Washington, D.C. 20549
U.S. Silica Holdings, Inc.
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.
U.S. Silica Holdings, Inc.SILICA HOLDINGS, INC.
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
U.S. SILICA HOLDINGS, INC.
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited; dollars in thousands)
| | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| | 2020 | | 2019 |
| Supplemental cash flow information: | | | |
| Cash paid (received) during the period for: | | | |
| Interest | $ | 57,107 | | | $ | 66,429 | |
| Taxes, net of refunds | $ | (35,676) | | | $ | (14,031) | |
| Non-cash items: | | | |
| Accrued capital expenditures | $ | 15,111 | | | $ | 27,357 | |
| Net assets assumed in business acquisition | $ | 8,241 | | | $ | 0 | |
The accompanying notes are an integral part of these financial statements.
U.S. SILICA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited;Unaudited; dollars in thousands, except per share amounts)
NOTE A—SUMMARYORGANIZATION AND BASIS OF SIGNIFICANT ACCOUNTING POLICIESPRESENTATION
Basis of Presentation and ConsolidationOrganization
The accompanying Condensed Consolidated Financial Statements (the “Financial Statements”) of U.S. Silica Holdings, Inc. (“Holdings,” and together with its subsidiaries “we,” “us” or the “Company”) is a performance materials company and one of the largest domestic producers of commercial silica used in the oil and gas industry and in a wide range of industrial applications. In addition, through our acquisition of EP Minerals, LLC ("EPM") and its affiliated companies in 2018, we are an industry leader in the production of industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite. During our 120-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver products to customers across our end markets. Our operations are organized into 2 reportable segments based on end markets served: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. See Note U - Segment Reporting for more information on our reportable segments.
Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements for the quarter ended September 30, 2020 included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). They do not contain certain information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016;2019; therefore, the interimunaudited Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the three-month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020. In the opinion of management, all adjustments necessary for a fair presentation of the Financial Statements have been included. Such adjustments are of a normal, recurring nature.
The unaudited Condensed Consolidated Financial Statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
We follow Financial Accounting Standards Board ("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 orderconnection with the shareholders’ agreement, we acquired a 50% equity ownership in the limited liability company 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 makeconsolidate it. As of September 30, 2020, the VIE had total assets of $17.9 million and total liabilities of $0.1 million. We made $0.2 million in capital contributions during the nine months ended September 30, 2020.
Throughout this report easier to read, we refer throughout to (i) our unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets,” (ii) our unaudited Condensed Consolidated Statements of Operations as our “Income Statements,” and (iii) our unaudited Condensed Consolidated Statements of Cash Flows as our “Cash Flows.”
Unaudited Interim Financial Statements
The accompanying Balance Sheet as of September 30, 2017; the Income Statements and Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, respectively; the Condensed Consolidated Statements of Stockholders' Equity and Cash Flows for the nine months ended September 30, 2017; and other information disclosed in the related notes are unaudited. The Balance Sheet as of December 31, 2016, was derived from our audited consolidated financial statements included in our 2016 Annual Report.NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
The preparation of the Financial Statementsconsolidated financial statements in conformity with GAAP requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Financial Statementsconsolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to the purchase price allocation for businesses acquired; mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production amortization calculations; environmental, reclamation and closure obligations; estimates of recoverable minerals; estimates of allowance for doubtful accounts;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.
Recently IssuedNew Accounting Pronouncements Recently Adopted
In May 2014,August 2018, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update (“ASU”("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes previous revenue recognition guidance.2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance introducesrequires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The update was effective for calendar-year public business entities in 2020. We adopted the new principles-based frameworkstandard on January 1, 2020. The adoption of this ASU had no significant impact on our Condensed Consolidated Statements of Operations.
In November 2018, FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The amendments in this ASU clarified issues related to Topic 326. In Issue 1, the amendment in this ASU mitigates transition complexity by requiring that for revenue recognition and disclosure. Since its issuance,nonpublic business entities the FASB has issued an additional six ASUs, includingamendments in ASU 2016-20 in December 2016, amending the guidance and the effective dates of amendments, and the SEC has rescinded certain related SEC guidance; the most recent of which was issued in May 2016. The pronouncements2016-13 are effective for annual reporting periods beginningfiscal years after December 15, 2017,2021, including interim reporting periods within those fiscal years. In Issue 2, the amendment clarifies that reporting period. Earlier application is permitted only asreceivables arising from operating leases are not within the scope of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In 2017, the Company identified a project team and commenced an initial impact assessment processSubtopic 326-20. Impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The ASU 2014-09. To date, the Company has reviewed a sample of customer contracts and made preliminary assessments of the impact on revenue and expenses. Based on these reviews; we currently do not expect a material impact to the Company’s results of operations, financial position and cash flows
as a result of this guidance. The Company expects to complete its review of all remaining customer contracts and will make a final assessment in the fourth quarter of 2017. Although we are still in the process of reviewing all of our contracts and the impact to our disclosure requirements, we do not anticipate a material impact to our existing revenue recognition practices. The Company will adopt this new standard as of January 1, 2018, and currently expects to apply the modified retrospective method, which as of September 30, 2017, we do not believe will result in a material cumulative effect adjustment as of the date of adoption. Both the Company’s initial assessment and its selected transition method may change depending on the results of the Company’s final assessment of the impact to its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing lease guidance and requires all leases with a term greater than 12 months to be recognized on the balance sheet as assets and obligations. This update iswas effective for publicall entities for financial statements issued for fiscal years beginning after December 15, 2018,2019, including interim periods within those fiscal years, and early adoption is permitted. Thisyears. We adopted the new standard mandates a modified retrospective transition method. We have not yet determined the impact fromon January 1, 2020. The adoption of thisthe new accounting standard did not have a significant impact on our financial statements.Condensed 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 for more information.
New Accounting Pronouncements Not Yet Adopted
In January 2017,August 2018, the FASB issued ASU 2017-04, Intangibles2018-14, Compensation - GoodwillRetirement 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 (Topic 350): Simplifyingother plans with promised crediting rates and an explanation of the Testreasons for Goodwill Impairment, which removes Step 2 fromsignificant gains and losses related to changes in the goodwill impairment test. It isbenefit 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 ASU are effective for annual and interim periods beginningpublic entities for fiscal years ending after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed with a measurement date after January 1, 2017.2020. We are currently evaluating the impact of this accounting standardeffect that the guidance will have on our consolidated financial statements.disclosures.
In January 2017,December 2019, the FASB issued ASU 2017-01, Business Combinations2019-12, Income Taxes (Topic 805)740): ClarifyingSimplifying the DefinitionAccounting for Income Taxes. The amendments in this ASU simplify the accounting for income 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 tax basis of a Business ("ASU 2017-01"). The new guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactionsgoodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to 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 may elect to do so on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the 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 making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for as acquisitions (or disposals) of assets or businesses. The changes tousing the definition of aequity method. For public business will likely resultentities, the amendments in more acquisitions being accounted for as asset acquisitions.this ASU 2017-01 isare effective for annual periods beginning after December 15, 2017, includingfiscal years, and interim periods within those periods. Early application of the amendments in ASU 2017-01 is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance.
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 Post-retirement Benefit ("ASU 2017-07"). ASU 2017-07 amends presentation requirements related to reporting the service cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component from other net benefit costs. ASU 2017-07 also limits the components of net benefit cost eligible to be capitalized to service cost. ASU 2017-07 is effective for fiscal years, beginning after December 15, 2017, including interim periods within those annual periods for public business entities.2020. We are currently evaluating the impact of this accounting standardeffect that the guidance will have on our consolidated financial statements.statements and related disclosures.
