used in industrial roofing applications.future.
Our Business Strategy
The key drivers of our growth strategy include:
Expand our Oil & Gas Proppantsproduction capacity and product portfolio.We continue to consider and execute several initiatives to increase our frac sand production capacity and augment our proppant product portfolio. We are evaluating Greenfield opportunities and are expanding production capacities and maximizing production efficiencies of our existing facilities.
Increase•increasing our presence and product offering in industrial and specialty products end markets. Our research and business development teams work in tandem withmarkets;
•optimizing our customers to develop new products, which we expect will either increase our presence and market share in certain industrial and specialty products end markets or allow us to enter new markets. We manage a robust pipeline of new products in various stages of development. Some of these products have already come to market, resulting in a positive impact on our financial results. We continue to work toward offering more value-driven industrial and specialty products that will enhance the profitability of the business. For instance, on April 1, 2017, we completed the White Armor acquisition, a product line of cool roof granules used in industrial roofing applications.
Optimize product mix and further developdeveloping value-added capabilities to maximize margins.We continuemargins;
•effectively positioning our Oil & Gas Proppants facilities to actively manageoptimally serve our product mix at each of our plants to ensure we maximize our profit margins. This requires us to use our proprietary expertise in balancing key variables, such as mine geology, processing capacities, transportation availability, customer requirements and pricing. We expect to continue investing in ways to increase the value we
customers;
provide to our customers by expanding our product offerings, improving our supply chain management, upgrading our information technology, and creating a world class customer service model.
Expand•optimizing our supply chain network and leverageleveraging our logistics capabilities to meet our customers’ needs in each strategic oil and gas basin.We continue to expand our transload network to ensure product is available to meet the in-basin needs of our customers. This approach allows us to provide strong customer service and puts us in a position to take advantage of opportunistic spot market sales. Our plant sites are strategically located to provide access to key Class I railroads, which enables us to cost effectively send product to each of the strategic basins in North America. We can ship product by truck, barge and rail with an ability to connect to short-line railroads as necessary to meet our customers’ evolving in-basin product needs. We believe that our supply chain network and logistics capabilities are a competitive advantage that enables us to provide superior service for our customers. We expect to continue to make strategic investments and develop partnerships with transload operators and transportation providers that will enhance our portfolio of supply chain services that we can provide to customers. As of December 31, 2017, we have storage capacity at 56 transloads located near all of the major shale basins in the United States. Our acquisition of Sandbox extends our delivery capability directly to our customers' wellhead locations, which increases efficiency and provides a lower cost logistics solution for our customers. Sandbox has operations in 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.
needs;Evaluate•evaluating both Greenfield and Brownfield expansion opportunities and other acquisitions.We expect to continue leveraging our reputation, processing capabilitiesacquisitions; and, infrastructure to increase production, as well as explore other opportunities to expand our reserve base.
| |
◦ | We may accomplish this by developing Greenfield projects, where we can capitalize on our technical knowledge of geology, mining and processing and our strong reputation within local communities. For instance, in May 2017, we purchased a new Greenfield site in Crane County, Texas, which depending on market conditions, could become operational as early as the first quarter of 2018 and add approximately 4 million tons of annual frac sand capacity. Additionally, in July 2017, we purchased a new Greenfield site near Lamesa, Texas, which depending on market conditions, could become operational as early as the second quarter of 2018 and add approximately 2.6 million tons of annual frac sand capacity. |
| |
◦ | We are continuing to actively pursue acquisitions to grow by taking advantage of our asset footprint, our management’s experience with high-growth businesses, and our strong customer relationships. Our primary objective is to acquire assets with differing levels of frac sand qualities that are complementary to our Oil & Gas Proppants segment, with a focus on mining, processing and logistics to further enhance our market presence. We prioritize acquisitions that provide opportunities to realize synergies (and, in some cases, the acquisition may be immediately accretive assuming synergies), including entering new geographic and frac sand product markets, acquiring attractive customer contracts and improving operations. On August 16, 2016, we completed our acquisition of NBI, the ultimate parent company of NBR Sand, LLC, a regional sand producer located near Tyler, Texas. On August 22, 2016, we completed the acquisition of Sandbox, a provider of logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry. On August 16, 2017, we completed our acquisition of MS Sand, a frac sand mining and logistics company based in St. Louis, Missouri. We are in active discussions to acquire additional assets fitting this strategy, which, if completed, could be “significant” under Regulation S-X and could require additional sources of financing. There can be no assurance that we will reach a definitive agreement and complete any of these potential transactions. See the risk factors disclosed in Item 1A of Part I of this Annual Report on Form 10-K, including the risk factor entitled, “If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.”
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Maintain•maintaining financial strength and flexibility. We intend to maintain financial strength and flexibility to enable us to better manage through industry downturns and pursue acquisitions and new growth opportunities as they arise. In March 2016, we completed a public offering of 10,000,000 shares offlexibility.
For additional information about our common stock for total cash net proceeds of $186.2 million. In November 2016, we executed another offering of 10,350,000 shares of common stock raising net cash proceeds of $467.0 million. As of December 31, 2017, we had $384.6 million of cash on hand and $45.5 million of availabilitykey business strategies, see the discussion under our revolving credit facility (the "Revolver").“Our Company-Our Business Strategy” in Item 1. Business.
How We Generate Our Sales
Products
We derive our product sales primarily 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 priceamount invoiced reflects the price of the product, transportation, surcharges, and additional handling services as applicable, such as storage, and
transloading the product from railcars to trucks for deliveryand last mile logistics to the customer site. We invoice the majoritymost of our product customers on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly. ServiceStandard collection terms are net 30 days, although extended terms are offered in competitive situations.
Services
We derive our service sales 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 billed periodically aftercontracted through work orders executed under established pricing agreements. The amount invoiced reflects 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 completed. Depending on the types of services, the total amount billed includes labor, equipment costs, freight, handling and other costs.net 30 days, although extended terms are offered in competitive situations.
Our ten largest customers accounted for approximately 58%34%, 52%43% and 56%48% of total sales during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. No single customer accounted for more than 10% of our total sales during the year ended December 31, 2020. Sales to twoone of our customers accounted for 15%11% and 12%15% of our total sales during the years ended December 31, 2017. Sales to one of our customers accounted for 13% of our total sales during the year ended December 31, 2016. Sales to two of our customers accounted for 13%2019 and 12% of our total sales during the year ended December 31, 2015.2018, respectively. No other customers accounted for 10% or more of our total sales.sales during the same periods. At December 31, 2017, two2020, one of our customers' accounts receivable represented 19% and 11%24% of our total trade accounts receivable, net of allowance. At December 31, 2016, two of our customers'2019, the same customer's accounts receivable represented 14% and 10%12% of our total trade accounts receivable, net of allowance. No other customers accounted for 10% or more of our total trade accounts receivable.receivable during the same periods.
We primarily sell our products under short-term price agreements or at prevailing market rates. For a limited number of customers, we sell under long-term, competitively-bid contracts. Some customers provide advance payments for future shipments. A percentage of these advance payments is recognized as revenue with each ton of applicable product shipped to the customer. Selling more tons under supply contracts enables us to be more efficient from a production, supply chain and logistics standpoint. As discussed in Part I, Item 1A., "Risk Factors, of this Annual Report on Form 10-K—"A large portion of our sales is generated by our top ten customers, and the loss of, or significant reduction in, purchases by our largest customers could adversely affect our operations,” these customers may not continue to purchase the same levels of product in the future due to a variety of reasons, contract requirements notwithstanding.
As of December 31, 2017, we have 23 minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2018 and 2022. As of December 31, 2016, we had seven minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2017 and 2019.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 occur more oftenparticularly in volatile market conditions. WhileWhen these negotiations continue,occur, 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. Selling more tons under supply contracts enables us to be more efficient from a production, supply chain, and logistics standpoint. As discussed in Part I, Item 1A., Risk Factors of this Annual Report on Form 10-K, these customers may not continue to purchase the same levels of product in the future due to a variety of reasons, contract requirements notwithstanding.
As of December 31, 2020, we have 11 minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2021 and 2034. As of December 31, 2019, we had 16 minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2020 and 2034. Collectively, sales to customers with minimum purchase supply agreements accounted for 32%61% and 22%60% of our total companyOil & Gas Proppants segment sales during the years ended December 31, 20172020 and 2016,2019, respectively. Although sales under minimum purchase supply agreements may result in us realizing lower margins than we otherwise might during periods of high market prices, we believe such lower margins are offset by the benefits derived from the product mix and sales volume stability afforded by such supply agreements, which helps us lower market risk arising from adverse changes in spot prices and market conditions.
In the industrial and specialty products end markets we have not historically entered into long termlong-term minimum purchase supply agreements with our customers because of the high cost to our customers of switching providers. We may periodically do so when capital or other investment is required to meet customer needs. Instead, we often enter into supply agreements with our customers with targeted volumes and terms of one to five years. Prices under these agreements are generally fixed and subject to annual increases.
The Costs of Conducting Our Business
The principal expenses involved in conducting our business are transportation costs, labor costs, electricity and drying fuel costs, and maintenance and repair costs for our mining and processing equipment and facilities and transportation costs.facilities. Transportation and related costs include freight charges, fuel surcharges, transloading fees, switching fees, railcar lease costs, demurrage costs, storage fees and labor costs. We believe the majority of our operating costs are relatively stable in price, but they can vary significantly based on the volume of product produced. We benefit from owning the majority of the mineral deposits that we mine and having long-term mineral rights leases or supply agreements for our other primary sources of raw material, which limitlimits royalty payments.
Additionally, we incur expenses related to our corporate operations, including costs for sales and marketing; research and development; and the finance, legal, human resources, information technology, and environmental, health and safety functions of our organization. These costs are principally driven by personnel expenses.
How We Evaluate Our Business
Our management team evaluates our business using a variety of financial and operationaloperating metrics. Our business is organized into two segments, Oil & Gas Proppants and Industrial & Specialty Products. We evaluate the performance of theseour two segments based on their tons sold, average selling price and contribution margin earned. Additionally, we consider a number of factors in evaluating the performance of theour business as a whole, including total tons sold, average selling price, total segment contribution margin, and Adjusted EBITDA. We view these metrics as important factors in evaluating our profitability and review these measurements frequently to analyze trends and make decisions.
Segment Contribution Margin
Segment contribution margin, a non-GAAP measure, is a key metric that management usesdecisions, and we believe the presentation of these metrics provides useful information to evaluate our operating performance and to determine resource allocation between segments. Segment contribution margin excludes certain corporate costs not associated with the operations of the segment. These unallocated costs include costs that are related to corporate functional areas such as operations management, corporate purchasing, accounting, treasury, information technology, legal and human resources.
Segment contribution margin is not a measure ofinvestors regarding our financial performance under GAAPcondition and should not be considered an alternative to measures derived in accordance with GAAP. For more details on the reconciliationresults of segment contribution margin to its most directly comparable GAAP financial measure, net income (loss), see Note T - Segment Reporting to our Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP measure, is included in this report because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA. In addition, our Revolver contains a consolidated total net leverage ratio that we must meet as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 25% of the Revolver commitment, which is calculated based on our Adjusted EBITDA. Noncompliance with the financial ratio covenant contained in the Revolver could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the Term Loan. Moreover, the Revolver and the Term Loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our Adjusted EBITDA.
Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative to net income as a measure of operating performance, cash flows from operating activities as a measure of liquidity or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized, and excludes certain non-recurring charges. Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.
The following table sets forth a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA.
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| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (amount in thousands) |
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
|
| Total interest expense, net of interest income | 25,871 |
| | 25,779 |
| | 26,578 |
|
| Benefit for taxes | (8,680 | ) | | (36,689 | ) | | (11,751 | ) |
| Total depreciation, depletion and amortization expenses | 97,233 |
| | 68,134 |
| | 58,474 |
|
| EBITDA | 259,630 |
| | 16,168 |
| | 85,169 |
|
Non-cash incentive compensation (1) | 25,050 |
| | 12,107 |
| | 3,857 |
|
Post-employment expenses (excluding service costs) (2) | 1,231 |
| | 1,040 |
| | 3,335 |
|
Business development related expenses(3) | 15,288 |
| | 8,206 |
| | 10,701 |
|
Other adjustments allowable under our existing credit agreements (4) | 6,504 |
| | 2,033 |
| | 6,446 |
|
| Adjusted EBITDA | $ | 307,703 |
| | $ | 39,554 |
| | $ | 109,508 |
|
|
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(1)
| Reflects equity-based compensation expense. |
(2)
| Includes net pension cost and net post-retirement cost relating to pension and other post-retirement benefit obligations during the applicable period, but in each case excluding the service cost relating to benefits earned during such period. See Note P - Pension and Post-retirement Benefits to our Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. |
(3)
| Reflects expenses related to business development activities in connection with our growth and expansion initiatives. |
(4)
| Reflects miscellaneous adjustments permitted under our existing credit agreement, including such items as restructuring costs for actions that will provide future cost savings. The year ended December 31, 2017 amount includes a contract restructuring cost of $6.3 million. Restructuring costs were $3.5 million and $4.8 million, respectively, for the years ended December 31, 2016 and 2015. The year ended December 31, 2016 amount includes a gain on insurance settlement of $1.5 million. |
Results of Operations For the Years Ended December 31, 2017, 2016 and 2015
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| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | Percent Change |
| | 2017 | | 2016 | | 2015 | | ’17 vs. ‘16 | | ’16 vs. ‘15 |
| | (amounts in thousands, except per ton data) | | | | |
| Sales: | | | | | | | | | |
| Oil & Gas Proppants | $ | 1,020,365 |
| | $ | 362,550 |
| | $ | 430,435 |
| | 181 | % | | (16 | )% |
| Industrial & Specialty Products | 220,486 |
| | 197,075 |
| | 212,554 |
| | 12 | % | | (7 | )% |
| Total Sales | $ | 1,240,851 |
| | $ | 559,625 |
| | $ | 642,989 |
| | 122 | % | | (13 | )% |
| Tons: | | | | | | |
|
| |
|
|
| Oil & Gas Proppants | 11,595 |
| | 6,442 |
| | 6,082 |
| | 80 | % | | 6 | % |
| Industrial & Specialty Products | 3,533 |
| | 3,433 |
| | 3,943 |
| | 3 | % | | (13 | )% |
| Total Tons | $ | 15,128 |
| | 9,875 |
| | 10,025 |
| | 53 | % | | (1 | )% |
| Average Selling Price per Ton: | | | | | | | | | |
| Oil & Gas Proppants | $ | 88.00 |
| | $ | 56.28 |
| | $ | 70.77 |
| | 56 | % | | (20 | )% |
| Industrial & Specialty Products | $ | 62.41 |
| | $ | 57.41 |
| | $ | 53.91 |
| | 9 | % | | 6 | % |
| Overall Average Selling Price per Ton: | $ | 82.02 |
| | $ | 56.67 |
| | $ | 64.14 |
| | 45 | % | | (12 | )% |
2017 vs. 2016
Total sales increased 122% for the year ended December 31, 2017 compared to 2016, driven by a 53% increase in total tons sold and a 45% increase in overall average selling price. Tons sold in-basin represented 49% and 41% of total company tons sold for the years ended December 31, 2017 and 2016, respectively.
The increase in total sales was driven by Oil & Gas Proppants sales, which increased 181% for the year ended December 31, 2017 compared to 2016. Oil & Gas Proppants tons sold increased 80% and average selling price increased 56%. These increases were driven by growth in demand for our frac sand and the acquisition of Sandbox, NBI and MS Sand.
Industrial & Specialty Products sales increased 12% for the year ended December 31, 2017 compared to 2016 driven by a 3% increase in tons sold and a 9% increase in average selling price. The increase in tons sold is mainly due to additional business with existing customers. The increase in average selling price was primarily a result of new higher-margin product sales and price increases.
2016 vs. 2015
Total sales decreased 13% for the year ended December 31, 2016 compared to 2015, driven by a 12% decrease in overall average selling price and an 1% decrease in total tons sold. Tons sold in-basin represented 41% and 36% of total tons sold for the years ended December 31, 2016 and 2015, respectively. The decrease in total sales was driven by decreases in sales for both segments.
The decrease in Oil & Gas Proppants sales was due to a 20% decrease in average selling price partially offset by a 6% increase in tons sold for the year ended December 31, 2016 compared to 2015. The increase in tons sold was driven by sales from our newly acquired businesses and our market share gain efforts, which were partially offset by decrease in market demand. Average selling price decreased as a result of the decrease in frac sand demand.
Industrial & Specialty Products sales decreased by 7% for the year ended December 31, 2016 compared to 2015. Tons sold decreased 13%, driven by our strategic shift among customers and products. Average selling price increased 6%, which was primarily a result of new higher-margin product sales and price increases.
Cost of Sales
2017 vs. 2016
Cost of sales increased $390.2 million, or 82%, to $867.5 million for the year ended December 31, 2017 compared to $477.3 million for the year ended December 31, 2016. As a percentage of sales, cost of sales decreased to 70% for the year ended December 31, 2017 compared to 85%operations for the same period in 2016. These changes result from the main components of cost of sales as discussed below.reasons.
We incurred $490.8 million and $249.7 million of transportation and related costs for the years ended December 31, 2017 and 2016, respectively. This increase was due to increased tons sold through our transloads and the Sandbox acquisition. As a percentage of sales, transportation and related costs decreased to 40% for the year ended December 31, 2017 compared to 45% for the same period in 2016.
We incurred $137.2 million and $83.2 million of operating labor costs for the years ended December 31, 2017 and 2016, respectively. The $54.0 million increase in labor costs incurred was primarily due to more tons sold and incremental costs related to Sandbox operations. As a percentage of sales, operating labor costs represented 11% for the year ended December 31, 2017 compared to 15% for the same period in 2016.
We incurred $35.6 million and $26.7 million of electricity and drying fuel (principally natural gas) costs for the years ended December 31, 2017 and 2016, respectively. The increase in electricity and drying fuel costs incurred was due to more tons sold. As a percentage of sales, electricity and drying fuel costs represented 3% for the year ended December 31, 2017 compared to 5% for the same period in 2016.
We incurred $60.9 million and $34.3 million of maintenance and repair costs for the years ended December 31, 2017 and 2016, respectively. The increase in maintenance and repair costs incurred was mainly due to higher production volume and incremental costs related to Sandbox operations and the addition of our Tyler, Texas facility. As a percentage of sales, maintenance and repair costs represented 5% for the year ended December 31, 2017 compared to 6% for the same period in 2016.
2016 vs. 2015
Cost of sales decreased $17.8 million, or 4%, to $477.3 million for the year ended December 31, 2016 compared to $495.1 million for the year ended December 31, 2015. The decrease was mainly a result of fewer tons sold. As a percentage of sales, costs of sales increased to 85% for the year ended December 31, 2016 compared to 77% for the same period in 2015. These changes result from the main components of cost of sales as discussed below.
We incurred $249.7 million and $258.1 million of transportation and related costs for the years ended December 31, 2016 and 2015, respectively. These costs remained relatively flat due to our transportation and logistics cost improvement efforts, which were mostly offset by incremental costs related to NBI and Sandbox operations. As a percentage of sales, transportation and related costs increased to 45% for the year ended December 31, 2016 compared to 40% in 2015 primarily due to a decrease in average selling price.
We incurred $83.2 million and $80.1 million of operating labor costs for the years ended December 31, 2016 and 2015, respectively. The $3.1 million increase in labor costs incurred was primarily due to incremental costs related to NBI and Sandbox operations, partially offset by fewer tons sold and the impact of our restructuring efforts. As a percentage of sales, operating labor costs represented 15% for the year ended December 31, 2016 compared to 12% in 2015.
We incurred $26.7 million and $28.0 million of electricity and drying fuel (principally natural gas) costs for the years ended December 31, 2016 and 2015, respectively. The decrease in electricity and drying fuel costs incurred was mainly driven by fewer tons sold and strategic shift among products. As a percentage of sales, electricity and drying fuel costs represented 5% and 4% for the years ended December 31, 2016 and 2015, respectively.
We incurred $34.3 million and $37.6 million of maintenance and repair costs for the years ended December 31, 2016 and 2015, respectively. The decrease was a result of our cost improvement efforts and fewer tons sold. As a percentage of sales, maintenance and repair costs remained flat at 6% for the year ended December 31, 2016 compared to 2015.
Segment Contribution Margin
Segment contribution margin, a non-GAAP measure, is a key metric that management uses to evaluate our operating performance and to determine resource allocation between segments. Segment contribution margin excludes selling, general, and administrative costs, corporate costs, plant capacity expansion expenses, and facility closure costs.
2017 vs. 2016 Segment contribution margin is not a measure of our financial performance under GAAP and should not be considered an alternative measure or superior to measures derived in accordance with GAAP. Our measure of segment contribution margin is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. For more information about segment contribution margin, including a reconciliation of this measure to its most directly comparable GAAP financial measure, net income (loss), see Note V - Segment Reporting to our Consolidated Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP measure, is included in this report because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA.
Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative or superior to net income (loss) as a measure of operating performance, cash flows from operating activities as a measure of liquidity or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized, and excludes certain charges that may recur in the future. Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.
The following table sets forth a reconciliation of net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA.
| | | | | | | | | | | | | | |
| (amounts in thousands) | Year ended December 31, |
| | 2020 | | 2019 | 2018 |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (114,094) | | | $ | (329,082) | | $ | (200,808) | |
| Total interest expense, net of interest income | 79,148 | | | 92,063 | | 64,689 | |
| Provision for taxes | (60,025) | | | (99,151) | | (29,132) | |
| Total depreciation, depletion and amortization expenses | 155,568 | | | 179,444 | | 148,832 | |
| EBITDA | 60,597 | | | (156,726) | | (16,419) | |
Non-cash incentive compensation (1) | 15,827 | | | 15,906 | | 22,337 | |
Post-employment expenses (excluding service costs) (2) | 1,729 | | | 1,735 | | 2,206 | |
Merger and acquisition related expenses (3) | 1,423 | | | 32,021 | | 34,098 | |
Plant capacity expansion expenses (4) | 6,149 | | | 17,576 | | 59,112 | |
Contract termination expenses (5) | — | | | 1,882 | | 2,491 | |
Goodwill and other asset impairments (6) | 110,688 | | | 363,847 | | 281,899 | |
Business optimization projects (7) | 67 | | | 55 | | 1,980 | |
Facility closure costs (8) | 7,093 | | | 12,718 | | 529 | |
Gain on valuation change of royalty note payable (9) | (8,263) | | | (16,854) | | — | |
Other adjustments allowable under the Credit Agreement (10) | 8,612 | | | 14,165 | | 4,290 | |
| Adjusted EBITDA | $ | 203,922 | | | $ | 286,325 | | $ | 392,523 | |
| | | | | | | | |
| | |
| (1) | Reflects equity-based, non-cash compensation expense. |
| (2) | Includes net pension cost and net post-retirement cost relating to pension and other post-retirement benefit obligations during the applicable period, but in each case excluding the service cost relating to benefits earned during such period. Non-service net periodic benefit costs are not considered reflective of our operating performance because these costs do not exclusively originate from employee services during the applicable period and may experience periodic fluctuations as a result of changes in non-operating factors, including changes in discount rates, changes in expected returns on benefit plan assets, and other demographic actuarial assumptions. See Note Q - Pension and Post-Retirement Benefits to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.
|
| (3) | Merger and acquisition related expenses include legal fees, consulting fees, bank fees, severance costs, purchase-related costs such as the amortization of inventory fair value step-up, information technology integration costs and similar charges. While these costs are not operational in nature and are not expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have occurred in prior periods and may recur in the future as we continue to integrate prior acquisitions and pursue any future acquisitions.
|
| (4) | Plant capacity expansion expenses include expenses that are not inventoriable or capitalizable as related to plant expansion projects greater than $5 million in capital expenditures or plant start up projects. While these expenses are not operational in nature and are not expected to continue for any singular project on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future.
|
| (5) | Reflects contract termination expenses related to strategically exiting service contracts. While these expenses are not operational in nature and are not expected to continue for any singular event on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future as we continue to strategically evaluate our contracts.
|
| (6) | See Note Y - Impairments to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information. While these expenses are not operational in nature and are not expected to continue for any singular event on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future.
|
| (7) | Reflects costs incurred related to business optimization projects mainly within our corporate center, which aim to measure and improve the efficiency, productivity and performance of our organization. While these costs are not operational in nature and are not expected to continue for any singular project on an ongoing basis, similar types of expenses may recur in the future.
|
| (8) | Reflects costs incurred mainly related to idled sand facilities and closed corporate offices, including severance costs and remaining contracted costs such as office lease costs, and common area maintenance fees. While these costs are not operational in nature and are not expected to continue for any singular event on an ongoing basis, similar types of expenses may recur in the future. |
| (9) | Gains on valuation change of royalty note payable due to a change in estimate of future tonnages and sales related to the sand shipped from our Tyler, Texas facility. These gains are not operational in nature and are not expected to continue for any singular event on an ongoing basis. See Note K - Debt to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information. |
| (10) | Reflects miscellaneous adjustments permitted under the Credit Agreement. For 2020, includes $1.6 million in transload shortfalls and exit fees, $4.6 million in inventory adjustments, $6.0 million in severance costs, and $11.8 million in legal expense due to the unsuccessful defense of a small number of our patents, offset by $15.2 million related to the gain attributable to the bargain purchase of Arrows Up. For 2019, includes $6.2 million of loss contingencies reserve as well as restructuring costs for actions that will provide future savings, storm damage costs, recruiting fees, relocation costs and a loss on sale of assets, partially offset by insurance proceeds of $2.2 million. For 2018, includes storm damage costs, recruiting fees, relocation costs, and a net loss of $0.7 million on divestitures of assets, consisting of $5.2 million of contract termination costs and $1.3 million of divestiture related expenses such as legal fees and consulting fees, partially offset by a $5.8 million gain on sale of assets. |
Adjusted EBITDA-Trailing Twelve Months
Our Revolver contains a covenant that we maintain a consolidated total net leverage ratio of no more than 3.75:1.00 that, unless we have the consent of our lenders, we must meet as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 30% of the Revolver commitment. This ratio is calculated based on our Adjusted EBITDA for the trailing twelve months. Noncompliance with this financial ratio covenant could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the term loan (the "Term Loan") (collectively the "Credit Facility"). Moreover, the Revolver and the Term Loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our Adjusted EBITDA for the trailing twelve months.
See the description under “Adjusted EBITDA” above for certain important information about Adjusted EBITDA-trailing twelve months, including certain limitations and management’s use of this metric in light of its status as a non-GAAP measure.
As of December 31, 2020, we are in compliance with all covenants under our Credit Facility, and our Revolver usage was $25.0 million (other than certain undrawn letters of credit). Since the Revolver usage did not exceed 30% of the Revolver commitment, the consolidated leverage ratio covenant did not apply. Based on our consolidated leverage ratio of 6.07:1.00 as of December 31, 2020, we may draw up to $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. The calculation of the consolidated leverage ratio incorporates the Adjusted EBITDA-trailing twelve months as follows:
| | | | | | | | |
| (All amounts in thousands) | | December 31, 2020 |
| | |
| Total debt | | $ | 1,239,352 | |
| Finance leases | | 350 | |
| Total consolidated debt | | $ | 1,239,702 | |
| | |
| Adjusted EBITDA-trailing twelve months | | $ | 203,922 | |
Pro forma Adjusted EBITDA including impact of acquisitions (1) | | — | |
Other adjustments for covenant calculation (2) | | 254 | |
| Total Adjusted EBITDA-trailing twelve months for covenant calculation | | $ | 204,176 | |
| | |
Consolidated leverage ratio(3) | | 6.07 | |
| | | | | | | | |
| | |
| (1) | Covenant calculation allows for the Adjusted EBITDA-trailing twelve months to include the impact of acquisitions on a pro forma basis. |
| (2) | Covenant calculation excludes activity at legal entities above the operating company, which is mainly interest income offset by public company operating expenses. |
(3)
| Calculated by dividing Total consolidated debt by Total Adjusted EBITDA-trailing twelve months for covenant calculation.
|
Results of Operations for the Years Ended December 31, 2020and2019
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Sales
| | | | | | | | | | | | | | | | | |
| (In thousands except per ton data) | Year ended December 31, | Percent Change |
| | 2020 | | 2019 | | 20 vs. '19 |
| Sales: | | | | | |
| Oil & Gas Proppants | $ | 414,897 | | | $ | 1,010,521 | | | (59) | % |
| Industrial & Specialty Products | 430,988 | | | 463,956 | | | (7) | % |
| Total sales | $ | 845,885 | | | $ | 1,474,477 | | | (43) | % |
| Tons: | | | | | |
| Oil & Gas Proppants | 7,496 | | | 15,054 | | | (50) | % |
| Industrial & Specialty Products | 3,634 | | | 3,734 | | | (3) | % |
| Total Tons | 11,130 | | | 18,788 | | | (41) | % |
| Average Selling Price per Ton: | | | | | |
| Oil & Gas Proppants | $ | 55.35 | | | $ | 67.13 | | | (18) | % |
| Industrial & Specialty Products | 118.60 | | | 124.25 | | | (5) | % |
| Overall Average Selling Price per Ton | $ | 76.00 | | | $ | 78.48 | | | (3) | % |
Total sales decreased 43% for the year ended December 31, 2020 compared to the year ended December 31, 2019, driven by a 3% decrease in overall average selling price and a 41% decrease in total tons sold.
The decrease in total sales was mainly driven by Oil & Gas Proppants contribution margin increasedsales, which decreased 59% for the year ended December 31, 2020 compared to the year ended December 31, 2019. Oil & Gas Proppants average selling price decreased 18% and tons sold decreased 50%. These decreases are a result of the shift to in-basin sand, overall decrease in demand due to current economic conditions related to the COVID-19 pandemic, as well as overall supply being greater than demand.
The decrease in total sales was also partially driven by $290.5Industrial & Specialty Products sales, which decreased 7% for the year ended December 31, 2020 compared to the year ended December 31, 2019. Industrial & Specialty Products average selling price decreased 5% and tons sold decreased 3%. These decreases were primarily due to current economic conditions related to the COVID-19 pandemic.
Cost of Sales
Cost of sales decreased by $558.2 million, or 49%, to $302.0$575.1 million for the year ended December 31, 20172020 compared to $11.4 million$1.133 billion for the year ended December 31, 2016, driven by a $657.8 million increase in revenue, partially offset by 105% higher2019. These changes result from the main components of cost of sales.
Industrial & Specialty Products contribution margin increased by $9.8 million, or 12%, to $88.8 millionsales as discussed below. As a percentage of sales, cost of sales represented 68% for the year ended December 31, 20172020 compared to $79.077% for the same period in 2019.
We incurred $191.0 million and $506.3 million of transportation and related costs for the years ended December 31, 2020 and 2019, respectively. The decrease was mainly due to an overall decrease in demand in the Oil & Gas Proppants segment, more tons sold from local in-basin plants which have lower logistics costs, carrier rate reductions in our SandBox operations, as well as decreased rail car expense resulting from lease remeasurements in the amount of $24.0 million. See Note R - Leases for more information on the lease remeasurements. As a percentage of sales, transportation and related costs decreased to 23% for the year ended December 31, 2016, driven by2020 compared to 34% for the same period in 2019.
We incurred $117.3 million and $198.6 million of operating labor costs for the years ended December 31, 2020 and 2019, respectively. The $81.3 million decrease in labor costs incurred was mainly due to idled facilities. As a $23.4percentage of sales, operating labor costs represented 14% for the year ended December 31, 2020 compared to 13% for the same period in 2019.
We incurred $33.6 million increaseand $54.8 million of electricity and drying fuel (principally natural gas) costs for the years ended December 31, 2020 and 2019, respectively. The $21.2 million decrease in revenue, partially offset by 12% higher costelectricity and drying fuel costs incurred was mainly due to idled sand facilities. As a percentage of sales.sales, electricity and drying fuel costs represented 4% for each of the years ended December 31, 2020 and 2019.
2016 vs. 2015 We incurred $46.3 million and $92.3 million of maintenance and repair costs for the years ended December 31, 2020 and 2019, respectively. The decrease in maintenance and repair costs incurred was mainly due to idled sand facilities, reduced costs at our SandBox operations due to lower volumes, and a decrease in plant capacity expansion expenses. As a percentage of sales, maintenance and repair costs represented 5% for the year ended December 31, 2020 compared to 6% for the same period in 2019.
Segment Contribution Margin
Oil & Gas Proppants contribution margin decreased by $77.5$106.6 million or 87%, to $11.4$142.0 million for the year ended December 31, 20162020 compared to $88.9$248.6 million for the year ended December 31, 2015,2019, driven by a $67.9$595.6 million decrease in revenuesales, partially offset by $489.1 million in lower cost of sales. The decrease in segment contribution margin was mainly driven by aan overall decrease in demand and decreased sand pricing and $9.6as a result of a shift to in-basin sand, partially offset by $48.0 million increase in cost of goods sold due to more tons sold.shortfall revenue recognized.
Industrial & Specialty Products contribution margin increaseddecreased by $8.9$19.0 million, or 13%11%, to $79.0$159.2 million for the year ended December 31, 20162020 compared to $70.1$178.2 million for the year ended December 31, 2015, primarily2019, driven by increased higher-margin products sales as a percentage$33.0 million decrease in revenue, partially offset by $13.9 million in lower cost of total sales. The decrease in segment contribution margin was due to less tons sold due to current economic conditions related to the COVID-19 pandemic.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increaseddecreased by $39.9$26.6 million, or 59%18%, to $107.6$124.2 million for the year ended December 31, 20172020 compared to $67.7$150.8 million for the year ended December 31, 2016.2019. The increasedecrease was primarily due to cost reduction measures implemented including reducing all discretionary spending, reduced officer salaries and lowered headcount. In total, our selling, general and administrative expenses represented approximately 15% and 10% of our sales for the following factors:years ended December 31, 2020 and 2019, respectively.
Compensation relatedDepreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increaseddecreased by $30.8$23.8 million, or 13%, to $155.6 million for the year ended December 31, 20172020 compared to 2016, primarily due to increased equity-based compensation and higher employee headcount due to our acquisitions of NBI, Sandbox and MS Sand.
Bad debt expense increased by $2.8$179.4 million for the year ended December 31, 2017 compared to the year ended December 31, 2016,2019. The decrease was mainly driven by decreased production, a decrease in total depreciable assets due to increased sales.
Business development relatedidled plants and subsequent asset impairments, and reduced capital spending. Depreciation, depletion and amortization expense increased by $7.1 million to $15.3 million for the year ended December 31, 2017 compared to $8.2 million for the year ended December 31, 2016. The increase was due to our growth and expansion initiatives, including costs related to our MS Sand acquisition.
In total, our selling, general and administrative costs represented approximately 9%18% and 12% of our sales for the years ended December 31, 20172020 and 2016,2019, respectively.
Selling, generalGoodwill and administrative expenses increasedOther Asset Impairments
During the year ended December 31, 2020, we recorded $110.7 million in asset impairments, which primarily related to our Oil & Gas Proppants segment due to 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 builds in history, which also led to a sharp reduction in global crude oil prices. Additionally, containment measures and other economic, travel, and business disruptions caused by $4.9COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants segment. During 2019, we recorded $363.8 million or 8%,in asset impairments in our Oil & Gas Proppants segment due to $67.7a sharp decline in customer demand for Northern White frac sand and for regional non-in-basin frac sand as more tons were produced and sold in-basin. Additionally, the price of frac sand decreased significantly.
Operating (Loss) Income
Operating loss decreased by $233.4 million to $119.6 million for the year ended December 31, 20162020 compared to $62.8$353.0 million for the year ended December 31, 2015.2019. The increasedecrease was duedriven by a decrease in asset impairments as discussed above, an 18% decrease in selling, general and administrative expense, a 13% decrease in depreciation, depletion and amortization expense, and a 49% decrease in cost of sales, offset by a 43% decrease in total sales.
Interest Expense
Interest expense decreased by $15.6 million, or 16%, to the following factors:
Compensation related expense increased by $11.2$79.9 million for the year ended December 31, 20162020 compared to 2015, primarily due to increased equity-based compensation and incremental compensation expense related to NBI and Sandbox employees.
Bad debt expense decreased by $0.9$95.5 million for the year ended December 31, 2016 compared to the year ended December 31, 2015,2019, mainly due to a 13% decrease in salesinterest rates, partially offset by a decrease in interest costs capitalized for property, plant and a recoverymine development and interest expense on the outstanding balance of a previously reserved receivable.the Revolver.
Business development related expense decreasedOther Income (Expense), net, including interest income
Other income increased by $2.5$4.9 million to $8.2$24.4 million for the year ended December 31, 20162020 compared to $10.7$19.5 million in other income for the year ended December 31, 2019. The year ended December 31, 2020 included a gain attributable to the bargain purchase of a business of $15.2 million and a gain on the valuation change of a royalty note payable of $8.3 million, partially offset by a decrease of $2.7 million of interest income. The year ended December 31, 2019 included a gain on the valuation change of a royalty note payable of $16.9 million.
Provision for Income Taxes
Our income tax benefit decreased by $39.0 million to $60.0 million for the year ended December 31, 2015, primarily due to a $6.5 million settlement of an unfavorable arbitration ruling during the year ended December 31, 2015 partially offset by our NBI and Sandbox acquisition-related costs during the year ended December 31, 2016.