In May 2017,
NOTE C—EARNINGS PER SHARE
Basic earnings per common share is computed by dividing income available to common stockholders by the FASB issued ASU 2017-09 Compensation-Stock Compensation (Topic 718), Scopeweighted average number of Modification Accounting ("ASU 2017-09"). This update amendscommon shares outstanding for the scopeperiod. Diluted earnings per common share is computed similarly to basic earnings per common share except that the weighted average number of modification for share-based payment arrangements. This ASU 2017-09 provides guidance oncommon shares outstanding is increased to include the typesnumber of the changes to the terms or conditions of share-based payments awards to which an entityadditional common shares that would be required to apply modification accounting. Specifically, an entity would not apply modification accountinghave been outstanding if the fair value, vesting conditions,potentially dilutive common shares had been issued.
Diluted net earnings per share assumes the conversion of contingently convertible securities and classificationstock options under the treasury stock method, if dilutive. Contingently convertible securities and stock options are excluded from the calculation of fully diluted earnings per share if they are anti-dilutive, including when we incur a loss from continuing operations.
The following table shows the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands, except per share amounts | | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | | 2020 | | 2019 | 2020 | | 2019 |
| Numerator: | | | | | | | |
| Net loss attributable to U.S. Silica Holdings, Inc. | | $ | (13,962) | | | $ | (23,037) | | $ | (118,661) | | | $ | (36,211) | |
| | | | | | | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding | | 73,688 | | | 73,328 | | 73,601 | | | 73,223 | |
| Diluted effect of stock awards | | 0 | | | 0 | | 0 | | | 0 | |
| Weighted average shares outstanding assuming dilution | | 73,688 | | | 73,328 | | 73,601 | | | 73,223 | |
| | | | | | | |
| Loss per share attributable to U.S. Silica Holdings, Inc.: | | | | | | | |
| Basic loss per share | | $ | (0.19) | | | $ | (0.31) | | $ | (1.61) | | | $ | (0.49) | |
| Diluted loss per share | | $ | (0.19) | | | $ | (0.31) | | $ | (1.61) | | | $ | (0.49) | |
Potentially dilutive shares (in thousands) of 348 and 91 for the three months ended September 30, 2020 and 2019, respectively, and 173 and 191 for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share because we were in a net loss position. Certain stock options, restricted stock awards areand performance share units were excluded from the same immediately before and aftercomputation of diluted earnings per share because their effect would have been anti-dilutive. Stock awards excluded from the modification. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for all entities. We are currently evaluating the impactcalculation of this accounting standard on our consolidated financial statements.
diluted loss per common share were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | | 2020 | | 2019 | 2020 | | 2019 |
| Stock options excluded | | 826 | | | 700 | | 826 | | | 716 | |
| Restricted stock and performance share unit awards excluded | | 2,667 | | | 265 | | 4,103 | | | 280 | |
NOTE B—D—CAPITAL STRUCTURE AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Common Stock
Our Amended and Restated Certificate of Incorporation authorizes up to 500,000,000 shares of common stock, par value of $0.01. Subject to the rights of holders of any series of preferred stock, all of the voting power of the stockholders of Holdings shall be vested in the holders of the common stock. There were 81,229,63783,076,544 shares of common stock issued and 73,937,777 shares outstanding at September 30, 2017. As of September 30, 2016, there2020. There were 70,615,46682,601,926 shares issued and outstanding.73,601,950 shares outstanding at December 31, 2019.
During the nine months ended September 30, 2017,2020, our Board of Directors declared quarterly cash dividends as follows:
| | | | | | | | | | | | | | | | | | | | |
| Dividends per Common Share | | Declaration Date | | Record Date | | Payable Date |
| $ | 0.02 | | | February 10, 2020 | | March 13, 2020 | | April 3, 2020 |
|
| | | | | | | | |
| 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 |
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 quarter 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, and any qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference, and to fix the number of shares to be included in any such series, without any further vote or action by our stockholders.
There were no0 shares of preferred stock issued or outstanding at either September 30, 20172020 or December 31, 2016.2019. At present, we have no plans to issue any preferred stock.
Employee Stock Awards
We grant stock options, restricted stock, restricted stock units and performance share units to our employees and directors under the Amended and Restated U.S. Silica Holdings, Inc. 2011 Incentive Compensation Plan. The weighted-average stock awards (in thousands) that are anti-dilutive and are, therefore, excluded from the calculation of our diluted earnings per common share are: |
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Weighted-average outstanding stock options excluded | 564 |
| | 1,095 |
| | 195 |
| | 1,217 |
|
| Weighted-average outstanding restricted stock awards excluded | 457 |
| | 1,493 |
| | 358 |
| | 1,062 |
|
Share Repurchase Program
We are authorized byIn May 2018, our Board of Directors authorized the repurchase of up to repurchase shares$200 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. As of September 30, 2017, we were authorized to repurchase up to $50 million of our common stock through December 11, 2017. Under our share repurchase program, as of September 30, 2017, we repurchased 706,093 shares of our common stock at an average price of $23.83. On November 2, 2017, our Board of Directors authorized the repurchase of up to $100 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.
As of September 30, 2020, we have repurchased a total of 5,036,139 shares of our common stock at an average price of $14.59 and have $126.5 million of remaining availability under this program. We did 0t repurchase any shares during the nine months ended September 30, 2020.
Accumulated Other Comprehensive IncomeLoss
Accumulated other comprehensive income (loss)loss consists of fair value adjustments associated with cash flow hedges, and accumulated adjustments for net experience losses and prior service costcosts related to employee benefit plans.plans and foreign currency translation adjustments, net of tax. The following table presents the changes in accumulated other comprehensive incomeloss by component (in thousands) by component during the nine months ended September 30, 2017:2020: | | | | For the Nine Months Ended September 30, 2017 | | For the Nine Months Ended September 30, 2020 |
| | Unrealized gain/(loss) on cash flow hedges | | Pension and other post-retirement benefits liability | | Total | | Unrealized (loss) gain on cash flow hedges | | Foreign currency translation adjustments | | Pension and other post-retirement benefits liability | | Total |
| Beginning Balance | $ | (32 | ) | | $ | (15,844 | ) | | $ | (15,876 | ) | Beginning Balance | $ | (3,053) | | | $ | (808) | | | $ | (15,993) | | | $ | (19,854) | |
| Other comprehensive gain (loss) before reclassifications | (43 | ) | | 2,000 |
| | 1,957 |
| Other comprehensive gain (loss) before reclassifications | 3,053 | | | 662 | | | (10,498) | | | (6,783) | |
| Amounts reclassed from accumulated other comprehensive income | — |
| | 216 |
| | 216 |
| |
| Amounts reclassified from accumulated other comprehensive loss | | Amounts reclassified from accumulated other comprehensive loss | 0 | | | 0 | | | 1,796 | | | 1,796 | |
| Ending Balance | $ | (75 | ) | | $ | (13,628 | ) | | $ | (13,703 | ) | Ending Balance | $ | 0 | | | $ | (146) | | | $ | (24,695) | | | $ | (24,841) | |
Amounts reclassified from accumulated other comprehensive income (loss)loss related to cash flow hedges category are included in interest expense in our Income Statements and amounts reclassified related to pension and other post-retirement benefits liability category are included in the computation of net periodic pensionbenefit costs respectively, at before taxtheir pre-tax amounts.
NOTE C—E—BUSINESS COMBINATIONS
2017 Acquisitions:During the first quarter of 2020, we settled multiple intellectual property and contractual lawsuits involving our SandBox Logistics unit and Arrows Up, LLC. As part of the settlement, SandBox Logistics took control of Arrows Up's existing business, including all equipment and sand logistics contracts, while also receiving a cash payment.
On April 1, 2017, we completed
We have accounted for the acquisition of White Armor, a product line of cool roof granules used in industrial roofing applications, for cash consideration of $18.6 million.
On August 16, 2017, we completedArrows Up, LLC under the acquisition method of Mississippi Sand, LLC ("MS Sand"),accounting in accordance with ASC 805, Business Combinations. Estimates of fair value included in the Condensed 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 Missouri limited liability company,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 fair value of assets acquired, which included cash, consideration of approximately $95.4accounts receivable, inventories, lease right-of-use assets, and property plant, and equipment, was $19.9 million. The preliminaryfair value of liabilities assumed, which included lease liabilities and other long-term liabilities, was $2.5 million. A gain on bargain purchase priceof $17.4 million was allocatedrecorded in "Other income, net, including interest income" in the Condensed Consolidated Statement of Operations.