In total, our selling, general and administrative costs represented approximately 12% and 10% of our sales for the years ended December 31, 2016 and 2015, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased by $29.1 million, or 43%, to $97.2 million for the year ended December 31, 2017 compared to $68.1 million for the year ended December 31, 2016. This increase was driven by our acquisitions as well as other capital spending. Depreciation, depletion and amortization costs represented approximately 8% and 12% of our sales for the years ended December 31, 2017 and 2016, respectively.
Depreciation, depletion and amortization expense increased by $9.6 million, or 17%, to $68.1 million for the year ended December 31, 2016 compared to $58.5 million for the year ended December 31, 2015. This increase was driven by incremental expense related to assets acquired in connection with the acquisitions of NBI and Sandbox as well as other capital spending. Depreciation, depletion and amortization costs represented approximately 12% and 9% of our sales for the years ended December 31, 2016 and 2015, respectively.
Operating Income (loss)
Operating income increased by $222.0 million, or 415%, to $168.5 million for the year ended December 31, 20172020 compared to a $(53.5) million operating loss for the year ended December 31, 2016. The increase was due to a 122% increase in sales, partially offset by a 82% increase in cost of sales, a 59% increase in selling, general and administrative expense, and a 43% increase in depreciation, depletion and amortization expense.
Operating income decreased by $80.2 million, or 301%, to a $(53.5) million operating loss for the year ended December 31, 2016 compared to $26.7 million operating income for the year ended December 31, 2015. The decrease was due to a 13% decrease in sales, a 17% increase in depreciation, depletion and amortization expense and an 8% increase in selling, general and administrative expense, partially offset by a 4% decrease in cost of sales.
Interest Expense
Interest expense increased by $3.4 million, or 12%, to $31.3 million for the year ended December 31, 2017 compared to $28.0 million for the year ended December 31, 2016, driven by additional long-term liabilities assumed in connection with our acquisitions of NBI and Sandbox.
Interest expense increased by $0.7 million, or 3%, to $28.0 million for the year ended December 31, 2016 compared to $27.3 million for the year ended December 31, 2015, primarily driven by additional long-term liabilities assumed in connection with our acquisitions of NBI and Sandbox.
Provision for 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 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 are required to adjust deferred tax assets and liabilities as of December 22, 2017. Accordingly, we have recorded a deferred income tax benefit of $35.8 million for the year ended December 31, 2017.
The provision for income taxes increased $28.0 million, or 76%, to an $8.7$99.2 million income tax benefit for the year ended December 31, 2017, compared2019. The decrease was mainly due to a $36.7 millionthe decreased loss before income tax benefit forduring the year ended December 31, 2016.2020. The increaseeffective tax rate was due to increased profit before income taxes, offset primarily by the deferred income tax benefit of the Tax Act34% and 23% for the yearyears ended December 31, 2017. The tax rate for the year ended December 31, 2017 is not predictive of future tax rates due to the deferred income tax benefit of the Tax Act. The tax rate would have been 22% without the tax effects of the deferred income tax benefit of the Tax Act, equity compensation tax benefits2020 and the prior year tax return reconciliation which were all recorded discretely for the year ended December 31, 2017.2019, respectively. See Note QS - Income Taxes to our Consolidated Financial Statements in Part II, Item 8 to8. of this Annual report on this Form 10-K.10-K for more information.
The provision for income taxes decreased $24.9 million, or 212%, to a $36.7 million income tax benefit for the year ended December 31, 2016, compared to a $11.8 million income tax benefit for the year ended December 31, 2015. The decreases were driven by a decreased pre-tax book income and the impact of favorable permanent tax differences including the adoption of ASU 2016-09. For more information related to ASU 2016-09, see Note Q - Income Taxes in Part II, Item 8 to this Annual report on this Form 10-K.
Historically, our actual effective tax rates have been lower thandiffered from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes. However, for the year ended 2020, we recorded a permanent tax benefit of $22.3 million related to tax legislation enacted during 2020, which represents the largest permanent item in computing our effective tax rate for 2020.
Net Income (loss) income
Net income (loss) was $145.2 million, $(41.1)losses attributable to U.S. Silica Holdings, Inc., were $114.1 million and $11.9$329.1 million for the years ended December 31, 2017, 20162020 and 2015.2019, respectively. The year over year changes were due to the factors noted above.
Liquidity and Capital Resources
This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which is incorporated by reference herein.
Overview
Our principal liquidity requirements have historically been to service our debt, to meet our working capital, capital expenditure and mine development expenditure needs, to return cash to our stockholders, and to financepay for acquisitions. We have historically met our liquidity and capital investment needs with funds generated through operations. We have historically funded our acquisitions through cash on hand, or borrowings under our credit facilities, andor equity issuances. Our working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. In March 2016, we completed a public offering of 10,000,000 shares of our common stock for total cash net proceeds of $186.2 million. In November 2016, we executed another offering of 10,350,000 shares of common stock raising net cash proceeds of $467.0 million. As of December 31, 2017,2020, our working capital was $489.3$291.4 million and we had $45.5$52.0 million of availability under the Revolver. Based on our consolidated leverage ratio of 6.07:1.00 as of December 31, 2020, we may draw up to $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. Additionally, as of December 31, 2020, other receivables included $37.4 million of refunds related to NOL carryback claims filed for various tax years in accordance with certain provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES" Act), which we expect to receive during 2021.
In connection with the EPMH acquisition, on May 1, 2018, we entered into the Credit Agreement with BNP Paribas, as administrative agent, and the lenders named therein. The Credit Agreement increased our existing senior debt by creating 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. The amounts owed under the Credit Agreement use LIBOR as a benchmark for establishing the rate at which interest accrues. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost to us of this indebtedness.
During the third quarter of 2019, we repurchased outstanding debt under the Term Loan in the amount of $10 million at a rate of 95.5%. Debt issuance costs and original issue discount were recalculated with the reduced future debt payments, and additional costs of approximately $0.4 million were expensed. As a result, we recorded a gain on extinguishment of debt in the amount of $0.1 million. For more information on the Credit Agreement see Note K - Debt to our Consolidated Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.
In response to the effects of the pandemic on our Oil & Gas Proppants segment, we have taken a number of steps to reduce our costs of operations, including dramatically reducing all discretionary spending, reducing officer salaries, lowering headcount, and closing or idling facilities as appropriate. We believe that cash on hand, cash generated through operations and cash generated from financing arrangements will be sufficient to meet our working capital requirements, anticipated capital expenditures, scheduled debt payments and any dividends declared for at least the next 12 months. During the period of economic disruption resulting from the COVID-19 pandemic, our ability to access capital markets and other sources of liquidity may be impaired. At this time, we do not believe that any limited access to the capital markets and other sources of liquidity will have a material adverse effect on our financial condition.
Management and our Board remain committed to evaluating additional ways of creating shareholder value. Any determination to pay dividends andor other distributions in cash, stock, or property in the future or otherwise return capital to our stockholders, including decisions about existing or new share repurchase programs, will be at the discretion of our Board and will be dependent on then-existing conditions, including our businessindustry and market conditions, our financial condition, results of operations, liquidity and capital requirements, contractual restrictions including restrictive covenants contained in debt agreements, and other factors. Additionally, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. During May 2020, our Board of Directors determined that it was not in the best interest of our shareholders to issue a dividend for the second quarter of 2020 and they subsequently decided not to issue a dividend for the third or fourth quarters of 2020. The Board of Directors will make determinations regarding future dividends on a quarterly basis using the criteria described above.
Cash Flow Analysis
A summary of operating, investing and financing activities (in thousands) is shown in the following table:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Net cash (used in) provided by: | | | | | |
| Operating activities | $ | (10,534) | | | $ | 144,046 | | | $ | 310,706 | |
| Investing activities | (27,564) | | | (120,393) | | | (1,066,879) | |
| Financing activities | 3,278 | | | (40,411) | | | 574,104 | |
|
| | | | | | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 | | 2015 |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 238,156 |
| | $ | 381 |
| | $ | 61,492 |
|
| Investing activities | (507,672 | ) | | (201,657 | ) | | 49 |
|
| Financing activities | (57,142 | ) | | 635,424 |
| | (47,530 | ) |
Net Cash Used in / Provided by Operating Activities
Operating activities consist primarily of net income adjusted for certain non-cash and working capital items.
Adjustments to net income for non-cash items include depreciation, depletion and amortization, deferred revenue, deferred
income taxes, equity-based compensation and bad debt provision.provision for credit losses. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally accounts receivable, inventories, prepaid expenses and other current assets, income taxes payable and receivable, accounts payable and accrued expenses.
Net cash provided byused in operating activities was $238.2$10.5 million for the year ended December 31, 2017 compared2020. This was mainly due to $0.4a $115.1 million net loss adjusted for non-cash items, including $155.6 million in depreciation, depletion and amortization, $110.7 million in goodwill and other asset impairments, $61.8 million in deferred income taxes, $14.9 million in equity-based compensation, $23.6 million in deferred revenue, $8.3 million in gain on valuation of royalty note payable, $24.0 million related to a gain on remeasurement of leases, $2.6 million related to the year ended December 31, 2016. This $237.8gain on sales of property, plant and equipment, and $30.8 million in other miscellaneous non-cash items. Also contributing to the change was a $48.4 million decrease in accounts receivable, a $15.2 million decrease in inventories, a $6.2 million increase in cash provided by operations was primarily the result ofprepaid expenses and other current assets, a $186.3 million increase in net income and $51.5 million increase due to other components of operating activities.
Net cash provided by operating activities was $0.4 million for the year ended December 31, 2016 compared to $61.5 million for the year ended December 31, 2015. This $61.1$0.2 million decrease in cash provided by operations was primarily the result of a $52.9income taxes, an $86.7 million decrease in net incomeaccounts payable and the impact of theaccrued liabilities, and $57.8 million in other components of operating activities.assets and liabilities.
Net cash provided by operating activities was $61.5 million for the year ended December 31, 2015 compared to $171.4 million for the year ended December 31, 2014. This $109.9 million decrease in cash provided by operations was primarily the result of a $109.7 million decrease in net income and the impact of the other components of operating activities.
Net Cash Used in / Provided by / Used in Investing Activities
Investing activities consist primarily of cash consideration paid to acquire businesses and capital expenditures for growth and maintenance and proceeds from the sale and maturity of short-term investments.maintenance.
Net cash used in investing activities was $507.7$27.6 million for the year ended December 31, 2017.2020. This was primarilymainly due to capital expenditures of $384.6$34.5 million cash consideration of $119.8 million paid for acquisition of businesses and capitalized intellectual property costs of $3.6$0.5 million, partially offset by proceeds from the sale of property, plant and equipment of $7.4 million. Capital expenditures for 2017the year ended December 31, 2020 were approximately $49.6 million for a purchase of reservesprimarily related to growth projects in Lamesa, Texas, $94.4 million for a purchase of reserves in Crane County, Texas, and $240.6 million for engineering, procurement and construction of our growth projectsIndustrial & Specialty Products segment, as well as spending on equipment to expand our SandBox operations and other maintenance and cost improvement capital projects.
Net cash used in investing activities was $201.7 million for the year ended December 31, 2016. This was due to $176.7 million of cash consideration that was paid for our NBI and Sandbox acquisitions and capital expenditures of $46.5 million, offset by $21.9 million in proceeds from sales and maturities of short-term investments. Capital expenditures in 2016 were made primarily for a purchase of reserves adjacent to our Ottawa, Illinois facility, engineering, procurement and construction of our growth projects and other maintenance and cost improvement capital projects.
Net cash provided by investing activities was $49 thousand for the year ended December 31, 2015. This was due to $53.6 million in proceeds from sales and maturities of short-term investments being almost fully offset by capital expenditures during the year. Capital expenditures in 2015 were $53.6 million, which were made primarily for the engineering, procurement and construction of our growth projects including the Greenfield raw sand plant near Fairchild, Wisconsin and other maintenance and cost improvement capital projects.
Subject to our continuing evaluation of market conditions, we anticipate that our capital expenditures in 20182021 will be in the range of $300approximately $30 million to $350$40 million, which is primarily associated with growthmaintenance, cost improvement capital projects and other maintenance and cost improvement capitalnear-term payback growth projects. We expect to fund our capital expenditures through cash on our balance sheet, cash generated from our operations and cash generated from financing activities.
Net Cash Provided by / Used Inin Financing Activities
Financing activities consist primarily of equity issuances, capital contributions, dividend payments, share repurchases, borrowings and repayments related to the Revolver and Term Loan, as well as fees and expenses paid in connection with our credit facilities and advance payments from our customers and capital leases.facilities.
Net cash used inprovided by financing activities was $57.1$3.3 million for the year ended December 31, 2017, driven2020. This was mainly due to a $25 million draw from our Revolver, offset by $25.0 million in common stock repurchases, $20.4 million of dividends paid, $7.2$16.0 million of long-term debt payments, $4.4$6.2 million of dividends paid, $0.7 million of tax payments related to shares withheld for vested restricted stock and $1.0stock units, and a $1.2 million of capital lease repayments partially offset by $0.8 million of proceedscontribution from employee stock options exercised.
Net cash provided by financing activities was $635.4 million for the year ended December 31, 2016, driven by $678.8 million of cash received from common stock issuances and $4.8 million of proceeds from options exercised, both of which were partially offset by $25.7 million of common stock issuances costs, $15.1 million of dividends paid, $5.2 million of long-term debt payments and $1.6 million of tax payments related to shares withheld for vested restricted stock.
Net cash used in financing activities was $47.5 million for the year ended December 31, 2015, driven by $26.8 million in dividend payments, $15.3 million in common stock repurchases and $5.1 million in debt payments.a non-controlling interest.
Share Repurchase Program
We did not make any repurchases of our common stock under our stock repurchase program in 2020. See Purchase of Equity Securities by the Issuer and Affiliated Purchasers in Part II, Item 55. and Note CD - Capital Structure and Accumulated Comprehensive Income (Loss) to our Consolidated Financial Statements in Part II, Item 88. of this Annual Report on Form 10-K for information related to our share repurchase program.
Credit Facilities
See Note JK - Debt and Capital Leases to our Consolidated Financial Statements in Part II, Item 88. of this Annual Report on Form 10-K for information related to our credit facilities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have a current material effect or are reasonably likely to have a future material effect on our financial condition, changes in financial condition, sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of December 31, 2017,2020, the total of our future contractual cash commitments, including the repayment of our debt obligations under the Term Loan, is summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Less than
1 year | | 1-3 years | | 3-5 years | | More than
5 years |
| | (amounts in thousands) |
Principal payments on long-term debt(1) | $ | 1,234,800 | | | $ | 12,800 | | | $ | 25,600 | | | $ | 1,196,400 | | | $ | — | |
| Payments on the Revolver | 25,000 | | | 25,000 | | | — | | | — | | | — | |
Estimated interest payments on long-term debt(4) | 271,541 | | | 63,414 | | | 122,759 | | | 85,368 | | | — | |
| Retirement plans | 101,382 | | | 10,661 | | | 20,997 | | | 20,969 | | | 48,755 | |
Finance lease obligations (5) | 386 | | | 71 | | | 315 | | | — | | | — | |
Operating lease obligations(5) | 119,686 | | | 23,217 | | | 32,466 | | | 25,798 | | | 38,205 | |
Minimum purchase obligations(2) | 51,746 | | | 14,812 | | | 20,656 | | | 9,674 | | | 6,604 | |
Total Contractual Cash Obligations(3): | $ | 1,804,541 | | | $ | 149,975 | | | $ | 222,793 | | | $ | 1,338,209 | | | $ | 93,564 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | (amounts in thousands) |
Principal payments on long-term debt(1) | $ | 489,075 |
| | $ | 5,100 |
| | $ | 483,975 |
| | $ | — |
| | $ | — |
|
| Estimated interest payments on long-term debt | 51,210 |
| | 20,139 |
| | 31,071 |
| | — |
| | — |
|
| Minimum payments on customer note payable | 745 |
| | 245 |
| | 500 |
| | — |
| | — |
|
| Minimum payments on note payable secured by royalty interest | 24,740 |
| | 1,750 |
| | 3,500 |
| | 3,500 |
| | 15,990 |
|
| Retirement plans | 90,288 |
| | 8,710 |
| | 17,675 |
| | 18,148 |
| | 45,755 |
|
| Capital lease obligations | 706 |
| | 706 |
| | — |
| | — |
| | — |
|
| Operating leases | 305,192 |
| | 69,892 |
| | 113,456 |
| | 66,218 |
| | 55,626 |
|
Minimum purchase obligations(2) | 78,027 |
| | 28,099 |
| | 29,106 |
| | 9,622 |
| | 11,200 |
|
Other long-term liabilities(3) | 1,368 |
| | 222 |
| | 620 |
| | 72 |
| | 454 |
|
| Total Contractual Cash Obligations(4): | $ | 1,041,351 |
| | $ | 134,863 |
| | $ | 679,903 |
| | $ | 97,560 |
| | $ | 129,025 |
|
(2)Includes estimated future minimum purchase obligations related to transload service agreements and transportation service agreements. As of December 31, 2020, we accrued $1.3 million in shortfall fees under these service agreements.
| |
(1) | Excludes the unamortized debt issuance costs and original issue discount. |
| |
(2) | Includes estimated future minimum purchase obligation related to transload service agreements and transportation service agreements. As of December 31, 2017, we accrued $0.6 million in shortfall fees under these service agreements. |
| |
(3) | Includes estimated future minimum royalty payments provided for under our mineral leases. |
| |
(4) | The above table excludes discounted asset retirement obligations in the amount of $19.0 million at December 31, 2017, the majority of which have a settlement date beyond 2025, as well as indemnification for surety bonds issued on our behalf discussed in Note R - Obligations Under Guarantees to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. |
(3)The above table excludes discounted asset retirement obligations in the amount of $24.7 million at December 31, 2020, the majority of which have a settlement date beyond 2025, as well as indemnification for surety bonds issued on our behalf discussed in Note P - Commitments and Contingencies to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
(4)Estimated interest payment amounts are computed using forecasted three-month LIBOR rates as of December 31, 2020. Estimated interest payments include both the Term Loan and Revolver.
(5)Includes interest and other operating costs. See Note R - Leases for additional information on interest costs.
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but we cannot estimate or predict the full amount of such future expenditures. As of December 31, 2017,2020, we had $19.0$24.7 million accrued for future reclamation costs, as compared to $11.2$25.8 million as of December 31, 2016.2019.
We discuss certain environmental matters relating to our various production and other facilities, certain regulatory requirements relating to human exposure to crystalline silica and our mining activity and how such matters may affect our business in the future under Item 1, “Business,”1. Business, Item 1A, “Risk Factors”1A. Risk Factors and Item 3, “Legal3. Legal Proceedings.”
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an
ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
A summary of our significant accounting policies is included in Note B - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 88. of this Annual Report on Form 10-K. Management believes that the application of these policies on a consistent basis enables us to provide the users of the Consolidated Financial Statements with useful and reliable information about our operating results and financial condition.
Described below are the accounting policies we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, and that we believe are critical to the understanding of our operations.operations and our performance.
Revenue Recognition
Products
We derive most of 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/orand 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.
Revenue is recognized fromWe recognize revenue for products and materials at a sale when persuasive evidencepoint in time following the transfer of an arrangement exists, the price is fixed and determinable, the product has been delivered, legal title has been transferredcontrol of such items to the customer, which typically occurs upon shipment or services are completed and collectiondelivery depending on the terms of the saleunderlying 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 606-10-25-10b. 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 reasonably assured. Amounts received from customers in advance of revenue recognition are deferred as liabilities.recognized.
We primarily sell our products under short-term price agreements or at prevailing market rates. For a limited number of customers, we sell under long-term, minimum purchase supply agreements. As of December 31, 2017, we had 23 minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2018 and 2022. 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. 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 the majority of our product customers on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly.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. SalesWe typically recognize revenue for specific, dedicated equipment set rental arrangements under ASC 842, 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
From time to time, we may enter into contracts that contain multiple performance obligations, such as work orders containing a combination of product, transportation, equipment rentals, and othercontract labor services. For these arrangements, we allocate the transaction taxes imposed by government entities are reportedprice 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 basis.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.
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 and 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 services periodically afterissuance 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 servicespassage of time is considered a contract asset. These assets are completed. Dependingpresented on the types of services, the total amount billed may include labor, equipment costs, freight, handling and other costs.
Accounts Receivable and Allowance for Doubtful Accounts
Tradea combined basis with accounts receivable are recognized at their invoiced amounts and do not bear interest. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30 days and 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 tradeconverted to 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.once billed.
Impairment or Disposal of Long-Lived AssetsProperty, Plant and Mine Development
We periodically evaluate whether current events or circumstances indicate that the carrying value of our long-lived assets, including property, plant and mine development, goodwill, trade names, intellectual property and customer relationships, to be held and usedequipment assets may not be recoverable. An estimate of future cash flows may be produced by the long-lived assets, or the appropriate grouping of assets, is compared toIf circumstances indicate that the carrying value to determine whether an impairment exists. If an asset is determined tomay not be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, therecoverable, we estimate future undiscounted net cash flows using estimates of fair value is based on various valuation techniques, including a discounted value 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. A detailed determination of the fair value may be carried forward from one year to the next if certain criteria have been met. We report an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
Factors we generally consider important in our evaluation and that could trigger an impairment review offlows are less than the carrying value of long-livedthe assets include significant underperformance relativewe recognize an impairment loss equal to expected operating trends, significant changes in the way assets are used, underutilizationamount by which the carrying value exceeds the fair value of our tangible assets, discontinuance of certain products by us or by our customers, a decrease in estimated mineral reserves, and significant negative industry or economic trends.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.
AlthoughGains 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 13 - 20 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 believehave 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 valuesamount exceeds the reporting unit’s fair value; however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Income Taxes
Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We recognize a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
Generally, 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. However, for the year ended 2020, we recorded a permanent tax benefit related to tax legislation enacted during 2020, which represents the largest permanent item in computing our effective tax rate for 2020.
Recent Accounting Pronouncements
New accounting guidance that has been recently issued is described in Note B - Summary of Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
| | | | | |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
We are exposed to certain market risks, which exist as a part of our long-lived assets were realizableongoing business operations. Such risks arise from adverse changes in market rates, prices and conditions. We address such market risks in “Recent Trends and Outlook” and"How We Generate Our Sales" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Interest Rate Risk
We are exposed to interest rate risk arising from adverse changes in interest rates. As of December 31, 2020, we had $1.260 billion of debt outstanding under the Credit Agreement. Assuming LIBOR is greater than the 1.0% minimum base rate on the Term Loan, a hypothetical increase in interest rates by 1.0% would have changed our interest expense by $12.6 million per year.
LIBOR is expected to be discontinued after 2021 and there can be no assurance as to what alternative base rate may replace LIBOR in the event it is discontinued, or whether such base rate will be more or less favorable to us. We intend to monitor the developments with respect to LIBOR and work with our lenders, to ensure any transition away from LIBOR will have a minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Credit Risk
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We examine the creditworthiness of third-party customers to whom we extend credit and manage our exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees, although collateral is generally not required.
Despite enhancing our examination of our customers' creditworthiness, we may still experience delays or failures in customer payments. Some of our customers have reported experiencing financial difficulties. With respect to customers that may file for bankruptcy protection, we may not be able to collect sums owed to us by these customers and we also may be required to refund pre-petition amounts paid to us during the preference period (typically 90 days) prior to the bankruptcy filing.
| | | | | |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
U.S. SILICA HOLDINGS, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Silica Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of U.S. Silica Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the relevant balance sheet date,related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2020 and 2019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 26, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Goodwill impairment of the SandBox reporting unit within the Oil & Gas Proppants segment
As described further in Notes B, I and Y to the Company's consolidated financial statements, the Company is required to evaluate goodwill for impairment annually or more frequently if indicators of impairment exist. The Company performs its annual goodwill impairment test as of October 31. The Company determined that indicators of impairment existed as of March 31, 2020 for the SandBox reporting unit included within the Oil & Gas Proppants segment. As such, the Company estimated the fair value of this reporting unit to determine if the fair value was less than the carrying amount. As a result of this assessment, the Company recognized a goodwill impairment charge of $86.1 million at March 31, 2020, representing the entirety of the SandBox reporting unit goodwill. We identified the estimation of the fair value of the SandBox reporting unit included in the Oil & Gas Proppants segment as a critical audit matter.
The principal considerations for our determination of goodwill impairment as a critical audit matter include the significant judgments and assumptions management made to estimate the fair value of the reporting unit which resulted in the impairment of goodwill in its entirety. Auditing the fair value of this reporting unit involved a high degree of auditor judgment, subjectivity and audit effort in evaluating management's significant assumptions relating to future events could causerevenues and cash flows, including revenue growth rates, future market conditions, and the discount rate utilized. In addition, the audit effort involved the use of valuation specialists to assist in performing these procedures and evaluating the audit evidence obtained.
Our audit procedures related to the estimation of the fair value of this reporting unit which caused the entirety of the goodwill to be impaired included the following, among other procedures:
•We tested the design and operating effectiveness of controls over goodwill impairment including those over the determination of fair value, management's development of forecasts of future cash flows and discount rate;
•We evaluated the reasonableness of management's forecasted revenues and cash flows by comparing forecasted amounts to historical results of the Company, considering historical and current prices, price trends and related factors;
•We evaluated the reasonableness of management's forecasts of cash flows by comparing the expected results against industry trend reports;
•We utilized our valuation specialists to evaluate, among other things:
◦The discount rate, including the testing of underlying source information and the mathematical accuracy of the calculations, and developing an independent estimate and comparing those to the discount rates selected by management.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2004.
Houston, Texas
February 26, 2021
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 150,920 | | | $ | 185,740 | |
| Accounts receivable, net | 206,934 | | | 182,238 | |
| Inventories, net | 104,684 | | | 124,432 | |
| Prepaid expenses and other current assets | 23,147 | | | 16,155 | |
| Income tax deposits | 628 | | | 475 | |
| Total current assets | 486,313 | | | 509,040 | |
| Property, plant and mine development, net | 1,368,092 | | | 1,517,587 | |
| Operating lease right-of-use assets | 37,469 | | | 53,098 | |
| Goodwill | 185,649 | | | 273,524 | |
| Intangible assets, net | 159,582 | | | 183,815 | |
| Other assets | 9,842 | | | 16,170 | |
| Total assets | $ | 2,246,947 | | | $ | 2,553,234 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accounts payable and accrued expenses | $ | 121,920 | | | $ | 248,237 | |
| Current portion of operating lease liabilities | 17,388 | | | 53,587 | |
| Current portion of long-term debt | 42,042 | | | 18,463 | |
| Current portion of deferred revenue | 13,545 | | | 15,111 | |
| Total current liabilities | 194,895 | | | 335,398 | |
| Long-term debt, net | 1,197,660 | | | 1,213,985 | |
| Deferred revenue | 20,147 | | | 35,523 | |
| Liability for pension and other post-retirement benefits | 48,169 | | | 58,453 | |
| Deferred income taxes, net | 49,386 | | | 38,585 | |
| Operating lease liabilities | 76,361 | | | 117,964 | |
| Other long-term obligations | 33,538 | | | 36,746 | |
| Total liabilities | 1,620,156 | | | 1,836,654 | |
| Commitments and Contingencies (Note P) | 0 | | 0 |
| Stockholders’ Equity: | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized; 0 issued and outstanding at December 31, 2020 and 2019 | 0 | | | 0 | |
| Common stock, $0.01 par value, 500,000,000 shares authorized; 83,143,176 issued and 73,986,566 outstanding at December 31, 2020; 82,601,926 issued and 73,601,950 outstanding at December 31, 2019 | 827 | | | 823 | |
| Additional paid-in capital | 1,200,023 | | | 1,185,116 | |
| Retained deficit | (395,496) | | | (279,956) | |
| Treasury stock, at cost, 9,156,610 and 8,999,976 shares at December 31, 2020 and 2019, respectively | (181,615) | | | (180,912) | |
| Accumulated other comprehensive loss | (8,479) | | | (19,854) | |
| Total U.S. Silica Holdings, Inc. stockholders’ equity | 615,260 | | | 705,217 | |
| Non-controlling interest | 11,531 | | | 11,363 | |
| Total stockholders' equity | 626,791 | | | 716,580 | |
| Total liabilities and stockholders’ equity | $ | 2,246,947 | | | $ | 2,553,234 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Sales: | | | | | |
| Product | $ | 732,187 | | | $ | 1,168,472 | | | $ | 1,282,799 | |
| Service | 113,698 | | | 306,005 | | | 294,499 | |
| Total sales | 845,885 | | | 1,474,477 | | | 1,577,298 | |
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | |
| Product | 486,982 | | | 900,091 | | | 955,469 | |
| Service | 88,088 | | | 233,202 | | | 207,660 | |
| Total cost of sales (excluding depreciation, depletion and amortization) | 575,070 | | | 1,133,293 | | | 1,163,129 | |
| Operating expenses: | | | | | |
| Selling, general and administrative | 124,171 | | | 150,848 | | | 146,971 | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Total operating expenses | 390,427 | | | 694,139 | | | 577,702 | |
| Operating loss | (119,612) | | | (352,955) | | | (163,533) | |
| Other (expense) income: | | | | | |
| Interest expense | (79,885) | | | (95,472) | | | (70,564) | |
| Other income (expense), net, including interest income | 24,350 | | | 19,519 | | | 4,144 | |
| Total other expense | (55,535) | | | (75,953) | | | (66,420) | |
| Loss before income taxes | (175,147) | | | (428,908) | | | (229,953) | |
| Income tax benefit | 60,025 | | | 99,151 | | | 29,132 | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Less: Net loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (114,094) | | | $ | (329,082) | | | $ | (200,808) | |
| Loss per share attributable to U.S. Silica Holdings, Inc.: | | | | | |
| Basic | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Diluted | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Weighted average shares outstanding: | | | | | |
| Basic | 73,634 | | | 73,253 | | | 76,453 | |
| Diluted | 73,634 | | | 73,253 | | | 76,453 | |
| Dividends declared per share | $ | 0.02 | | | $ | 0.25 | | | $ | 0.25 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Other comprehensive (loss) income: | | | | | |
| Unrealized gain (loss) on derivatives (net of tax of $973, $(456), and $(470) for 2020, 2019, and 2018, respectively) | 3,053 | | | (1,432) | | | (1,545) | |
| Foreign currency translation adjustment (net of tax of $444, $(60), and $(196) for 2020, 2019 and 2018, respectively) | 1,391 | | | (188) | | | (614) | |
| Pension and other post-retirement benefits liability adjustments (net of tax of $2,207, $(1,024), and $339 for 2020, 2019 and 2018, respectively) | 6,931 | | | (3,214) | | | 1,065 | |
| Comprehensive loss | $ | (103,747) | | | $ | (334,591) | | | $ | (201,915) | |
| Less: Comprehensive loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Comprehensive loss attributable to U.S. Silica Holdings, Inc. | $ | (102,719) | | | $ | (333,916) | | | $ | (201,902) | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | Treasury
Stock | Additional
Paid-In
Capital | Retained
Earnings (Deficit) | Accumulated
Other
Comprehensive
Loss | Total U.S. Silica Holdings Inc., Stockholders’
Equity | Non-controlling Interest | Total
Stockholders’
Equity |
| Balance at January 1, 2018 | $ | 812 | | $ | (25,456) | | $ | 1,147,084 | | $ | 287,992 | | $ | (13,926) | | $ | 1,396,506 | | $ | 0 | | $ | 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 tax payments 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 | |
| Net loss | — | | — | | — | | (329,082) | | — | | (329,082) | | (675) | | (329,757) | |
| Unrealized loss on derivatives | — | | — | | — | | — | | (1,432) | | (1,432) | | — | | (1,432) | |
| Foreign currency translation adjustment | — | | — | | — | | — | | (188) | | (188) | | — | | (188) | |
| Pension and post-retirement liability | — | | — | | — | | — | | (3,214) | | (3,214) | | — | | (3,214) | |
| Cash dividend declared ($0.25 per share) | — | | — | | — | | (18,728) | | — | | (18,728) | | — | | (18,728) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 4,554 | | 4,554 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 15,906 | | — | | — | | 15,906 | | — | | 15,906 | |
| Proceeds from options exercised | — | | 296 | | (168) | | — | | — | | 128 | | — | | 128 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 5 | | (2,993) | | (5) | | — | | — | | (2,993) | | — | | (2,993) | |
| Balance at December 31, 2019 | 823 | | (180,912) | | 1,185,116 | | (279,956) | | (19,854) | | 705,217 | | 11,363 | | 716,580 | |
| Net loss | — | | — | | — | | (114,094) | | — | | (114,094) | | (1,028) | | (115,122) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain on derivatives | — | | — | | — | | — | | 3,053 | | 3,053 | | — | | 3,053 | |
| Foreign currency translation adjustment | — | | — | | — | | — | | 1,391 | | 1,391 | | — | | 1,391 | |
| Pension and post-retirement liability | — | | — | | — | | — | | 6,931 | | 6,931 | | — | | 6,931 | |
| Cash dividend declared $0.02 per share) | — | | — | | — | | (1,446) | | — | | (1,446) | | — | | (1,446) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 1,196 | | 1,196 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 14,911 | | — | | — | | 14,911 | | — | | 14,911 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 4 | | (703) | | (4) | | — | | — | | (703) | | — | | (703) | |
| Balance at December 31, 2020 | $ | 827 | | $ | (181,615) | | $ | 1,200,023 | | $ | (395,496) | | $ | (8,479) | | $ | 615,260 | | $ | 11,531 | | $ | 626,791 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Operating activities: | | | | | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Debt issuance amortization | 5,131 | | | 5,597 | | | 4,044 | |
| Original issue discount amortization | 1,036 | | | 1,053 | | | 832 | |
| Gain on valuation change of royalty note payable | (8,263) | | | (16,854) | | | 0 | |
| Inventory step-up adjustments | 0 | | | 22,373 | | | 20,107 | |
| Deferred income taxes | (61,805) | | | (101,682) | | | (31,070) | |
| Deferred revenue | (23,569) | | | (74,910) | | | (36,720) | |
| (Gain) loss on disposal of property, plant and equipment | (2,597) | | | 1,573 | | | (5,170) | |
| Equity-based compensation | 14,911 | | | 15,906 | | | 22,337 | |
| Provision for credit losses, net of recoveries | 1,510 | | | 3,466 | | | 315 | |
| Gain on remeasurement of leases | (24,056) | | | 0 | | | 0 | |
| Other | 23,146 | | | (12,042) | | | (13,536) | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts receivable | 48,441 | | | 33,837 | | | 56,815 | |
| Inventories | 15,245 | | | 11,182 | | | (7,022) | |
| Prepaid expenses and other current assets | (6,151) | | | 8,547 | | | (2,678) | |
| Income taxes | (153) | | | 1,725 | | | (3,764) | |
| Accounts payable and accrued expenses | (86,734) | | | 21,024 | | | 26,907 | |
| Short-term and long-term obligations-vendor incentives | 0 | | | 4,021 | | | 52,806 | |
| Liability for pension and other post-retirement benefits | (11,941) | | | 2,734 | | | 4,608 | |
| Other noncurrent assets and liabilities | (45,819) | | | 2,962 | | | (8,015) | |
| Net cash (used in) provided by operating activities | (10,534) | | | 144,046 | | | 310,706 | |
| Investing activities: | | | | | |
| Capital expenditures | (34,461) | | | (118,357) | | | (339,815) | |
| Capitalized intellectual property costs | (456) | | | (3,932) | | | (10,046) | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | (743,249) | |
| Proceeds from sale of property, plant and equipment | 7,353 | | | 1,896 | | | 26,231 | |
| Net cash used in investing activities | (27,564) | | | (120,393) | | | (1,066,879) | |
| Financing activities: | | | | | |
| Dividends paid | (6,185) | | | (18,592) | | | (19,912) | |
| Repurchase of common stock | 0 | | | 0 | | | (148,469) | |
| Proceeds from options exercised | 0 | | | 128 | | | 61 | |
| Tax payments related to shares withheld for vested restricted stock and stock units | (703) | | | (2,993) | | | (4,383) | |
| Proceeds from long-term debt | 0 | | | 0 | | | 1,280,000 | |
| Proceeds from draw down on the Revolver | 25,000 | | | 0 | | | 0 | |
| Payments on long-term debt | (15,985) | | | (23,449) | | | (501,425) | |
| Financing fees paid | 0 | | | 0 | | | (38,701) | |
| Contributions from non-controlling interest | 1,196 | | | 4,554 | | | 7,497 | |
| Principal payments on finance lease obligations | (45) | | | (59) | | | (564) | |
| Net cash provided by (used in) financing activities | 3,278 | | | (40,411) | | | 574,104 | |
| Net decrease in cash and cash equivalents | (34,820) | | | (16,758) | | | (182,069) | |
| Cash and cash equivalents, beginning of period | 185,740 | | | 202,498 | | | 384,567 | |
| Cash and cash equivalents, end of period | $ | 150,920 | | | $ | 185,740 | | | $ | 202,498 | |
| | | | | | | | | | | | | | | | | |
| Supplemental cash flow information: | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest | $ | 73,695 | | | $ | 87,286 | | | $ | 66,769 | |
| Taxes, net of refunds | $ | (39,908) | | | $ | (14,741) | | | $ | 5,373 | |
| Related party purchases | $ | 0 | | | $ | 0 | | | $ | 2,958 | |
| Non-cash Items: | | | | | |
| Net assets assumed in business acquisition | $ | 8,241 | | | $ | 0 | | | $ | 0 | |
| Accrued capital expenditures | $ | 26,136 | | | $ | 27,646 | | | $ | 36,008 | |
| Capital lease assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 119 | |
| Asset retirement obligation assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 2,116 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
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 producers 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 conclude otherwise.produce and cost-effectively deliver products to customers across our end markets. Our operations are organized into 2 reportable segments based on end markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. See Note V - 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. 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.
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 initial capital contribution of $7.0 million, and a water rights intangible asset for $0.7 million. Based on our evaluation, we determined that this limited liability company is a VIE of which we are the primary beneficiary and therefore we are required to consolidate it. As of December 31, 2020, the VIE had total assets of $17.3 million and total liabilities of $0.1 million. We made capital contributions in the amounts of $0.2 million and $0.4 million during the years ended December 31, 2020 and December 31, 2019, respectively.
Reclassifications
Certain reclassifications of prior period presentations have been made to conform to the current period presentation.
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 provision 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, 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, building and construction products, filler and extenders, filtration, glass, absorbents, sports and recreation, foundry 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 provision for credit losses. 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 provision for credit losses. See Note F - Accounts Receivable and Note T - 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, which 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 Costsreclamation costs and Asset Retirement Obligationsasset retirement obligations
We recognize the fair value of any liability for conditional asset retirement obligations, includingif sufficient information exists to reasonably estimate the fair value of the liability. These obligations include 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.asset. These obligations also 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 remediationSee Note L - 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 inactive minespotential 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 accruedincluded 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 13 - 20 years. Intangible assets that are amortized are reviewed for impairment annually, or more frequently when indicators of impairment exist.
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.
Leases
We lease railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property, plant and mine development, current portion of long-term debt, and long-term debt in our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date of the lease based on management’s best estimatethe present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the endcommencement date in determining the present value of lease payments. The ROU assets also include any lease payments made at or before the commencement date of the lease and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, the latter of which are generally accounted for separately. See Note R - Leases.
We periodically evaluate whether current events or circumstances indicate that the carrying value of our ROU assets exceeds fair value. If circumstances indicate an impairment exists, we estimate fair value primarily utilizing internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. 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.
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 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. 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 842, 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
From time to time, we may enter into contracts that contain multiple performance obligations, such as work orders containing a combination of product, transportation, equipment rentals, and contract labor services. For these arrangements, 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.
See Note T - 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 and 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 expecteddirectly 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 be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mineslong-term debt are reflected in earnings inas a direct deduction from the period an estimate is revised.
Self-Insurance and Product Liability Claim Reserves
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 $100,000 to $500,000 per occurrence.
Our insurance reserves are accrued based on estimatescarrying amount of the ultimate cost of claims expected to occur duringdebt. Amortization included in interest expense was $5.1 million for the covered period. These estimates are prepared withyear ended December 31, 2020, and $5.6 million and $4.0 million for the assistance of outside actuariesyears ended December 31, 2019 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.2018. See Note K - Debt.
Employee Benefit PlansCONSOLIDATED BALANCE SHEETS
We provide(in thousands) | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 150,920 | | | $ | 185,740 | |
| Accounts receivable, net | 206,934 | | | 182,238 | |
| Inventories, net | 104,684 | | | 124,432 | |
| Prepaid expenses and other current assets | 23,147 | | | 16,155 | |
| Income tax deposits | 628 | | | 475 | |
| Total current assets | 486,313 | | | 509,040 | |
| Property, plant and mine development, net | 1,368,092 | | | 1,517,587 | |
| Operating lease right-of-use assets | 37,469 | | | 53,098 | |
| Goodwill | 185,649 | | | 273,524 | |
| Intangible assets, net | 159,582 | | | 183,815 | |
| Other assets | 9,842 | | | 16,170 | |
| Total assets | $ | 2,246,947 | | | $ | 2,553,234 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accounts payable and accrued expenses | $ | 121,920 | | | $ | 248,237 | |
| Current portion of operating lease liabilities | 17,388 | | | 53,587 | |
| Current portion of long-term debt | 42,042 | | | 18,463 | |
| Current portion of deferred revenue | 13,545 | | | 15,111 | |
| Total current liabilities | 194,895 | | | 335,398 | |
| Long-term debt, net | 1,197,660 | | | 1,213,985 | |
| Deferred revenue | 20,147 | | | 35,523 | |
| Liability for pension and other post-retirement benefits | 48,169 | | | 58,453 | |
| Deferred income taxes, net | 49,386 | | | 38,585 | |
| Operating lease liabilities | 76,361 | | | 117,964 | |
| Other long-term obligations | 33,538 | | | 36,746 | |
| Total liabilities | 1,620,156 | | | 1,836,654 | |
| Commitments and Contingencies (Note P) | 0 | | 0 |
| Stockholders’ Equity: | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized; 0 issued and outstanding at December 31, 2020 and 2019 | 0 | | | 0 | |
| Common stock, $0.01 par value, 500,000,000 shares authorized; 83,143,176 issued and 73,986,566 outstanding at December 31, 2020; 82,601,926 issued and 73,601,950 outstanding at December 31, 2019 | 827 | | | 823 | |
| Additional paid-in capital | 1,200,023 | | | 1,185,116 | |
| Retained deficit | (395,496) | | | (279,956) | |
| Treasury stock, at cost, 9,156,610 and 8,999,976 shares at December 31, 2020 and 2019, respectively | (181,615) | | | (180,912) | |
| Accumulated other comprehensive loss | (8,479) | | | (19,854) | |
| Total U.S. Silica Holdings, Inc. stockholders’ equity | 615,260 | | | 705,217 | |
| Non-controlling interest | 11,531 | | | 11,363 | |
| Total stockholders' equity | 626,791 | | | 716,580 | |
| Total liabilities and stockholders’ equity | $ | 2,246,947 | | | $ | 2,553,234 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Sales: | | | | | |
| Product | $ | 732,187 | | | $ | 1,168,472 | | | $ | 1,282,799 | |
| Service | 113,698 | | | 306,005 | | | 294,499 | |
| Total sales | 845,885 | | | 1,474,477 | | | 1,577,298 | |
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | |
| Product | 486,982 | | | 900,091 | | | 955,469 | |
| Service | 88,088 | | | 233,202 | | | 207,660 | |
| Total cost of sales (excluding depreciation, depletion and amortization) | 575,070 | | | 1,133,293 | | | 1,163,129 | |
| Operating expenses: | | | | | |
| Selling, general and administrative | 124,171 | | | 150,848 | | | 146,971 | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Total operating expenses | 390,427 | | | 694,139 | | | 577,702 | |
| Operating loss | (119,612) | | | (352,955) | | | (163,533) | |
| Other (expense) income: | | | | | |
| Interest expense | (79,885) | | | (95,472) | | | (70,564) | |
| Other income (expense), net, including interest income | 24,350 | | | 19,519 | | | 4,144 | |
| Total other expense | (55,535) | | | (75,953) | | | (66,420) | |
| Loss before income taxes | (175,147) | | | (428,908) | | | (229,953) | |
| Income tax benefit | 60,025 | | | 99,151 | | | 29,132 | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Less: Net loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (114,094) | | | $ | (329,082) | | | $ | (200,808) | |
| Loss per share attributable to U.S. Silica Holdings, Inc.: | | | | | |
| Basic | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Diluted | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Weighted average shares outstanding: | | | | | |
| Basic | 73,634 | | | 73,253 | | | 76,453 | |
| Diluted | 73,634 | | | 73,253 | | | 76,453 | |
| Dividends declared per share | $ | 0.02 | | | $ | 0.25 | | | $ | 0.25 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Other comprehensive (loss) income: | | | | | |
| Unrealized gain (loss) on derivatives (net of tax of $973, $(456), and $(470) for 2020, 2019, and 2018, respectively) | 3,053 | | | (1,432) | | | (1,545) | |
| Foreign currency translation adjustment (net of tax of $444, $(60), and $(196) for 2020, 2019 and 2018, respectively) | 1,391 | | | (188) | | | (614) | |
| Pension and other post-retirement benefits liability adjustments (net of tax of $2,207, $(1,024), and $339 for 2020, 2019 and 2018, respectively) | 6,931 | | | (3,214) | | | 1,065 | |
| Comprehensive loss | $ | (103,747) | | | $ | (334,591) | | | $ | (201,915) | |
| Less: Comprehensive loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Comprehensive loss attributable to U.S. Silica Holdings, Inc. | $ | (102,719) | | | $ | (333,916) | | | $ | (201,902) | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | Treasury
Stock | Additional
Paid-In
Capital | Retained
Earnings (Deficit) | Accumulated
Other
Comprehensive
Loss | Total U.S. Silica Holdings Inc., Stockholders’
Equity | Non-controlling Interest | Total
Stockholders’
Equity |
| Balance at January 1, 2018 | $ | 812 | | $ | (25,456) | | $ | 1,147,084 | | $ | 287,992 | | $ | (13,926) | | $ | 1,396,506 | | $ | 0 | | $ | 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 tax payments 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 | |
| Net loss | — | | — | | — | | (329,082) | | — | | (329,082) | | (675) | | (329,757) | |
| Unrealized loss on derivatives | — | | — | | — | | — | | (1,432) | | (1,432) | | — | | (1,432) | |
| Foreign currency translation adjustment | — | | — | | — | | — | | (188) | | (188) | | — | | (188) | |
| Pension and post-retirement liability | — | | — | | — | | — | | (3,214) | | (3,214) | | — | | (3,214) | |
| Cash dividend declared ($0.25 per share) | — | | — | | — | | (18,728) | | — | | (18,728) | | — | | (18,728) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 4,554 | | 4,554 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 15,906 | | — | | — | | 15,906 | | — | | 15,906 | |
| Proceeds from options exercised | — | | 296 | | (168) | | — | | — | | 128 | | — | | 128 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 5 | | (2,993) | | (5) | | — | | — | | (2,993) | | — | | (2,993) | |
| Balance at December 31, 2019 | 823 | | (180,912) | | 1,185,116 | | (279,956) | | (19,854) | | 705,217 | | 11,363 | | 716,580 | |
| Net loss | — | | — | | — | | (114,094) | | — | | (114,094) | | (1,028) | | (115,122) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain on derivatives | — | | — | | — | | — | | 3,053 | | 3,053 | | — | | 3,053 | |
| Foreign currency translation adjustment | — | | — | | — | | — | | 1,391 | | 1,391 | | — | | 1,391 | |
| Pension and post-retirement liability | — | | — | | — | | — | | 6,931 | | 6,931 | | — | | 6,931 | |
| Cash dividend declared $0.02 per share) | — | | — | | — | | (1,446) | | — | | (1,446) | | — | | (1,446) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 1,196 | | 1,196 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 14,911 | | — | | — | | 14,911 | | — | | 14,911 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 4 | | (703) | | (4) | | — | | — | | (703) | | — | | (703) | |
| Balance at December 31, 2020 | $ | 827 | | $ | (181,615) | | $ | 1,200,023 | | $ | (395,496) | | $ | (8,479) | | $ | 615,260 | | $ | 11,531 | | $ | 626,791 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Operating activities: | | | | | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Debt issuance amortization | 5,131 | | | 5,597 | | | 4,044 | |
| Original issue discount amortization | 1,036 | | | 1,053 | | | 832 | |
| Gain on valuation change of royalty note payable | (8,263) | | | (16,854) | | | 0 | |
| Inventory step-up adjustments | 0 | | | 22,373 | | | 20,107 | |
| Deferred income taxes | (61,805) | | | (101,682) | | | (31,070) | |
| Deferred revenue | (23,569) | | | (74,910) | | | (36,720) | |
| (Gain) loss on disposal of property, plant and equipment | (2,597) | | | 1,573 | | | (5,170) | |
| Equity-based compensation | 14,911 | | | 15,906 | | | 22,337 | |
| Provision for credit losses, net of recoveries | 1,510 | | | 3,466 | | | 315 | |
| Gain on remeasurement of leases | (24,056) | | | 0 | | | 0 | |
| Other | 23,146 | | | (12,042) | | | (13,536) | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts receivable | 48,441 | | | 33,837 | | | 56,815 | |
| Inventories | 15,245 | | | 11,182 | | | (7,022) | |
| Prepaid expenses and other current assets | (6,151) | | | 8,547 | | | (2,678) | |
| Income taxes | (153) | | | 1,725 | | | (3,764) | |
| Accounts payable and accrued expenses | (86,734) | | | 21,024 | | | 26,907 | |
| Short-term and long-term obligations-vendor incentives | 0 | | | 4,021 | | | 52,806 | |
| Liability for pension and other post-retirement benefits | (11,941) | | | 2,734 | | | 4,608 | |
| Other noncurrent assets and liabilities | (45,819) | | | 2,962 | | | (8,015) | |
| Net cash (used in) provided by operating activities | (10,534) | | | 144,046 | | | 310,706 | |
| Investing activities: | | | | | |
| Capital expenditures | (34,461) | | | (118,357) | | | (339,815) | |
| Capitalized intellectual property costs | (456) | | | (3,932) | | | (10,046) | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | (743,249) | |
| Proceeds from sale of property, plant and equipment | 7,353 | | | 1,896 | | | 26,231 | |
| Net cash used in investing activities | (27,564) | | | (120,393) | | | (1,066,879) | |
| Financing activities: | | | | | |
| Dividends paid | (6,185) | | | (18,592) | | | (19,912) | |
| Repurchase of common stock | 0 | | | 0 | | | (148,469) | |
| Proceeds from options exercised | 0 | | | 128 | | | 61 | |
| Tax payments related to shares withheld for vested restricted stock and stock units | (703) | | | (2,993) | | | (4,383) | |
| Proceeds from long-term debt | 0 | | | 0 | | | 1,280,000 | |
| Proceeds from draw down on the Revolver | 25,000 | | | 0 | | | 0 | |
| Payments on long-term debt | (15,985) | | | (23,449) | | | (501,425) | |
| Financing fees paid | 0 | | | 0 | | | (38,701) | |
| Contributions from non-controlling interest | 1,196 | | | 4,554 | | | 7,497 | |
| Principal payments on finance lease obligations | (45) | | | (59) | | | (564) | |
| Net cash provided by (used in) financing activities | 3,278 | | | (40,411) | | | 574,104 | |
| Net decrease in cash and cash equivalents | (34,820) | | | (16,758) | | | (182,069) | |
| Cash and cash equivalents, beginning of period | 185,740 | | | 202,498 | | | 384,567 | |
| Cash and cash equivalents, end of period | $ | 150,920 | | | $ | 185,740 | | | $ | 202,498 | |
| | | | | | | | | | | | | | | | | |
| Supplemental cash flow information: | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest | $ | 73,695 | | | $ | 87,286 | | | $ | 66,769 | |
| Taxes, net of refunds | $ | (39,908) | | | $ | (14,741) | | | $ | 5,373 | |
| Related party purchases | $ | 0 | | | $ | 0 | | | $ | 2,958 | |
| Non-cash Items: | | | | | |
| Net assets assumed in business acquisition | $ | 8,241 | | | $ | 0 | | | $ | 0 | |
| Accrued capital expenditures | $ | 26,136 | | | $ | 27,646 | | | $ | 36,008 | |
| Capital lease assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 119 | |
| Asset retirement obligation assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 2,116 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
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 producers of commercial silica used in the oil and gas industry and in a wide range of benefitsindustrial 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 employees and retired employees, including pensions and post-retirement healthcare and life insurance benefits. We record annual amounts relating to these plansend markets. Our operations are organized into 2 reportable segments based on calculations specified byend markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. See Note V - 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. 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.
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 initial capital contribution of $7.0 million, and a water rights intangible asset for $0.7 million. Based on our evaluation, we determined that this limited liability company is a VIE of which we are the primary beneficiary and therefore we are required to consolidate it. As of December 31, 2020, the VIE had total assets of $17.3 million and total liabilities of $0.1 million. We made capital contributions in the amounts of $0.2 million and $0.4 million during the years ended December 31, 2020 and December 31, 2019, respectively.
Reclassifications
Certain reclassifications of prior period presentations have been made to conform to the current period presentation.
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 provision 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, 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, building and construction products, filler and extenders, filtration, glass, absorbents, sports and recreation, foundry 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 provision for credit losses. 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 provision for credit losses. See Note F - Accounts Receivable and Note T - Revenue.
Inventories
Inventories include various actuarial assumptions,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 discount rates, assumed ratescomputer equipment and software (3-10 years); furniture and fixtures (8 years). Leasehold improvements are depreciated over the shorter of returns, compensation increases, turnover rates, mortality table,the asset life or lease term. Construction-in-progress is primarily comprised of machinery and healthcareequipment 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, trend rates.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, which 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, if sufficient information exists to reasonably estimate the fair value of the liability. These obligations include environmental remediation liabilities when incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset. These obligations also 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, the actuarial assumptions 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.
See Note L - Asset Retirement Obligations.
Impairment or Disposal of Property, Plant and make modificationsMine 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, basedincluding 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 current ratesthe sale of property, plant and trendsmine 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 deemed appropriate to do so. As required by U.S. generally accepted accounting principles,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 13 - 20 years. Intangible assets that are amortized are reviewed for impairment annually, or more frequently when indicators of impairment exist.
Goodwill represents the effectexcess of the modifications is generally recorded or amortizedpurchase price of business combinations over future periods. We believe that the assumptions utilized in recording our obligations under the plans, which are presented in Note P to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, are reasonable based on advice from our actuaries and information as to assumptions used by other employers.
Equity-Based Compensation Expense
We recognize equity-based compensation expense in our consolidated statements of income using a fair value based method. Stock optionof 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 methods useof a valuation model for shorter-term, market-traded financial instrumentsreporting unit to theoreticallywhich goodwill has been allocated, or the fair value stockof indefinite-lived intangible assets, is less than their respective carrying values. Prior to conducting a formal impairment test we have an option grants even though they are not available for trading and are of longer duration. The Black-Scholes option-pricing model that we use includes the input of certain variables that are dependent on future expectations, including the expected lives of our options from grant date to exercise date, the volatility of our underlying common shares in the market over that time period, and the rate of dividends that we will pay during that time. Our estimates of these variables are made for the purpose of using the valuation modelassess qualitative factors to determine an expense for each reporting period and are not subsequently adjusted. We recognize expense related towhether the estimated vesting of our performance share units granted. The estimated vesting of the performance share units is principally based on the probability of achieving certain financial performance levels during the vesting periods. For performance share units, the vesting of which is subject to market conditions, a binomial-lattice model (i.e., Monte Carlo simulation model) is used to fair value these awards at grant date. Unlike most of our expenses, the resulting equity-based compensation expense's impact on earnings is a non-cash charge that is never measured by, or adjusted based on, a cash outflow.
Taxes
Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequencesexistence 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 expectedcircumstances leads to reverse. Valuation allowances are provided if, based on the weight of available evidence, ita determination that is more likely than not (more than 50%) that some or allthe fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the deferred tax assets will not be realized.
We recognize a tax benefit associated withfollowing: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If the qualitative assessment determines that an uncertain tax position when, in our judgment, itimpairment 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.
Leases
We lease railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property, plant and mine development, current portion of long-term debt, and long-term debt in our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. 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. The ROU assets also include any lease payments made at or before the commencement date of the lease and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, the latter of which are generally accounted for separately. See Note R - Leases.
We periodically evaluate whether current events or circumstances indicate that the position will be sustainedcarrying value of our ROU assets exceeds fair value. If circumstances indicate an impairment exists, we estimate fair value primarily utilizing internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. 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.
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 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 examination byshipment 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 taxing authority. 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 tax positionlimited number of customers, we sell under long-term, minimum purchase supply agreements. These agreements define, among other commitments, the volume of product that meetsour customers must purchase, the more-likely-than-not recognition threshold,volume of product that we initiallymust provide and subsequently measure the tax benefit asprice 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 largest amount that it judgesrequirements in our existing supply agreements. An executed order specifying the type and quantity of product to have a greater than 50% likelihoodbe delivered, in combination with the noted agreements, comprise our contracts in these arrangements.
Service
We derive our service revenues primarily through the provision of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically duetransportation, equipment rental, and contract labor services to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirelycompanies in the period in which theyoil and gas industry. Transportation services typically consist of transporting customer proppant from storage facilities to proximal well-sites and are identified.contracted through work orders executed under established pricing agreements. The effective tax rate includesamount invoiced reflects the net impacttransportation services rendered. Equipment rental services provide customers with use of changeseither 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 liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. At the adoption date, we applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open.billing period. Contract labor services provide customers with proppant delivery equipment operators through work orders executed under established pricing agreements. The adoption of this guidance did not have a material impact on our consolidated financial condition or results of operations.
We evaluate quarterly the realizability of our deferred tax assets by assessing the need for a valuation allowance and by adjustingamounts 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 842, 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
From time to time, we may enter into contracts that contain multiple performance obligations, such allowance, if necessary. The factors usedas work orders containing a combination of product, transportation, equipment rentals, and contract labor services. For these arrangements, we allocate the transaction price to assesseach performance obligation identified in the likelihoodcontract based on relative standalone selling prices, or estimates of realization are our forecastsuch prices, and recognize the related revenue as control of future taxable income and available tax planning strategies that could be implementedeach individual product or service is transferred to realize the net deferred tax assets. Failure to achieve forecasted taxable income might affect the ultimate realizationcustomer, 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 deferred30 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 assets. Factors that may affect our ability to achieve sufficient forecasted taxable income include, butamounts are not limited to, the following:included as a decline incomponent of net sales or margins, increased competition or losscost of market share. In addition,sales.
See Note T - Revenue.
Deferred Revenues
For a limited number of customers, we operate within multiple taxing jurisdictionsenter 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 and 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 subjectconverted to audit in these jurisdictions. These audits can involve complex issues, which may require an extended time to resolve. We believe that adequate provisions for income taxes have been made for all years.accounts receivable once billed.
Debt Issuance Costs
The largest permanent item in computing both our effective tax rateCompany defers costs directly associated with acquiring third-party financing, primarily loan origination costs and taxable income is the deduction allowed for statutory depletion. The impact of statutory depletion onrelated professional expenses. Debt issuance costs are deferred and amortized using the effective taxinterest rate is presented in Note Qmethod over the term of our senior secured Term Loan facility and the straight-line method for our Revolver facility. Debt issuance costs related to our Consolidated Financial Statements in Item 8long-term debt are reflected as a direct deduction from the carrying amount of this Annual Report on Form 10-K. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.
Recent Accounting Pronouncements
New accounting guidance that has been recently issued but not yet adopted by us, arethe debt. Amortization included in Note B - Summary of Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
We are exposed to certain market risks, which exist as a part of our ongoing business operations. Such risks arise from adverse changes in market rates, prices and conditions. We address such market risks as discussed in "How We Generate Our Sales" in Item 7 of this Form 10-K, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Interest Rate Risk
We are exposed to interest rate risk arising from adverse changes in interest rates. As of December 31, 2017, we have $489.1 million of debt outstanding under our senior credit facility. Assuming LIBOR is greater than the 1.0% minimum base rate on the Term loan, a hypothetical increase in interest rates by 1.0% would have changed our interest expense by $4.9was $5.1 million for the year ended December 31, 2017.
We use interest rate derivatives in2020, and $5.6 million and $4.0 million for the normal course of our business to manage both our interest cost and the risks associated with changing interest rates. We do not use derivatives for trading or speculative purposes. The following table summarizes the fair value of our derivative instruments (in thousands) at December 31, 2017 and 2016:
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| | | | December 31, 2017 | | | | December 31, 2016 |
| | Maturity Date | | Contract/Notional Amount | | Carrying Amount | | Fair Value | | Maturity Date | | Contract/Notional Amount | | Carrying Amount | | Fair Value |
Interest rate cap agreement(1) | 2019 | | $ | 249 | million | | $ | — |
| | $ | — |
| | 2019 | | $ | 249 | million | | $ | 72 |
| | $ | 72 |
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(1) | Agreements limit the LIBOR floating interest rate base to 4%. |
Credit Risk
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We examine the creditworthiness of third-party customers to whom we extend credit and manage our exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees, although collateral is generally not required.
Despite enhancing our examination of our customers' credit worthiness, we may still experience delays or failures in customer payments. Some of our customers have reported experiencing financial difficulties. With respect to customers that may file for bankruptcy protection, we may not be able to collect sums owed to us by these customers and we also may be required to refund pre-petition amounts paid to us during the preference period (typically 90 days) prior to the bankruptcy filing.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
U.S. SILICA HOLDINGS, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Silica Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of US Silica Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, statement of comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2019 and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.2018. See Note K - Debt.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 21, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2004.
Baltimore, Maryland
February 21, 2018
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 150,920 | | | $ | 185,740 | |
| Accounts receivable, net | 206,934 | | | 182,238 | |
| Inventories, net | 104,684 | | | 124,432 | |
| Prepaid expenses and other current assets | 23,147 | | | 16,155 | |
| Income tax deposits | 628 | | | 475 | |
| Total current assets | 486,313 | | | 509,040 | |
| Property, plant and mine development, net | 1,368,092 | | | 1,517,587 | |
| Operating lease right-of-use assets | 37,469 | | | 53,098 | |
| Goodwill | 185,649 | | | 273,524 | |
| Intangible assets, net | 159,582 | | | 183,815 | |
| Other assets | 9,842 | | | 16,170 | |
| Total assets | $ | 2,246,947 | | | $ | 2,553,234 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accounts payable and accrued expenses | $ | 121,920 | | | $ | 248,237 | |
| Current portion of operating lease liabilities | 17,388 | | | 53,587 | |
| Current portion of long-term debt | 42,042 | | | 18,463 | |
| Current portion of deferred revenue | 13,545 | | | 15,111 | |
| Total current liabilities | 194,895 | | | 335,398 | |
| Long-term debt, net | 1,197,660 | | | 1,213,985 | |
| Deferred revenue | 20,147 | | | 35,523 | |
| Liability for pension and other post-retirement benefits | 48,169 | | | 58,453 | |
| Deferred income taxes, net | 49,386 | | | 38,585 | |
| Operating lease liabilities | 76,361 | | | 117,964 | |
| Other long-term obligations | 33,538 | | | 36,746 | |
| Total liabilities | 1,620,156 | | | 1,836,654 | |
| Commitments and Contingencies (Note P) | 0 | | 0 |
| Stockholders’ Equity: | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized; 0 issued and outstanding at December 31, 2020 and 2019 | 0 | | | 0 | |
| Common stock, $0.01 par value, 500,000,000 shares authorized; 83,143,176 issued and 73,986,566 outstanding at December 31, 2020; 82,601,926 issued and 73,601,950 outstanding at December 31, 2019 | 827 | | | 823 | |
| Additional paid-in capital | 1,200,023 | | | 1,185,116 | |
| Retained deficit | (395,496) | | | (279,956) | |
| Treasury stock, at cost, 9,156,610 and 8,999,976 shares at December 31, 2020 and 2019, respectively | (181,615) | | | (180,912) | |
| Accumulated other comprehensive loss | (8,479) | | | (19,854) | |
| Total U.S. Silica Holdings, Inc. stockholders’ equity | 615,260 | | | 705,217 | |
| Non-controlling interest | 11,531 | | | 11,363 | |
| Total stockholders' equity | 626,791 | | | 716,580 | |
| Total liabilities and stockholders’ equity | $ | 2,246,947 | | | $ | 2,553,234 | |
The accompanying notes are an integral part of these financial statements. |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 384,567 |
| | $ | 711,225 |
|
| Accounts receivable, net | 212,586 |
| | 89,006 |
|
| Inventories, net | 92,376 |
| | 78,709 |
|
| Prepaid expenses and other current assets | 13,715 |
| | 12,323 |
|
| Income tax deposits | — |
| | 1,682 |
|
| Total current assets | 703,244 |
| | 892,945 |
|
| Property, plant and mine development, net | 1,169,155 |
| | 783,313 |
|
| Goodwill | 272,079 |
| | 240,975 |
|
| Trade names | 33,068 |
| | 32,318 |
|
| Intellectual property, net | 64,786 |
| | 57,270 |
|
| Customer relationships, net | 52,153 |
| | 50,890 |
|
| Other assets | 12,798 |
| | 15,509 |
|
| Total assets | $ | 2,307,283 |
| | $ | 2,073,220 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accounts payable | $ | 148,772 |
| | $ | 70,778 |
|
| Dividends payable | 5,229 |
| | 5,221 |
|
| Accrued liabilities | 16,841 |
| | 13,034 |
|
| Accrued interest | 199 |
| | 169 |
|
| Current portion of long-term debt | 4,504 |
| | 4,821 |
|
| Current portion of capital leases | 706 |
| | 2,237 |
|
| Current portion of deferred revenue | 36,128 |
| | 13,700 |
|
| Income tax payable | 1,566 |
| | — |
|
| Total current liabilities | 213,945 |
| | 109,960 |
|
| Long-term debt, net | 506,732 |
| | 508,417 |
|
| Deferred revenue | 82,286 |
| | 58,090 |
|
| Obligations under capital lease | — |
| | 717 |
|
| Liability for pension and other post-retirement benefits | 52,867 |
| | 56,746 |
|
| Deferred income taxes, net | 29,856 |
| | 50,075 |
|
| Other long-term obligations | 25,091 |
| | 15,925 |
|
| Total liabilities | 910,777 |
| | 799,930 |
|
| Commitments and Contingencies (Note O) | | | |
| Stockholders’ Equity: | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized; 0 issued and outstanding at December 31, 2017 and 2016 | — |
| | — |
|
| Common stock, $0.01 par value, 500,000,000 shares authorized; 81,267,205 issued and 80,524,255 outstanding at December 31, 2017; 81,184,042 issued and 81,028,898 outstanding at December 31 2016 | 812 |
| | 811 |
|
| Additional paid-in capital | 1,147,084 |
| | 1,129,051 |
|
| Retained earnings | 287,992 |
| | 163,173 |
|
| Treasury stock, at cost, 742,950 and 155,144 shares at December 31, 2017 and 2016, respectively | (25,456 | ) | | (3,869 | ) |
| Accumulated other comprehensive loss | (13,926 | ) | | (15,876 | ) |
| Total stockholders’ equity | 1,396,506 |
| | 1,273,290 |
|
| Total liabilities and stockholders’ equity | $ | 2,307,283 |
| | $ | 2,073,220 |
|
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Sales: | | | | | |
| Product | $ | 732,187 | | | $ | 1,168,472 | | | $ | 1,282,799 | |
| Service | 113,698 | | | 306,005 | | | 294,499 | |
| Total sales | 845,885 | | | 1,474,477 | | | 1,577,298 | |
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | |
| Product | 486,982 | | | 900,091 | | | 955,469 | |
| Service | 88,088 | | | 233,202 | | | 207,660 | |
| Total cost of sales (excluding depreciation, depletion and amortization) | 575,070 | | | 1,133,293 | | | 1,163,129 | |
| Operating expenses: | | | | | |
| Selling, general and administrative | 124,171 | | | 150,848 | | | 146,971 | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Total operating expenses | 390,427 | | | 694,139 | | | 577,702 | |
| Operating loss | (119,612) | | | (352,955) | | | (163,533) | |
| Other (expense) income: | | | | | |
| Interest expense | (79,885) | | | (95,472) | | | (70,564) | |
| Other income (expense), net, including interest income | 24,350 | | | 19,519 | | | 4,144 | |
| Total other expense | (55,535) | | | (75,953) | | | (66,420) | |
| Loss before income taxes | (175,147) | | | (428,908) | | | (229,953) | |
| Income tax benefit | 60,025 | | | 99,151 | | | 29,132 | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Less: Net loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (114,094) | | | $ | (329,082) | | | $ | (200,808) | |
| Loss per share attributable to U.S. Silica Holdings, Inc.: | | | | | |
| Basic | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Diluted | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Weighted average shares outstanding: | | | | | |
| Basic | 73,634 | | | 73,253 | | | 76,453 | |
| Diluted | 73,634 | | | 73,253 | | | 76,453 | |
| Dividends declared per share | $ | 0.02 | | | $ | 0.25 | | | $ | 0.25 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except per share amounts) |
| Sales: | | | | | |
| Product | $ | 1,057,553 |
| | $ | 523,900 |
| | $ | 640,464 |
|
| Service | 183,298 |
| | 35,725 |
| | 2,525 |
|
| Total sales | 1,240,851 |
| | 559,625 |
| | 642,989 |
|
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | |
| Product | 720,312 |
| | 455,189 |
| | 494,814 |
|
| Service | 147,203 |
| | 22,106 |
| | 252 |
|
| Total cost of sales (excluding depreciation, depletion and amortization) | 867,515 |
| | 477,295 |
| | 495,066 |
|
| Operating expenses: | | | | | |
| Selling, general and administrative | 107,592 |
| | 67,727 |
| | 62,777 |
|
| Depreciation, depletion and amortization | 97,233 |
| | 68,134 |
| | 58,474 |
|
| Total operating expenses | 204,825 |
| | 135,861 |
| | 121,251 |
|
| Operating income (loss) | 168,511 |
| | (53,531 | ) | | 26,672 |
|
| Other (expense) income: | | | | | |
| Interest expense | (31,342 | ) | | (27,972 | ) | | (27,283 | ) |
| Other income (expense), net, including interest income | (643 | ) | | 3,758 |
| | 728 |
|
| Total other (expense) income | (31,985 | ) | | (24,214 | ) | | (26,555 | ) |
| Income (loss) before income taxes | 136,526 |
| | (77,745 | ) | | 117 |
|
| Income tax benefit | 8,680 |
| | 36,689 |
| | 11,751 |
|
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
|
| Earnings (loss) per share: | | | | | |
| Basic | $ | 1.79 |
| | $ | (0.63 | ) | | $ | 0.22 |
|
| Diluted | $ | 1.77 |
| | $ | (0.63 | ) | | $ | 0.22 |
|
| Weighted average shares outstanding: | | | | | |
| Basic | 81,051 |
| | 65,037 |
| | 53,344 |
|
| Diluted | 81,960 |
| | 65,037 |
| | 53,601 |
|
| Dividends declared per share | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.44 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Other comprehensive (loss) income: | | | | | |
| Unrealized gain (loss) on derivatives (net of tax of $973, $(456), and $(470) for 2020, 2019, and 2018, respectively) | 3,053 | | | (1,432) | | | (1,545) | |
| Foreign currency translation adjustment (net of tax of $444, $(60), and $(196) for 2020, 2019 and 2018, respectively) | 1,391 | | | (188) | | | (614) | |
| Pension and other post-retirement benefits liability adjustments (net of tax of $2,207, $(1,024), and $339 for 2020, 2019 and 2018, respectively) | 6,931 | | | (3,214) | | | 1,065 | |
| Comprehensive loss | $ | (103,747) | | | $ | (334,591) | | | $ | (201,915) | |
| Less: Comprehensive loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Comprehensive loss attributable to U.S. Silica Holdings, Inc. | $ | (102,719) | | | $ | (333,916) | | | $ | (201,902) | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESTOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | Treasury
Stock | Additional
Paid-In
Capital | Retained
Earnings (Deficit) | Accumulated
Other
Comprehensive
Loss | Total U.S. Silica Holdings Inc., Stockholders’
Equity | Non-controlling Interest | Total
Stockholders’
Equity |
| Balance at January 1, 2018 | $ | 812 | | $ | (25,456) | | $ | 1,147,084 | | $ | 287,992 | | $ | (13,926) | | $ | 1,396,506 | | $ | 0 | | $ | 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 tax payments 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 | |
| Net loss | — | | — | | — | | (329,082) | | — | | (329,082) | | (675) | | (329,757) | |
| Unrealized loss on derivatives | — | | — | | — | | — | | (1,432) | | (1,432) | | — | | (1,432) | |
| Foreign currency translation adjustment | — | | — | | — | | — | | (188) | | (188) | | — | | (188) | |
| Pension and post-retirement liability | — | | — | | — | | — | | (3,214) | | (3,214) | | — | | (3,214) | |
| Cash dividend declared ($0.25 per share) | — | | — | | — | | (18,728) | | — | | (18,728) | | — | | (18,728) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 4,554 | | 4,554 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 15,906 | | — | | — | | 15,906 | | — | | 15,906 | |
| Proceeds from options exercised | — | | 296 | | (168) | | — | | — | | 128 | | — | | 128 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 5 | | (2,993) | | (5) | | — | | — | | (2,993) | | — | | (2,993) | |
| Balance at December 31, 2019 | 823 | | (180,912) | | 1,185,116 | | (279,956) | | (19,854) | | 705,217 | | 11,363 | | 716,580 | |
| Net loss | — | | — | | — | | (114,094) | | — | | (114,094) | | (1,028) | | (115,122) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
|
| Other comprehensive income (loss): | | | | | |
| Unrealized gain (loss) on derivatives (net of tax of $(27), $29 and $34 for 2017, 2016, and 2015, respectively) | (44 | ) | | 49 |
| | 53 |
|
| Foreign currency translation adjustment (net of tax of $2, $0 and $0 for 2017, 2016 and 2015, respectively) | (6 | ) | | — |
| | — |
|
| Unrealized gain (loss) on investments (net of tax of $0, $(4) and $29 for 2017, 2016, and 2015, respectively) | — |
| | (6 | ) | | 47 |
|
| Pension and other post-retirement benefits liability adjustment (net of tax of $1,205, $152 and $2,469 for 2017, 2016, and 2015, respectively) | 2,000 |
| | 252 |
| | 3,547 |
|
| Comprehensive income (loss) | $ | 147,156 |
| | $ | (40,761 | ) | | $ | 15,515 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain on derivatives | — | | — | | — | | — | | 3,053 | | 3,053 | | — | | 3,053 | |
| Foreign currency translation adjustment | — | | — | | — | | — | | 1,391 | | 1,391 | | — | | 1,391 | |
| Pension and post-retirement liability | — | | — | | — | | — | | 6,931 | | 6,931 | | — | | 6,931 | |
| Cash dividend declared $0.02 per share) | — | | — | | — | | (1,446) | | — | | (1,446) | | — | | (1,446) | |
| Contributions from non-controlling interest | — | | — | | — | | — | | — | | — | | 1,196 | | 1,196 | |
| Common stock-based compensation plans activity: | | | | | | | | |
| Equity-based compensation | — | | — | | 14,911 | | — | | — | | 14,911 | | — | | 14,911 | |