In the three months ended September 30, 2020, we recorded a $0.1 million increase to accounts receivable. In the nine months ended September 30, 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 mine development (excluding mineral rights)equipment. The total measurement period adjustments during the nine months ended September 30, 2020 of approximately $30.0$2.4 million goodwillwere recorded as a net decrease to the initial gain on bargain purchase and mineral rightsrecorded in "Other (expense) income, net, including interest income" in the Condensed Consolidated Statement of approximately $55.0 millionOperations.
NOTE F—ACCOUNTS RECEIVABLE
Accounts receivable are recorded when billed or accrued and otherrepresent claims against third parties that will be settled in cash. The carrying value of our accounts receivable, net assets of approximately $10.4 million. As of the filing date of this interim report, we are still gathering relevant information about the fair value of mineral reserves as of the acquisition date. Certain amounts included as part of goodwill will be reallocated to mineral reserves in a subsequent report. 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.
2016 Acquisitions:
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 of $213.7 million 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 $106.5 million.
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 Midland/Odessa, Texas; Morgantown, West Virginia; western North Dakota; northeast of Denver, Colorado; Oklahoma City, OK; and Cambridge, Ohio, where its major customers are located. The consideration of $241.1 million 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 common stock valued at $171.6 million.
Both acquisitions were accountedallowance for using the acquisition method of accounting.
Combined 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, 2016, after giving effect to certain purchase accounting adjustments. 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): |
| | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2016 | | 2016 |
| Sales | $ | 153,358 |
| | $ | 433,179 |
|
| Net loss | $ | (18,111 | ) | | $ | (38,207 | ) |
| Basic loss per share | $ | (0.27 | ) | | $ | (0.62 | ) |
| Diluted loss per share | $ | (0.27 | ) | | $ | (0.62 | ) |
NOTE D—ACCOUNTS RECEIVABLE
credit losses, represents their estimated net realizable value. At September 30, 20172020 and December 31, 2016,2019, accounts receivable (in thousands) consisted of the following:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Trade receivables | $ | 133,127 | | | $ | 178,182 | |
| Less: Allowance for credit losses | (6,677) | | | (8,984) | |
| Net trade receivables | 126,450 | | | 169,198 | |
Other receivables(1) | 47,377 | | | 13,040 | |
| Total accounts receivable | $ | 173,827 | | | $ | 182,238 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Trade receivables | $ | 211,936 |
| | $ | 93,982 |
|
| Less: Allowance for doubtful accounts | (7,503 | ) | | (7,042 | ) |
| Net trade receivables | 204,433 |
| | 86,940 |
|
| Other receivables | 1,666 |
| | 2,066 |
|
| Total accounts receivable | $ | 206,099 |
| | $ | 89,006 |
|
| | | | | | | | | | | | | | |
| (1) | | At September 30, 2020, other receivables included $42.3 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. |
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) duringfor the nine months ended September 30, 2017 are as follows:2020, disaggregated by portfolio segments:
| | | | | | | | | | | | | | | | | |
| Oil & Gas Proppants | | Industrial & Specialty Products | | Total |
| Beginning balance, December 31, 2019 | $ | 7,640 | | | $ | 1,344 | | | $ | 8,984 | |
| Provision for credit losses | 1,340 | | | 41 | | | 1,381 | |
| Write-offs | (3,328) | | | (360) | | | (3,688) | |
| Ending balance, September 30, 2020 | $ | 5,652 | | | $ | 1,025 | | | $ | 6,677 | |
Our ten largest customers accounted for 23% and 32% of total sales for the three and nine months ended September 30, 2020, respectively, and 43% and 42% for the three and nine months ended September 30, 2019, respectively. No customers accounted for 10% or more of our total sales for the three or nine months ended September 30, 2020. Sales to one of our customers accounted for 11% and 12% for the three and nine months ended September 30, 2019, respectively. No other customers accounted for 10% or more of our total sales during the same period. At September 30, 2020, one of our customer's accounts receivable represented 15% of our total trade accounts receivable. At December 31, 2019, the same customer's accounts receivable represented 12% of our total trade accounts receivable. No other customers accounted for 10% or more of our total trade accounts receivable during the same period.
|
| | | |
| | September 30,
2017 |
| Beginning balance | $ | 7,042 |
|
| Bad debt provision | 1,779 |
|
| Write-offs | (1,318 | ) |
| Ending balance | $ | 7,503 |
|
NOTE E—G—INVENTORIES
At September 30, 20172020 and December 31, 2016,2019, inventories (in thousands) consisted of the following:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Supplies | $ | 43,331 | | | $ | 47,277 | |
| Raw materials and work in process | 34,544 | | | 41,167 | |
| Finished goods | 26,836 | | | 35,988 | |
| Total inventories | $ | 104,711 | | | $ | 124,432 | |
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the Organization of the Petroleum Exporting Countries and other oil producing nations ("OPEC+") agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants Segment. As a result of these events, we recorded impairment charges of 0 and $6.7 million for the three and nine months ended September 30, 2020, respectively, primarily related to unused inventory at idled plants. These charges related to the Oil & Gas Proppants Segment and were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations.
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Supplies | $ | 20,409 |
| | $ | 18,824 |
|
| Raw materials and work in process | 26,247 |
| | 25,161 |
|
| Finished goods | 39,518 |
| | 34,724 |
|
| Total inventories | $ | 86,174 |
| | $ | 78,709 |
|
NOTE F—H—PROPERTY, PLANT AND MINE DEVELOPMENT
At September 30, 20172020 and December 31, 2016,2019, property, plant and mine development (in thousands) consisted of the following:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Mining property and mine development | $ | 788,710 | | | $ | 794,899 | |
| Asset retirement cost | 18,011 | | | 18,260 | |
| Land | 55,281 | | | 57,082 | |
| Land improvements | 75,878 | | | 73,203 | |
| Buildings | 69,492 | | | 69,112 | |
| Machinery and equipment | 1,179,002 | | | 1,152,898 | |
| Furniture and fixtures | 4,071 | | | 4,068 | |
| Construction-in-progress | 34,034 | | | 54,675 | |
| 2,224,479 | | | 2,224,197 | |
| Accumulated depreciation, depletion, amortization and impairment charges | (808,843) | | | (706,610) | |
| Total property, plant and mine development, net | $ | 1,415,636 | | | $ | 1,517,587 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Mining property and mine development | $ | 559,130 |
| | $ | 414,434 |
|
| Asset retirement cost | 8,537 |
| | 8,062 |
|
| Land | 35,928 |
| | 35,052 |
|
| Land improvements | 43,460 |
| | 42,738 |
|
| Buildings | 55,059 |
| | 52,178 |
|
| Machinery and equipment | 551,918 |
| | 450,881 |
|
| Furniture and fixtures | 2,898 |
| | 2,566 |
|
| Construction-in-progress | 121,790 |
| | 43,790 |
|
| | 1,378,720 |
| | 1,049,701 |
|
| Accumulated depletion, depreciation and amortization | (328,915 | ) | | (266,388 | ) |
| Total property, plant and mine development, net | $ | 1,049,805 |
| | $ | 783,313 |
|
AtDepreciation, depletion, and amortization expense related to property, plant and mine development was $37.3 million and $44.0 million for the three months ended September 30, 2017,2020 and 2019, respectively, and $106.6 million and $127.3 million for the aggregate cost of the machinerynine months ended September 30, 2020 and equipment acquired under capital leases was $1.3 million, reduced by accumulated depreciation of $0.2 million.2019, respectively. The amount of interest costs capitalized in property, plant and mine development was $0.2$33 thousand and $1.9 million for the nine months ended September 30, 20172020 and 2016. 2019, respectively.