| Shares withheld for tax payments related to vested restricted stock and stock units | 4 | | (703) | | (4) | | — | | — | | (703) | | — | | (703) | |
| Balance at December 31, 2020 | $ | 827 | | $ | (181,615) | | $ | 1,200,023 | | $ | (395,496) | | $ | (8,479) | | $ | 615,260 | | $ | 11,531 | | $ | 626,791 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 |
| Operating activities: | | | | | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | |
| Depreciation, depletion and amortization | 155,568 | | | 179,444 | | | 148,832 | |
| Goodwill and other asset impairments | 110,688 | | | 363,847 | | | 281,899 | |
| Debt issuance amortization | 5,131 | | | 5,597 | | | 4,044 | |
| Original issue discount amortization | 1,036 | | | 1,053 | | | 832 | |
| Gain on valuation change of royalty note payable | (8,263) | | | (16,854) | | | 0 | |
| Inventory step-up adjustments | 0 | | | 22,373 | | | 20,107 | |
| Deferred income taxes | (61,805) | | | (101,682) | | | (31,070) | |
| Deferred revenue | (23,569) | | | (74,910) | | | (36,720) | |
| (Gain) loss on disposal of property, plant and equipment | (2,597) | | | 1,573 | | | (5,170) | |
| Equity-based compensation | 14,911 | | | 15,906 | | | 22,337 | |
| Provision for credit losses, net of recoveries | 1,510 | | | 3,466 | | | 315 | |
| Gain on remeasurement of leases | (24,056) | | | 0 | | | 0 | |
| Other | 23,146 | | | (12,042) | | | (13,536) | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts receivable | 48,441 | | | 33,837 | | | 56,815 | |
| Inventories | 15,245 | | | 11,182 | | | (7,022) | |
| Prepaid expenses and other current assets | (6,151) | | | 8,547 | | | (2,678) | |
| Income taxes | (153) | | | 1,725 | | | (3,764) | |
| Accounts payable and accrued expenses | (86,734) | | | 21,024 | | | 26,907 | |
| Short-term and long-term obligations-vendor incentives | 0 | | | 4,021 | | | 52,806 | |
| Liability for pension and other post-retirement benefits | (11,941) | | | 2,734 | | | 4,608 | |
| Other noncurrent assets and liabilities | (45,819) | | | 2,962 | | | (8,015) | |
| Net cash (used in) provided by operating activities | (10,534) | | | 144,046 | | | 310,706 | |
| Investing activities: | | | | | |
| Capital expenditures | (34,461) | | | (118,357) | | | (339,815) | |
| Capitalized intellectual property costs | (456) | | | (3,932) | | | (10,046) | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | (743,249) | |
| Proceeds from sale of property, plant and equipment | 7,353 | | | 1,896 | | | 26,231 | |
| Net cash used in investing activities | (27,564) | | | (120,393) | | | (1,066,879) | |
| Financing activities: | | | | | |
| Dividends paid | (6,185) | | | (18,592) | | | (19,912) | |
| Repurchase of common stock | 0 | | | 0 | | | (148,469) | |
| Proceeds from options exercised | 0 | | | 128 | | | 61 | |
| Tax payments related to shares withheld for vested restricted stock and stock units | (703) | | | (2,993) | | | (4,383) | |
| Proceeds from long-term debt | 0 | | | 0 | | | 1,280,000 | |
| Proceeds from draw down on the Revolver | 25,000 | | | 0 | | | 0 | |
| Payments on long-term debt | (15,985) | | | (23,449) | | | (501,425) | |
| Financing fees paid | 0 | | | 0 | | | (38,701) | |
| Contributions from non-controlling interest | 1,196 | | | 4,554 | | | 7,497 | |
| Principal payments on finance lease obligations | (45) | | | (59) | | | (564) | |
| Net cash provided by (used in) financing activities | 3,278 | | | (40,411) | | | 574,104 | |
| Net decrease in cash and cash equivalents | (34,820) | | | (16,758) | | | (182,069) | |
| Cash and cash equivalents, beginning of period | 185,740 | | | 202,498 | | | 384,567 | |
| Cash and cash equivalents, end of period | $ | 150,920 | | | $ | 185,740 | | | $ | 202,498 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | |
| | | | | | Additional | | | | Other | | Total |
| | Common | | Treasury | | Paid-In | | Retained | | Comprehensive | | Stockholders' |
| | Stock | | Stock | | Capital | | Earnings | | Loss | | Equity |
| | (in thousands, except per share amounts) |
| Balance at January 1, 2015 | $ | 539 |
| | $ | (542 | ) | | $ | 191,086 |
| | $ | 232,551 |
| | $ | (19,818 | ) | | $ | 403,816 |
|
| Net income | — |
| | — |
| | — |
| | 11,868 |
| | — |
| | 11,868 |
|
| Unrealized gain on derivatives | — |
| | — |
| | — |
| | — |
| | 53 |
| | 53 |
|
| Unrealized gain on short-term investments | — |
| | — |
| | — |
| | — |
| | 47 |
| | 47 |
|
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 3,547 |
| | 3,547 |
|
| Cash dividend declared ($0.438 per share) | — |
| | — |
| | — |
| | (23,445 | ) | | — |
| | (23,445 | ) |
| Common stock-based compensation plans activity: | | | | | | | | | | | |
| Equity-based compensation | — |
| | — |
| | 3,857 |
| | — |
| | — |
| | 3,857 |
|
| Proceeds from options exercised | — |
| | 744 |
| | (271 | ) | | — |
| | — |
| | 473 |
|
| Shares withheld for employee taxes related to | | | | | | | | | | | |
| vested restricted stock and stock units | — |
| | (792 | ) | | (2 | ) | | — |
| | — |
| | (794 | ) |
| Repurchase of common stock | — |
| | (15,255 | ) | | — |
| | — |
| | — |
| | (15,255 | ) |
| Balance at December 31, 2015 | 539 |
| | (15,845 | ) | | 194,670 |
| | 220,974 |
| | (16,171 | ) | | 384,167 |
|
| Net loss | — |
| | — |
| | — |
| | (41,056 | ) | | — |
| | (41,056 | ) |
| Issuance of common stock (stock offerings net of issuance costs of $25,732) | 272 |
| | — |
| | 931,016 |
| | — |
| | — |
| | 931,288 |
|
| Unrealized gain on derivatives | — |
| | — |
| | — |
| | — |
| | 49 |
| | 49 |
|
| Unrealized loss on short-term investments | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 252 |
| | 252 |
|
| Cash dividend declared ($0.25 per share) | — |
| | — |
| | — |
| | (16,893 | ) | | — |
| | (16,893 | ) |
| Common stock-based compensation plans activity: | | | | | | | | | | | |
| Equity-based compensation | — |
| | — |
| | 12,107 |
| | — |
| | — |
| | 12,107 |
|
| Excess tax benefit from equity-based compensation | — |
| | — |
| | — |
| | 148 |
| | — |
| | 148 |
|
| Proceeds from options exercised | — |
| | 8,465 |
| | (3,640 | ) | | — |
| | — |
| | 4,825 |
|
| Issuance of restricted stock | — |
| | 1,437 |
| | (1,437 | ) | | — |
| | — |
| | — |
|
| Shares withheld for employee taxes related to | | | | | | | | | | | |
| vested restricted stock and stock units | — |
| | 2,074 |
| | (3,665 | ) | | — |
| | — |
| | (1,591 | ) |
| Balance at December 31, 2016 | 811 |
| | (3,869 | ) | | 1,129,051 |
| | 163,173 |
| | (15,876 | ) | | 1,273,290 |
|
| Net Income | — |
| | — |
| | — |
| | 145,206 |
| | — |
| | 145,206 |
|
| Unrealized loss on derivatives | — |
| | — |
| | — |
| | — |
| | (44 | ) | | (44 | ) |
| Foreign currency translation adjustment | | | | | | | | | (6 | ) | | (6 | ) |
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 2,000 |
| | 2,000 |
|
| Cash dividend declared ($0.25 per share) | — |
| | — |
| | — |
| | (20,387 | ) | |
|
| | (20,387 | ) |
| Common stock-based compensation plans activity: | | | | | | | | | | | |
| Equity-based compensation | — |
| | — |
| | 25,050 |
| | — |
| | — |
| | 25,050 |
|
| Proceeds from options exercised | — |
| | 1,190 |
| | (392 | ) | | — |
| | — |
| | 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 | ) |
| Repurchase of common stock | — |
| | (25,022 | ) | |
|
| |
|
| |
|
| | (25,022 | ) |
| Balance at December 31, 2017 | $ | 812 |
| | $ | (25,456 | ) | | $ | 1,147,084 |
| | $ | 287,992 |
| | $ | (13,926 | ) | | $ | 1,396,506 |
|
| | | | | | | | | | | | | | | | | |
| Supplemental cash flow information: | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest | $ | 73,695 | | | $ | 87,286 | | | $ | 66,769 | |
| Taxes, net of refunds | $ | (39,908) | | | $ | (14,741) | | | $ | 5,373 | |
| Related party purchases | $ | 0 | | | $ | 0 | | | $ | 2,958 | |
| Non-cash Items: | | | | | |
| Net assets assumed in business acquisition | $ | 8,241 | | | $ | 0 | | | $ | 0 | |
| Accrued capital expenditures | $ | 26,136 | | | $ | 27,646 | | | $ | 36,008 | |
| Capital lease assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 119 | |
| Asset retirement obligation assumed by third-party | $ | 0 | | | $ | 0 | | | $ | 2,116 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Operating activities: | | | | | |
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation, depletion and amortization | 97,233 |
| | 68,134 |
| | 58,474 |
|
| Debt issuance amortization | 1,382 |
| | 1,392 |
| | 1,401 |
|
| Original issue discount amortization | 372 |
| | 378 |
| | 382 |
|
| Deferred income taxes | (20,601 | ) | | (36,903 | ) | | (10,473 | ) |
| Loss on disposal of property, plant and equipment | 415 |
| | 563 |
| | 383 |
|
| Deferred revenue | 28,438 |
| | (9,026 | ) | | (16,079 | ) |
| Equity-based compensation | 25,050 |
| | 12,107 |
| | 3,857 |
|
| Bad debt provision | 1,529 |
| | (1,232 | ) | | (290 | ) |
| Other | 5,529 |
| | 3,643 |
| | (5,257 | ) |
| Changes in assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts receivable | (110,920 | ) | | (12,996 | ) | | 62,465 |
|
| Inventories | (4,825 | ) | | (10,211 | ) | | 1,708 |
|
| Prepaid expenses and other current assets | 8,787 |
| | (509 | ) | | (708 | ) |
| Income taxes | 1,469 |
| | 11,558 |
| | (5,837 | ) |
| Accounts payable and accrued liabilities | 59,769 |
| | 13,121 |
| | (42,353 | ) |
| Accrued interest | 28 |
| | 111 |
| | (2 | ) |
| Liability for pension and other post-retirement benefits | (705 | ) | | 1,307 |
| | 1,953 |
|
| Net cash provided by operating activities | 238,156 |
| | 381 |
| | 61,492 |
|
| Investing activities: | | | | | |
| Capital expenditures | (384,622 | ) | | (46,450 | ) | | (53,646 | ) |
| Capitalized intellectual property costs | (3,586 | ) | | (959 | ) | | — |
|
| Maturities of short-term investments | — |
| | 21,872 |
| | 53,568 |
|
| Acquisition of businesses, net of cash acquired | (119,801 | ) | | (176,617 | ) | | — |
|
| Proceeds from sale of property, plant and equipment | 337 |
| | 497 |
| | 127 |
|
| Net cash provided by (used in) investing activities | (507,672 | ) | | (201,657 | ) | | 49 |
|
| Financing activities: | | | | | |
| Issuance of common stock | — |
| | 678,791 |
| | — |
|
| Common stock issuance costs | — |
| | (25,732 | ) | | — |
|
| Dividends paid | (20,377 | ) | | (15,125 | ) | | (26,797 | ) |
| Repurchase of common stock | (25,022 | ) | | — |
| | (15,255 | ) |
| Proceeds from options exercised | 798 |
| | 4,825 |
| | 473 |
|
| Tax payments related to shares withheld for vested restricted stock and stock units | (4,379 | ) | | (1,591 | ) | | (794 | ) |
| Repayment of long-term debt | (7,211 | ) | | (5,202 | ) | | (5,093 | ) |
| Principal payments on capital lease obligations | (951 | ) | | (542 | ) | | — |
|
| Financing fees | — |
| | — |
| | (64 | ) |
| Net cash provided by (used in) financing activities | (57,142 | ) | | 635,424 |
| | (47,530 | ) |
| Net increase (decrease) in cash and cash equivalents | (326,658 | ) | | 434,148 |
| | 14,011 |
|
| Cash and cash equivalents, beginning of period | 711,225 |
| | 277,077 |
| | 263,066 |
|
| Cash and cash equivalents, end of period | $ | 384,567 |
| | $ | 711,225 |
| | $ | 277,077 |
|
| Supplemental cash flow information: | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest | $ | 24,490 |
| | $ | 21,994 |
| | $ | 21,729 |
|
| Taxes, net of refunds | $ | 8,958 |
| | $ | (11,322 | ) | | $ | 4,568 |
|
| Related party purchases | $ | 4,942 |
| | $ | 446 |
| | $ | — |
|
| Non-cash items: | | | | | |
|
| | | | | | | | | | | |
| Common stock issued in connection with acquisitions | $ | — |
| | $ | 278,229 |
| | $ | — |
|
| Capital lease obligations incurred to acquire assets | $ | — |
| | $ | 165 |
| | $ | — |
|
| Equipment received | $ | 18,185 |
| | $ | — |
| | $ | — |
|
| Accrued capital expenditures | $ | 16,534 |
| | $ | 391 |
| | $ | 1,154 |
|
| | | | | | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A—ORGANIZATION
U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) is a domestic producerperformance materials company and one of the largest producers of commercial silica used in the oil and gas industry and in a specialized mineral that is a critical input into a varietywide range of end markets.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 118-year121-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 theseour end markets. We manufacture frac sand used to stimulate and maintain the flow of hydrocarbons in oil and natural gas wells. Our silica is also used as a raw material in a wide range of industrial applications, including glassmaking and chemical manufacturing. We operate in two businessoperations are organized into 2 reportable segments based on end markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products (seeProducts. See Note TV - Segment Reporting for additional details).more information on our reportable segments.
On August 16, 2016,May 1, 2018, we completed the acquisition of New Birmingham,all of the outstanding capital stock of EP Acquisition Parent, Inc., a Delaware corporation (“NBI”EPAP”), and the ultimate parent company of NBR Sand, LLC (“NBR”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 regional sandglobal producer located near Tyler, Texas. On August 22, 2016, we completed the acquisition of Sandbox Enterprises, LLC (“Sandbox” or the "Sandbox acquisition"),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 “last mile” logistics solution for frac sand in thevariety of industries including food and beverage, biofuels, recreational water, oil and gas, industry.
On April 1, 2017, we completed thefarm and home, landscape, sports turf, paint, plastics, and insecticides. The acquisition of White Armor, aEPM increased our industrial materials product line of cool roof granules usedoffering in industrial roofing applications. 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.
our Industrial & Specialty Products segment. See Note DE - Business Combinations for additional details relating to these acquisitions.more information.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements (the “Financial Statements”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, all adjustments necessary for a fair presentation of the Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. Certain reclassifications of prior years’ amounts have been made to conform to the current year presentation.
In order to makeThroughout this report easier to read, we refer throughout to (i) our Consolidated Balance Sheets as our “Balance Sheets,” (ii) our Consolidated Statements of Operations as our “Income Statements,” and (iii) our Consolidated Statements of Cash Flows as our “Cash Flows.”
Consolidation
The 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”). For the periods presented herein,We consolidate VIEs when we have identified novariable 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 initial capital contribution of $7.0 million, and a water rights intangible asset for $0.7 million. Based on our evaluation, we determined that this limited liability company is a VIE entities overof which we maintain any levelare the primary beneficiary and therefore we are required to consolidate it. As of control that would require consolidation under ASC guidance.December 31, 2020, the VIE had total assets of $17.3 million and total liabilities of $0.1 million. We made capital contributions in the amounts of $0.2 million and $0.4 million during the years ended December 31, 2020 and December 31, 2019, respectively.
Reclassifications
Certain reclassifications of prior period presentations have been made to conform to the current period presentation.
Use of Estimates and Assumptions
The preparation of theConsolidated 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 allowanceprovision for doubtful accounts;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;litigation and the fair value and accounting treatment of financial instruments, including derivative instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
We derive most of our sales by mining and processing minerals that our customers purchase for various uses. Our product sales are primarily a function of the price per ton and the number of tons sold. The amount invoiced reflects product, transportation and/or additional services as applicable, such as storage, transloading the product from railcars to trucks and last mile logistics to the customer site.
Revenue is recognized from a sale when persuasive evidence of an arrangement exists, the price is fixed and determinable, the product has been delivered, legal title has been transferred to the customer or services are completed and collection of the sale is reasonably assured. Amounts received from customers in advance of revenue recognition are deferred as liabilities.
We primarily sell our products under short-term price agreements or at prevailing market rates. For a limited number of customers, we sell under long-term, minimum purchase supply agreements. As of December 31, 2017, we had 23 minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2018 and 2022. 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 invoice the majority of our product customers on a per shipment basis, although for some larger customers, we consolidate invoices weekly or monthly. Standard terms are net 30 days, although extended terms are offered in competitive situations. Sales and other transaction taxes imposed by government entities are reported on a net basis.
We invoice services periodically after the services are completed. Depending on the types of services, the total amount billed may include labor, equipment costs, freight, handling and other costs.
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 and construction products, filler and extenders, foundriesfiltration, glass, absorbents, sports and recreation, foundry 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 allowanceprovision for doubtful accounts.credit losses. 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 allowanceprovision for doubtful accounts.credit losses. See Note F - Accounts Receivable and Note T - Revenue.
Inventories
Inventories include raw stockpiles, in-process product and silica and other industrial sandfinished 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. Costs of our raw stockpiles and silica and other industrial sand inventoriesOur inventoriable costs include production costs and transportation and additional service costs as applicable.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 lifeslives 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, thatwhich 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, includingif sufficient information exists to reasonably estimate the fair value of the liability. These obligations include 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.asset. These obligations also 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.
In connection with our annual review of our reclamation obligations, we have determined that some of our estimates required revision due primarily to the additions of new plant and transload facilities and other changes in cost estimates and settlement dates at various sites. These additions and changes in estimates resulted in an additional $7.0 million and $(2.1) million of asset retirement obligations in 2017 and 2016, respectively.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our asset retirement obligations are reported in other long-term obligations. The changes in these obligations (in thousands) during the years ending December 31, 2017 and 2016 are as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Beginning balance | $ | 11,159 |
| | $ | 12,254 |
|
| Accretion | 879 |
| | 979 |
|
| Additions and revisions of prior estimates | 6,994 |
| | (2,074 | ) |
| Ending balance | $ | 19,032 |
| | $ | 11,159 |
|
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.
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.
Goodwill and Other Intangible Assets and Related Impairment
Our intangible assets consist of goodwill, which is not being amortized, indefinite livedindefinite-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 13 - 20 15years. Intangible assets that are amortized are reviewed for impairment annually, or 13 years.more frequently when indicators of impairment exist.
Goodwill represents the excess of the purchase price of business combinations over the fair value of net assets from business acquisitions.acquired. Goodwill and trade names are reviewed for impairment annually as of October 31, or more frequently whenever events or circumstances change that would more likely than not reducewhen indicators of impairment exist. An impairment exists if the fair value of those assets.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 comparison of the fair value with the carrying amount, including goodwill. If this comparison reflects impairment, then the loss would be measured as the excess of recorded goodwill, or other intangible assets with indefinite lives, over its implied fair value. Implied fair value is the excess of our fair value overassessment by comparing the fair value of alla 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 unrecognizedIntangible Assets.
Leases
We lease railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property, plant and mine development, current portion of long-term debt, and long-term debt in our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities.liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of October 31, 2017, our qualitative assessment didleases 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. The ROU assets also include any lease payments made at or before the commencement date of the lease and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, the latter of which are generally accounted for separately. See Note R - Leases.
We periodically evaluate whether current events or circumstances indicate that it was more likely than not thatthe carrying value of our ROU assets exceeds fair value. If circumstances indicate an impairment had occurred. Further, no triggering eventsexists, we estimate fair value primarily utilizing internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. 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.
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 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. 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 842, Leases. For the remaining components of service revenue, we have subsequently transpiredapplied 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
From time to time, we may enter into contracts that would indicatecontain multiple performance obligations, such as work orders containing a potential impairmentcombination of product, transportation, equipment rentals, and contract labor services. For these arrangements, 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 December 31, 2017.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.
See Note T - 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 and 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 loanTerm Loan facility (the “Term Loan”) and the straight-line method for our revolving line-of-credit (the "Revolver").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 $1.4$5.1 million for each ofthe year ended December 31, 2020, and $5.6 million and $4.0 million for the years ended December 31, 2017, 20162019 and 2015, respectively.2018. 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 tables, 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 Q - 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
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 partythird-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. 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. At As of December 31, 20172020 and 2016,2019, our self-insurance reserves totaled $5.5$4.8 million and $5.3$6.6 million,, respectively, of which $1.7$1.8 million and $1.3$4.1 million,, respectively, waswere 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. Advertising costs have not been a significant component of expense for the years ended December 31, 2020, 2019, or 2018.
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 three-yearpre-defined vesting schedule.schedule, generally three years. Cash dividend equivalents are accrued and paid to the holders of time basedtime-based restricted stock units and restricted stock. The fair value of the restricted stock awards is equal to the market price of our stock at date of grant. The restricted award-related compensation expense is recognized on a straight-line basis over the vesting period.
We grant performance share units to certain employees in which the number of shares of common stock ultimately received is determined based on achievement of certain performance thresholds over a specified performance period (generally three years) in accordance with the stock award agreement. Cash dividend equivalents are not accrued or paid on performance share units. We recognize expense based on the estimated vesting of our performance share units granted and the grant date market price. The estimated vesting of the performance share units is principally based on the probability of achieving certain financial performance levels during the vesting periods. In the period it becomes probable that the minimum performance criteria specified in the award agreement will be achieved, we recognize expense for the proportionate share of the total fair value of the award related to the vesting period that has already lapsed. The remaining fair value of the award is expensed on a straight-line basis over the remaining vesting period.
During the years ended December 31, 2017 and 2016, we grantedWe 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 thea three-year period from January 1, 2017 through December 31, 2019 for the 2017 awards and from January 1, 2016 through December 31, 2018 for the 2016 awards.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 3three or 4four 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.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.We account for forfeitures as they occur. Our expected term is the period of time over which the options are expected to remain outstanding. An increase in the expected term will increase compensation expense. The computation of the expected term is based on the simplified method, under which the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term. The assumptions for expected volatility are based on historical experience for the same periods as our expected lives. Risk-free interest rates are set using grant-date U.S. Treasury yield curves for the same periods as our expected lives. The expected dividend yield is based on our future dividend expectations for the same periods as our expected lives. See Note O - Equity-based Compensation.
Income Taxes
Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We recognize a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
TheGenerally, 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.
Earnings per Share
Basic and diluted earnings per share is presented for net income (loss). Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding However, for the period. Diluted earnings per common share is computed similarlyyear ended 2020, we recorded a permanent tax benefit related to basic earnings per common share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. In accordance with the applicable accounting guidance for calculating earnings per share, we did not include in our calculation of diluted earnings per share for the applicable periods stock options where the exercise prices were greater than the average market prices. The weighted-average stock awards (in thousands) that are antidilutive and are, therefore, excluded from the calculation of diluted earnings per common share are as follows:tax legislation
|
| | | | | | | | |
| | For the Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Weighted-average outstanding stock options excluded | 195 |
| | 573 |
| | 528 |
|
| Weighted-average outstanding restricted stock and performance share units awards excluded | 305 |
| | 166 |
| | 66 |
|
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.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
enacted during 2020, which represents the largest permanent item in computing our effective tax rate for 2020. See Note S - 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. Additional disclosuresSee Note N - 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.
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 are presented in Note M - Derivative Instruments to these financial statements.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. Additional disclosures for business combinations are presented inSee Note DE - Business Combinations to these financial statements.Combinations.
Recently IssuedNew 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. The pronouncements are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Based on our reviews, there is no material impact to the Company’s results of operations, financial position and cash flows as a result of this guidance. Companies can use either a full retrospective or modified retrospective method to adopt the standard. The Company has elected to apply the modified retrospective approach. Under the modified retrospective method, prior periods are not updated to be presented on an accounting basis that is consistent with 2018; rather, a cumulative adjustment for the effects of applying the new standard to periods prior toAugust 2018, is recorded to retained earnings as of January 1, 2018. Because only 2018 revenues will reflect application of the new standard, incremental disclosures are required to present 2018 revenues under the prior standard.
The new standard requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result of our implementation review, we do not expect significant changes in the presentation of our financial statements, including either: (1) timing of revenue recognition, or (2) changes in classification between revenue and costs. The new standard will have no cash flow impact and, as such, does not affect the underlying economics of our customer contracts. The effect of applying the new guidance to our existing book of contracts will be minimal.
Application of this method will not result in a material cumulative effect adjustment as of the date of adoption. We do not expect application of the new guidance to result in increases or decreases in revenue within our segments, or any material impact on our balance sheets.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).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 standard establishes a right-of-use (ROU) model thatguidance requires a lesseecustomer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to record an ROU asset andfollow 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 lease liability on the balance sheet for all leases with terms greater than 12 months. Leaseshosting arrangement that is a service contract will be classified as either financeamortized over the term of the hosting arrangement, beginning when the module or operating, with classification affectingcomponent of 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. Classificationhosting arrangement is ready for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract.its intended use. This update iswas effective for calendar-year public business entities in 2020. We adopted the new standard on January 1, 2020. The adoption of this ASU had no significant impact on our Consolidated Statements of Operations.
In November 2018, the 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 mitigates transition complexity by requiring that for financial statements issuednonpublic business entities the amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2018,2021, including interim periods within those fiscal years, and early adoption is permitted. This standard mandates a modified retrospective transition method. While we continue to evaluateyears. In Issue 2, the effectamendment clarifies that receivables arising from operating leases are not within the scope of the standard, we anticipate that the adoption will result in a material increase in assets and liabilities on our consolidated balance sheet and will not have a material impact on our consolidated income statement or statementSubtopic 326-20. Impairment of cash flows.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues. Additionally, guidance on the presentation of restricted cash is addressed in ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which was issued in November 2016. Both standards are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. Adoption of these standards will not have a material impact on our consolidated Statements of Cash Flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactionsreceivables arising from operating leases should be accounted for as acquisitions (or disposals) of assets or businesses.in accordance with Topic 842, Leases. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early application of the amendments in ASU 2017-01 is allowed for a transaction(s) for which the acquisition date occurs before the issuance date or effective date of the amendments, a subsidiary is deconsolidated or a group of assets is derecognized only when the transaction(s) has (have) not been reported in financial statements that have been issued or made available for issuance. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed with a measurement date after January 1, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
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. ASU 2017-07 amends presentation requirements related to reporting the service cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component from other net benefit costs. ASU 2017-07 also limits the components of net benefit cost eligible to be capitalized to service cost. ASU 2017-07 iswas effective for fiscal years beginning after December 15, 2017,2019, including interim periods within those annualfiscal years. We adopted the new standard on January 1, 2020. The adoption of the new standard did not have a significant impact on our Consolidated Financial Statements as our current process for estimating expected credit losses for trade receivables aligned with the expected credit loss model. See Note F - Accounts Receivable.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The new guidance removes certain disclosure requirements for employers which sponsor defined benefit pension or other post-retirement plans, but also adds disclosure requirements for the weighted average interest crediting rates for cash balance plans and other plans with promised crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify disclosure requirements for the projected benefit obligation (PBO) and accumulated benefit obligation (ABO) and fair value of plan assets for plans with PBOs and ABOs in excess of plan assets. Entities should apply the amendments on a retrospective basis for all periods presented. The amendments in this update are effective for public business entities. Early adoption is permitted as of the beginning of an annual periodentities for which financial statements (interim or annual)fiscal years ending after December 15, 2020. We have not been issued or made available for issuance. Early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are requiredmodified our disclosures in the first interim and annual periodscurrent year to reflect this guidance. There was no impact to our Consolidated Statements of adoption. We do not expectOperations due to the adoption of this standard to have a material impact on our consolidated financial statements.guidance.
New Accounting Pronouncements Not Yet Adopted
In May 2017,December 2019, the FASB issued ASU 2017-09, Compensation-Stock Compensation2019-12, Income Taxes (Topic 718), Scope of Modification Accounting. This update amends740): Simplifying the scope of modificationAccounting for Income Taxes. The amendments in this Update simplify the accounting for share-based payment arrangements. ASU 2017-09 provides guidanceincome taxes by removing several exceptions and also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the typestax basis of goodwill should be considered part of the changes tobusiness combination in which the terms or conditions of share-based payments awards to whichbook goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity would beis not required to apply modification accounting. Specifically,allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (however, an entity wouldmay elect to do so on an entity-by-entity basis) for a legal entity that is both not apply modification accounting ifsubject to tax and disregarded by the fair value, vesting conditions,taxing authority, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and classification ofmaking minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the awardsequity method. For public business entities, the amendments in this update are the same immediately beforeeffective for fiscal years, and after the modification. ASU 2017-09 is effective forinterim periods within those fiscal years, beginning after December 15, 2017, including interim periods within those annual periods for all entities. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. We2020. At this time, we do not expect the adoption ofbelieve adopting this standard toguidance will have a material impact onto our consolidated financial statements.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, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | |
| In thousands, except per share amounts | | Year ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Numerator: | | | | | | |
| Net loss attributable to U.S. Silica Holdings, Inc. | | $ | (114,094) | | | $ | (329,082) | | | $ | (200,808) | |
| | | | | | |
| Denominator: | | | | | | |
| Weighted average shares outstanding | | 73,634 | | | 73,253 | | | 76,453 | |
| Diluted effect of stock awards | | 0 | | | 0 | | | 0 | |
| Weighted average shares outstanding assuming dilution | | 73,634 | | | 73,253 | | | 76,453 | |
| | | | | | |
| Loss per share attributable to U.S. Silica Holdings, Inc.: | | | | | | |
| Basic loss per share | | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
| Diluted loss per share | | $ | (1.55) | | | $ | (4.49) | | | $ | (2.63) | |
Potentially dilutive shares 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. Such
potentially dilutive shares and stock awards (in thousands) excluded from the calculation of diluted earnings (loss) per common share were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Potentially dilutive shares excluded | | 238 | | | 68 | | | 443 | |
| Stock options excluded | | 826 | | | 711 | | | 574 | |
| Restricted stock and performance share units awards excluded | | 3,435 | | | 1,298 | | | 155 | |
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.
In March 2016, we completed a public offering of 10,000,000 shares of our common stock for total cash proceeds of approximately $186.2 million net of underwriting discounts and offering costs. In August 2016, we issued an additional 6,825,693 shares of our common stock to complete two acquisitions discussed in Note D - Business Combinations. In November 2016, we executed another offering of 10,350,000 shares of common stock raising net cash proceeds of $467.0 million.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were 81,267,20583,143,176 shares issued and 80,524,25573,986,566 shares outstanding at December 31, 2017.2020. There were 81,184,04282,601,926 shares issued and 81,028,89873,601,950 shares outstanding at December 31, 2016.2019.
In 2017,During the year ended December 31, 2020, our Board of Directors declared quarterly cash dividends as follows:
|
| | | | | | | | |
| Dividends per Common Share | | Declaration Date | | Record Date | | Payable Date |
| $ | 0.0625 |
| | February 16, 2017 | | March 15, 2017 | | April 5, 2017 |
| $ | 0.0625 |
| | May 4, 2017 | | June 15, 2017 | | July 6, 2017 |
| $ | 0.0625 |
| | July 21, 2017 | | September 15, 2017 | | October 3, 2017 |
| $ | 0.0625 |
| | November 2, 2017 | | December 15, 2017 | | January 5, 2018 |
| | | | | | | | | | | | | | | | | | | | |
| Dividends per Common Share | | Declaration Date | | Record Date | | Payable Date |
| $ | 0.02 | | | February 10, 2020 | | March 13, 2020 | | April 3, 2020 |
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. During May of 2020, our Board of Directors determined that it was not in the best interest of our shareholders to issue a dividend for the second quarter of 2020 and they subsequently decided 0t to issue a dividend for the third or fourth quarters of 2020. The Board of Directors will make determinations regarding future dividends on a quarterly basis using the criteria described above.
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, andseries; any qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference,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 no0 shares of preferred stock issued or outstanding at December 31, 2017 and 2016.2020 or December 31, 2019. 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. As of December 31, 2017, we are authorized to repurchase up to $100.0 million of our common stock through December 11, 2018. 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, 2017,2020, we have repurchased 727,081a total of 5,036,139 shares of our common stock at an average price of $34.41$14.59 and
have $126.5 million of remaining availability under this program and are authorized to repurchase up to an additional $75.0 million of our common stock.
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.program. We repurchased a total of 706,093 sharesdid 0t make any repurchases of our common stock at an average price of $23.83 under this program.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in 2020.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of fair value adjustments associated with cash flow hedges, accumulated adjustments for net experience gains or losses and prior service cost related to employee benefit plans and foreign currency translation adjustments, primarily related to accounts payable denominated in Euros.net of tax. The following table presents the changes in accumulated other comprehensive income (loss) by component (in thousands) during the year ended December 31, 2017:2020: | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2020 |
| | Unrealized income (loss) on cash flow hedges | | Foreign currency translation adjustments | | Pension and other post-retirement benefits liability | | Total |
| Beginning Balance | $ | (3,053) | | | $ | (808) | | | $ | (15,993) | | | $ | (19,854) | |
| Other comprehensive income before reclassifications | 3,053 | | | 1,391 | | | 4,537 | | | 8,981 | |
| Amounts reclassed from accumulated other comprehensive loss | 0 | | | 0 | | | 2,394 | | | 2,394 | |
| Ending Balance | $ | 0 | | | $ | 583 | | | $ | (9,062) | | | $ | (8,479) | |
|
| | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2017 |
| Unrealized
gain/(loss) on
cash flow
hedges | | Foreign currency translation adjustment | | Pension and
other post-
retirement
benefits liability | | Total |
| Beginning Balance | $ | (32 | ) | | $ | — |
| | $ | (15,844 | ) | | $ | (15,876 | ) |
| Other comprehensive gain (loss) before reclassifications | (45 | ) | | (6 | ) | | 871 |
| | 820 |
|
| Amounts reclassed from accumulated other comprehensive income | 1 |
| | — |
| | 1,129 |
| | 1,130 |
|
| Ending Balance | $ | (76 | ) | | $ | (6 | ) | | $ | (13,844 | ) | | $ | (13,926 | ) |
AmountsAny amounts reclassified from accumulated other comprehensive income (loss)loss related to cash flow hedges are included in interest expense in our IncomeConsolidated Statements of Operations and amounts reclassified related to pension and other post-retirement benefits are included in the computation of net periodic pensionbenefit costs at their pre-tax amounts.
NOTE D—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 name hasnames have an indefinite life based on our plans and expectations for the trade namenames going forward and isare reviewed for impairment under ASC 360-10.350-30-35.
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 360-10.360-10-35.
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
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 360-10.360-10-35.
The tax rate applied for each class of intangible assets is pursuant to current tax legislation (15-year period for intangible assets).
2017 Acquisitions
White Armor2020 Acquisition:
On April 1, 2017,During the first quarter of 2020, we completedsettled multiple intellectual property and contractual lawsuits involving our SandBox Logistics unit and Arrows Up, LLC. As part of the acquisitionsettlement, SandBox Logistics took control of White Armor,Arrows Up's existing business, including all equipment and sand logistics contracts, while also receiving a product line of cool roof granules used in industrial roofing applications, for cash consideration of $18.6 million. The preliminary 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.payment.
Goodwill in this transaction is attributable to planned growth in our specialty industrial sand segment. The goodwill amount is included in our Industrial & Specialty Products 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 to the net working capital adjustment 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 segment.
We have accounted for the acquisition of MS SandArrows Up, LLC 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 fair values are subject to adjustment until we complete our analysis, within a period of time not to exceed one year after the date of acquisition, or March 7, 2021. This business combination resulted in a bargain purchase pursuant to ASC 805-30-25 because 0 consideration was paid for the fair value of assets acquired and liabilities assumed. The initial 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. An initial gain on bargain purchase of $17.6 million was recorded in "Other income, net, including interest income" in the Condensed Consolidated Statement of Operations.
For the year ended December 31, 2020, we recorded a $3.3 million decrease in inventory, a $1.0 million increase to accounts receivable, and a $0.1 million decrease to property, plant and equipment. The total measurement period adjustments for the year ended December 31, 2020 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 Consolidated Statement of Operations.
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, and have accounted for measurement period adjustments in accordance with ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. Estimates of fair value included in the consolidated financial statementsConsolidated Financial Statements represent our best estimates and valuations. In accordance with the acquisition method of accounting, the allocation of consideration value iswas subject to adjustment until we completecompleted our analysis in a periodthe second quarter of time, but not to exceed one year after the date of acquisition, or August 16, 2018, in order to provide us with the time to complete the valuation of its assets and liabilities.2019.
The following table sets forth the currentfinal allocation of the purchase price to MS Sands'EPMH's identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments (in thousands):
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | |
| | Initial Estimate | Measurement Period Adjustments | Purchase Price Allocation |
| Accounts receivable | $ | 11,201 |
| $ | — |
| $ | 11,201 |
|
| Inventories | 6,087 |
| 1,980 |
| 8,067 |
|
| Other current assets | 362 |
| — |
| 362 |
|
| Assets held for sale | 9,523 |
| (70 | ) | 9,453 |
|
| Property, plant and mine development | 26,440 |
| 1,018 |
| 27,458 |
|
| Mineral rights | — |
| 26,300 |
| 26,300 |
|
| Other non-current assets | 1,136 |
| — |
| 1,136 |
|
| Goodwill | 52,187 |
| (29,665 | ) | 22,522 |
|
| Customer relationships | — |
| 1,840 |
| 1,840 |
|
| Total assets acquired | 106,936 |
| 1,403 |
| 108,339 |
|
| Accounts payable and accrued expenses | 3,815 |
| (54 | ) | 3,761 |
|
| Unfavorable leasehold positions | — |
| 2,237 |
| 2,237 |
|
| Notes Payable | 866 |
| — |
| 866 |
|
| Other long term liabilities | 1,254 |
| (1,254 | ) | — |
|
| Asset retirement obligations | — |
| 474 |
| 474 |
|
| Total liabilities assumed | 5,935 |
| 1,403 |
| 7,338 |
|
| Net assets acquired | $ | 101,001 |
| $ | — |
| $ | 101,001 |
|
| | | | | | | | | | | |
| Final allocation of purchase price: | Estimate as of December 31, 2018 | Measurement Period Adjustments | Purchase Price Allocation |
| Accounts receivable, net | $ | 43,305 | | $ | 0 | | $ | 43,305 | |
| Inventories | 86,112 | | 0 | | 86,112 | |
| Property, plant and mine development | 148,495 | | (1,937) | | 146,558 | |
| Mineral rights | 419,469 | | (10,580) | | 408,889 | |
| Identifiable intangible assets - finite lived | 10,270 | | (1,500) | | 8,770 | |
| Identifiable intangible assets - indefinite lived | 38,050 | | (1,250) | | 36,800 | |
| Prepaids and deposits | 2,072 | | (245) | | 1,827 | |
| Other assets | 7,474 | | 0 | | 7,474 | |
| Goodwill | 150,628 | | 12,184 | | 162,812 | |
| Total assets acquired | 905,875 | | (3,328) | | 902,547 | |
| Accounts payable | 13,435 | | 0 | | 13,435 | |
| Accrued expenses and other current liabilities | 10,304 | | 0 | | 10,304 | |
| Deferred tax liabilities | 122,811 | | (3,328) | | 119,483 | |
| Long term obligations | 16,076 | | 0 | | 16,076 | |
| Total liabilities assumed | $ | 162,626 | | $ | (3,328) | | $ | 159,298 | |
| Net assets acquired | $ | 743,249 | | $ | 0 | | $ | 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 | $ | 1,400 | | | 15 |
| Customer relationships | 7,370 | | | 15 |
| Total identifiable intangible assets - finite lived | $ | 8,770 | | | |
| | | |
| Trade names | $ | 36,800 | | | |
| Total identifiable intangible assets - indefinite lived | $ | 36,800 | | | |
|
| | | | |
| | Approximate Fair Value | Estimated Useful Life |
| | (in thousands) | (in years) |
| Customer relationships | $ | 1,840 |
| 15 |
Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired. Goodwill in this transaction is attributable to planned growth in our regional frac sandindustrial materials product offering in our OilIndustrial & Gas ProppantsSpecialty Products business segment. The goodwill amount is included in our Oil & Gas Proppants segment. Identifiable definite lived intangibles, including customer relationships,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 $0.7$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 during the year ended December 31, 2017. 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.
Both acquisitions were accounted for using the acquisition method of accounting. The purchase price and purchase price allocation for both White Armor and MS Sand acquisitions are preliminary and 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 acquisitions. As a result, our final purchase price allocations may be significantly different than those reflected above. We expect to complete the purchase price allocations as soon as practicable, but no later than one year from the acquisition dates.Income Statement.
Unaudited Pro Forma Results
The results of MS Sand’sEPMH's operations have been included in the consolidated financial statementsConsolidated Financial Statements subsequent to the acquisition dates.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 MS Sand AcquisitionEPMH acquisition had occurred on January 1, 2016,2017, after giving effect to certain purchase accounting adjustments. These adjustments mainly includeMaterial 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 equipment and mine development, amortization expense related to identifiable intangible assets and tax expense related to the
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 segment.
The consideration paid to the stockholders of NBI at the closing of the NBI Acquisition consisted 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.
The calculation of the purchase price (in thousands, except shares) is as follows:
|
| | | | | | |
| | | |
| Cash consideration paid | | $ | 116,165 |
|
| Number of Holdings common shares delivered | 2,630,513 |
| |
| Multiplied by closing market price per share of U.S. Silica common stock on August 16, 2016 | $ | 40.51 |
| |
| Total value of Holdings common shares delivered | | $ | 106,562 |
|
| Less, cash acquired | | $ | (9,002 | ) |
| Total purchase price | | $ | 213,725 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 was subject to adjustment until we completed our analysis, in a period of time, but not to exceed one year after the date of acquisition, or August 16, 2016, in order to provide us with the time to complete the valuation of its assets and liabilities. We have completed our analysis and allocation of consideration value to assets acquired and liabilities assumed.
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 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.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consisted 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 calculation of the purchase price (in thousands, except shares) is as follows:
|
| | | | | | |
| | | |
| Cash consideration paid | | $ | 70,760 |
|
| Number of Holdings common shares delivered | 4,195,180 |
| |
| Multiplied by closing market price per share of U.S. Silica common stock on August 22, 2016 | $ | 40.92 |
| |
| Total value of Holdings common shares delivered | | $ | 171,667 |
|
| Less, cash acquired | | $ | (1,306 | ) |
| Total purchase price | | $ | 241,121 |
|
The following table sets forth 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 segment. Goodwill and all intangible assets identified above are expected to be deductible for tax purposes.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, |
| 2018 | | 2017 |
| Sales | $ | 1,659,775 | | | $ | 1,454,070 | |
| Net (loss) income | $ | (179,220) | | | $ | 116,899 | |
| Basic (loss) earnings per share | $ | (2.34) | | | $ | 1.44 | |
| Diluted (loss) earnings per share | $ | (2.34) | | | $ | 1.43 | |
| | | |
|
| | | | | | | |
| For the year ended December 31, |
| 2016 | | 2015 |
| Sales | $ | 615,552 |
| | $ | 753,287 |
|
| Net income (loss) | $ | (45,161 | ) | | $ | 43,163 |
|
| Basic earnings per share | $ | (0.69 | ) | | $ | 0.81 |
|
| Diluted earnings per share | $ | (0.69 | ) | | $ | 0.81 |
|
NOTE E—F—ACCOUNTS RECEIVABLE
At December 31, 20172020 and 2016,December 31, 2019, accounts receivable (in thousands) consisted of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Trade receivables | $ | 171,230 | | | $ | 178,182 | |
| Less: Provision for credit losses | (6,604) | | | (8,984) | |
| Net trade receivables | 164,626 | | | 169,198 | |
Other receivables(1) | 42,308 | | | 13,040 | |
| Total accounts receivable | $ | 206,934 | | | $ | 182,238 | |
| | | | | | | | | | | | | | |
| (1) | | At December 31, 2020, other receivables included $37.4 million of refunds related to NOL carryback claims filed for various tax years in accordance with certain provisions of the CARES Act. At December 31, 2019, other receivables included $8.1 million of refundable alternative minimum tax credits. |
|
| | | | | | | |
| | At December 31, |
| | 2017 | | 2016 |
| Trade receivables | $ | 217,649 |
| | $ | 93,982 |
|
| Less: Allowance for doubtful accounts | (7,100 | ) | | (7,042 | ) |
| Net trade receivables | 210,549 |
| | 86,940 |
|
| Other receivables | 2,037 |
| | 2,066 |
|
| Total accounts receivable | $ | 212,586 |
| | $ | 89,006 |
|
Changes inWe 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 doubtful accountscredit 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) during the
yearsyear ended December 31,
2017 and 2016 are as follows:2020, disaggregated by portfolio segments: |
| | | | | | | |
| | Allowance for Doubtful Accounts |
| | 2017 | | 2016 |
| Balance at January 1, | $ | 7,042 |
| | $ | 7,686 |
|
| Bad debt provision | 1,529 |
| | (1,232 | ) |
| Write-offs and recoveries, net | (1,471 | ) | | 588 |
|
| Balance at December 31, | $ | 7,100 |
| | $ | 7,042 |
|
| | | | | | | | | | | | | | | | | |
| Oil & Gas Proppants | | Industrial & Specialty Products | | Total |
| Beginning balance, December 31, 2019 | $ | 7,640 | | | $ | 1,344 | | | $ | 8,984 | |
| Provision for credit losses | 1,340 | | | 170 | | | 1,510 | |
| Write-offs | (3,296) | | | (594) | | | (3,890) | |
| Ending balance, December 31, 2020 | $ | 5,684 | | | $ | 920 | | | $ | 6,604 | |
Our ten largest customers accounted for approximately 58%34%, 52%,43% and 56%48% of total sales during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Sales to two of our customersNo single customer accounted for 15% and 12% of our total sales during the year
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ended December 31, 2017. Sales to one of our customers accounted for 13%more than 10% of our total sales during the year ended December 31, 2016.2020. Sales to twoone of our customers accounted for 13%11% and 12%15% of our total sales during the yearyears ended December 31, 2015.2019 and 2018, respectively. No other customers accounted for 10% or more of our total sales.sales during the same periods. At December 31, 2017, two2020, one of our customers' accounts receivable represented 19% and 11%24% of our total trade accounts receivable, net of allowance. At December 31, 2016, two of our customers'2019, the same customer's accounts receivable represented 14% and 10%12% of our total trade accounts receivable, net of allowance. No other customers accounted for 10% or more of our total trade accounts receivable.receivable during the same periods.
NOTE F—G—INVENTORIES
At December 31, 20172020 and 2016,December 31, 2019, inventories (in thousands) consisted of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Supplies | $ | 42,329 | | | $ | 47,277 | |
| Raw materials and work in process | 33,723 | | | 41,167 | |
| Finished goods | 28,632 | | | 35,988 | |
| Total inventories | $ | 104,684 | | | $ | 124,432 | |
The decrease in inventories is primarily attributable to concerted efforts to reduce inventory to improve working capital and impairments of unused inventory at plants we idled. See Note Y - Impairments for additional information.
|
| | | | | | | |
| | At December 31, |
| | 2017 | | 2016 |
| Supplies | $ | 21,277 |
| | $ | 18,824 |
|
| Raw materials and work in process | 28,034 |
| | 25,161 |
|
| Finished goods | 43,065 |
| | 34,724 |
|
| Total inventories | $ | 92,376 |
| | $ | 78,709 |
|
NOTE G—H—PROPERTY, PLANT AND MINE DEVELOPMENT
At December 31, 20172020 and 2016,December 31, 2019, property, plant and mine development (in thousands) consisted of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Mining property and mine development | $ | 788,287 | | | $ | 794,899 | |
| Asset retirement cost | 15,985 | | | 18,260 | |
| Land | 54,710 | | | 57,082 | |
| Land improvements | 76,002 | | | 73,203 | |
| Buildings | 69,841 | | | 69,112 | |
| Machinery and equipment | 1,171,382 | | | 1,152,898 | |
| Furniture and fixtures | 4,071 | | | 4,068 | |
| Construction-in-progress | 27,216 | | | 54,675 | |
| 2,207,494 | | | 2,224,197 | |
| Accumulated depletion, depreciation, amortization and impairment charges | (839,402) | | | (706,610) | |
| Total property, plant and mine development, net | $ | 1,368,092 | | | $ | 1,517,587 | |
|
| | | | | | | |
| | At December 31, |
| | 2017 | | 2016 |
| Mining property and mine development | $ | 586,242 |
| | $ | 414,434 |
|
| Asset retirement cost | 14,184 |
| | 8,062 |
|
| Land | 36,552 |
| | 35,052 |
|
| Land improvements | 45,878 |
| | 42,738 |
|
| Buildings | 56,330 |
| | 52,178 |
|
| Machinery and equipment | 590,566 |
| | 450,881 |
|
| Furniture and fixtures | 2,953 |
| | 2,566 |
|
| Construction-in-progress | 189,970 |
| | 43,790 |
|
| | 1,522,675 |
| | 1,049,701 |
|
| Accumulated depletion, depreciation and amortization | (353,520 | ) | | (266,388 | ) |
| Total property, plant and mine development, net | $ | 1,169,155 |
| | $ | 783,313 |
|
AtDepreciation, depletion, and amortization expense related to property, plant and mine development for the years ended December 31, 20172020 and 2016, the aggregate cost of the machinery and equipment originally acquired under capital leases2019 was $0.9$143.8 million and $4.7 million, respectively, reduced by accumulated depreciation of $0.2 million and $0.3$168.6 million, respectively. The decrease in machinery and equipment acquired under capital leases is due to lease terminations.
The amount of interest costs capitalized in property, plant and mine development was $1.6 million, $0.2 million$33 thousand and $0.5$2.0 million for the years ended December 31, 2017, 20162020 and 2015,2019, respectively.
During the years ended 2020, 2019 and 2018, impairment charges were recorded mainly related to facilities that have reduced capacity or have been idled, including Tyler, Texas, Sparta, Wisconsin, Utica, Illinois, Voca, Texas, Fairchild, Wisconsin, Rochelle, Illinois, Peru, Illinois, and Kosse, Texas. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations. See Note Y - Impairments for additional information.
On March 21, 2018, we completed the sale of 3 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, 2020 and 2019, vendor incentives of $4.8 million and $26.6 million, respectively, were classified in accounts payable and accrued expenses 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 did 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 years ended 2020 and 2019, management approved the disposal of certain non-operating parcels of land. The assets, which had a combined carrying value of approximately $3.2 million and $1.3 million, respectively, were classified as assets held for sale and were presented within Prepaid expenses and other current assets in the Consolidated Balance Sheets. The proceeds of the disposals were expected to equal or exceed the net carrying value of the assets and, accordingly, 0 impairment loss was recognized on these assets held for sale. The assets were previously classified as Land, therefore, no adjustments were needed for depreciation of these assets. We disposed of these assets within one year of the balance sheet date. During the fourth quarters of 2020 and 2019, we sold these assets at gains of $0.3 million and $0.6 million, respectively, which were recorded in Other income, net, including interest income in the Consolidated Statements of Operations.
NOTE H—I—GOODWILL AND INTANGIBLE ASSETS
Goodwill
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 |
| Balance at December 31, 2018 | 86,100 | | | 175,240 | | | 261,340 | |
| | | | | |
| EPMH acquisition and measurement period adjustment | 0 | | | 12,184 | | | 12,184 | |
| Balance at December 31, 2019 | 86,100 | | | 187,424 | | | 273,524 | |
| | | | | |
| Impairment losses | (86,100) | | | 0 | | | (86,100) | |
EPMH acquisition adjustment (1) | 0 | | | (1,775) | | | (1,775) | |
| Balance at December 31, 2020 | $ | 0 | | | $ | 185,649 | | | $ | 185,649 | |
(1) During the first quarter of 2020, an adjustment was made in accordance with ASC 250 to correct an immaterial error to acquisition accounting. We reclassified $1.8 million between goodwill and deferred tax liabilities. There was no impact to the Consolidated Statements of Operations. |
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | |
| | | Goodwill |
| Balance at December 31, 2015 | | $ | 68,647 |
|
| NBI acquisition | | 86,228 |
|
| Sandbox acquisition | | 86,100 |
|
| Balance at December 31, 2016 | | 240,975 |
|
| White Armor acquisition | | 3,912 |
|
| NBI acquisition measurement period adjustment | | 4,670 |
|
| MS Sand acquisition | | 52,187 |
|
| MS Sand acquisition measurement period adjustment | | (29,665 | ) |
| Balance at December 31, 2017 | | $ | 272,079 |
|
Goodwill represents the excess of purchase price over the fair value of net assets acquired from business acquisitions. Goodwill and trade names are reviewedevaluated for impairment annually as of October 31, or more frequently whenever events or circumstances change that would more likely than not reduce the fair valuewhen indicators of those assets.impairment exist. We completed 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 theour last quantitative impairment test,qualitative assessment, including the results of that test, macroeconomic conditions, industry and market conditions, and our overall financial performance. After assessing
As a result of triggering events identified during the totality of the eventsyears ended 2020 and circumstances,2018 we determined that it was not more likely than not that theperformed a quantitative analysis. The fair value of our reporting units was less than their carrying amount and, therefore, the first and second stepsdetermined using a combination of the quantitativediscounted cash flow method and the market multiples approach. As a result of this analysis we determined that the goodwill was impaired. We recognized goodwill impairment testcharges of $86.1 million and $164.2 million, respectively. NaN impairments were deemed unnecessary. Further, no triggering events have subsequently transpired that would indicate a potentialrecorded related to goodwill during the year ended 2019. These impairment as of December 31, 2017. Goodwill of $247.5 million has been allocatedcharges related to theour Oil & Gas Proppants business segment and $24.6 million towere recorded in the Industrial & Specialty Products business segment at December 31, 2017. Goodwill"Goodwill and other asset impairments" caption of $220.3 million has been allocated to the Oil & Gas Proppants business segment and $20.7 million to the Industrial & Specialty Products business segment at December 31, 2016.our Consolidated Statements of Operations. See Note Y - Impairments for additional information.
Intangible Assets
The changes in the carrying amount of intangible assets (in thousands) consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | December 31, 2019 |
| | Gross Carrying Amount | Accumulated Amortization | Impairments | Net | Gross Carrying Amount | Accumulated Amortization | Impairments | Net |
| | | | | | | | |
| Technology and intellectual property | $ | 71,052 | | $ | (18,854) | | (1,373) | | $ | 50,825 | | $ | 86,183 | | $ | (17,080) | | 0 | | $ | 69,103 | |
| Customer relationships | 66,999 | | (23,182) | | $ | 0 | | 43,817 | | 68,599 | | (18,737) | | (1,240) | | 48,622 | |
| Total definite-lived intangible assets: | $ | 138,051 | | $ | (42,036) | | $ | (1,373) | | $ | 94,642 | | $ | 154,782 | | $ | (35,817) | | $ | (1,240) | | $ | 117,725 | |
| Trade names | 65,390 | | — | | (1,150) | | 64,240 | | 65,390 | | — | | 0 | | 65,390 | |
| Other | 700 | | — | | 0 | | 700 | | 700 | | — | | 0 | | 700 | |
| Total intangible assets: | $ | 204,141 | | $ | (42,036) | | $ | (2,523) | | $ | 159,582 | | $ | 220,872 | | $ | (35,817) | | $ | (1,240) | | $ | 183,815 | |
During the years ended 2020, 2019, and 2018, we recorded impairments related to trade names, technology and intellectual property, and customer relationships. See Note Y - Impairments for additional information.
Estimated useful life of technology and intellectual property is 15 years. Estimated useful life of customer relationships is a range of 13 - 20 years.
During the second quarter of 2020, we expensed $11.8 million of capitalized legal fees related to the unsuccessful defense of a small number of our patents. These charges related to the Oil & Gas Proppants segment and were recorded in Selling, general, and administrative expense in the Consolidated Statement of Operations. During the first quarter of 2019, measurement period adjustments related to the Company's EPMH acquisition decreased the gross carrying amounts of the technology and intellectual property by $1.5 million and the trade names by $1.3 million. See Note E - Business Combinations.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 | | December 31, 2016 |
| | Estimated Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| | (in years) | | | | | | | | | | | | |
| Technology and intellectual property | 15 | | $ | 70,703 |
| | $ | (5,917 | ) | | $ | 64,786 |
| | $ | 58,658 |
| | $ | (1,388 | ) | | $ | 57,270 |
|
| Customer relationships | 13 - 15 | | 61,229 |
| | (9,076 | ) | | 52,153 |
| | 55,689 |
| | (4,799 | ) | | 50,890 |
|
| Total definite-lived intangible assets: | | | $ | 131,932 |
| | $ | (14,993 | ) | | $ | 116,939 |
| | $ | 114,347 |
| | $ | (6,187 | ) | | $ | 108,160 |
|
| Trade name | | | 33,068 |
| | — |
| | 33,068 |
| | 32,318 |
| | — |
| | 32,318 |
|
| Total intangible assets: | | | $ | 165,000 |
| | $ | (14,993 | ) | | $ | 150,007 |
| | $ | 146,665 |
| | $ | (6,187 | ) | | $ | 140,478 |
|
Amortization expense was $8.8$10.3 million, $3.2$10.8 million and $0.5$9.7 million for the years ended December 31, 2017, 20162020, 2019, and 2015.2018, respectively.
The estimated amortization expense related to definite-lived intangible assets (in thousands) for the five succeeding years is as follows:
| | | | | |
| 2021 | $ | 9,623 | |
| 2022 | $ | 9,608 | |
| 2023 | $ | 9,603 | |
| 2024 | $ | 9,605 | |
| 2025 | $ | 9,603 | |
|
| | | |
| 2018 | $ | 9,239 |
|
| 2019 | 9,239 |
|
| 2020 | 9,239 |
|
| 2021 | 9,239 |
|
| 2022 | 9,224 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I—J—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 20172020 and 2016,2019, accounts payable and accrued liabilities (in thousands) consisted of the following:
| | | | | | | | December 31, |
| | At December 31, | | 2020 | | 2019 |
| | 2017 | | 2016 | |
| Trade payables | | Trade payables | $ | 90,564 | | | $ | 181,029 | |
| Accrued salaries and wages | $ | 6,126 |
| | $ | 3,794 |
| Accrued salaries and wages | 7,432 | | | 12,385 | |
| Accrued vacation liability | 2,906 |
| | 2,471 |
| Accrued vacation liability | 2,499 | | | 3,053 | |
| Current portion of liability for pension and post-retirement benefits | 1,524 |
| | 1,553 |
| Current portion of liability for pension and post-retirement benefits | 1,338 | | | 2,993 | |
| Accrued healthcare liability | 1,837 |
| | 1,307 |
| Accrued healthcare liability | 1,886 | | | 4,078 | |
| Accrued property taxes and sales taxes | 2,720 |
| | 1,815 |
| Accrued property taxes and sales taxes | 5,136 | | | 4,070 | |
| Vendor incentives | | Vendor incentives | 4,782 | | | 26,617 | |
| Other accrued liabilities | 1,728 |
| | 2,094 |
| Other accrued liabilities | 8,283 | | | 14,012 | |
| Total accrued liabilities | $ | 16,841 |
| | $ | 13,034 |
| |
| Accounts payable and accrued liabilities | | Accounts payable and accrued liabilities | $ | 121,920 | | | $ | 248,237 | |
Other accrued liabilities consist of employer related expenses, royalties payable, accrued transportation and related costs, customer rebates, royaltiesinterest payable, and other items.
NOTE J—K—DEBT AND CAPITAL LEASES
At December 31, 20172020 and 2016,2019, debt (in thousands) consisted of the following:
|
| | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| Senior secured credit facility: | | |
|
|
| Revolver expiring July 23, 2018 (5.75% at December 31, 2017 and 5.25% at December 31, 2016) | $ | — |
| | $ | — |
|
| Term loan facility—final maturity July 23, 2020 (4.75%-5.25% at December 31, 2017 and 4.00% - 4.50% at December 31, 2016) | 489,075 |
| | 494,175 |
|
| Less: Unamortized original issue discount | (944 | ) | | (1,318 | ) |
| Less: Unamortized debt issuance cost | (3,099 | ) | | (4,482 | ) |
| Note payable secured by royalty interest | 24,740 |
| | 23,076 |
|
| Customer note payable | 745 |
| | 1,787 |
|
| Equipment notes payable | 719 |
| | — |
|
| Total debt | 511,236 |
| | 513,238 |
|
| Less: current portion | (4,504 | ) | | (4,821 | ) |
| Total long-term portion of debt | $ | 506,732 |
| | $ | 508,417 |
|
Revolving Line-of-Credit
We have a $50 million revolving line-of-credit (the "Revolver"), with zero drawn and $4.5 million allocated for letters of credit as of December 31, 2017, leaving $45.5 million available under the Revolver. | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Senior secured credit facility: | | | |
| Revolver expiring May 1, 2023 (4.19% at December 31, 2020 and 7.75% at December 31, 2019) | $ | 25,000 | | | $ | 0 | |
| Term Loan facility—final maturity May 1, 2025 (5.00% at December 31, 2020 and 5.81% December 31, 2019) | 1,234,800 | | | 1,247,600 | |
| Less: Unamortized original issue discount | (4,376) | | | (5,412) | |
| Less: Unamortized debt issuance cost | (20,259) | | | (25,390) | |
| Note payable secured by royalty interest | 0 | | | 10,438 | |
| Insurance financing notes payable | 4,187 | | | 5,055 | |
| Equipment notes payable | 0 | | | 87 | |
| Finance leases | 350 | | | 70 | |
| Total debt | 1,239,702 | | | 1,232,448 | |
| Less: current portion | (42,042) | | | (18,463) | |
| Total long-term portion of debt | $ | 1,197,660 | | | $ | 1,213,985 | |
Senior Secured Credit Facility
At December 31, 2017, contractual maturities ofOn May 1, 2018, we entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement"), which increased our senior secured credit facility (in thousands) are as follows:
|
| | | |
| 2018 | $ | 5,100 |
|
| 2019 | 5,100 |
|
| 2020 | 478,875 |
|
| Total | $ | 489,075 |
|
On July 23, 2013, we refinanced our then existing senior secured debt by amending our Term Loan and replacing our then existing revolving line-of-credit. The Term Loan amendment refinanced our then existing senior debt by entering into a new $425 million$1.380 billion senior secured credit facility,Credit Facility, consisting of a $375$1.280 billion term loan (the "Term Loan") and a $100 million Term Loan andrevolving credit facility (the "Revolver") (collectively the $50 million Revolver"Credit Facility") that may also
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be used for swingline loans (up to $5 million) or letters of credit, (upand we may elect to $20 million). The Term Loan amendment also, among other things, removed and amended certain financial and other covenants to provide additional operating flexibility, and lowered interest rates on borrowed amounts. The Term Loan will expire on July 23, 2020 andincrease the Revolver will expire on July 23, 2018. On December 5, 2014, we further increased our Term Loan by an additional $135 million to a total of approximately $502 millionterm loan in accordance with the incremental borrowing featureterms 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 our senior secured credit facility.
Our senior secured crediteach 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 a pledge of substantially all of our assets including accounts receivable, inventory, property, plant and mine development,of our domestic subsidiaries' assets and a pledge of the equity interests in certainsuch entities. The Term Loan matures on May 1, 2025, and the Revolver expires on May 1, 2023. We capitalized $38.7 million in debt issuance costs and original issue discount as a result of our subsidiaries. the new Credit Agreement.
The facilityCredit Agreement contains covenants that, among other things, governlimit 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. This includes a restriction on the ability of our operating subsidiaries to make distributions to us to the extent that the incurrence ratio (as defined in the senior secured credit facility) after giving effect to the distribution is 3:1 or greater. The facilityCredit Agreement also requires us to maintain a consolidated total net leverage ratio of no more than 3.75:1.00 as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 25%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, 20172020 and December 31, 2016,2019, we are in compliance with all covenants in accordance with our senior secured Credit Facility.
Term Loan
At December 31, 2020, contractual maturities of our senior secured Credit Facility (in thousands) are as follows:
| | | | | |
| 2021 | $ | 12,800 | |
| 2022 | 12,800 | |
| 2023 | 12,800 | |
| 2024 | 12,800 | |
| 2025 | 1,183,600 | |
| Thereafter | 0 | |
| Total | $ | 1,234,800 | |
During the third quarter of 2019, we repurchased outstanding debt under the Term Loan in the amount of $10 million at a rate of 95.5%. Debt issuance costs and original issue discount were recalculated with the reduced future debt payments, and additional costs of approximately $0.4 million were expensed. As a result, we recorded a gain on extinguishment of debt in the amount of $0.1 million. The gain on extinguishment was recorded in Other income, net, including interest income in the Consolidated Statements of Operations.
Revolving Line-of-Credit
We have a $100.0 million Revolver with $25.0 million drawn and $23.0 million allocated for letters of credit facility.as of December 31, 2020, leaving $52.0 million available under the Revolver. We have the intent and ability to repay the amounts outstanding on the Revolver within one year, therefore, the outstanding balance as of December 31, 2020 was classified as current.
Based on our consolidated leverage ratio of 6.07:1.00 as of December 31, 2020, we may draw up to $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.
Note Payable Secured by Royalty Interest
In connectionconjunction with the acquisition of NBINew Birmingham, Inc. 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: |
| | | |
| 2018 | $ | 1,750 |
|
| 2019 | 1,750 |
|
| 2020 | 1,750 |
|
| 2021 | 1,750 |
|
| 2022 | 1,750 |
|
| Thereafter | 15,990 |
|
| Total | $ | 24,740 |
|
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.
Theroyalty 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 discountdiscounted rate of 14%.
During the fourth quarter of 2020, we executed an amendment to the note payable which settled the outstanding balance in its entirety in exchange for a 1-time payment of $2.55 million. Future royalties may be owed under this amended agreement if we resume production at our Tyler facility, however, we have no such plans to resume production in the near term. Therefore, 0 amounts have been accrued. The settlement of the note payable resulted in a gain of $8.3 million which was recorded in Other income, net, including interest income in the Consolidated Statements of Operations. Gains in the amount of $16.9 million were recorded during 2019 as a result of a change in estimate of future tonnages and sales related to the sand shipped from the Tyler facility.
Insurance Financing Notes Payable
During the third quarter of 2020, we renewed our insurance policies and financed the payments through notes payable with a stated interest rate of 3.0%. These payments will be made in installments throughout a nine-month period and, as such, have been classified as current debt. As of December 31, 2017,2020, the notenotes payable had a balance of $24.7$4.2 million. The increase in this note payable amount is due to interest paid-in-kind. The effective interest rate
NOTE L—ASSET RETIREMENT OBLIGATIONS
Mine reclamation or future remediation costs for inactive mines are accrued based on management’s best estimate at the updated projected future cash paymentsend 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 24% atrevised.
As of December 31, 2017.
Customer Note Payable
In connection with the acquisition of NBI in August 2016,2020 and 2019, we assumed a customer note payable that was entered into by NBI. NBI entered into an amendment effective January 1, 2016. Terms of the amended agreement call for repayment of $2.5 million at 0% interest, in equal monthly payments beginning January 1, 2016 for 60 months, or $0.5 million per year. Additionally, the principal of this customer note payable can be reduced via future product load credit. We discounted the required future cash payments and projected product load credit using an effective interest rate of 3.5% and recorded the customer note payable at $1.9 million on the acquisition date. At December 31, 2017, the customer note payable had a balanceliability of $0.7 million.
Equipment Notes Payable
In connection with$24.7 million and $25.8 million, respectively, in other long-term obligations related to our asset retirement obligations. Changes in the acquisition of MS Sand in August 2017, we assumed notes payable, which are secured by equipment and bear interest rates between 0% to 5.2%. Maturities (in thousands) for the next five years required by the notes are as follows:
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | |
| 2018 | $ | 316 |
|
| 2019 | 286 |
|
| 2020 | 117 |
|
| Total | $ | 719 |
|
Capital Leases
We enter into financing arrangements from time to time to purchase machinery and equipment utilized in operations. At December 31, 2017, scheduled future minimum lease payments under capital leaseasset retirement obligations (in thousands) are as follows: |
| | | |
| 2018 | 721 |
|
| Total minimum lease payments | 721 |
|
| Less: amount representing interest | (15 | ) |
| Present value of minimum lease payments | 706 |
|
| Less: current portion of capital lease obligations | (706 | ) |
| Non-current portion of capital lease obligations | $ | — |
|
NOTE K—DEFERRED REVENUE
We enter into certain customer supply agreements which giveduring the customers the right to purchase certain products for a discounted price at certain volumes over an average initial contract term of one to five 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 yearyears ended December 31, 2017 we received advances2020 and 2019 are as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Beginning balance | $ | 25,825 | | | $ | 18,413 | |
| Accretion | 1,434 | | | 1,531 | |
| Additions and revisions of estimates | (2,542) | | | 5,881 | |
| Ending balance | $ | 24,717 | | | $ | 25,825 | |
The decrease in liability is primarily attributable to revisions of $50.5 million. At December 31, 2017 and 2016, the total deferred revenue balance was $118.4 million and $71.8 million, respectively,estimates of which $36.1 million and $13.7 million was classified as current in our Balance Sheets.closure dates of certain plant sites.
NOTE L—M—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 liabilitiesliabilities.
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, 20172020 and 20162019, 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, approximatesapproximate their carrying values based on their effective interest rates compared to current market rates.
Changes in the fair value of the royalty note payable utilize Level 3 inputs, such as estimates of future tonnages sold and average sales price. See Note K - Debt for more information on the change in fair value during the year ended December 31, 2020. As a result of the settlement of this royalty note payable in its entirety during the fourth quarter, the outstanding balance as of December 31, 2020 was 0.
Derivative Instruments
The estimated fair value of our derivative instruments (interest rate caps) are recorded at each reporting period and are based upon widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Additional disclosures for derivative instruments are presented in Note M - Derivative Instruments to these financial statements.
Although we have determined that the majority of the inputs used to value our derivatives fall withwithin 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, 2017, we have assessed that the impact of the credit valuation adjustments on the overall valuation of our derivative positions is not significant. As a result we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
In accordance with As of December 31, 2020, the fair value hierarchy, the following table presents the fair valueof our 2 interest rate swaps were both 0 as of Decemberour swap agreements matured on July 31, 2017 and 2016, respectively, of those instruments (in thousands) that we measure at fair value on a recurring basis:2020. See Note N - Derivative Instruments for more information.
NOTE N—DERIVATIVE INSTRUMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
| Interest rate derivatives | — |
| | — |
| | — |
| | — |
| | 72 |
| | 72 |
|
| Net asset | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 72 |
| | $ | 72 |
|
NOTE M—DERIVATIVE INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
We enter into interest rate capswap agreements in connection with theour Term Loan facility to add stability to interest expense and to manage our exposure to interest rate movements. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rateThe derivative instruments are recorded on the contract in exchange for an upfront premium.
The following table summarizesbalance sheet within other current or long-term assets or liabilities based on maturity dates at their fair values. As of December 31, 2020, the fair value of our derivative instruments (in thousands, except contract/notional amount). See Note L - Fair Value Accounting for additional disclosures regarding the estimated fair values of our derivative instruments atinterest rate swaps were both 0 as our swap agreements matured on July 31, 2020. At December 31, 2017, and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 | | | | December 31, 2016 |
| | Maturity
Date | | Contract/Notional
Amount | | Carrying
Amount | | Fair
Value | | Maturity
Date | | Contract/Notional
Amount | | Carrying
Amount | | Fair
Value |
Interest rate cap agreement(1) | 2019 | | $ | 249 | million | | $ | — |
| | $ | — |
| | 2019 | | $ | 249 | million | | $ | 72 |
| | $ | 72 |
|
(1) Agreements limit2019, the LIBOR floatingfair values of our 2 interest rate base to 4%.
swaps were a liability of $2.8 million and a liability of $1.3 million and were classified within other long-term liabilities on our balance sheet. We have designated these contractsthe 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 M - Fair Value Accounting for more information regarding the estimated fair values of our derivative instruments at December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | | December 31, 2019 |
| | 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 | | $ | 0 | | | $ | 0 | | | | 2020 | | $440 | million | | $ | (2,768) | | | $ | (2,768) | |
LIBOR(1) interest rate swap agreement | 2020 | | $200 | million | | $ | 0 | | | $ | 0 | | | | 2020 | | $200 | million | | $ | (1,259) | | | $ | (1,259) | |
| | | | | | | | | | | | | | | | |
(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 yearsyear ended December 31, 2017 and 2016,2019 we recognized $76 thousand of deferred losses in accumulated other comprehensive loss into earnings.