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the OPEC+ agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants Segment. As a result of these events, we recorded impairment charges of 0 and $11.6 million for the three and nine months ended September 30, 2020, respectively, related primarily to our Kosse, Texas facility, which has been idled. These impairment charges related to the Oil & Gas Proppants Segment and were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. 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 September 30, 2020, vendor incentives of $9.6 million were classified in accounts payable and accrued expenses on our balance sheet.
During 2020, management approved the disposal of certain non-operating parcels of land. The assets, which have a combined carrying value of approximately $2.2 million, have been classified as assets held for sale and are presented within Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The proceeds of the disposals are expected to equal or exceed the net carrying value of the assets and, accordingly, 0 impairment loss has been 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 expect to dispose of these assets within one year of the balance sheet date.
NOTE G—DEBTI—GOODWILL AND CAPITAL LEASESINTANGIBLE ASSETS
The changes in the carrying amount of goodwill (in thousands) by business segment consisted of the following:
| | | | | | | | | | | | | | | | | |
| | Oil & Gas Proppants Segment | | Industrial & Specialty Products Segment | | Totals |
| Balance at December, 2019 | $ | 86,100 | | | $ | 187,424 | | | $ | 273,524 | |
| Impairment loss | (86,100) | | | 0 | | | (86,100) | |
EPM acquisition adjustment(1) | 0 | | | (1,775) | | | (1,775) | |
| Balance at September 30, 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 Condensed Consolidated Statements of Operations.
Goodwill and trade names are evaluated for impairment annually as of October 31, or more frequently when indicators of impairment exist. We evaluated events and circumstances since the date of our last qualitative assessment, including macroeconomic conditions, industry and market conditions, and our overall financial performance.
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the OPEC+ agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants Segment. As a result of these triggering events, we performed a quantitative analysis and determined that the goodwill of our Oil & Gas reporting unit was impaired. We recognized goodwill impairment charges of $86.1 million during the first quarter of 2020, which were recorded in "Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations. We have performed qualitative analysis in subsequent periods and determined 0 further impairments were necessary.
The changes in the carrying amount of intangible assets (in thousands) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | December 31, 2019 |
| | Gross Carrying Amount | Accumulated Amortization | Impairments | Net | Gross Carrying Amount | Accumulated Amortization | Impairments | Net |
| | | | | | | | |
| Technology and intellectual property | $ | 72,801 | | $ | (19,278) | | $ | 0 | | $ | 53,523 | | $ | 86,183 | | $ | (17,080) | | $ | 0 | | $ | 69,103 | |
| Customer relationships | 66,999 | | (21,980) | | 0 | | 45,019 | | 68,599 | | (18,737) | | (1,240) | | 48,622 | |
| Total definite-lived intangible assets: | $ | 139,800 | | $ | (41,258) | | $ | 0 | | $ | 98,542 | | $ | 154,782 | | $ | (35,817) | | $ | (1,240) | | $ | 117,725 | |
| Trade names | 65,390 | | — | | 0 | | 65,390 | | 65,390 | | — | | 0 | | 65,390 | |
| Other | 700 | | — | | 0 | | 700 | | 700 | | — | | 0 | | 700 | |
| Total intangible assets: | $ | 205,890 | | $ | (41,258) | | $ | 0 | | $ | 164,632 | | $ | 220,872 | | $ | (35,817) | | $ | (1,240) | | $ | 183,815 | |
Estimated useful life of technology and intellectual property is 15 years. Estimated useful life of customer relationships is a range of 13 - 15 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 Condensed Consolidated Statement of Operations.
Amortization expense was $2.5 million and $7.9 million for the three and nine months ended September 30, 2020, respectively. Amortization expense was $2.7 million and $8.1 million for the three and nine months ended September 30, 2019, respectively.
The estimated amortization expense related to definite-lived intangible assets (in thousands) for the five succeeding years is as follows:
| | | | | |
| 2020 (remaining three months) | $ | 2,718 | |
| 2021 | 10,866 | |
| 2022 | 10,851 | |
| 2023 | 10,846 | |
| 2024 | 10,848 | |
NOTE J—DEBT
At September 30, 20172020 and December 31, 2016,2019, debt (in thousands) consisted of the following:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Senior secured credit facility: | | | |
| Revolver expiring July 23, 2018 (5.75% at September 30, 2017 and 5.25% at December 31, 2016) | $ | — |
| | $ | — |
|
| Term loan facility—final maturity July 23, 2020 (4.4% - 4.9% at September 30, 2017 and 4% - 4.5% at December 31, 2016) | 490,350 |
| | 494,175 |
|
| Less: Unamortized original issue discount | (1,037 | ) | | (1,318 | ) |
| Less: Unamortized debt issuance cost | (3,444 | ) | | (4,482 | ) |
| Note payable secured by royalty interest | 23,611 |
| | 23,076 |
|
| Customer note payable | 1,005 |
| | 1,787 |
|
| Equipment notes payable | 819 |
| | — |
|
| Total debt | 511,304 |
| | 513,238 |
|
| Less: current portion | (4,735 | ) | | (4,821 | ) |
| Total long-term portion of debt | $ | 506,569 |
| | $ | 508,417 |
|
Revolving Line-of-Credit
We have a $50 million revolving line-of-credit (the “Revolver”), with zero drawn and $4.8 million allocated for letters of credit as of September 30, 2017, leaving $45.2 million available under the Revolver. | | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Senior secured credit facility: | | | |
| Revolver expiring May 1, 2023 (4.19% at September 30, 2020 and 7.75% at December 31, 2019) | $ | 25,000 | | | $ | 0 | |
| Term Loan—final maturity May 1, 2025 (5.00% at September 30, 2020 and 5.81% at December 31, 2019) | 1,238,000 | | | 1,247,600 | |
| Less: Unamortized original issue discount | (4,634) | | | (5,412) | |
| Less: Unamortized debt issuance cost | (21,535) | | | (25,390) | |
| Note payable secured by royalty interest | 10,813 | | | 10,438 | |
| Insurance financing notes payable | 5,573 | | | 5,055 | |
| Equipment notes payable | 0 | | | 87 | |
| Finance leases | 0 | | | 70 | |
| Total debt | 1,253,217 | | | 1,232,448 | |
| Less: current portion | (44,248) | | | (18,463) | |
| Total long-term portion of debt | $ | 1,208,969 | | | $ | 1,213,985 | |
Senior Secured Credit Facility
At September 30, 2017, contractual maturities of long-termOn May 1, 2018, we entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement"), which increased our existing senior debt (in thousands) are as follows:
|
| | | |
| 2017 | $ | 1,275 |
|
| 2018 | 5,100 |
|
| 2019 | 5,100 |
|
| 2020 | 478,875 |
|
| Total | $ | 490,350 |
|
Ourby entering into a new $1.380 billion senior secured credit facility, consisting of a $1.280 billion term loan (the "Term Loan") and a $100 million revolving credit facility (the "Revolver") (collectively the "Credit Facility) that may also be used for swingline loans or letters of credit, and we may elect to increase the term loan in accordance with the terms of the Credit Agreement. Borrowings under the Credit Agreement will bear interest at variable rates as determined at our election, at LIBOR or a base rate, in each case, plus an applicable margin. In addition, under the Credit Agreement, we are required to pay a per annum facility fee and fees for letters of credit. The Credit Agreement is secured by 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 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 Facility 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 September 30, 2017,2020 and December 31, 2019, we are in compliance with all covenants in accordance with our senior secured Credit Facility.
Term Loan
At September 30, 2020, contractual maturities of our Term Loan (in thousands) are as follows:
| | | | | |
| 2020 (remaining three months) | $ | 3,200 | |
| 2021 | 12,800 | |
| 2022 | 12,800 | |
| 2023 | 12,800 | |
| 2024 | 12,800 | |
| Thereafter | 1,183,600 | |
| Total | $ | 1,238,000 | |
Revolving Line-of-Credit
We have a $100.0 million Revolver with $25.0 million drawn and $25.4 million allocated for letters of credit facility.as of September 30, 2020, leaving $49.6 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 September 30, 2020 has been classified as current.
Based on our consolidated leverage ratio of 5.85:1.00 as of September 30, 2020, we may draw up to approximately $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver.
Note Payable Secured by Royalty Interest
In conjunction 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 and thereafter required by the note are as follows:
|
| | | |
| 2017 | $ | 438 |
|
| 2018 | 1,750 |
|
| 2019 | 1,750 |
|
| 2020 | 1,750 |
|
| 2021 | 1,750 |
|
| | | | | |
| 2020 (remaining three months) | $ | 945 | |
| 2021 | 367 | |
| 2022 | 423 | |
| 2023 | 487 | |
| 2024 | 557 | |
| Thereafter | 8,034 | |
| Total | $ | 10,813 | |
Under this agreement once a certain number of tons have been shipped from the Tyler facility, the minimum payments will decrease to $0.5 million per year, subject to proration in the period this threshold is met.
The royalty note payable fair value was estimated to be $22.5 million on the acquisition date. The estimate was made using a discounted cash flow model, which calculated the present value of projected future cash payments required under the agreement using a discounted rate of 14%., which is also the effective rate as of September 30, 2020. As of September 30, 2017,2020, the note payable hashad a balance of $23.6$10.8 million. The effective interest rate based onChanges in fair value of the updated projectednote payable amount may result if estimates of future cash payments is 24% attonnages and sales increase or decrease.
Subsequent to September 30, 2017.2020, 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.
Insurance Financing Notes Payable
In connectionDuring September 2020, the Company renewed its insurance policies and financed the payments through notes payable with the acquisition of NBI in August 2016, we assumed a customer note payable that was entered into by NBI. NBI entered into an amendment effective January 1, 2016. Terms of the amended agreement call for repayment of $2.5 million at 0% interest, in equal monthly payments beginning January 1, 2016 for 60 months or $0.5 million per year. Additionally, the principal of this note payable can be reduced via future product load credit. We discounted the required future cash payments and projected product load credit using an effectivestated interest rate of 3.5%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 September 30, 2017,2020, the note hasnotes payable had a balance of $1.0$5.6 million.
Equipment Notes Payable19
In connection with 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: |
| | | |
| 2017 | $ | 100 |
|
| 2018 | 316 |
|
| 2019 | 286 |
|
| 2020 | 117 |
|
| Total | 819 |
|
Capital Leases
We enter into financing arrangements from time to time to purchase machinery and equipment utilized in operations. As of September 30, 2017, scheduled future minimum lease payments under capital lease obligations (in thousands) are as follows: |
| | | |
| 2017 | $ | 561 |
|
| 2018 | 722 |
|
| Total minimum lease payments | 1,283 |
|
| Less: amount representing interest | (25 | ) |
| Present value of minimum lease payments | 1,258 |
|
| Less: current portion of capital lease obligations | (1,090 | ) |
| Non-current portion of capital lease obligations | $ | 168 |
|
NOTE H—DEFERRED REVENUE
During the quarter ended March 31, 2017, we entered into a service agreement with a customer and received equipment with fair value of $18.2 million. This amount represents future purchases and is recorded as deferred revenue which is recognized as revenues over a term of five years.
During the quarter ended June 30, 2017, we received an advance payment of $25.0 million from a customer under a supply agreement which starts upon completion of a plant expansion. The agreement gives the customer the right to purchase certain products for a discounted price at certain volumes over an initial term of five years. The advance payment represents future purchases and is recorded as deferred revenue which is recognized as revenues over a contract term of five years.
During the quarter ended September 30, 2017, we received advance payments of $21.6 million from customers under supply agreements. The agreements give the customers the right to purchase certain products for a discounted price at certain volumes over initial contract terms of one to three years. The advance payments represent future purchases and are recorded as deferred revenue which are recognized as revenues over the contract term of each supply agreement.
NOTE I—K—ASSET RETIREMENT OBLIGATIONOBLIGATIONS
Mine reclamation or future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at asuch site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.
As of September 30, 2017,2020 and 2019, we had a liability of $12.3$26.0 million and $20.6 million, respectively, in other long-term obligationsliabilities related to our asset retirement obligation.obligations. Changes in the asset retirement obligationobligations (in thousands) during the nine months ended September 30, 20172020 and 2019 are as follows:
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2020 | | 2019 |
| Beginning balance | $ | 25,825 | | | $ | 18,413 | |
| Accretion | 1,098 | | | 1,138 | |
| Additions and revisions of estimates | (890) | | | 1,061 | |
| Ending balance | $ | 26,033 | | | 20,612 |
|
| | | |
| | September 30,
2017 |
| Beginning balance | $ | 11,159 |
|
| Accretion | 650 |
|
| Additions due to acquisition | 474 |
|
| Ending balance | $ | 12,283 |
|
NOTE J—L—FAIR VALUE ACCOUNTING
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Cash Equivalents
Due to the short-term maturity, we believe our cash equivalent instruments at September 30, 20172020 and December 31, 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, approximate 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 J - Debt for more information on the royalty note payable.
Derivative Instruments
The estimated fair value of our derivative assets (interest rate caps) areinstruments is recorded at each reporting period and are based upon widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We also incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk as well as that of the respective counterparty in the fair value measurements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default of ourselves and our counterparties. However, as of September 30, 2017, we have assessed that the impact of the credit valuation adjustments on the overall valuation of our derivative positions is not significant. As a result,
we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
In accordance with the fair value hierarchy, the following table presents the fair value (in thousands) as As of September 30, 2017,2020, the fair values of our 2 interest rate swaps were both 0 as our swap agreements matured on July 31, 2020. See Note M - Derivative Instruments for more information.
NOTE M—DERIVATIVE INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
We enter into interest rate swap agreements in connection with our Term Loan to add stability to interest expense and to manage our exposure to interest rate movements. The derivative instruments are recorded on the balance sheet within other assets or liabilities at their fair values. As of September 30, 2020, the fair values of our 2 interest rate swaps were both 0 as our swap agreements matured on July 31, 2020. At December 31, 2019, the fair values of our 2 interest rate swaps were a liability of $2.8 million and a liability of $1.3 million and were classified within accounts payable and accrued liabilities on our balance sheets. We designated the interest rate swap agreements as qualified cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument was 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 values of our derivative instruments (in thousands, except contract/notional amount). See Note L - Fair Value Accounting for more information regarding the estimated fair values of our derivative instruments at September 30, 2020 and December 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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%.
During the nine months ended September 30, 2020, we had 0 ineffectiveness for the interest rate swap derivatives.
The following table summarizes the effect of derivative instruments (in thousands) on our income statements and our consolidated statements of comprehensive income for the nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2020 | | 2019 |
| Deferred losses from derivatives in OCI, beginning of period | $ | (3,053) | | | $ | (1,621) | |
| Gain (loss) recognized in OCI from derivative instruments | 3,053 | | | (2,520) | |
| Deferred losses from derivatives in OCI, end of period | $ | 0 | | | $ | (4,141) | |
NOTE N—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 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 assetsof our common stockholders. At September 30, 2020, we have 3,787,156 shares of common stock that we measuremay be issued under the 2011 Plan. We use a combination of treasury stock and new shares if necessary to satisfy option exercises or vesting of restricted awards and performance share units.
Stock Options
The following table summarizes the status of, and changes in, our stock option awards during the nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Shares | | Weighted
Average
Exercise Price | | Aggregate Intrinsic Value | | Weighted
Average
Remaining Contractual Term in Years |
| Outstanding at December 31, 2019 | 826,658 | | | $ | 28.97 | | | $ | 11,557 | | | 4.1 years |
| Granted | 0 | | | $ | 0 | | | $ | — | | | |
| Exercised | 0 | | | $ | 0 | | | $ | — | | | |
| Forfeited | (443) | | | $ | 32.41 | | | $ | — | | | |
| Expired | 0 | | | $ | 0 | | | $ | — | | | |
| Outstanding at September 30, 2020 | 826,215 | | | $ | 29.05 | | | $ | 0 | | | 3.3 years |
| Exercisable at September 30, 2020 | 826,215 | | | $ | 29.05 | | | $ | 0 | | | 3.3 years |
There were 0 grants of stock options during the three and nine months ended September 30, 2020 and 2019.