During the year ended December 31, 2020, we had no0 ineffectiveness for such contracts.the interest rate swap derivatives.
The following table summarizes the effect of derivativesderivative instruments (in thousands) on our income statements and our consolidated statements of comprehensive income for the years ended December 31, 2017, 20162020, 2019 and 2015.2018:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Deferred losses from derivatives in OCI, beginning of period | $ | (3,053) | | | $ | (1,621) | | | $ | (76) | |
| Gain (loss) recognized in OCI from derivative instruments | 3,053 | | | (1,432) | | | (1,622) | |
| Loss reclassified from Accumulated OCI | 0 | | | 0 | | | 77 | |
| Deferred losses from derivatives in OCI, end of period | $ | 0 | | | $ | (3,053) | | | $ | (1,621) | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Deferred losses from derivatives in OCI, beginning of period | $ | (32 | ) | | $ | (81 | ) | | $ | (134 | ) |
| Loss recognized in OCI from derivative instruments | (45 | ) | | (32 | ) | | — |
|
| Gain reclassified from Accumulated OCI | 1 |
| | 81 |
| | 53 |
|
| Deferred losses from derivatives in OCI, end of period | $ | (76 | ) | | $ | (32 | ) | | $ | (81 | ) |
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N—O—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 2015.2015 and amended and restated effective February 1, 2020. 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, 2017,2020, we have 4,452,8703,752,317 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, 2017:2020:
| | | | | | | | | | Number of
Shares | | Weighted
Average
Exercise Price | | Aggregate Intrinsic Value | | Weighted
Average
Remaining Contractual Term in Years |
| | Number of Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value (in thousands) | | Weighted Average Remaining Contractual Term in Years | |
| Outstanding at December 31, 2016 | 952,693 |
| | 27.99 |
| | | | |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 826,658 | | | $ | 28.97 | | | $ | 11,557 | | | 4.1 years |
| Granted | — |
| | — |
| | | | Granted | 0 | | | 0 | | | — | | |
| Exercised | (43,774 | ) | | 18.22 |
| | | | Exercised | 0 | | | 0 | | | — | | |
| Forfeited | — |
| | — |
| | | | Forfeited | (443) | | | 32.41 | | | — | | |
| Outstanding at December 31, 2017 | 908,919 |
| | 28.46 |
| | $ | 7,008 |
| | 6.1 years | |
| Exercisable at December 31, 2017 | 736,480 |
| | 26.79 |
| | $ | 6,707 |
| | 5.8 years | |
| Expired | | Expired | 0 | | | $ | 0 | | | $ | — | | |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 826,215 | | | $ | 29.05 | | | $ | 0 | | | 3.1 years |
| Exercisable at December 31, 2020 | | Exercisable at December 31, 2020 | 826,215 | | | $ | 29.05 | | | $ | 0 | | | 3.1 years |
There were no0 grants of stock options during the years ended December 31, 20172020, 2019 and 2016.2018.
There were 0, 10,000 and 4,167 stock options exercised during the years ended December 31, 2020, 2019 and 2018, respectively. The total intrinsic value of stock options exercised was $1.2 million, $7.6 million,0, $12 thousand and $0.4$0.1 million for the years ended December 31, 2017, 20162020, 2019 and 20152018, respectively. Cash received from stock options exercised in 2017during the years ended December 31, 2020, 2019 and 2018 was $0.8 million.0, $0.1 million and $0.1 million, respectively. The tax benefit realized from stock option exercises totaled $0.4 million, $2.9 million,was 0, $3 thousand and zero$14 thousand for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
As of December 31, 2020 and 2019, there was 0 unrecognized compensation expense related to these options. We recognized $2.5 million, $3.0 million, and $3.4$1.4 million of equity-based compensation expense related to these options during the yearsyear ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $1.2 million of total unrecognized compensation expense related to these options, which is expected to be recognized over a weighted-average period of approximately 0.7 years.2018. 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, 2017:
|
| | | | | | |
| | Number of Shares | | Grant Date Weighted Average Fair Value |
| Unvested, December 31, 2016 | 557,716 |
| | $ | 24.33 |
|
| Granted | 156,164 |
| | 44.45 |
|
| Vested | (248,031 | ) | | 24.92 |
|
| Forfeited | (4,503 | ) | | 30.94 |
|
| Unvested, December 31, 2017 | 461,346 |
| | $ | 30.76 |
|
| | | | | | | | | | | |
| Number of Shares | | Grant Date Weighted
Average Fair Value |
| Unvested, December 31, 2019 | 1,020,248 | | | $ | 15.86 | |
| Granted | 1,590,170 | | | 4.09 | |
| Vested | (539,614) | | | 15.98 | |
| Forfeited | (290,978) | | | 10.66 | |
| Unvested, December 31, 2020 | 1,779,826 | | | $ | 6.22 | |
We granted 156,1641,590,170, 814,387 and 415,110 restricted stock and restricted stock unit awards during the yearyears ended December 31, 2017.2020, 2019 and 2018, respectively. The fair value of the awards was based on the market price of our stock at date of grant.
We recognized $7.1$8.1 million, $5.7$8.2 million and $3.9$7.6 million of equity-based compensation expense related to these restricted stock awards during the years ended December 31, 2017, 20162020, 2019 and 20152018, respectively. As of December 31, 2017,2020, there was $9.2$6.6 million of total unrecognized compensation expense related to these restricted stock awards, which is expected to be recognized over a weighted-average period of 1.71.6 years.
We also granted 335,039 awards, which included 58,246 forfeited and partially vested awards, during the year ended December 31, 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 $0.6 million of expense related to these awards for the year ended December 31, 2020. 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 $1.4 million over a period of 2.1 years.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Unit Awards
The following table summarizes the status of, and changes in, our performance share unit awards during the year ended December 31, 2017:
|
| | | | | | |
| | Number of Shares | | Grant Date Weighted Average Fair Value |
| Unvested, December 31, 2016 | 963,613 |
| | $ | 37.43 |
|
| Granted | 90,501 |
| | 67.69 |
|
| Vested | — |
| | — |
|
| Cancelled | (172,698 | ) | | 29.12 |
|
| Unvested, December 31, 2017 | 881,416 |
| | $ | 42.16 |
|
| | | | | | | | | | | |
| Number of Shares | | Grant Date Weighted
Average Fair Value |
| Unvested, December 31, 2019 | 838,722 | | | $ | 18.00 | |
| Granted | 1,020,161 | | | 6.57 | |
| Vested | 0 | | | 0 | |
| Forfeited/Cancelled | (345,235) | | | 24.23 | |
| Unvested, December 31, 2020 | 1,513,648 | | | $ | 12.36 | |
We granted 90,5011,020,161, 607,130 and 261,500 of performance share unit awards during the yearyears ended December 31, 2017.2020, 2019 and 2018, respectively. The grant date weighted average fair value forof these awards was estimated to be $67.69$6.57, $15.58 and $31.24 for the years ended December 31, 2020, 2019 and 2018, 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 TSRsTSR for each of the companies in the peer group over the three year period from January 1, 20172020 through December 31, 2019.2022 for the 2020 grant, January 1, 2019 through December 31, 2021 for the 2019 grant, and from January 1, 2018 through December 31, 2020 for the 2018 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 $15.5$6.8 million, $3.3$7.7 million and $3.4$13.3 million of compensation expense related to these performance share unit awards during the years ended December 31, 2017, 20162020, 2019 and 20152018, respectively. As of December 31, 2017,2020, there was $18.3$6.1 million of estimated total unrecognized compensation expense related to these performance share unit awards, which is expected to be recognized over a weighted-average period of 1.21.7 years.
We also granted cash awards during the year ended December 31, 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 $0.9 million of expense related to these awards for the year ended December 31, 2020. 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 $1.3 million over a period of 2.1 years.
NOTE O—P—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at December 31, 20172020(in thousands): | | | | | |
| Year ending December 31, | Minimum Purchase Commitments |
| 2021 | $ | 14,812 | |
| 2022 | 10,328 | |
| 2023 | 10,328 | |
| 2024 | 7,020 | |
| 2025 | 2,654 | |
| Thereafter | 6,604 | |
| Total future purchase commitments | $ | 51,746 | |
|
| | | | | | | |
Amounts in thousands
Year ending December 31, | Operating Lease Minimum Rental Payments | | Minimum Purchase Commitments |
| 2018 | $ | 69,892 |
| | $ | 28,099 |
|
| 2019 | 62,294 |
| | 18,938 |
|
| 2020 | 51,162 |
| | 10,168 |
|
| 2021 | 35,915 |
| | 5,736 |
|
| 2022 | 30,303 |
| | 3,886 |
|
| Thereafter | 55,626 |
| | 11,200 |
|
| Total future lease and purchase commitments | $ | 305,192 |
| | $ | 78,027 |
|
Operating Leases
We are obligated under certain operating leases for railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Certain operating lease agreements include options to purchase the equipment for fair market value at the end of the original lease term. In general, the above leases include renewal options and provide that we pay for all utilities, insurance, taxes and maintenance. Expense related to operating leases and rental agreements for the years ended December 31, 2017, 2016 and 2015 totaled approximately $68.3 million, $54.1 million and $48.2 million, respectively.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Minimum Purchase Commitments
We enter into service agreements with our transload service providers and transportation service providers. Some of these agreements require us to purchase a minimum amount of services over a specific period of time. Any inability to meet these minimum contract requirements requires us to pay a shortfall fee, which is based on the difference between the minimum amount contracted for and the actual amount purchased.
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"Silica”), has been named as a defendant in various product liability claims alleging silica exposure causing silicosis. During the yearyears ended December 31, 2017, no new2020, 2019 and 2018, 1, 1 and 20 claims, respectively, were brought against U.S. Silica. U.S. Silica was named as a defendant in two claims filed during the year ended December 31, 2016 and no claims filed in 2015. As of December 31, 2017,2020, there were 5952 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.
For periods prior to 1986, U.S. Silica had numerous insurance policies and an indemnity from a former owner that covered silicosis claims. In the fourth quarter of 2012, U.S. Silica settled all rights under the indemnity and its underlying insurance. The settlement was received during the first quarter of 2013. As a result of the settlement, the indemnity and related policies are no longer available to U.S. Silica and U.S. Silica will not seek reimbursement for any defense costs or claim payments. Other insurance policies, however, continue to remain available to U.S. Silica.
We have recorded estimated liabilities for these claims in other long-term obligations as well as estimated recoveries under the indemnity agreement and an estimate of future recoveries under insurance in other assets on our consolidated balance sheets. As of both December 31, 20172020 and 2016,2019, other non-current assets included zero and $0.3 million, respectively,0 for insurance for third-party products liability claims. As of December 31, 2017claims and 2016, other long-term obligations included $1.0 million and $1.3$0.9 million, respectively, infor third-party products claims liability.liability claims.
Additionally, during 2015, we received an unfavorable rulingObligations Under Guarantees
We have indemnified our insurers against any loss they may incur in an arbitration proceeding as a resultthe event that holders of exiting a toll manufacturing contract.surety bonds, issued on our behalf, execute the bonds. As of December 31, 2020, there were $35.1 million in bonds outstanding. The matter was settledmajority of these bonds, $31.1 million, relate to reclamation requirements issued by various government authorities. Reclamation bonds remain outstanding until the mining area is reclaimed and the settlement amount of $6.5 million was paid on June 9, 2015, which was included in selling, generalauthority issues a formal release. The remaining bonds relate to licenses, permits, and administrative expense in our Income Statement for the year ended December 31, 2015.tax collections.
NOTE P—Q— PENSION AND POST-RETIREMENT BENEFITS
We maintain a single-employer noncontributory defined benefit pension plan covering certain employees. There have been no new entrants to theThe plan since May 2009 when the plan wasis frozen to all new employees. The plan provides benefits based on each covered employee’s years of qualifying service. Our funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for the plan consistent with a goal of appropriate minimization of the unfunded projected benefit obligation.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.
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.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 healthcarehealth 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 incurredincurred.
Net pension benefit cost (in thousands) consisted of the following for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
| | | | Years Ended December 31, | | | Year Ended
December 31, |
| | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| Service cost | $ | 1,037 |
| | $ | 1,078 |
| | $ | 1,295 |
| Service cost | | $ | 2,253 | | | $ | 1,304 | | | $ | 1,307 | |
| Interest cost | 3,971 |
| | 4,067 |
| | 4,813 |
| Interest cost | | 4,037 | | | 5,375 | | | 4,632 | |
| Expected return on plan assets | (5,265 | ) | | (5,495 | ) | | (5,498 | ) | Expected return on plan assets | | (6,019) | | | (6,171) | | | (5,969) | |
| Net amortization and deferral | 1,773 |
| | 1,592 |
| | 2,665 |
| Net amortization and deferral | | 3,127 | | | 1,648 | | | 2,526 | |
| Net pension benefit costs | $ | 1,516 |
| | $ | 1,242 |
| | $ | 3,275 |
| Net pension benefit costs | | $ | 3,398 | | | $ | 2,156 | | | $ | 2,496 | |
Net post-retirement benefit cost (in thousands) consisted of the following for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Service cost | | $ | 70 | | | $ | 88 | | | $ | 102 | |
| Interest cost | | 584 | | | 789 | | | 740 | |
| Unrecognized net (gain)/loss | | 0 | | | (29) | | | 0 | |
| Net post-retirement benefit costs | | $ | 654 | | | $ | 848 | | | $ | 842 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Service cost | $ | 107 |
| | $ | 132 |
| | $ | 176 |
|
| Interest cost | 753 |
| | 876 |
| | 1,074 |
|
| Expected return on plan assets | (1 | ) | | (1 | ) | | (1 | ) |
| Net amortization and deferral | — |
| | — |
| | 281 |
|
| Special termination benefit | — |
| | 21 |
| | 48 |
|
| Net post-retirement costs | $ | 859 |
| | $ | 1,028 |
| | $ | 1,578 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 20172020 and 20162019 are as follows:
| | | | Pension Benefits | | Post-retirement Benefits | | Pension Benefits | | Post-retirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| Benefit obligation at January 1, | $ | 116,145 |
| | $ | 115,420 |
| | $ | 24,393 |
| | $ | 25,091 |
| Benefit obligation at January 1, | $ | 148,491 | | | $ | 138,900 | | | $ | 22,054 | | | $ | 21,570 | |
| Service cost | 1,037 |
| | 1,078 |
| | 107 |
| | 132 |
| Service cost | 2,253 | | | 1,304 | | | 70 | | | 88 | |
| Interest cost | 3,971 |
| | 4,067 |
| | 753 |
| | 876 |
| Interest cost | 4,037 | | | 5,375 | | | 584 | | | 789 | |
| Actuarial (gain) loss | 6,824 |
| | 1,640 |
| | (1,576 | ) | | (802 | ) | Actuarial (gain) loss | 11,119 | | | 17,225 | | | 1,329 | | | 206 | |
| Benefits paid | (6,685 | ) | | (6,517 | ) | | (1,280 | ) | | (1,332 | ) | Benefits paid | (8,649) | | | (14,922) | | | (1,751) | | | (815) | |
| Amendments | 760 |
| | 457 |
| | — |
| | — |
| |
| Special termination benefits | — |
| | — |
| | — |
| | 21 |
| |
| Other | — |
| | — |
| | 374 |
| | 407 |
| |
Other(1) | | Other(1) | (53) | | | 609 | | | (10,968) | | | 216 | |
| Benefit obligation at December 31, | $ | 122,052 |
| | $ | 116,145 |
| | $ | 22,771 |
| | $ | 24,393 |
| Benefit obligation at December 31, | $ | 157,198 | | | $ | 148,491 | | | $ | 11,318 | | | $ | 22,054 | |
| Fair value of plan assets at January 1, | $ | 83,850 |
| | $ | 84,716 |
| | $ | 14 |
| | $ | 17 |
| Fair value of plan assets at January 1, | $ | 110,431 | | | $ | 102,396 | | | $ | 0 | | | $ | 0 | |
| Actual return on plan assets | 12,757 |
| | 5,651 |
| | (1 | ) | | (3 | ) | Actual return on plan assets | 13,306 | | | 17,919 | | | 0 | | | 0 | |
| Employer contributions | 2,145 |
| | — |
| | 893 |
| | 925 |
| Employer contributions | 5,475 | | | 4,755 | | | 1,335 | | | 599 | |
| Benefits paid | (6,685 | ) | | (6,517 | ) | | (1,280 | ) | | (1,332 | ) | Benefits paid | (8,649) | | | (14,922) | | | (1,751) | | | (815) | |
| Other | — |
| | — |
| | 374 |
| | 407 |
| |
Other(1) | | Other(1) | 0 | | | 283 | | | 416 | | | 216 | |
| Fair value of plan assets at December 31, | $ | 92,067 |
| | $ | 83,850 |
| | $ | — |
| | $ | 14 |
| Fair value of plan assets at December 31, | $ | 120,563 | | | $ | 110,431 | | | $ | 0 | | | $ | 0 | |
| Plan assets less than benefit obligations at December 31 recognized as liability for pension and other post-retirement benefits | $ | (29,985 | ) | | $ | (32,295 | ) | | $ | (22,771 | ) | | $ | (24,379 | ) | Plan assets less than benefit obligations at December 31 recognized as liability for pension and other post-retirement benefits | $ | (36,635) | | | $ | (38,060) | | | $ | (11,318) | | | $ | (22,054) | |
| | | | | |
| (1) | | Includes opening pension benefit obligation and plan assets balances related to the May 1, 2018, EPMH acquisition
and a post-retirement plan amendment that replaces the current post-65 medical, prescription drug and dental coverage with company provided health reimbursement arrangement contributions. The plan amendment was communicated to participants in December 2020 and is expected to be implemented April 1, 2021.
|
The accumulated benefit obligation for the defined benefit pension plans, which excludes the assumption of future salary increases, totaled $122.0$157.2 million and $116.0$148.5 million at December 31, 20172020 and 2016,2019, respectively.
The amendments in 2017 and 2016 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 $1.6 million, $1.6 million and zero0, respectively, at December 31, 20172020 and $1.6 million, $1.6 million and zero0, respectively, at December 31, 2016. 2019.
Future estimated annual benefit payments (in thousands) for pension and post-retirement benefit obligations at December 31, 20172020 are as follows:
|
| | | | | | | | | | | |
| | Benefits |
| | | | Post-retirement |
| | Pension | | Before Medicare Subsidy | | After Medicare Subsidy |
| 2018 | $ | 7,195 |
| | $ | 1,536 |
| | $ | 1,400 |
|
| 2019 | 7,334 |
| | 1,480 |
| | 1,345 |
|
| 2020 | 7,409 |
| | 1,490 |
| | 1,358 |
|
| 2021 | 7,446 |
| | 1,571 |
| | 1,438 |
|
| 2022 | 7,573 |
| | 1,600 |
| | 1,465 |
|
| 2023-2027 | 38,030 |
| | 7,892 |
| | 7,178 |
|
| | | | | | | | | | | | | | | | | |
| | Benefits |
| | | | Post-retirement |
| | Pension | | Before
Medicare
Subsidy | | After
Medicare
Subsidy |
| 2021 | $ | 9,329 | | | $ | 1,217 | | | $ | 1,217 | |
| 2022 | 9,346 | | | 1,095 | | | 1,095 | |
| 2023 | 9,326 | | | 1,002 | | | 1,002 | |
| 2024 | 9,678 | | | 959 | | | 959 | |
| 2025 | 9,224 | | | 883 | | | 883 | |
| 2026-2030 | 44,832 | | | 3,393 | | | 3,393 | |
Our best estimate of expected contributions to the pension and post-retirement medical benefit plans for the 20182021 fiscal year are $2.5$5.3 million and $1.4$1.2 million, respectively.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts in accumulated other comprehensive income 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 | $ | 1,877 |
| | $ | — |
| | $ | 1,877 |
|
| Prior service cost | 534 |
| | — |
| | 534 |
|
| | $ | 2,411 |
| | $ | — |
| | $ | 2,411 |
|
The total amounts in accumulated other comprehensive income (loss) related to net actuarial loss, net of tax, for both qualifiedthe pension and post-retirement plans was $13.5were $24.7 million and $13.8$22.1 million as of December 31, 20172020 and 2016,2019, respectively. The total amounts in accumulated other comprehensive income (loss) related to prior service cost, net of tax, for boththe pension and post-retirement plans, was $0.5a loss of $9.4 million and income of $2.2 million as of December 31, 20172020 and 2016.2019, respectively.
The actuarial losses in 2020 and 2019 were primarily driven by the change in discount rates on the U.S. qualified plan and Postretirement Medical plans. The impact of the discount rate change was partially offset by the actual return on plan assets exceeding the expected return on plan assets. Additionally, the Society of Actuaries released an updated mortality table projection scale for measurement of retirement program obligations in both 2020 and 2019. The impact of the mortality table changes provided a partial offset of the impact of the discount rate change.
The following weighted-average assumptions were used to determine our obligations under the plans:
| | | | Pension Benefits | | Post-retirement Benefits | | Pension Benefits | | Post-retirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| Discount rate | 3.7 | % | | 4.2 | % | | 3.7 | % | | 4.2 | % | Discount rate | 2.5 | % | | 3.2 | % | | 2.1 | % | | 3.2 | % |
| Long-term rate of compensation increase | 3.5 | % | | 3.5 | % | | N/A |
| | N/A |
| Long-term rate of compensation increase | 3.0% | | 3.0%-3.5% | | N/A | | N/A |
| Long-term rate of return on plan assets | 6.8 | % | | 7.0 | % | | 7.0 | % | | 7.0 | % | Long-term rate of return on plan assets | 6.3 | % | | 6.3% | | N/A | | N/A |
| Health care cost trend rate: | | | | | | | | Health care cost trend rate: | |
| Pre-65 initial rate/ultimate rate | N/A |
| | N/A |
| | 7.3%/4.5%
|
| | 7.3%/5.0% |
| Pre-65 initial rate/ultimate rate | N/A | | N/A | | 6.5%/4.5% | | 7.0%/4.5% |
| Pre-65 ultimate year | N/A |
| | N/A |
| | — |
| | — |
| Pre-65 ultimate year | N/A | | N/A | | 2028 | | 2026 |
| Post-65 initial rate/ultimate rate | N/A |
| | N/A |
| | 8.0%/4.5%
|
| | 8.5%/5.0% |
| Post-65 initial rate/ultimate rate | N/A | | N/A | | 7.0%/4.5% | | 7.5%/4.5% |
| Post-65 ultimate year | N/A |
| | N/A |
| | 2025/2026
|
| | 2024/2025 |
| Post-65 ultimate year | N/A | | N/A | | 2028 | | 2027 |
The weighted average discount raterates used to determine the projected pension and post-retirement obligations waswere updated in 2017, and was decreased from 4.2% at December 31, 2016 to 3.7% at December 31, 2017. The discount rate reflectsreflect the expected long-term rates of return with maturities comparable to payments for the plan obligations utilizing Aon Hewitt's AA Only Above Medium Curve.
In 2016, we changed the method utilized to estimate the service cost and interest cost components of net periodic benefit costs for our defined benefit pension and other post-retirement benefit plans. Historically, we estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to use a spot rate approach in the estimation of these components of benefit cost by applying the specific rates along the yield curve to the relevant projected cash flows, as we believe this provides a better estimate of service and interest costs. We consider this a change in estimate and, accordingly, have accounted for it prospectively starting in 2016. This change does not affect the measurement of our total benefit obligation.
Mortality tables used for pension benefits and post-retirement benefits plans are the following: |
| | | |
| | Pension Benefits and Post-retirement Benefits |
| | 2017 | | 2016 |
| Healthy Lives | RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2017
| | RP-2014 mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2016
|
| Disabled Lives | RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2017
| | RP-2014 disabled retiree mortality table, adjusted back to 2006 base rates, with generational mortality improvements using Scale MP-2016
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 | $ | 113 |
| | $ | (95 | ) |
| Effect on post-retirement benefit obligation | 2,598 |
| | (2,209 | ) |
| | | | | | | | | | | |
| | Pension and Post-retirement Benefits |
| | 2020 | | 2019 |
| Healthy Lives | Pri-2012 base mortality tables with generational mortality improvements using Scale MP-2020
| | Pri-2012 base mortality tables with generational mortality improvements using Scale MP-2019 |
| Disabled Lives | Pri-2012 base mortality tables with generational mortality improvements using Scale MP-2020
| | Pri-2012 base mortality tables with generational mortality improvements using Scale MP-2019 |
The major investment categories and their relative percentage of the fair value of total plan assets as invested at December 31, 2017,2020, and 2016 are2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Post-retirement Benefits(1) |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Equity securities | 57.9 | % | | 52.1 | % | | 0 | % | | 0 | % |
| Debt securities | 41.3 | % | | 46.6 | % | | 0 | % | | 0 | % |
| Cash | 0.8 | % | | 1.3 | % | | 0 | % | | 0 | % |
| | | | | |
| (1) | | Retiree health benefits are paid by the Company as covered expenses are incurred. |
|
| | | | | | | | | | | |
| | Pension Benefits | | Post-retirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Equity securities | 51.8 | % | | 59.4 | % | | — | % | | 64.0 | % |
| Debt securities | 46.3 | % | | 38.3 | % | | — | % | | 39.1 | % |
| Cash | 1.9 | % | | 2.3 | % | | — | % | | (3.1 | )% |
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the pension plan assets (in thousands) at December 31, 2017,2020, by asset category, arewere as follows:
| | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash and cash equivalents | $ | — |
| | $ | 1,727 |
| | $ | — |
| | $ | 1,727 |
| Cash and cash equivalents | $ | 0 | | | $ | 1,020 | | | $ | 0 | | | $ | 1,020 | |
| Mutual funds: | | | | | | | | Mutual funds: | |
| Diversified emerging markets | 8,300 |
| | — |
| | — |
| | 8,300 |
| Diversified emerging markets | 7,064 | | | 0 | | | 0 | | | 7,064 | |
| Foreign large blend | 11,856 |
| | — |
| | — |
| | 11,856 |
| Foreign large blend | 22,638 | | | 0 | | | 0 | | | 22,638 | |
| Large-cap blend | 15,643 |
| | — |
| | — |
| | 15,643 |
| Large-cap blend | 22,272 | | | 0 | | | 0 | | | 22,272 | |
| Mid-cap blend | 8,334 |
| | — |
| | — |
| | 8,334 |
| Mid-cap blend | 12,972 | | | 0 | | | 0 | | | 12,972 | |
| Real estate | 3,591 |
| | — |
| | — |
| | 3,591 |
| Real estate | 4,822 | | | 0 | | | 0 | | | 4,822 | |
| Fixed income securities: | | | | | | | | Fixed income securities: | |
| Corporate notes and bonds | 28,108 |
| | — |
| | — |
| | 28,108 |
| Corporate notes and bonds | 38,983 | | | 0 | | | 0 | | | 38,983 | |
| Government agencies | — |
| | — |
| | — |
| | — |
| |
| U.S. Treasuries | 10,846 |
| | — |
| | — |
| | 10,846 |
| U.S. Treasuries | 8,582 | | | 0 | | | 0 | | | 8,582 | |
| Mortgage-backed securities | — |
| | 2,615 |
| | — |
| | 2,615 |
| Mortgage-backed securities | 0 | | | 1,780 | | | 0 | | | 1,780 | |
| Asset-backed securities | — |
| | 1,047 |
| | — |
| | 1,047 |
| Asset-backed securities | 0 | | | 430 | | | 0 | | | 430 | |
| Net asset | $ | 86,678 |
| | $ | 5,389 |
| | $ | — |
| | $ | 92,067 |
| Net asset | $ | 117,333 | | | $ | 3,230 | | | $ | 0 | | | $ | 120,563 | |
The fair values of the pension plan assets (in thousands) at December 31, 2016,2019, by asset category, arewere as follows:
| |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash and cash equivalents | $ | — |
| | $ | 1,893 |
| | $ | — |
| | $ | 1,893 |
| Cash and cash equivalents | $ | 0 | | | $ | 1,385 | | | $ | 0 | | | $ | 1,385 | |
| Mutual funds: |
| |
| |
| |
| Mutual funds: | |
| Diversified emerging markets | 7,700 |
| | — |
| | — |
| | 7,700 |
| Diversified emerging markets | 4,942 | | | 0 | | | 0 | | | 4,942 | |
| Foreign large blend | 12,621 |
| | — |
| | — |
| | 12,621 |
| Foreign large blend | 19,183 | | | 0 | | | 0 | | | 19,183 | |
| Large-cap blend | 16,687 |
| | — |
| | — |
| | 16,687 |
| Large-cap blend | 20,738 | | | 0 | | | 0 | | | 20,738 | |
| Mid-cap blend | 8,674 |
| | — |
| | — |
| | 8,674 |
| Mid-cap blend | 8,416 | | | 0 | | | 0 | | | 8,416 | |
| Real estate | 4,070 |
| | — |
| | — |
| | 4,070 |
| Real estate | 4,309 | | | 0 | | | 0 | | | 4,309 | |
| Fixed income securities: |
|
| |
|
| |
|
| |
|
| Fixed income securities: | |
| Corporate notes and bonds | 21,357 |
| | — |
| | — |
| | 21,357 |
| Corporate notes and bonds | 37,664 | | | 0 | | | 0 | | | 37,664 | |
| Government agencies | 301 |
| | — |
| | — |
| | 301 |
| |
| U.S. Treasuries | 7,495 |
| | — |
| | — |
| | 7,495 |
| U.S. Treasuries | 10,894 | | | 0 | | | 0 | | | 10,894 | |
| Mortgage-backed securities | — |
| | 2,022 |
| | — |
| | 2,022 |
| Mortgage-backed securities | 0 | | | 2,496 | | | 0 | | | 2,496 | |
| Asset-backed securities | — |
| | 983 |
| | — |
| | 983 |
| Asset-backed securities | 0 | | | 404 | | | 0 | | | 404 | |
| Insurance policies | — |
| | — |
| | 47 |
| | 47 |
| |
| Net asset | $ | 78,905 |
| | $ | 4,898 |
| | $ | 47 |
| | $ | 83,850 |
| Net asset | $ | 106,146 | | | $ | 4,285 | | | $ | 0 | | | $ | 110,431 | |
We contribute to three3 multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. These plans allow multiple employers to pool their pension resources and realize efficiencies associated with the daily administration of the plan. Multiemployer plans are generally governed by a board of trustees composed of management and labor representatives and are funded through employer contributions. However, in most cases, management is not directly represented.
The risks of participating in multiemployer plans differ from single employer plans as follows: 1) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, 2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and 3) if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of each multiemployer pension plan for which we participate is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
Pension Fund | EIN/ Pension Plan No. | | Pension Protection Act Zone Status(1) | | FIP/RP Status Pending/ Implemented | | Company Contributions (in thousands) | | Surcharge Imposed | | Expiration Date of CBA |
| 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
| LIUNA | 52-6074345/001 | | Red | | Red | | Yes | | $ | 223 |
| | $ | 167 |
| | $ | 182 |
| | Yes | | 5/31/2020 |
| IUOE | 36-6052390/001 | | Green | | Green | | No | | 40 |
| | 28 |
| | 29 |
| | No | | 7/29/2018 |
CSSS(2) | 36-6044243/001 | | Red | | Red | | Yes | | 51 |
| | 51 |
| | 51 |
| | NA | | NA |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
| 2020 | | 2019 | | 2020 | | 2019 | | 2018 | |
| LIUNA | 52-6074345/001 | | Green | | Red | | No | | $ | 361 | | | $ | 385 | | | $ | 573 | | | No | | 6/4/2022 |
| IUOE | 36-6052390/001 | | Green | | Green | | No | | 256 | | | 310 | | | 1,385 | | | 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. |
(1)The Pension Protection Act of 2006 defines the zone status as follows: green—healthy, yellow—endangered, orange—seriously endangered and red—critical.
(2)In 2011, we withdrew from the Central States, Southeast and Southwest Areas Pension Plan. The withdrawal liability of $1.0 million will be paid in monthly installments of $4,000 until 2031.
Our contributions to individual multiemployer pension funds did not exceed 5% of the fund’s total contributions in any offor the three years ended December 31, 2017.2020, 2019 and 2018. Additionally, our contributions to multiemployer post-retirement benefit plans were immaterial for all periods presented in the accompanying consolidated financial statements.
We also sponsor a defined contribution plan covering certain employees. We contribute to the plan in two ways. For certain employees not covered by the defined benefit plan, we make a contribution equal to 4% of their salary. We also contribute an employee match of 25 cents, for each dollar contributed by an employee, up to 8% of their earnings. For certainall other eligible employees, we make a profit sharing matchcontribution of up to 25 cents, based on financial performance, for each dollar contributed up to 8%6% of theireligible earnings. Finally, for some employees, we make a catch-up match of 25 cents for each dollar of catch-up contributions. Contributions were $3.0$3.5 million, $2.4$6.1 million and $2.8$2.6 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
NOTE Q—R— 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. 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 (in thousands except for term and rate information) was as follows:
| | | | | | | | | | | |
| Leases | Classification | December 31, 2020 | December 31, 2019 |
| Assets | | | |
| Operating | Operating lease right-of-use assets | $ | 37,469 | | $ | 53,098 | |
| Finance | Property, plant and mine development, net | 339 | | 0 | |
| Total leased assets | | $ | 37,808 | | $ | 53,098 | |
| Liabilities | | | |
| Current | | | |
| Operating | Current portion of operating lease liabilities | $ | 17,388 | | $ | 53,587 | |
| Finance | Current portion of long-term debt | 55 | | 0 | |
| Non-Current | | | |
| Operating | Operating lease liabilities | 76,361 | | 117,964 | |
| Finance | Long-term debt, net | 295 | | 0 | |
| Total lease liabilities | | $ | 94,099 | | $ | 171,551 | |
We recorded impairment charges related to railcar leases, various equipment leases and an office building lease. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations. See Note Y - Impairments for additional information.
During the year ended 2020, we received lease concessions from certain lessors. Based on accounting elections provided by the FASB and in accordance with ASC 842-10, we have not accounted for these concessions as lease modifications. Based on remeasurement of the amended leases, for the year ended December 31, 2020, we recorded a decrease to the ROU assets of
$1.0 million and a decrease to the liability of $25.0 million. A gain of $24.0 million was recognized as operating income through cost of goods sold in our consolidated income statement for the year ended December 31, 2020.
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. As most of our leases do not provide an implicit rate, in determining the lease liability and the present value of lease payments, we used our incremental borrowing rate based on the information available at the lease commencement date. The weighted average remaining lease term and discount rate as of December 31, 2020 and 2019 related to leases are as follows:
| | | | | | | | |
| Lease Term and Discount Rate | December 31, 2020 | December 31, 2019 |
| Weighted average remaining lease term: | | |
| Operating leases | 6.9 years | 4.5 years |
| Finance leases | 2.9 years | N/A |
| | |
| Weighted average discount rate: | | |
| Operating leases | 5.8 | % | 5.7 | % |
| Finance leases | 5.0 | % | 0 | % |
The components of lease expense included in our Consolidated Statements of Operations were as follows:
| | | | | | | | | | | |
| Lease Costs | Classification | Year Ended
December 31, 2020 | Year Ended
December 31, 2019 |
Operating lease costs (1) | Cost of Sales | $ | 26,548 | | 88,966 | |
Operating lease costs (2) | Selling, general, and administrative | 1,808 | | 3,993 | |
| Right-of-use asset impairment | Goodwill and other asset impairments | 3,406 | | 115,443 | |
Total (3) | | $ | 31,762 | | 208,402 | |
(1) Includes short-term operating lease costs of $9.6 million and $18.2 million for the years ended December 31, 2020 and 2019, respectively.
(2) Includes short-term operating lease costs of $0.4 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively.
(3) Does not include expense for the year ended December 31, 2020 of $12 thousand for finance leases.
Supplemental cash flow information related to leases was as follows:
| | | | | | | | |
| Year Ended December 31, 2020 | Year Ended December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows for operating leases | $ | 62,140 | | $ | 74,740 | |
| Operating cash flows for finance leases | $ | 12 | | $ | 0 | |
| | |
| Right-of-use assets obtained in exchange for new lease liabilities: | | |
| Operating leases | $ | 10,747 | | $ | 232,123 | |
| Finance leases | $ | 359 | | $ | 0 | |
Maturities of lease liabilities as of December 31, 2020:
| | | | | | | | |
| Maturities of lease liabilities | Operating leases | Finance leases |
| 2021 | $ | 23,217 | | $ | 71 | |
| 2022 | 16,447 | | 71 | |
| 2023 | 16,019 | | 244 | |
| 2024 | 14,181 | | 0 | |
| 2025 | 11,617 | | 0 | |
| Thereafter | 38,205 | | 0 | |
| Total lease payments | $ | 119,686 | | 386 | |
| Less: Interest | 20,984 | | 36 | |
| Less: Other operating expenses | 4,953 | | 0 | |
| Total | $ | 93,749 | | 350 | |
NOTE S— INCOME TAXES
We evaluate our deferred tax assets periodically to determine if valuation allowances are required. Ultimately, the realization of deferred tax assets is dependent upon generation of future taxable income during those periods in which temporary differences become deductible and/or credits can be utilized. To this end, management considers the level of historical taxable income, the scheduled reversal of deferred tax liabilities, tax-planning strategies and projected future taxable income. Based on these considerations, and the carry-forward availability of a portion of the deferred tax assets, management believes it is more likely than not that we will realize the benefit of the deferred tax assets.
On December 22, 2017,March 27, 2020, the U.S. governmentCoronavirus Aid, Relief, and Economic Security Act ("CARES" Act) was enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changessigned into law in response to the U.S. tax code including, but not limitedCOVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to (1) bonus depreciation that will allowoffset 100% of taxable income for full expensing of qualified property; (2) reductiontaxable years beginning after 2017 and before 2021. In addition, the CARES Act allows NOLs generated after 2017 and before 2021 to be carried back to each of the U.S. federal corporatefive preceding taxable years to generate a refund of previously paid income taxes or carried forward indefinitely. As a result, we have carried the NOL generated in 2019 back to offset the taxable income in the 2014 tax rate; (3) eliminationyear generating a refund of $36.6 million. This refund was received at the end of the corporate alternative minimum tax; (4)second quarter. We have 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 new limitation on deductible interest expense; (5)refund of $26.3 million, of which $4.9 million was received during the repealfourth quarter. The remaining $21.4 million of this refund has been reclassified from deferred tax asset to accounts receivable in our balance sheets as of December 31, 2020. 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 domestic production activity deduction; (6) limitations oncarry back of these NOLs to prior years, the deductibility of certain executive compensation; and (7) limitations on net operating losses generated after December 31, 2017, to 80 percent of taxable income. We are not currently subject toNOLs will be utilized at the various international changes of the Tax Act.
The SEC staff issued SAB 118,statutory income tax rate for pre-2018, which provides guidance on accounting forwas 35%. This increase in 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 forrate at which the accounting under ASC 740 is complete. To the extent that2018 and 2019 NOLs will be utilized results in a company’s accounting for certain incomedeferred tax effectsbenefit. Accordingly, as of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. As we are not subject to either the international changes of the Tax Act or other applicable provisions, we believe that the income tax effects of the Tax Act applicable to our accounting under ASC 740 is substantially complete for the year ended December 31, 2017. Additional information that may affect the accounting under ASC 740 would include further clarification and guidance on how the Internal Revenue Service and state taxing authorities will implement the Tax Act. We do not believe potential adjustments in future periods would materially impact the Company’s financial condition or results of operations.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,2020, we are required to adjust deferred tax assets and liabilities as of December 22, 2017. Accordingly, we have 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 for$22.3 million.
We are currently still evaluating all provisions of the year ended December 31, 2017.
The expense or benefit forCARES Act and its impact on income taxes and our Consolidated Statements of Operation.
Income tax benefit (in thousands) consisted of the following for the years ended December 31, 2017, 20162020, 2019 and 2015:2018: | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Current: | | | | | |
| Federal | $ | 0 | | | $ | 0 | | | $ | 1,076 | |
| State | (307) | | | (1,188) | | | (2,496) | |
| Foreign | (1,473) | | | (1,343) | | | (518) | |
| (1,780) | | | (2,531) | | | (1,938) | |
| Deferred: | | | | | |
| Federal | 57,214 | | | 90,457 | | | 25,578 | |
| State | 4,591 | | | 11,225 | | | 5,492 | |
| Foreign | 0 | | | 0 | | | 0 | |
| 61,805 | | | 101,682 | | | 31,070 | |
| Income tax benefit | $ | 60,025 | | | $ | 99,151 | | | $ | 29,132 | |
Income tax 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, 2020, 2019 and 2018 due to the following: | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Income tax (expense) benefit computed at U.S. federal statutory rate | $ | 36,781 | | | $ | 90,070 | | | $ | 48,290 | |
| Decrease (increase) resulting from: | | | | | |
| Statutory depletion | 1,230 | | | 4,679 | | | 12,090 | |
| Goodwill impairment | 0 | | | 0 | | | (29,157) | |
| Prior year tax return reconciliation | (2,084) | | | 3,121 | | | 530 | |
| State income taxes, net of federal benefit | 5,013 | | | 9,486 | | | 2,592 | |
| Adjustment to deferred taxes from the CARES Act | 22,318 | | | 0 | | | 0 | |
| Equity compensation | (1,477) | | | (6,440) | | | (653) | |
| Other, net | (1,756) | | | (1,765) | | | (4,560) | |
| Income tax benefit | $ | 60,025 | | | $ | 99,151 | | | $ | 29,132 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | (10,754 | ) | | $ | 60 |
| | $ | (170 | ) |
| State | (1,167 | ) | | (274 | ) | | 1,448 |
|
| | $ | (11,921 | ) | | $ | (214 | ) | | $ | 1,278 |
|
| Deferred: | | | | | |
| Federal | 22,641 |
| | 32,944 |
| | 7,439 |
|
| State | (2,040 | ) | | 3,959 |
| | 3,034 |
|
| | $ | 20,601 |
| | $ | 36,903 |
| | $ | 10,473 |
|
| Income tax (expense) benefit | $ | 8,680 |
| | $ | 36,689 |
| | $ | 11,751 |
|
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.carryforwards.
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, 20172020 and 20162019 consisted of the following:
|
| | | | | | | |
| | At December 31, |
| | 2017 | | 2016 |
| Gross deferred tax assets: | | | |
| Net operating loss carry forward and state tax credits | $ | 22,783 |
| | $ | 65,022 |
|
| Pension and post-retirement benefit costs | 13,710 |
| | 22,920 |
|
| Alternative minimum tax credit carry forward | 30,401 |
| | 19,431 |
|
| Property, plant and equipment | 5,750 |
| | 6,112 |
|
| Accrued expenses | 10,755 |
| | 6,752 |
|
| Inventories | 4,354 |
| | 4,362 |
|
| Third-party products liability | 249 |
| | 511 |
|
| Stock-based compensation expense | 8,785 |
| | 5,576 |
|
| Note payable | 3,133 |
| | 4,009 |
|
| Other | 5,095 |
| | 5,458 |
|
| Total deferred tax assets | $ | 105,015 |
| | $ | 140,153 |
|
| Gross deferred tax liabilities: | | | |
| Land and mineral property basis difference | $ | (78,520 | ) | | $ | (126,315 | ) |
| Fixed assets and depreciation | (51,556 | ) | | (61,531 | ) |
| Intangibles | (4,795 | ) | | (2,260 | ) |
| Other | — |
| | (122 | ) |
| Total deferred tax liabilities | $ | (134,871 | ) | | $ | (190,228 | ) |
| Net deferred tax liabilities | $ | (29,856 | ) | | $ | (50,075 | ) |
| | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Gross deferred tax assets: | | | |
| Net operating loss carry forward and state tax credits | $ | 90,087 | | | $ | 32,173 | |
| Pension and post-retirement benefit costs | 11,146 | | | 13,976 | |
| Alternative minimum tax credit carry forward | 0 | | | 7,895 | |
| Property, plant and equipment | 6,866 | | | 7,179 | |
| Accrued expenses | 12,397 | | | 15,336 | |
| Inventories | 121 | | | 6,507 | |
| Federal tax credits | 4,188 | | | 0 | |
| Stock-based compensation expense | 4,307 | | | 2,390 | |
| Interest expense limitation | 14,127 | | | 22,324 | |
| Intangibles | 11,304 | | | 0 | |
| Lease obligation liability | 14,154 | | | 29,604 | |
| Other | 5,286 | | | 5,536 | |
| Total deferred tax assets | 173,983 | | | 142,920 | |
| Gross deferred tax liabilities: | | | |
| Land and mineral property basis difference | (122,265) | | | (124,182) | |
| Fixed assets and depreciation | (100,640) | | | (44,314) | |
| Intangibles | 0 | | | (12,541) | |
| Other | (464) | | | (468) | |
| Total deferred tax liabilities | (223,369) | | | (181,505) | |
| Net deferred tax liabilities | $ | (49,386) | | | $ | (38,585) | |
We have federal net operating loss carry forwards of approximately $93.4$377.1 million at December 31, 2017. The losses will expire in years 2027 through 2036. Approximately $69.0 million2020. A portion of thethose losses are subject to an annual limitation under Internal
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Code Section 382, but are expected to be fully realized. Under the Tax Act, net operating loss (NOL)NOL deductions arisinggenerated in tax years beginning after December 31, 2017 can offset 100% of taxable income for periods prior to 2021 but only offset up to 80 percent80% of future taxable income.income after 2020. The CARES Act also prohibits NOL carrybacks on NOLs generated after December 31, 2020 but allows indefinite carryforwards for NOLs arising in tax years beginning aftercarryforwards. As of December 31, 2017. Net operating losses arising before January 1, 20182020, we have general business credits of approximately $4.2 million, which will expire beginning in 2033. These credits are accounted for under the previous tax rules that imposed no limit on the amountexpected to be fully realized.
As 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.
Atended December 31, 20172020 and 2016,2019, we have an alternative minimum tax credit carry forward of approximately $30.4$16.0 million and $19.4$16.2 million, respectively. The TaxCARES Act repealsalso accelerates the corporateability of companies to receive refunds of alternative minimum tax (AMT), effective for("AMT") credits related to tax years beginning after December 31, 2017, but allows an entity to claim portions of any unusedin 2018 and 2019. AMT credits overhave been presented as a receivable or a deferred tax asset in the next four yearsprior period balance sheets. The presentation of refundable AMT credits in the current balance sheet has been reclassified from deferred tax asset to offset its regular tax liability. An entity with unusedaccounts receivable to reflect the timing of when the credits are expected to be monetized. AMT credits in the amount of $16.0 million are included in accounts receivable on our balance sheets as of December 31, 2017 can first use these credits2020. See Note F - Accounts Receivable.
Additionally, the CARES Act provides temporary relief for payment of certain payroll taxes. Prior to offset its regularthe CARES Act, payroll taxes generally would have been deductible for income tax purposes in the same period that they were expensed for 2017, and can then claim up to 50 percentbook purposes under the "recurring item exception" of the remaining AMT creditsInternal Revenue Code. However, if a company defers payment of its payroll taxes as a result of the CARES Act such that the recurring item exception no longer applies, accrued payroll taxes would not be deductible until the tax year in 2018, 2019,which they are actually paid. If the book expense and tax deduction are expected to occur in different periods, a deferred tax asset would need to be recorded for the deductible temporary difference related to the payroll tax accrual. As of December 31, 2020, with all remaining AMT credits refundable in 2021.our net deferred tax liability balance included deferred tax assets of $1.2 million related to deferred payroll taxes.
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, 20172020 or December 31, 20162019 and do not expect this to change significantly within the next twelve months. Tax returns filed with the IRS for the years 20142017 through 20162019 along with tax returns filed with numerous state entities remain subject to examination.
NOTE T— 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 income tax expense or benefit (in thousands) differed from the amount that would be providedfollowing table reflects our sales disaggregated by applying the U.S. federal statutory ratemajor source for the years ended December 31, 2017, 20162020 and 2015 due to the following:2019 (in thousands):
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Income tax (expense) benefit computed at U.S. federal statutory rate | $ | (47,784 | ) | | $ | 27,211 |
| | $ | (41 | ) |
| Decrease (increase) resulting from: | | | | | |
| Statutory depletion | 20,259 |
| | 4,734 |
| | 8,918 |
|
| Prior year tax return reconciliation | 219 |
| | 435 |
| | 393 |
|
| State income taxes, net of federal benefit | (2,267 | ) | | 2,369 |
| | 1,370 |
|
| Adjustment to deferred taxes from the Tax Act rate reduction | 35,772 |
| | — |
| | — |
|
| Equity compensation | 2,602 |
| | 2,003 |
| | — |
|
| Other, net | (121 | ) | | (63 | ) | | 1,111 |
|
| Income tax (expense) benefit | $ | 8,680 |
| | $ | 36,689 |
| | $ | 11,751 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | Year Ended December 31, 2019 |
| Category | | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales |
| Product | | $ | 301,199 | | | $ | 430,988 | | | $ | 732,187 | | $ | 704,516 | | | $ | 463,956 | | | $ | 1,168,472 | |
| Service | | 113,698 | | | 0 | | | 113,698 | | 306,005 | | | 0 | | | 306,005 | |
| Total Sales | | $ | 414,897 | | | $ | 430,988 | | | $ | 845,885 | | $ | 1,010,521 | | | $ | 463,956 | | | $ | 1,474,477 | |
The largest permanent item in computing both our effective tax rate and taxable income isfollowing tables reflect the deduction allowed for statutory depletion. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.our contract assets, which we classify as unbilled receivables and our contract liabilities, which we classify as deferred revenues, for the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | |
| | Unbilled Receivables |
| | December 31, 2020 | December 31, 2019 |
| Beginning Balance | | $ | 20,144 | | $ | 90 | |
| Reclassifications to billed receivables | | (10,330) | | (3,983) | |
| Revenues recognized in excess of period billings | | 38,168 | | 24,037 | |
| Ending Balance | | $ | 47,982 | | $ | 20,144 | |
NOTE R—OBLIGATIONS UNDER GUARANTEES 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.
| | | | | | | | | | | |
| | Deferred Revenue |
| | December 31, 2020 | December 31, 2019 |
| Beginning Balance | | $ | 50,634 | | $ | 113,319 | |
| Revenues recognized from balances held at the beginning of the period | | (19,704) | | (65,225) | |
| Revenues deferred from period collections on unfulfilled performance obligations | | 6,627 | | 12,225 | |
| Revenues recognized from period collections | | (3,865) | | (9,685) | |
| Ending Balance | | $ | 33,692 | | $ | 50,634 | |
We have indemnifiedelected 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 Travelers Companies, Inc.majority of our remaining performance obligations are primarily comprised of unfulfilled product, transportation service, and subsidiaries (“Travelers”) against any loss Travelers may incurlabor 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. However, the decrease in the event that holders of surety bonds, issued on behalf of us by Travelers, execute the bonds. Ascurrent year deferred revenue balance is partially attributable to revenue recognized as variable consideration from shortfall penalties assessed to multiple customers according to contract terms as of December 31, 2017, Travelers had $12.12020 and 2019. For the years ended December 31, 2020 and 2019, we recognized revenue as variable consideration from shortfall penalties according to contract terms in the amounts of $48.0 million and $70.6 million, respectively. In some cases, amounts recorded are estimates which are in bonds outstanding for us. The majoritynegotiation and may increase or decrease. We believe these amounts are the best estimates of these bonds, $10.3 million, relaterevenue 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 purposesrecognize as licenses, permits, and tax collection.of year end.
Foreign Operations
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table includes information related to our foreign operations for the years ended December 31, 2020, 2019, and 2018 (in thousands):
| | | | | | | | | | | |
| December 31, 2020 | December 31, 2019 | December 31, 2018 |
| Total Sales | $ | 86,179 | | $ | 92,788 | | $ | 66,917 | |
| Pre-tax income | $ | 8,509 | | $ | 7,010 | | $ | 5,901 | |
| Net income | $ | 6,722 | | $ | 5,538 | | $ | 4,662 | |
Foreign operations constituted approximately $31.0 million and $27.7 million of consolidated assets as of December 31, 2020 and 2019, respectively.
NOTE S—U— RELATED PARTY TRANSACTIONS
A currentformer employee, who was an officer of one of our operating subsidiaries holdsprior to the third quarter of 2018, held an ownership interest in a transportation brokerage and logistics services vendor, from which we made purchases of approximately $4.7$2.9 million and $0.8 million for the year ended December 31, 2018. There were 0 related party transactions during the years ended December 31, 2017 and 2016, respectively.2020 or 2019.
NOTE T—V— SEGMENT REPORTING
Our business is organized into two2 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 221 products400 product types and materials used in a variety of industries,markets including container glass, fiberglass, specialty glass, flat glass, building and construction products, fillers and extenders, filtration, glassmaking, absorbents, foundry, products, chemicals, recreation products and filtration products.sports and recreation.
An operating segment’s performance is primarily evaluated based on segment contribution margin, which excludes certainselling, general, and administrative costs, corporate costs, not associated with the operations of the segment. These corporate costs are separately stated belowplant capacity expansion expenses, and include costs that are related to functional areas such as operations management, corporate purchasing, accounting, treasury, information technology, legal and human resources.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, thissegment 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 generally accepted accounting principles.GAAP. The other accounting policies of each of the two reporting2 reportable segments are the same as those in Note B - Summary of Significant Accounting Policies to these financial statements.Consolidated Financial Statements.
The following table presents sales and segment contribution margin (in thousands) for the reportingreportable segments and other operating results not allocated to the reported segments for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
| | | | Years Ended December 31, | | | Year Ended
December 31, |
| | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| Sales: | | | | | | Sales: | | | | | | |
| Oil & Gas Proppants | $ | 1,020,365 |
| | $ | 362,550 |
| | $ | 430,435 |
| Oil & Gas Proppants | | $ | 414,897 | | | $ | 1,010,521 | | | $ | 1,182,991 | |
| Industrial & Specialty Products | 220,486 |
| | 197,075 |
| | 212,554 |
| Industrial & Specialty Products | | 430,988 | | | 463,956 | | | 394,307 | |
| Total sales | $ | 1,240,851 |
| | $ | 559,625 |
| | $ | 642,989 |
| Total sales | | 845,885 | | | 1,474,477 | | | 1,577,298 | |
| Segment contribution margin: | | | | | | Segment contribution margin: | |
| Oil & Gas Proppants | $ | 301,972 |
| | $ | 11,445 |
| | $ | 88,928 |
| Oil & Gas Proppants | | 142,041 | | | 248,594 | | | 357,846 | |
| Industrial & Specialty Products | 88,781 |
| | 78,988 |
| | 70,137 |
| Industrial & Specialty Products | | 159,176 | | | 178,215 | | | 155,084 | |
| Total segment contribution margin | $ | 390,753 |
| | $ | 90,433 |
| | $ | 159,065 |
| Total segment contribution margin | | 301,217 | | | 426,809 | | | 512,930 | |
| Operating activities excluded from segment cost of sales | (17,417 | ) | | (8,103 | ) | | (11,142 | ) | |
Operating activities excluded from segment cost of sales(1) | | Operating activities excluded from segment cost of sales(1) | | (30,402) | | | (85,625) | | | (98,761) | |
| Selling, general and administrative | (107,592 | ) | | (67,727 | ) | | (62,777 | ) | Selling, general and administrative | | (124,171) | | | (150,848) | | | (146,971) | |
| Depreciation, depletion and amortization | (97,233 | ) | | (68,134 | ) | | (58,474 | ) | Depreciation, depletion and amortization | | (155,568) | | | (179,444) | | | (148,832) | |
| Goodwill and other asset impairments | | Goodwill and other asset impairments | | (110,688) | | | (363,847) | | | (281,899) | |
| Interest expense | (31,342 | ) | | (27,972 | ) | | (27,283 | ) | Interest expense | | (79,885) | | | (95,472) | | | (70,564) | |
| Other income (expense), net, including interest income | (643 | ) | | 3,758 |
| | 728 |
| Other income (expense), net, including interest income | | 24,350 | | | 19,519 | | | 4,144 | |
| Income tax (expense) benefit | 8,680 |
| | 36,689 |
| | 11,751 |
| |
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
| |
| Income tax benefit | | Income tax benefit | | 60,025 | | | 99,151 | | | 29,132 | |
| Net loss | | Net loss | | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Less: Net loss attributable to non-controlling interest | | Less: Net loss attributable to non-controlling interest | | (1,028) | | | (675) | | | (13) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | | Net loss attributable to U.S. Silica Holdings, Inc. | | $ | (114,094) | | | $ | (329,082) | | | $ | (200,808) | |
| | | | | |
| (1) | 2019 and 2018 mainly driven by plant capacity expansion expenses, amortization of purchase accounting inventory fair value step-up, and facility closure costs. |
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. GoodwillAt December 31, 2020, goodwill of $272.1$185.6 million has been allocated to these segments with $247.50 assigned to Oil & Gas Proppants and $185.6 million to Industrial & Specialty Products. At December 31, 2019, goodwill of $273.5 million had been allocated to these segments with $86.1 million assigned to Oil & Gas Proppants and $24.6$187.4 million to Industrial & Specialty Products at December 31, 2017. Goodwill of $241.0 million has been allocated to these segments with $220.3 million assigned to Oil & Gas Proppants and $20.7 million to Industrial & Specialty Products at December 31, 2016.Products.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE U—W— 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, 20172020 and 2016.2019. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements and includes all adjustments, consisting only of normal recurring adjustments that are necessary to present fairly the financial information for the fiscal quarters presented. The income tax benefit amounts for 2016 first quarter and second quarter include the impacts from the early adoption of ASU 2016-09 discussed in Note B - Summary of Significant Accounting Policies to these financial statements.
| | | | | | | | | | | | | | |
| First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter |
| 2020 | (Unaudited) |
| Sales: | | | | |
| Product | $ | 222,161 | | $ | 160,200 | | $ | 159,637 | | $ | 190,189 | |
| Service | 47,438 | | 12,337 | | 16,835 | | 37,088 | |
| Cost of sales (excluding depreciation, depletion and amortization): | | | | |
| Product | 165,496 | | 114,130 | | 93,747 | | 113,609 | |
| Service | 35,821 | | 10,613 | | 13,845 | | 27,809 | |
| Operating expenses: | | | | |
| Selling, general and administrative | 30,052 | | 39,126 | | 27,216 | | 27,777 | |
| Depreciation, depletion and amortization | 38,449 | | 37,086 | | 40,069 | | 39,964 | |
|
| | | | | | | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| 2017 | (Unaudited) |
| Sales: | | | | | | | |
| Product | $ | 209,321 |
| | $ | 246,022 |
| | $ | 295,768 |
| | $ | 306,442 |
|
| Service | 35,476 |
| | 44,443 |
| | 49,255 |
| | 54,124 |
|
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | | | |
| Product | 162,637 |
| | 164,025 |
| | 189,105 |
| | 204,545 |
|
| Service | 24,838 |
| | 33,386 |
| | 38,818 |
| | 50,161 |
|
| Operating expenses: | | | | | | | |
| Selling, general and administrative | 22,341 |
| | 26,012 |
| | 29,602 |
| | 29,637 |
|
| Depreciation, depletion and amortization | 21,599 |
| | 23,626 |
| | 24,673 |
| | 27,335 |
|
| Total operating expenses | $ | 43,940 |
| | $ | 49,638 |
| | $ | 54,275 |
| | $ | 56,972 |
|
| Operating income | 13,382 |
| | 43,416 |
| | 62,825 |
| | 48,888 |
|
| Other income (expense): | | | | | | | |
| Interest expense | (7,646 | ) | | (8,105 | ) | | (8,347 | ) | | (7,244 | ) |
| Other income (expense), net, including interest income | (4,928 | ) | | 1,258 |
| | 1,502 |
| | 1,525 |
|
| Total other expense | $ | (12,574 | ) | | $ | (6,847 | ) | | $ | (6,845 | ) | | $ | (5,719 | ) |
| Income before income taxes | 808 |
| | 36,569 |
| | 55,980 |
| | 43,169 |
|
| Income tax (expense) benefit | 1,714 |
| | (7,110 | ) | | (14,707 | ) | | 28,783 |
|
| Net income | $ | 2,522 |
| | $ | 29,459 |
| | $ | 41,273 |
| | $ | 71,952 |
|
| Earnings per share, basic | $ | 0.03 |
| | $ | 0.36 |
| | $ | 0.51 |
| | $ | 0.89 |
|
| Earnings per share, diluted | $ | 0.03 |
| | $ | 0.36 |
| | $ | 0.50 |
| | $ | 0.88 |
|
| Weighted average shares outstanding, basic | 80,983 |
| | 81,087 |
| | 81,121 |
| | 81,014 |
|
| Weighted average shares outstanding, diluted | 82,244 |
| | 81,945 |
| | 81,783 |
| | 81,921 |
|
| Dividends declared per share | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.06 |
|
| | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| 2016 | (Unaudited) |
| Sales: | | | | | | | |
| Product | $ | 121,627 |
| | $ | 116,039 |
| | $ | 125,805 |
| | $ | 160,429 |
|
| Service | 883 |
| | 955 |
| | 11,943 |
| | 21,944 |
|
| Cost of sales (excluding depreciation, depletion and amortization): | | | | | | | |
| Product | 106,629 |
| | 102,587 |
| | 112,215 |
| | 133,758 |
|
| Service | 122 |
| | 120 |
| | 7,211 |
| | 14,653 |
|
| Operating expenses: | | | | | | | |
| Selling, general and administrative | 15,503 |
| | 14,585 |
| | 18,472 |
| | 19,167 |
|
| Depreciation, depletion and amortization | 14,556 |
| | 15,209 |
| | 17,175 |
| | 21,194 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| Goodwill and other asset impairments | 103,866 | | 3,956 | | 222 | | 2,644 | |
| Total operating expenses | 172,367 | | 80,168 | | 67,507 | | 70,385 | |
| Operating (loss) income | (104,085) | | (32,374) | | 1,373 | | 15,474 | |
| Other (expense) income: | | | | |
| Interest expense | (22,277) | | (22,179) | | (19,274) | | (16,155) | |
| Other income (expense), net, including interest income | 17,671 | | (1,670) | | (409) | | 8,758 | |
| Total other expense | (4,606) | | (23,849) | | (19,683) | | (7,397) | |
| (Loss) income before income taxes | (108,691) | | (56,223) | | (18,310) | | 8,077 | |
| Income tax benefit (expense) | 36,086 | | 23,605 | | 4,094 | | (3,760) | |
| Net (loss) income | (72,605) | | (32,618) | | (14,216) | | 4,317 | |
| Less: Net loss attributable to non-controlling interest | (260) | | (264) | | (254) | | (250) | |
| Net (loss) income attributable to U.S. Silica Holdings, Inc. | $ | (72,345) | | $ | (32,354) | | $ | (13,962) | | $ | 4,567 | |
| | | | |
| (Loss) earnings per share, basic | $ | (0.98) | | $ | (0.44) | | $ | (0.19) | | $ | 0.06 | |
| (Loss) earnings per share, diluted | $ | (0.98) | | $ | (0.44) | | $ | (0.19) | | $ | 0.06 | |
| Weighted average shares outstanding, basic | 73,467 | | 73,620 | | 73,688 | | 73,728 | |
| Weighted average shares outstanding, diluted | 73,467 | | 73,620 | | 73,688 | | 74,328 | |
| Dividends declared per share | $ | 0.02 | | $ | 0 | | $ | 0 | | $ | 0 | |
| | | | |
| First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter |
| 2019 | (Unaudited) |
| Sales: | | | | |
| Product | $ | 296,860 | | $ | 303,041 | | $ | 287,977 | | $ | 280,594 | |
| Service | 81,890 | | 91,813 | | 73,837 | | 58,465 | |
| Cost of sales (excluding depreciation, depletion and amortization): | | | | |
| Product | 234,916 | | 225,473 | | 226,797 | | 212,905 | |
| Service | 62,622 | | 68,687 | | 56,836 | | 45,057 | |
| Operating expenses: | | | | |
| Selling, general and administrative | 34,656 | | 38,659 | | 40,208 | | 37,325 | |
| Depreciation, depletion and amortization | 44,600 | | 44,899 | | 47,126 | | 42,819 | |
| Goodwill and other asset impairments | 0 | | 0 | | 130 | | 363,717 | |
| Total operating expenses | 79,256 | | 83,558 | | 87,464 | | 443,861 | |
| Operating income (loss) | 1,956 | | 17,136 | | (9,283) | | (362,764) | |
| Other (expense) income: | | | | |
| Interest expense | (23,978) | | (23,765) | | (24,733) | | (22,996) | |
| Other income, net, including interest income | 722 | | 15,074 | | 3,280 | | 443 | |
| Total other expense | (23,256) | | (8,691) | | (21,453) | | (22,553) | |
| (Loss) income before income taxes | (21,300) | | 8,445 | | (30,736) | | (385,317) | |
| Income tax benefit (expense) | 1,972 | | (2,384) | | 7,671 | | 91,892 | |
| Net (loss) income | (19,328) | | 6,061 | | (23,065) | | (293,425) | |
| Less: Net loss attributable to non-controlling interest | (4) | | (89) | | (28) | | (554) | |
| Net (loss) income attributable to U.S. Silica Holdings, Inc. | $ | (19,324) | | $ | 6,150 | | $ | (23,037) | | $ | (292,871) | |
| | | | |
| (Loss) earnings per share, basic | $ | (0.26) | | $ | 0.08 | | $ | (0.31) | | $ | (4.00) | |
| (Loss) earnings per share, diluted | $ | (0.26) | | $ | 0.08 | | $ | (0.31) | | $ | (4.00) | |
| Weighted average shares, basic | 73,040 | | 73,301 | | 73,328 | | 73,343 | |
|
| | | | | | | | | | | | | | | |
| Total operating expenses | $ | 30,059 |
| | $ | 29,794 |
| | $ | 35,647 |
| | $ | 40,361 |
|
| Operating loss | (14,300 | ) | | (15,507 | ) | | (17,325 | ) | | (6,399 | ) |
| Other income (expense): | | | | | | | |
| Interest expense | (6,643 | ) | | (6,647 | ) | | (6,684 | ) | | (7,998 | ) |
| Other income, net, including interest income | 1,790 |
| | 608 |
| | 493 |
| | 867 |
|
| Total other expense | $ | (4,853 | ) | | $ | (6,039 | ) | | $ | (6,191 | ) | | $ | (7,131 | ) |
| Loss before income taxes | (19,153 | ) | | (21,546 | ) | | (23,516 | ) | | (13,530 | ) |
| Income tax benefit (expense) | 8,150 |
| | 9,774 |
| | 12,177 |
| | 6,588 |
|
| Net income (loss) | $ | (11,003 | ) | | $ | (11,772 | ) | | $ | (11,339 | ) | | $ | (6,942 | ) |
| Loss per share, basic | $ | (0.20 | ) | | $ | (0.19 | ) | | $ | (0.17 | ) | | $ | (0.09 | ) |
| Loss per share, diluted | $ | (0.20 | ) | | $ | (0.19 | ) | | $ | (0.17 | ) | | $ | (0.09 | ) |
| Weighted average shares, basic | 54,470 |
| | 63,417 |
| | 66,676 |
| | 75,539 |
|
| Weighted average shares, diluted | 54,470 |
| | 63,417 |
| | 66,676 |
| | 75,539 |
|
| Dividends declared per share | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.06 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| Weighted average shares, diluted | 73,040 | | 73,505 | | 73,328 | | 73,343 | |
| Dividends declared per share | $ | 0.06 | | $ | 0.06 | | $ | 0.06 | | $ | 0.06 | |
NOTE V—X— PARENT COMPANY FINANCIALS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| 2020 | | 2019 |
| | (in thousands) |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 46,851 | | | $ | 51,849 | |
| Due from affiliates | 168,276 | | | 138,988 | |
| Total current assets | 215,127 | | | 190,837 | |
| Investment in subsidiaries | 412,169 | | | 530,830 | |
| Total assets | $ | 627,296 | | | $ | 721,667 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accrued expenses and other current liabilities | $ | 286 | | | $ | 129 | |
| Dividends payable | 219 | | | 4,958 | |
| Total current liabilities | 505 | | | 5,087 | |
| Total liabilities | 505 | | | 5,087 | |
| Stockholders’ Equity: | | | |
| Preferred stock | 0 | | | 0 | |
| Common stock | 827 | | | 823 | |
| Additional paid-in capital | 1,200,023 | | | 1,185,116 | |
| Retained deficit | (395,496) | | | (279,956) | |
| Treasury stock, at cost | (181,615) | | | (180,912) | |
| Accumulated other comprehensive loss | (8,479) | | | (19,854) | |
| Total U.S. Silica Holdings, Inc. stockholders’ equity | 615,260 | | | 705,217 | |
| Non-controlling interest | 11,531 | | | 11,363 | |
| Total stockholders' equity | 626,791 | | | 716,580 | |
| Total liabilities and stockholders’ equity | $ | 627,296 | | | $ | 721,667 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| ASSETS |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 230,647 |
| | $ | 534,378 |
|
| Due from affiliates | 146,683 |
| | — |
|
| Total current assets | 377,330 |
| | 534,378 |
|
| Investment in subsidiaries | 1,024,511 |
| | 854,860 |
|
| Total assets | $ | 1,401,841 |
| | $ | 1,389,238 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | |
| Accrued expenses and other current liabilities | $ | 106 |
| | $ | 461 |
|
| Dividends payable | 5,229 |
| | 5,222 |
|
| Due to affiliates | — |
| | 110,265 |
|
| Total current liabilities | 5,335 |
| | 115,948 |
|
| Deferred income taxes, net | — |
| | — |
|
| Total liabilities | 5,335 |
| | 115,948 |
|
| Stockholders’ Equity: | | | |
| Preferred stock | — |
| | — |
|
| Common stock | 812 |
| | 811 |
|
| Additional paid-in capital | 1,147,084 |
| | 1,129,051 |
|
| Retained earnings | 287,992 |
| | 163,173 |
|
| Treasury stock, at cost | (25,456 | ) | | (3,869 | ) |
| Accumulated other comprehensive loss | (13,926 | ) | | (15,876 | ) |
| Total stockholders’ equity | 1,396,506 |
| | 1,273,290 |
|
| Total liabilities and stockholders’ equity | $ | 1,401,841 |
| | $ | 1,389,238 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| (in thousands) |
| Sales | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Cost of sales | 0 | | | 0 | | | 0 | |
| Operating expenses | | | | | |
| Selling, general and administrative | 253 | | | 253 | | | 254 | |
| Total operating expenses | 253 | | | 253 | | | 254 | |
| Operating loss | (253) | | | (253) | | | (254) | |
| Other income (expense) | | | | | |
| Interest income | 210 | | | 1,440 | | | 2,784 | |
| Total other income | 210 | | | 1,440 | | | 2,784 | |
| (Loss) income before income taxes and equity in net earnings of subsidiaries | (43) | | | 1,187 | | | 2,530 | |
| Income tax expense | 0 | | | (327) | | | (696) | |
| (Loss) income before equity in net earnings of subsidiaries | (43) | | | 860 | | | 1,834 | |
| Equity in earnings of subsidiaries, net of tax | (115,079) | | | (330,617) | | | (202,655) | |
| Net loss | (115,122) | | | (329,757) | | | (200,821) | |
| Less: Net loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | (114,094) | | | (329,082) | | | (200,808) | |
| | | | | |
| Net loss | (115,122) | | | (329,757) | | | (200,821) | |
| Other comprehensive (loss) income | | | | | |
| Unrealized loss on derivatives (net of tax of $973, $(456), and $(470) for 2020, 2019, and 2018, respectively) | 3,053 | | | (1,432) | | | (1,545) | |
| Foreign currency translation adjustment (net of tax of $444, $(60), and $(196) for 2020, 2019 and 2018, respectively) | 1,391 | | | (188) | | | (614) | |
| Pension and other post-retirement benefits liability adjustment (net of tax of $2,207, $(1,024), and $339 for 2020, 2019 and 2018, respectively) | 6,931 | | | (3,214) | | | 1,065 | |
| Comprehensive loss | (103,747) | | | (334,591) | | | (201,915) | |
| Less: Comprehensive loss attributable to non-controlling interest | (1,028) | | | (675) | | | (13) | |
| Comprehensive loss attributable to U.S. Silica Holdings, Inc. | (102,719) | | | (333,916) | | | (201,902) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except per share amounts) |
| Sales | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | — |
| | — |
| | — |
|
| Operating expenses | | | | | |
| Selling, general and administrative | 252 |
| | 184 |
| | 185 |
|
| Other | — |
| | 10 |
| | 19 |
|
| Total operating expenses | 252 |
| | 194 |
| | 204 |
|
| Operating loss | (252 | ) | | (194 | ) | | (204 | ) |
| Other income (expense) | | | | | |
| Interest income | 3,854 |
| | 1,046 |
| | 262 |
|
| Other income, net, including interest income | — |
| | — |
| | 1 |
|
| Total other income (expense) | 3,854 |
| | 1,046 |
| | 263 |
|
| Income before income taxes and equity in net earnings of subsidiaries | 3,602 |
| | 852 |
| | 59 |
|
| Income tax benefit (expense) | (1,453 | ) | | (344 | ) | | (24 | ) |
| Income before equity in net earnings of subsidiaries | 2,149 |
| | 508 |
| | 35 |
|
| Equity in earnings of subsidiaries, net of tax | 143,057 |
| | (41,564 | ) | | 11,833 |
|
| Net income (loss) | 145,206 |
| | (41,056 | ) | | 11,868 |
|
| Other comprehensive income (loss), net of deferred income taxes: | | | | | |
| Unrealized gain (loss) on investments (net of tax of $0, $(4), and $29 for 2017, 2016, and 2015, respectively) | — |
| | (6 | ) | | 47 |
|
| Unrealized gain (loss) on derivatives, (net of tax of $(27), $29 and $34 for 2017, 2016 and 2015, respectively) | (44 | ) | | 49 |
| | 53 |
|
| Foreign currency translation adjustment (net of tax of $2, $0 and $0 for 2017, 2016 and 2015, respectively) | (6 | ) | | — |
| | — |
|
| Pension and post-retirement liability (net of tax of $1,205, $152, and $2,469 for 2017, 2016 and 2015, respectively) | 2,000 |
| | 252 |
| | 3,547 |
|
| Other comprehensive income (loss), net of deferred income taxes | 1,950 |
| | 295 |
| | 3,647 |
|
| Comprehensive income (loss) attributable to U.S. Silica Holdings, Inc. | $ | 147,156 |