There were 0 stock options exercised during the three and nine months ended September 30, 2020, respectively. There were 0 and 10,000 stock options exercised during the three and nine months ended September 30, 2019. The total intrinsic value of stock options exercised was $12 thousand for the nine months ended September 30, 2019. Cash received from stock options exercised during the nine months ended September 30, 2019 was $128 thousand. The tax benefit realized from stock option exercises was $3 thousand for the nine months ended September 30, 2019.
As of September 30, 2020 and 2019, there was 0 unrecognized compensation expense related to these options. We account for forfeitures as they occur.
Restricted Stock and Restricted Stock Unit Awards
The following table summarizes the status of, and changes in, our unvested restricted stock awards during the nine months ended September 30, 2020:
| | | | | | | | | | | |
| Number of Shares | | Grant Date Weighted
Average Fair Value |
| Unvested, December 31, 2019 | 1,020,248 | | | $ | 15.86 | |
| Granted | 1,541,473 | | | $ | 4.13 | |
| Vested | (490,414) | | | $ | 16.61 | |
| Forfeited | (281,134) | | | $ | 10.54 | |
| Unvested, September 30, 2020 | 1,790,173 | | | $ | 6.45 | |
We granted 49,696 and 1,541,473 restricted stock and restricted stock unit awards during the three and nine months ended September 30, 2020, respectively. We granted 34,790 and 791,903 restricted stock and restricted stock unit awards during the three and nine months ended September 30, 2019, respectively. The fair value of the awards was based on the market price of our stock at date of grant.
We recognized $2.7 million and $6.6 million of equity-based compensation expense related to restricted stock awards during the three and nine months ended September 30, 2020, respectively. We recognized $2.0 million and $6.4 million of equity-based compensation expense related to restricted stock awards during the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, there was $8.0 million of unrecognized compensation expense related to these restricted stock awards, which is expected to be recognized over a weighted-average period of 1.7 years.
We also granted 0 and 335,039 awards, which included 58,246 forfeited and partially vested awards, during the three and nine months ended September 30, 2020, respectively. 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 $0.1 million and $0.2 million of expense related to these awards for the three and nine months ended September 30, 2020, respectively. The liability for these awards is included in accounts payable and other accrued expenses on our balance sheets. These awards will be remeasured at fair value oneach reporting period with resulting changes reflected in our income statements. Estimated unrecognized expense related to these awards is $0.7 million over a recurring basis:period of 2.4 years.
|
| | | | | | | | | | | |
| | Level 1 | | Level 2 | | Total |
| Interest rate derivatives | $ | — |
| | $ | 1 |
| | $ | 1 |
|
| Net asset | $ | — |
| | $ | 1 |
| | $ | 1 |
|
The following table summarizes the status of, and changes in, our performance share unit awards during the nine months ended September 30, 2020: | | | | | | | | | | | |
| Number of Shares | | Grant Date Weighted
Average Fair Value |
| Unvested, December 31, 2019 | 838,722 | | | $ | 18.00 | |
| Granted | 1,020,161 | | | $ | 9.94 | |
| Vested | 0 | | | $ | 0 | |
| Forfeited/Cancelled | (341,221) | | | $ | 25.88 | |
| Unvested, September 30, 2020 | 1,517,662 | | | $ | 14.28 | |
We granted 0 and 1,020,161 performance share units during the three and nine months ended September 30, 2020, respectively. We granted 0 and 607,130 performance share units during the three and nine months ended September 30, 2019, respectively. The grant date fair value for these awards was estimated using a Monte Carlo simulation model. The Monte Carlo simulation model requires the use of highly subjective assumptions. Our key assumptions in the model included the price and the expected volatility of our common stock and our self-determined peer group companies’ stock, risk-free rate of interest, dividend yields and cross-correlations between our common stock and our self-determined peer group companies' stock.
We recognized $2.7 million and $5.7 million of compensation expense related to performance share unit awards during the three and nine months ended September 30, 2020, respectively. We recognized $1.8 million and $4.3 million of compensation expense related to performance share unit awards during the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, there was $10.8 million of unrecognized compensation expense related to these performance share unit awards, which is expected to be recognized over a weighted-average period of 1.9 years.
We also granted cash awards during the nine months ended September 30, 2020. These awards will vest over a period of three years and will be settled in cash. As such, these awards have been classified as liability instruments. We recognized $0.7 million of expense related to these awards for the nine months ended September 30, 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 $1.5 million over a period of 2.4 years.
NOTE K—O—COMMITMENTS AND CONTINGENCIES
Future Minimum Annual Commitments at September 30, 20172020(in thousands): |
| | | | | | | |
| (Amounts in thousands) | Operating Leases | | Minimum Purchase Commitments |
| 2017 | $ | 15,317 |
| | $ | 6,530 |
|
| 2018 | 63,047 |
| | 21,707 |
|
| 2019 | 55,897 |
| | 18,017 |
|
| 2020 | 45,098 |
| | 8,860 |
|
| 2021 | 34,984 |
| | 5,736 |
|
| Thereafter | 81,539 |
| | 12,800 |
|
| Total future lease and purchase commitments | $ | 295,882 |
| | $ | 73,650 |
|
Operating Leases
We are obligated under certain operating leases for railroad cars, office space, mining property, mining/processing equipment and transportation and other equipment. Certain operating lease agreements include options to purchase the equipment for fair market value at the end of the original lease term. In general, the above leases include renewal options and provide that we pay for all utilities, insurance, taxes and maintenance. Expense related to operating leases and rental agreements totaled approximately $16.7 million and $12.6 million for the three months ended September 30, 2017 and 2016, respectively, and $47.9 million and $37.7 million for the nine months ended September 30, 2017 and 2016, respectively.
| | | | | |
| Minimum Purchase Commitments |
| 2020 (remaining three months) | $ | 1,864 | |
| 2021 | 13,542 | |
| 2022 | 10,328 | |
| 2023 | 10,328 | |
| 2024 | 7,020 | |
| Thereafter | 10,147 | |
| Total future purchase commitments | $ | 53,229 | |
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”), has been named as a defendant in various product liability claims alleging silica exposure causing silicosis. During the nine months ended September 30, 2017, no2020, 0 new claims were brought against U.S. Silica. As of September 30, 2017,2020, there were 5954 active silica-related productsproduct liability claims pending in which U.S. Silica is a defendant. Although the outcomes of these claims cannot be predicted with certainty, in the opinion of management, it is not reasonably possible that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations that exceeds the accrual amounts.
We have recorded estimated liabilities for these claims in other long-term obligationsliabilities as well as estimated recoveries under the indemnity agreement and an estimate of future recoveries under insurance in other assets on our condensed consolidated balance sheets. As of both September 30, 2017,2020 and December 31, 20162019, other non-current assets included $0.3 million0 for insurance for third-party productsproduct liability claimsclaims. As of September 30, 2020 and December 31, 2019 other long-term liabilities included $1.0 million and $0.9 million, respectively, for third-party product liability claims.
One of our subsidiaries has also been named as a defendant in lawsuits regarding certain labor practices. If we are unsuccessful in defending the litigation, these cases could result in a material liability for us.
Obligations under Guarantees
We have indemnified our insurers against any loss they may incur in the event that holders of surety bonds, issued on our behalf, execute the bonds. As of September 30, 2020, there was $35.1 million in bonds outstanding, of which $31.1 million relate to reclamation requirements issued by various governmental authorities. Reclamation bonds remain outstanding until the mining area is reclaimed and the authority issues a formal release. The remaining bonds relate to licenses, permits, and tax collection.
NOTE P—PENSION AND POST-RETIREMENT BENEFITS
We maintain single-employer noncontributory defined benefit pension plans covering certain employees. There have been no new entrants to the U.S. Silica Company plan since May 2009 and to the EP Management Corporation plan since January 2007 for salaried participants and January 2010 for hourly participants when the plans were frozen to all new employees. The plans provide benefits based on each covered employee’s years of qualifying service. Our funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for the plans consistent with a goal of appropriate minimization of the unfunded projected benefit obligations. The pension plans use a benefit level per year of service for covered hourly employees and a final average pay method for covered salaried employees. The plans use the projected unit credit cost method to determine the actuarial valuation.
In addition, we provide defined benefit post-retirement health care and life insurance benefits to some employees. Covered employees become eligible for these benefits at retirement after meeting minimum age and service requirements. The projected future cost of providing post-retirement benefits, such as healthcare and life insurance, is recognized as an expense as employees render services. In general, retiree health benefits are paid as covered expenses are incurred.
Net pension benefit cost (in thousands) consisted of the following for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | 2020 | | 2019 | 2020 | | 2019 |
| Service cost | $ | 199 | | | $ | 323 | | $ | 1,515 | | | $ | 1,065 | |
| Interest cost | 356 | | | 1,503 | | 2,349 | | | 4,813 | |
| Expected return on plan assets | (531) | | | (1,727) | | (3,394) | | | (5,745) | |
| Net amortization and deferral | 276 | | | 459 | | 2,078 | | | 1,305 | |
| Net pension benefit costs | $ | 300 | | | $ | 558 | | $ | 2,548 | | | $ | 1,438 | |
Net post-retirement benefit cost (in thousands) consisted of the following for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | 2020 | | 2019 | 2020 | | 2019 |
| Service cost | $ | 28 | | | $ | 20 | | $ | 65 | | | $ | 67 | |
| Interest cost | 235 | | | 182 | | 426 | | | 572 | |
| Unrecognized net (gain)/loss | 0 | | | (7) | | 0 | | | (7) | |
| Net post-retirement benefit costs | $ | 263 | | | $ | 195 | | $ | 491 | | | $ | 632 | |
We contributed $2.2 million and $4.2 million to the qualified pension plans for the three and nine months ended September 30, 2020, respectively. We contributed $2.1 million and $3.8 million to the qualified pension plans for the three and nine months ended September 30, 2019, respectively. Our best estimates of expected contributions to the pension and post-retirement medical benefit plans for the 2020 fiscal year are $5.1 million and $1.4 million, respectively.
We contribute to 3 multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. These plans allow multiple employers to pool their pension resources and realize efficiencies associated with the daily administration of the plan. Multiemployer plans are generally governed by a board of trustees composed of management and labor representatives and are funded through employer contributions. However, in most cases, management is not directly represented. Our contributions to individual multiemployer pension funds did not exceed 5% of the fund’s total contributions for the three and nine months ended September 30, 2020 and 2019. Additionally, our contributions to multiemployer post-retirement benefit plans were immaterial for all periods presented in the accompanying condensed consolidated financial statements.
We also sponsor a defined contribution plan covering certain employees. We contribute to the plan in two ways. For certain employees not covered by the defined benefit plan, we make a contribution equal to 4% of their salary. For all other eligible employees, we make a contribution up to 6% of eligible earnings. Contributions were $0.6 million and $2.8 million for the three and nine months ended September 30, 2020, respectively. Contributions were $1.5 million and $4.8 million for the three and nine months ended September 30, 2019, respectively.
NOTE Q— LEASES
We lease railroad cars, office space, mining property, mining/processing equipment and transportation and other long-term obligations included $1.3equipment. The majority of our leases have remaining lease terms of one year to 20 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We have lease agreements with lease and non-lease components, the latter of which are generally accounted for separately.
Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
| | | | | | | | | | | | | | |
| Leases | Classification | | September 30,
2020 | December 31, 2019 |
| Assets | | | | |
| Operating | Operating lease right-of-use assets | | $ | 41,265 | | $ | 53,098 | |
| Total leased right-of-use assets | | | $ | 41,265 | | $ | 53,098 | |
| Liabilities | | | | |
| Current | | | | |
| Operating | Current portion of operating lease liabilities | | $ | 30,887 | | $ | 53,587 | |
| Non-current | | | | |
| Operating | Operating lease liabilities | | 76,827 | | 117,964 | |
| Total lease liabilities | | | $ | 107,714 | | $ | 171,551 | |
| | | | |
| Lease Term and Discount Rate | | | | |
| Weighted average remaining lease term: | | | |
| Operating leases | | | 5.2 years | 4.5 years |
| | | | |
| Weighted average discount rate: | | | | |
| Operating leases | | | 5.7% | 5.7% |
During 2020, there was an unprecedented drop in global demand combined with the breakdown of the Organization of the Petroleum Exporting Countries and other oil producing nations ("OPEC+") agreement to restrict oil production that led to one of the largest annual crude oil inventory builds in history. This led to sharp reductions in global crude oil prices. Containment measures and other economic, travel, and business disruptions caused by COVID-19 also affected refinery activity and future demand for crude oil, and consequently, the services and products of our Oil & Gas Proppants Segment. As a result of these events, we recorded impairment charges of $0.2 million and $3.4 million for the three and nine months ended September 30, 2020, respectively, primarily related to railcar leases, various equipment leases and an office building lease. These charges related to the Oil & Gas Proppants Segment and were recorded in third-party products claims liability."Goodwill and other asset impairments" in the Condensed Consolidated Statements of Operations.
During the second and third quarters of 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 three and nine months ended September 30, 2020, we recorded a decrease to the ROU asset of $0.4 million and $0.9 million, respectively, and a decrease to the liability of $20.9 million and $25.0 million, respectively. A gain of $20.5 million and $24.4 million was recognized as operating income through cost of goods sold in our income statements for the three and nine months ended September 30, 2020, respectively. The components of lease expense (in thousands) were as follows:
| | | | | | | | | | | | | | | | | |
| Lease Costs | Classification | Three Months Ended
September 30, 2020 | Three Months Ended
September 30, 2019 | Nine Months Ended
September 30, 2020 | Nine Months Ended
September 30, 2019 |
Operating lease costs(1) | Cost of sales | $ | 5,711 | | $ | 21,787 | | $ | 21,417 | | $ | 69,547 | |
Operating lease costs(2) | Selling, general and administrative | 415 | | 1,044 | | 1,420 | | 3,281 | |
| Total | | $ | 6,126 | | $ | 22,831 | | $ | 22,837 | | $ | 72,828 | |
| | | | | | | | |
| (1) Included short-term operating lease costs of $0.3 million and $7.5 million for the three and nine months ended September 30, 2020, respectively. Included short-term operating lease costs of $4.0 million and $15.1 million for the three and nine months ended September 30, 2019, respectively. |
| (2) Included short-term operating lease costs of $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively. Included short-term operating lease costs of $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively. |
Supplemental cash flow information (in thousands) related to leases was as follows:
| | | | | | | | | | | |
| | Nine Months Ended
September 30, 2020 | Nine Months Ended
September 30, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows for operating leases | | $ | 51,859 | | $ | 57,523 | |
| | | |
| Right-of-use assets obtained in exchange for new lease liabilities: | | | |
| Operating leases | | $ | 10,650 | | $ | 229,557 | |
Maturities of lease liabilities (in thousands) as of September 30, 2020:
| | | | | |
| Operating leases |
| 2020 (remaining three months) | $ | 10,757 | |
| 2021 | 32,226 | |
| 2022 | 18,572 | |
| 2023 | 15,676 | |
| 2024 | 12,716 | |
| Thereafter | 46,823 | |
| Total lease payments | $ | 136,770 | |
| Less: Interest | 29,056 | |
| Total | $ | 107,714 | |
NOTE L—R— INCOME TAXES
For interim period reporting, we record income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. At the end of each interim period, we update the estimated annual effective tax rate, and if the estimated tax rate changes based on new information, we make a cumulative adjustment in the period. We record the tax effect of an unusual or infrequently occurring item in the interim period in which it occurs as a discrete item of tax.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable 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 five preceding taxable years to generate a refund of previously paid income taxes. As a result, we have carried the NOL generated in 2019 back to offset the taxable income in the 2014 tax year generating a refund of $36.6 million. This refund was received at the end of the 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 refund of $26.3 million. This refund has been reclassified from deferred tax asset to accounts receivable in our balance sheets as of September 30, 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 carry back of these NOLs to prior years, the NOLs will be utilized at the statutory income tax rate for pre-2018, which was 35%. This increase in the tax rate at which the 2018 and 2019 NOLs will be utilized results in a deferred tax benefit. Accordingly, during the nine months ended September 30, 2017,2020, we recorded a deferred tax benefit of $1.8 million$22.3 million. Pursuant to ASC 740, this has been recorded as a discrete component of the tax benefit.