| | $ | (40,761 | ) | | $ | 15,515 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | 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, 2018 | $ | 812 | | | $ | (25,456) | | | $ | 1,147,084 | | | $ | 287,992 | | | $ | (13,926) | | | $ | 1,396,506 | | $ | 0 | | $ | 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) | |
| 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 | |
| Net loss | — | | | — | | | — | | | (329,082) | | | — | | | (329,082) | | (675) | | (329,757) | |
| Unrealized loss on derivatives | — | | | — | | | — | | | — | | | (1,432) | | | (1,432) | | — | | (1,432) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (188) | | | (188) | | — | | (188) | |
| Pension and post-retirement liability | — | | | — | | | — | | | — | | | (3,214) | | | (3,214) | | — | | (3,214) | |
| Cash dividend declared ($0.25 per share) | — | | | — | | | — | | | (18,728) | | | — | | | (18,728) | | — | | (18,728) | |
| Contributions from non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | 4,554 | | 4,554 | |
| Common stock-based compensation plans activity: | | | | | | | | | | | | | |
| Equity-based compensation | — | | | — | | | 15,906 | | | — | | | — | | | 15,906 | | — | | 15,906 | |
| Proceeds from options exercised | — | | | 296 | | | (168) | | | — | | | — | | | 128 | | — | | 128 | |
| Shares withheld for employee taxes related to vested restricted stock and stock units | 5 | | | (2,993) | | | (5) | | | — | | | — | | | (2,993) | | — | | (2,993) | |
| Balance at December 31, 2019 | $ | 823 | | | $ | (180,912) | | | $ | 1,185,116 | | | $ | (279,956) | | | $ | (19,854) | | | $ | 705,217 | | $ | 11,363 | | $ | 716,580 | |
| Net loss | — | | | — | | | — | | | (114,094) | | | — | | | (114,094) | | (1,028) | | (115,122) | |
| Unrealized gain on derivatives | — | | | — | | | — | | | — | | | 3,053 | | | 3,053 | | — | | 3,053 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 1,391 | | | 1,391 | | — | | 1,391 | |
| Pension and post-retirement liability | — | | | — | | | — | | | — | | | 6,931 | | | 6,931 | | — | | 6,931 | |
| Cash dividend declared ($0.02 per share) | — | | | — | | | — | | | (1,446) | | | — | | | (1,446) | | — | | (1,446) | |
| Contributions from non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | 1,196 | | 1,196 | |
| Common stock-based compensation plans activity: | | | | | | | | | | | | | |
| Equity-based compensation | — | | | — | | | 14,911 | | | — | | | — | | | 14,911 | | — | | 14,911 | |
| Shares withheld for employee taxes related to vested restricted stock and stock units | 4 | | | (703) | | | (4) | | | — | | | — | | | (703) | | — | | (703) | |
| Balance at December 31, 2020 | $ | 827 | | | $ | (181,615) | | | $ | 1,200,023 | | | $ | (395,496) | | | $ | (8,479) | | | $ | 615,260 | | $ | 11,531 | | $ | 626,791 | |
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | |
| | | | | | Additional | | Retained | | Other | | Total |
| | Par | | Treasury | | Paid-In | | Earnings- | | Comprehensive | | Stockholders' |
| | Value | | Stock | | Capital | | Present | | Income (Loss) | | Equity |
| Balance at January 1, 2015 | $ | 539 |
| | $ | (542 | ) | | $ | 191,086 |
| | $ | 232,551 |
| | $ | (19,818 | ) | | $ | 403,816 |
|
| Net income | — |
| | — |
| | — |
| | 11,868 |
| | — |
| | 11,868 |
|
| Unrealized gain on derivatives | — |
| | — |
| | — |
| | — |
| | 53 |
| | 53 |
|
| Unrealized gain on short-term investments | — |
| | — |
| | — |
| | — |
| | 47 |
| | 47 |
|
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 3,547 |
| | 3,547 |
|
| Cash dividend declared ($0.438 per share) | — |
| | — |
| | — |
| | (23,445 | ) | | — |
| | (23,445 | ) |
| Common stock-based compensation plans activity: | | | | | | | | |
| |
|
|
| Equity-based compensation | — |
| | — |
| | 3,857 |
| | — |
| | — |
| | 3,857 |
|
| Proceeds from options exercised | — |
| | 744 |
| | (271 | ) | | — |
| | — |
| | 473 |
|
| Shares withheld for employee taxes related to | | | | | | | | | | |
|
|
| vested restricted stock and stock units | — |
| | (792 | ) | | (2 | ) | | — |
| | — |
| | (794 | ) |
| Repurchase of common stock | — |
| | (15,255 | ) | | — |
| | — |
| | — |
| | (15,255 | ) |
| Balance at December 31, 2015 | $ | 539 |
| | $ | (15,845 | ) | | $ | 194,670 |
| | $ | 220,974 |
| | $ | (16,171 | ) | | $ | 384,167 |
|
| Net loss | — |
| | — |
| | — |
| | (41,056 | ) | | — |
| | (41,056 | ) |
| Issuance of common stock (stock offerings net of issuance costs of $25,732) | 272 |
| | — |
| | 931,016 |
| | — |
| | — |
| | 931,288 |
|
| Unrealized gain on derivatives | — |
| | — |
| | — |
| | — |
| | 49 |
| | 49 |
|
| Unrealized loss on short-term investments | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 252 |
| | 252 |
|
| Cash dividend declared ($0.25 per share) | — |
| | — |
| | — |
| | (16,893 | ) | | — |
| | (16,893 | ) |
| Common stock-based compensation plans activity: | | | | | | | | | | | |
| Equity-based compensation | — |
| | — |
| | 12,107 |
| | — |
| | — |
| | 12,107 |
|
| Excess tax benefit from equity-based compensation | — |
| | — |
| | — |
| | 148 |
| | — |
| | 148 |
|
| Proceeds from options exercised | — |
| | 8,465 |
| | (3,640 | ) | | — |
| | — |
| | 4,825 |
|
| Issuance of restricted stock | — |
| | 1,437 |
| | (1,437 | ) | | — |
| | — |
| | — |
|
| Shares withheld for employee taxes related to | | | | | | | | | | | |
| vested restricted stock and stock units | — |
| | 2,074 |
| | (3,665 | ) | | — |
| | — |
| | (1,591 | ) |
| Balance at December 31, 2016 | $ | 811 |
| | $ | (3,869 | ) | | $ | 1,129,051 |
| | $ | 163,173 |
| | $ | (15,876 | ) | | $ | 1,273,290 |
|
| Net Income | — |
| | — |
| | — |
| | 145,206 |
| | — |
| | 145,206 |
|
| Unrealized loss on derivatives | — |
| | — |
| | — |
| | — |
| | (44 | ) | | (44 | ) |
| Foreign currency translation adjustment | | | | | | | | | (6 | ) | | (6 | ) |
| Pension and post-retirement liability | — |
| | — |
| | — |
| | — |
| | 2,000 |
| | 2,000 |
|
| Cash dividend declared ($0.25 per share) | — |
| | — |
| | — |
| | (20,387 | ) | | — |
| | (20,387 | ) |
| Common stock-based compensation plans activity: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Equity-based compensation | — |
| | — |
| | 25,050 |
| | — |
| | — |
| | 25,050 |
|
| Proceeds from options exercised | — |
| | 1,190 |
| | (392 | ) | | — |
| | — |
| | 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 | ) |
| Repurchase of common stock | — |
| | (25,022 | ) | |
|
| |
|
| |
|
| | (25,022 | ) |
| Balance at December 31, 2017 | $ | 812 |
| | $ | (25,456 | ) | | $ | 1,147,084 |
| | $ | 287,992 |
| | $ | (13,926 | ) | | $ | 1,396,506 |
|
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. SILICA HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Operating activities: | | | | | |
| Net income (loss) | $ | 145,206 |
| | $ | (41,056 | ) | | $ | 11,868 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Undistributed (Income) loss from equity method investment, net | (143,057 | ) | | 41,564 |
| | (11,833 | ) |
| Other | — |
| | (30 | ) | | (195 | ) |
| Changes in assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts payable and accrued liabilities | 48 |
| | 353 |
| | 29 |
|
| Net cash provided by (used in) operating activities | 2,197 |
| | 831 |
| | (131 | ) |
| Investing activities: | | | | | |
| Proceeds from sales and maturities of short-term investments | — |
| | 21,872 |
| | 53,568 |
|
| Investment in subsidiary | (143,654 | ) | | (188,177 | ) | | — |
|
| Net cash provided by (used in) investing activities | (143,654 | ) | | (166,305 | ) | | 53,568 |
|
| Financing activities: | | | | | |
| Dividends paid | (20,377 | ) | | (15,125 | ) | | (26,797 | ) |
| Repurchase of common stock | (25,022 | ) | | — |
| | (15,255 | ) |
| Proceeds from options exercised | 798 |
| | 4,603 |
| | 473 |
|
| Tax payments related to shares withheld for vested restricted stock and stock units | (4,379 | ) | | (1,590 | ) | | (794 | ) |
| Issuance of common stock (secondary offering) | — |
| | 678,791 |
| | — |
|
| Issuance of treasury stock | — |
| | 221 |
| | — |
|
| Costs of common stock issuance | — |
| | (25,733 | ) | | — |
|
| Net financing activities with subsidiaries | (113,294 | ) | | 106 |
| | 223 |
|
| Net cash provided by (used in) financing activities | (162,274 | ) | | 641,273 |
| | (42,150 | ) |
| Net increase in cash and cash equivalents | (303,731 | ) | | 475,799 |
| | 11,287 |
|
| Cash and cash equivalents, beginning of period | 534,378 |
| | 58,579 |
| | 47,292 |
|
| Cash and cash equivalents, end of period | $ | 230,647 |
| | $ | 534,378 |
| | $ | 58,579 |
|
| Non-cash financing activities: | | | | | |
| Supplemental cash flow information: | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest | $ | (3,853 | ) | | $ | (1,046 | ) | | $ | (263 | ) |
| Non-cash transactions | | | | | |
| Common stock issued for business acquisitions | $ | — |
| | $ | 278,229 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (in thousands) |
| Operating activities: | | | | | |
| Net loss | $ | (115,122) | | | $ | (329,757) | | | $ | (200,821) | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
| Undistributed loss (income) from equity method investment, net | 115,079 | | | 330,617 | | | 202,655 | |
| Changes in assets and liabilities, net of effects of acquisitions: | | | | | |
| Accounts payable and accrued liabilities | 155 | | | (88) | | | (295) | |
| Net cash provided by operating activities | 112 | | | 772 | | | 1,539 | |
| Investing activities: | | | | | |
| Investment in subsidiary | 0 | | | 0 | | | 0 | |
| Net cash used in investing activities | 0 | | | 0 | | | 0 | |
| Financing activities: | | | | | |
| Dividends paid | (6,185) | | | (18,592) | | | (19,912) | |
| Repurchase of common stock | 0 | | | 0 | | | (148,469) | |
| Proceeds from options exercised | 0 | | | 128 | | | 61 | |
| Tax payments related to shares withheld for vested restricted stock and stock units | (703) | | | (2,993) | | | (4,383) | |
| Contributions from non-controlling interest | 1,196 | | | 4,554 | | | 7,497 | |
| Net financing activities with subsidiaries | 582 | | | (39,171) | | | 40,171 | |
| Net cash used in financing activities | (5,110) | | | (56,074) | | | (125,035) | |
| Net decrease in cash and cash equivalents | (4,998) | | | (55,302) | | | (123,496) | |
| Cash and cash equivalents, beginning of period | 51,849 | | | 107,151 | | | 230,647 | |
| Cash and cash equivalents, end of period | $ | 46,851 | | | $ | 51,849 | | | $ | 107,151 | |
| Supplemental cash flow information: | | | | | |
| Cash (received) paid during the period for: | | | | | |
| Interest | $ | (210) | | | $ | (1,440) | | | $ | (2,784) | |
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
U.S. SILICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operating subsidiaries to pay dividends may be restricted due to the terms of the Company's senior credit facility,Credit Facility, as discussed in Note IK - Accrued LiabilitiesDebt 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.
NoNaN cash dividends were paid to the parent by its consolidated entities for the years presented in the condensed financial statements.
NOTE W—SUBSEQUENT EVENTSY— IMPAIRMENTS
On February 16,
We recorded impairment charges (in thousands) for the years ended December 31, 2020, 2019 and 2018 for the following assets:
| | | | | | | | | | | |
| Description | December 31, 2020 | December 31, 2019 | December 31, 2018 |
| Inventories, net | $ | 6,837 | | $ | 4,100 | | $ | 3,316 | |
| Property, plant and mine development, net | 11,822 | | 243,064 | | 109,938 | |
| Operating lease right-of-use assets | 3,406 | | 115,443 | | 0 | |
| Goodwill | 86,100 | | 0 | | 164,167 | |
| Intangible assets, net | 2,523 | | 1,240 | | 4,478 | |
| Total | $ | 110,688 | | $ | 363,847 | | $ | 281,899 | |
2020 Impairments
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 a sharp reduction 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 BoardOil & Gas Proppants segment. As a result of Directors declaredthese triggering events, we completed impairment assessments for our assets, including plant, property and mine development, right-of-use assets, inventories, and other intangible assets.
Inventories, net
We recorded impairment charges primarily related to unused inventory at plants we idled. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Property, plant and mine development
We estimated the future undiscounted net cash flows of certain asset groupings 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. In the cases where the undiscounted cash flows are less than the carrying value of the assets, we recognized an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets. Impairment charges were recorded related primarily to our Kosse, Texas facility, which was idled. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Operating lease right-of-use assets
We determined the fair value of the railcars primarily utilizing internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. As a quarterlyresult, we recognized impairment charges primarily related to various equipment leases and an office building lease. These charges relate mainly to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Goodwill
We performed a quantitative analysis and determined that the goodwill of our Oil & Gas Proppants reporting unit was impaired. We recognized goodwill impairment charges during the first quarter of 2020. These impairment charges were recorded in the "Goodwill and other asset impairments" caption of our Consolidated Statements of Operations. The fair value of our reporting units was determined using the discounted cash dividendflow method.
Intangible assets, net
We recorded impairments of $0.0625 per share$1.1 million for trade names and $1.4 million for patents and intellectual property as of December 31, 2020, which was recorded in the Industrial & Specialty Products segment as a result of the discontinuance of a minor product line. These charges were recorded in the "Goodwill and other asset impairments" caption of our Consolidated Statements of Operations.
2019 Impairments
During the fourth quarter of 2019, similar to common stockholdersthe fourth quarter of record2018, we experienced a sharp decline in customer demand for Northern White frac sand and for regional non-in-basin frac sand as more tons are produced and sold in-basin. Additionally, the price of frac sand decreased significantly. Given the changes in demand and customer preferences of local in-basin sand, we also experienced a significant decline in the utilization of the sand railcar fleet in our transload network. A significant number of sand railcars were put into storage and were no longer used to deliver sand to our customers. In response to these economic conditions, we implemented numerous cost reductions including headcount reductions and a reduction of frac sand capacity at multiple locations. As a result of the aforementioned triggering events, which occurred in the fourth quarter of 2019, we completed an impairment assessment of our frac sand-related assets, including plant, property and mine development, right-of-use assets, inventories, and other intangible assets.
Inventories, net
We recorded impairment charges for unused inventory at frac sand plants we idled. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Property, plant and mine development
We estimated the future undiscounted net cash flows of asset groupings, which are at the closeplant level, using estimates of business on March 15, 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. In the cases where the undiscounted cash flows are less than the carrying value of the assets, we recognized an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets. Impairment charges were recorded mainly related to facilities that have reduced capacity or have been idled, including Tyler, Texas, Sparta, Wisconsin, and Utica, Illinois. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Operating lease right-of-use assets
We determined the fair value of the railcars primarily utilizing internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. As a result, we recognized impairment charges to write down the value of railcars to their estimated fair value. These charges relate mainly to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Intangible assets, net
We recorded an impairment of customer relationships related to the Oil & Gas Proppants segment that was recorded in the "Goodwill and other asset impairments" caption of our Consolidated Statements of Operations.
2018 payable on April 5, 2018.Impairments
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. As a result of these triggering events, we completed an impairment assessment of our frac sand-related assets, including plant, property and mine development, goodwill and other intangible assets.
Inventories, net
We recorded impairment charges for unused inventory related to the closure of our resin coating facility and associated product portfolio. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Property, plant and mine development
We estimated the future undiscounted net cash flows of asset groupings 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. In the cases where the undiscounted cash flows are less than the carrying value of the assets, we recognized an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets. Impairment charges were recorded mainly related to facilities that have reduced capacity, have been idled or were undeveloped, including Voca, Texas, Fairchild, Wisconsin, Rochelle, Illinois, and Peru, Illinois. These charges relate to the Oil & Gas Proppants segment and are recorded in "Goodwill and other asset impairments" in the Consolidated Statements of Operations.
Goodwill and Intangible Assets, net
We performed a quantitative analysis and determined that the goodwill of our Oil & Gas Sand reporting unit was impaired. We recognized impairment charges related to goodwill and trade names during the fourth quarter of 2018. These impairment charges were recorded in the "Goodwill and other asset impairments" caption of our Consolidated Statements of Operations. The fair value of our reporting units was determined using a combination of the discounted cash flow method and the market multiples approach.
NOTE Z-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.
|
| | | | |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
| | | | |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2017,2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, under the direction of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).
Our system of internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the framework in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As noted in the COSO framework, an internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance to management and the Board of Directors regarding achievement of an entity's financial reporting objectives. We have excluded the internal control over financial reporting of Mississippi Sand, LLC ("MS Sand") from the evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017. This decision is based upon the significance of MS Sand and the timing of integration efforts underway to transition MS Sand's processes, information technology systems and other components of internal control over financial reporting to our internal control structure. MS Sand's total assets represented 5% of the related consolidated total assets as of December 31, 2017. We have expanded our consolidation and disclosure controls and procedures to include MS Sand, and we continue to assess the current internal control over financial reporting. Based upon the evaluation under this framework, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2020.
Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as of December 31, 2017,2020, as stated in theirits report below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 20172020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted above.reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Silica Holdings, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of USU.S. Silica Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017,2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017,2020, and our report dated February 21, 201826, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying financial statements (“Management’s Report”).Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Mississippi Sand LLC (MS Sand), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 5 and 2 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2017. As indicated in Management’s Report, MS Sand was acquired during 2017. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of MS Sand.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Baltimore, MarylandHouston, Texas
February 21, 201826, 2021
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| ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
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ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item with respect to directors and corporate governance will be set forth under “Proposal No. 1: Election of Directors” in the 20182021 Proxy Statement and is incorporated herein by reference.
The information required by this item with respect to executive officers of U.S. Silica, pursuant to instruction 3 of paragraph (b) of Item 401 of Regulation S-K, is set forth following Part I, Item 11. of this Annual Report on Form 10-K under “Executive Officers of the Registrant”.
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| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item will be set forth under “Executive and Director Compensation” and “Report of Compensation Committee” in the 20182021 Proxy Statement and is incorporated herein by reference.
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by Item 403 of Regulation S-K regarding security ownership of certain beneficial owners and management will be set forth under “Stock Ownership” in the 20182021 Proxy Statement and is incorporated herein by reference.
The information required by Item 201(d) of Regulation S-K regarding securities authorized for issuance under equity compensation plans is furnished as a separate item captioned “Securities Authorized for Issuance Under Equity Compensation Plans” included in Part II, Item 55. of this Annual Report on Form 10-K.
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| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item will be set forth under “Transactions with Related Persons” and “Determination of Independence” in the 20182021 Proxy Statement and is incorporated herein by reference.
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| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item will be set forth under “Ratification of Grant Thornton LLP as Independent Registered Public Accounting Firm for 2018”2021” in the 20182021 Proxy Statement and is incorporated herein by reference.
PART IV.
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as a part of this report:
| |
a) | Consolidated Financial Statements |
Consolidated Financial Statements
The Consolidated Financial Statements, together with the report thereon of Grant Thornton LLP, dated February 21, 2018,26, 2021, are included as part of Item 8, “Financial8. Financial Statements and Supplementary Data.”
| |
b) | Financial Statement Schedules |
Financial Statement Schedules
Schedule I - Condensed Financial Information of Parent (U.S. Silica Holdings, Inc.) at December 31, 20172020 and 20162019 and for the years ended December 31, 2017, 20162020, 2019 and 20152018 is included in Note VX - Parent Company Financial Statements to the Consolidated Financial Statements.Statements, included as part of Item 8. Financial Statements and Supplementary Data.
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c) | Exhibits required to be filed by Item 601 of Regulation S-K |
Exhibits
The information called for by this Item is incorporated herein by reference from the Exhibit Index included in this Annual Report.Report on Form 10-K.
EXHIBIT INDEX
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference |
Exhibit Number | Description | | Form | | File No. | | Exhibit | | Filing Date |
| Agreement and Plan of Merger, dated as of March 22, 2018, by and among EP Acquisition Parent, Inc. US Silica Company, Tranquility Acquisition Corp., EPMC Parent LLC, as the Stockholders' Representative, and solely for the purposes of Section 11.17, Golden Gate Private Equity, Inc. | | 10-Q | | 001-35416 | | 2.1 | | April 24, 2018 |
| Third Amended and Restated Certificate of Incorporation of U.S. Silica Holdings, Inc., effective May 4, 2017. | | 8-K | | 001-35416 | | 3.1 | | May 10, 2017 |
| Third Amended and Restated Bylaws of U.S. Silica Holdings, Inc., effective May 4, 2017. | | 8-K | | 001-35416 | | 3.2 | | May 10, 2017 |
| Specimen Common Stock Certificate. | | S-1/A | | 333-175636 | | 4.1 | | December 7, 2011 |
| Description of the Registrant's Securities Registered Pursuant to Section 12 of the Exchange Act | | 10-K | | 001-35416 | | 4.2 | | February 25, 2020 |
| Employment Agreement, dated as of March 22, 2012, by and between U.S. Silica Company and Bryan A. Shinn. | | 8-K | | 001-35416 | | 10.11 | | March 22, 2012 |
| Second Amended and Restated 2011 Incentive Compensation Plan. | | 8-K | | 001-35416 | | 10.1 | | May 7, 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Form of Nonqualified Stock Option Agreement. | | S-1/A | | 333-175636 | | 10.17 | | August 29, 2011 |
| Form of Indemnification Agreement. | | S-1/A | | 333-175636 | | 10.20 | | December 29, 2011 |
| Letter Agreement, dated as of December 27, 2011, by and between William J. Kacal and U.S. Silica Holdings, Inc. | | S-1/A | | 333-175636 | | 10.24 | | December 29, 2011 |
| Letter Agreement, dated April 27, 2012, by and between Peter Bernard and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.10 | | May 1, 2012 |
| Letter Agreement, dated October 8, 2013, by and between J. Michael Stice and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.10 | | October 11, 2013 |
| Omnibus Amendment dated February 18, 2016 to Award Agreements. | | 8-K | | 001-35416 | | 10.3 | | February 23, 2016 |
| Form of Nonqualified Stock Option Agreement. | | 10-K | | 001-35416 | | 10.2 | | February 25, 2015 |
| Amendment dated February 18, 2016 to Employment Agreement by and between U.S. Silica Holdings, Inc. and Bryan Shinn. | | 8-K | | 001-35416 | | 10.2 | | February 23, 2016 |
| Omnibus Amendment dated November 3, 2016 to Award Agreements. | | 10-K | | 001-35416 | | 10.22 | | February 23, 2017 |
| Letter Agreement, effective August 15, 2017, by and between Diane Duren and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.1 | | August 18, 2017 |
| Form of Restricted Stock Unit Agreement Pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. | | 10-Q | | 001-35416 | | 10.2 | | April 24, 2018 |
| Form of Restricted Stock Agreement Pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. | | 10-Q | | 001-35416 | | 10.3 | | April 24, 2018 |
| Third Amended and Restated Credit Agreement, dated as of May 1, 2018, by and among U.S. Silica Holdings, Inc., through its subsidiaries, USS Holdings, Inc., as guarantor, and U.S. Silica Company, as borrower, and certain of U.S. Silica’s subsidiaries as additional guarantors and BNP Paribas, as administrative agent and the lenders named therein. | | 8-K | | 001-35416 | | 10.1 | | May 2, 2018 |
| Consent and Amendment Agreement, dated as of August 23, 2019, among U.S. Silica Company and BNP Paribas, as administrative agent and the lenders named therein, amending that certain Third Amended and Restated Credit Agreement, dated as of May 1, 2018. | | 10-Q | | 001-35416 | | 10.1 | | October 30, 2019 |
| Form of Performance Share Unit Agreement (Adjusted Cash Flow) Pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan | | 10-Q | | 001-35416 | | 10.1 | | May 1, 2019 |
| Form of Performance Share Unit Agreement (Relative TSR) Pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan | | 10-Q | | 001-35416 | | 10.2 | | May 1, 2019 |
| Form of Restricted Stock Agreement Pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. | | 10-Q | | 001-35416 | | 10.3 | | May 1, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Form of Restricted Stock Unit Agreement, pursuant to the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. | | 10-Q | | 001-35416 | | 10.1 | | May 1, 2020 |
| U.S. Silica Holdings, Inc. Amended and Restated Change in Control Severance Plan, as amended and restated April 29, 2020. | | 10-Q | | 001-35416 | | 10.2 | | May 1, 2020 |
| Separation, Severance and General Release Agreement entered into by and between Bradford B. Casper and U.S. Silica Company effective August 31, 2020. | | 10-Q | | 001-35416 | | 10.1 | | October 29, 2020 |
| List of subsidiaries of U.S. Silica Holdings, Inc. | | | | | | | | |
| Consent of Independent Registered Public Accounting Firm. | | | | | | | | |
| Rule 13a-14(a)/15(d)-14(a) Certification by Bryan A. Shinn, Chief Executive Officer. | | | | | | | | |
| Rule 13a-14(a)/15(d)-14(a) Certification by Donald A. Merril, Chief Financial Officer. | | | | | | | | |
| Section 1350 Certification by Bryan A. Shinn, Chief Executive Officer. | | | | | | | | |
| Section 1350 Certification by Donald A. Merril, Chief Financial Officer. | | | | | | | | |
| Mine Safety Disclosure. | | | | | | | | |
| 101* | 101.INS XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | |
| 101.SCH XBRL Taxonomy Extension Schema | | | | | | | | |
| 101.CAL XBRL Taxonomy Extension Calculation | | | | | | | | |
| 101.LAB XBRL Taxonomy Extension Labels | | | | | | | | |
| 101.PRE XBRL Taxonomy Extension Presentation | | | | | | | | |
| 101.DEF XBRL Taxonomy Extension Definition | | | | | | | | |
| 104* | Cover Page from the Company's Annual Report on Form 10-K for the year ended December 31, 2020 formatted Inline XBRL (and contained in Exhibit 101) | | | | | | | | |
| | | | | |
| # | Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We will furnish the omitted schedules to the Securities and Exchange Commission upon request by the Commission. |
| | | | | |
| |
| + | Management contract or compensatory plan/arrangement |
| * | Filed herewith |
| † | Certain information in Exhibit 10.30 has been omitted pursuant to Item 601(b)(2) of Regulation S-K because it is both not material and would be competitively harmful if publicly disclosed. We will furnish a copy of the unredacted exhibit to the Securities and Exchange Commission upon request by the Commission. |
We will furnish to any of our stockholders a copy of any of the above exhibits upon the written request of such stockholder and the payment to U.S. Silica Holdings, Inc. of the reasonable expenses incurred in furnishing such copy or copies.
| | | | | |
| ITEM 16. | FORM 10-K SUMMARY |
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 21st26th day of February, 2018.2021.
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| | | | | | | | | | |
| U.S. Silica Holdings, Inc. | |
| | |
| /s/ BRYANBRYAN A. SHINN | SHINN |
| Name: | | Bryan A. Shinn | |
| Title: | | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | |
Name | | Capacity | | Date |
| | |
/S/ BRYAN A. SHINN
| | President, Chief Executive Officer and Director
(Principal Executive Officer)
| | February 21, 2018 |
Bryan A. Shinn | | | |
| | |
/S/ DONALD A. MERRIL
| | Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
| | February 21, 2018 |
Donald A. Merril | | | |
| | |
/S/ CHARLES SHAVER
| | Chairman of the Board | | February 21, 2018 |
Charles Shaver | | | |
| | |
/S/ PETER BERNARD
| | Director | | February 21, 2018 |
Peter Bernard | | | |
| | |
/s/ DIANE DUREN
| | Director | | February 21, 2018 |
Diane Duren
| | | |
| | |
/S/ WILLIAM J. KACAL
| | Director | | February 21, 2018 |
William J. Kacal | | | |
| | |
/S/ J. MICHAEL STICE
| | Director | | February 21, 2018 |
J. Michael Stice | | | |
EXHIBIT INDEX
|
| | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | Description | | Form | | File No. | | Exhibit | | Filing Date |
| Agreement and Plan of Merger, dated as of July 15, 2016, by and among U.S. Silica Holdings, Inc., New Birmingham Merger Corp., NBI Merger Subsidiary II, Inc., New Birmingham, Inc. and each of David Durrett and Erik Dall, as representatives of the sellers and optionholders. | | 10-Q | | 001-35416 | | 2.1 | | November 4, 2016 |
| Membership Unit Purchase Agreement, dated as of August 1, 2016, by and among U.S. Silica Company, U.S. Silica Holdings, Inc., Sandbox Enterprises, LLC, the members of Sandbox Enterprises, LLC and Sandy Creek Capital, LLC, as representative of the sellers. | | 10-Q | | 001-35416 | | 2.2 | | November 4, 2016 |
| Third Amended and Restated Certificate of Incorporation of U.S. Silica Holdings, Inc., effective May 4, 2017. | | 8-K | | 001-35416 | | 3.1 | | May 10, 2017 |
| Third Amended and Restated Bylaws of U.S. Silica Holdings, Inc., effective May 4, 2017. | | 8-K | | 001-35416 | | 3.2 | | May 10, 2017 |
| Specimen Common Stock Certificate. | | S-1/A | | 333-175636 | | 4.1 | | December 7, 2011 |
| Amendment No. 3 to Second Amended and Restated Credit Agreement, dated as of July 23, 2013, by and among USS Holdings, Inc. as Parent, U.S. Silica Company as Company, the Subsidiary Guarantors listed therein as Subsidiary Guarantors, the Lenders listed therein as Lenders and BNP Paribas as Administrative Agent. | | 8-K | | 001-35416 | | 10.10 | | July 29, 2013 |
| Employment Agreement, dated as of March 22, 2012, by and between U.S. Silica Company and Bryan A. Shinn. | | 8-K | | 001-35416 | | 10.11 | | March 22, 2012 |
| Amended and Restated 2011 Incentive Compensation Plan. | | 8-K | | 001-35416 | | 10.1 | | May 11, 2015 |
| Form of Incentive Stock Option Agreement. | | S-1/A | | 333-175636 | | 10.15 | | August 29, 2011 |
| Form of Restricted Stock Agreement. | | S-1/A | | 333-175636 | | 10.16 | | August 29, 2011 |
| Form of Nonqualified Stock Option Agreement. | | S-1/A | | 333-175636 | | 10.17 | | August 29, 2011 |
| Form of Stock Appreciation Rights Agreement. | | S-1/A | | 333-175636 | | 10.18 | | August 29, 2011 |
| Form of Restricted Stock Unit Agreement. | | S-1/A | | 333-175636 | | 10.19 | | August 29, 2011 |
| Form of Performance Share Unit Agreement. | | 10-K | | 001-35416 | | 10.12 | | February 26, 2014 |
| Form of Indemnification Agreement. | | S-1/A | | 333-175636 | | 10.20 | | December 29, 2011 |
| Letter Agreement, dated as of December 27, 2011, by and between William J. Kacal and U.S. Silica Holdings, Inc. | | S-1/A | | 333-175636 | | 10.24 | | December 29, 2011 |
| Letter Agreement, dated April 27, 2012, by and between Peter Bernard and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.10 | | May 1, 2012 |
| Letter Agreement, dated October 8, 2013, by and between J. Michael Stice and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.10 | | October 11, 2013 |
| Omnibus Amendment dated February 18, 2016 to Award Agreements. | | 8-K | | 001-35416 | | 10.3 | | February 23, 2016 |
|
| | | | | | | | | |
| Name | Joinder Agreement to Second Amended and Restated Credit Agreement, dated as of December 5, 2014. | Capacity | 8-K | Date |
| 001-35416 | | 10.1 | | December 11, 2014 |
| Form of Nonqualified Stock Option Agreement. | Chief Executive Officer and Director
(Principal Executive Officer) | 10-K | | 001-35416 | | 10.2 | | February 25, 201526, 2021 |
+
| Change in Control Severance Plan of U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.1 | | February 23, 2016 |
+
| Amendment dated February 18, 2016 to Employment Agreement by and between U.S. Silica Holdings, Inc. and Bryan Shinn. | | 8-K | | 001-35416 | | 10.2 | | February 23, 2016 |
+
| Form of Performance Share Unit Agreement (TSR metric). | | 10-Q | | 001-35416 | | 10.4 | | April 27, 2016 |
+
| Omnibus Amendment dated November 3, 2016 to Award Agreements. | | 10-K | | 001-35416 | | 10.22 | | February 23, 2017 |
+
| Amendment No. 1 dated November 3, 2016 to Amended and Restated 2011 Incentive Compensation Plan | | 10-K | | 001-35416 | | 10.23 | | February 23, 2017 |
+
| Letter Agreement, effective August 15, 2017, by and between Diane Duren and U.S. Silica Holdings, Inc. | | 8-K | | 001-35416 | | 10.1 | | August 18, 2017 |
| List of subsidiaries of U.S. Silica Holdings, Inc. | | | | | | | | |
| Consent of Independent Registered Public Accounting Firm. | | | | | | | | |
| Rule 13a-14(a)/15(d)-14(a) Certification by Bryan A. Shinn Chief Executive Officer. | | | | | | | | |
| Rule 13a-14(a)/15(d)-14(a) Certification by Donald A. Merril, Chief Financial Officer. | | | | | | | | |
| Section 1350 Certification by Bryan A. Shinn, Chief Executive Officer. | | | | | | | | |
| Section 1350 Certification by Donald A. Merril, Chief Financial Officer. | | | | | | | | |
| Mine Safety Disclosure | | | | | | | | |
| Consent of IHS Markit. | | | | | | | | |
101* | 101.INS XBRL Instance | | | | | | | | |
| 101.SCH XBRL Taxonomy Extension Schema | | | | | | | | |
| 101.CAL XBRL Taxonomy Extension Calculation | | | | | | | | |
| 101.LAB XBRL Taxonomy Extension Labels | | | | | | | | |
| 101.PRE XBRL Taxonomy Extension Presentation | | | | | | | | |
| 101.DEF XBRL Taxonomy Extension Definition | | | | | | | | |
| | | | | | | | | |
|
| | |
#/S/ DONALD A. MERRIL | Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We will furnish the omitted schedules to the Securities
| Executive Vice President, Chief Financial Officer
(Principal Financial and Exchange Commission upon request by the Commission.
Accounting Officer) | | February 26, 2021 |
| Donald A. Merril | | | |
| | |
+/S/ CHARLES SHAVER | Management contract or compensatory plan/arrangement | Chairman of the Board | | February 26, 2021 |
| Charles Shaver | | | |
| | |
*/S/ PETER BERNARD | Filed herewith | Director | | February 26, 2021 |
| Peter Bernard | | | |
| | |
| /s/ DIANE DUREN | | Director | | February 26, 2021 |
| Diane Duren | | | |
| | |
/S/ WILLIAM J. KACAL | | Director | | February 26, 2021 |
| William J. Kacal | | | |
| | |
/S/ J. MICHAEL STICE | | Director | | February 26, 2021 |
| J. Michael Stice | | | |
We will furnish any of our shareowners a copy of any of the above Exhibits not included herein upon the written request of such shareowner and the payment to U.S. Silica Holdings, Inc. of the reasonable expenses incurred in furnishing such copy or copies.