The CARES Act also accelerates the ability of companies to receive refunds of alternative minimum tax (“AMT”) credits related to excesstax years beginning in 2018 and 2019. AMT credits have been presented as a receivable or a deferred tax asset in the prior period balance sheets. The presentation of refundable AMT credits in the current balance sheet has been reclassified from deferred tax asset to accounts 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 September 30, 2020.
Additionally, the CARES Act provides temporary relief for payment of certain payroll taxes. Prior to the CARES Act, payroll taxes generally would have been deductible for income tax purposes in the same period that they were expensed for book purposes under the “recurring item exception” of the Internal 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 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. The temporary relief for payment of certain payroll taxes did not have a material impact to the third quarter of 2020.
We are currently still evaluating all provisions of the CARES Act and its impact on income tax and in our Consolidated Statements of Operations.
For the three and nine months ended September 30, 2020, we had tax benefits on equity compensation pursuant to ASU 2016-09.
of $4.1 million and $63.8 million, respectively. For the three and nine months ended September 30, 2019, we had tax benefits of $7.7 million and $7.3 million, respectively. The effective tax rate was 22% and 47% for the nine months ended September 30, 2017 and 2016, respectively. The tax rate for the nine months ended September 30, 2017 would have been 23% without the equity compensation tax benefit recorded discretely.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
NOTE M— PENSION AND POST-RETIREMENT BENEFITS
We maintain a single-employer noncontributory defined benefit pension plan covering certain employees. Net pension benefit cost (in thousands) recognized for the three and nine months ended September 30, 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | $ | 260 |
| | $ | 267 |
| | $ | 704 |
| | $ | 559 |
|
| Interest cost | 993 |
| | 1,009 |
| | 2,447 |
| | 2,257 |
|
| Expected return on plan assets | (1,317 | ) | | (1,361 | ) | | (3,405 | ) | | (2,768 | ) |
| Net amortization and deferral | 443 |
| | 395 |
| | 1,391 |
| | 884 |
|
| Net pension benefit costs | $ | 379 |
| | $ | 310 |
| | $ | 1,137 |
| | $ | 932 |
|
In addition, we provide defined benefit post-retirement health care and life insurance benefits to some employees. Net periodic post-retirement benefit cost (in thousands) recognized35% for the three and nine months ended September 30, 20172020, respectively. The effective tax rate was 25% and 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | $ | 11 |
| | $ | (28 | ) | | $ | 76 |
| | $ | 60 |
|
| Interest cost | 79 |
| | (187 | ) | | 462 |
| | 425 |
|
| Expected return on plan assets | — |
| | — |
| | (1 | ) | | — |
|
| Special termination benefit | — |
| | — |
| | — |
| | 21 |
|
| Net amortization and deferral | — |
| | — |
| | 107 |
| | 270 |
|
| Net post-retirement costs | $ | 90 |
| | $ | (215 | ) | | $ | 644 |
| | $ | 776 |
|
The weighted average discount rate used to determine the projected pension and post-retirement obligations was updated during the nine months ended September 30, 2017, and was decreased from 4.2% at December 31, 2016 to 3.8% at September 30, 2017. We contributed $1.5 million and $1.8 million to the qualified pension plan17% for the three and nine months ended September 30, 2017. We made no contributions2019, respectively.Without discrete items, which primarily consist of tax expense related to equity compensation and tax benefits related to the qualified pension plancarryback of NOLs described above, the effective tax rate for the three and nine months ended September 30, 2016. Total expected employer funding contributions during2020 would have been 26% and 24%, respectively. Without discrete items, the fiscal year ending December 31, 2017 are $2.1 millioneffective tax rate for the pension planthree and $1.4nine months ended September 30, 2019 would have been 27% and 29%, respectively.
During the three and nine months ended September 30, 2020, we recorded tax expense related to equity compensation of $0.3 million and $1.7 million, respectively. During the three and nine months ended September 30, 2019, we recorded tax expense related to equity compensation of $0.1 million and $4.5 million, respectively.
NOTE S— REVENUE
We consider sales disaggregated at the product and service level by business segment to depict how the nature, amount, timing and uncertainty of revenues and cash flow are impacted by changes in economic factors. The following table disaggregates our sales by major source for the post-retirement medicalthree and life plan.nine months ended September 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2020 | | Three Months Ended
September 30, 2019 |
| Category | | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales | | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales |
| Product | | $ | 49,508 | | | $ | 110,129 | | | $ | 159,637 | | | $ | 168,870 | | | $ | 119,107 | | | $ | 287,977 | |
| Service | | 16,835 | | | 0 | | | 16,835 | | | 73,837 | | | 0 | | | 73,837 | |
| Total Sales | | $ | 66,343 | | | $ | 110,129 | | | $ | 176,472 | | | $ | 242,707 | | | $ | 119,107 | | | $ | 361,814 | |
NOTE N— OBLIGATIONS UNDER GUARANTEES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, 2020 | | Nine Months Ended
September 30, 2019 |
| Category | | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales | | Oil & Gas Proppants | | Industrial & Specialty Products | | Total Sales |
| Product | | $ | 217,943 | | | $ | 324,055 | | | $ | 541,998 | | | $ | 528,708 | | | $ | 359,170 | | | $ | 887,878 | |
| Service | | 76,610 | | | 0 | | | 76,610 | | | 247,540 | | | 0 | | | 247,540 | |
| Total Sales | | $ | 294,553 | | | $ | 324,055 | | | $ | 618,608 | | | $ | 776,248 | | | $ | 359,170 | | | $ | 1,135,418 | |
The following tables reflect the changes in our contract assets, which we classify as unbilled receivables and our contract liabilities, which we classify as deferred revenues, for the nine months ended September 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | |
| | Unbilled Receivables |
| | September 30, 2020 | September 30, 2019 |
| Beginning Balance | | $ | 144 | | $ | 90 | |
| Reclassifications to billed receivables | | (350) | | (3,183) | |
| Revenues recognized in excess of period billings | | 1,226 | | 3,893 | |
| Ending Balance | | $ | 1,020 | | $ | 800 | |
| | | | | | | | | | | |
| | Deferred Revenue |
| | September 30, 2020 | September 30, 2019 |
| Beginning Balance | | $ | 50,634 | | $ | 113,319 | |
| Revenues recognized from balances held at the beginning of the period | | (7,259) | | (24,241) | |
| Revenues deferred from period collections on unfulfilled performance obligations | | 4,782 | | 12,225 | |
| Revenues recognized from period collections | | (3,815) | | (8,138) | |
| Ending Balance | | $ | 44,342 | | $ | 93,165 | |
We have indemnified Travelers Casualtyelected 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 Surety Companywhen we expect to recognize such revenue. The majority of America (“Travelers”) against any loss Travelers may incurour remaining performance obligations are primarily comprised of unfulfilled product, transportation service, and labor service orders, all of which hold a remaining duration of less than one year. The long-term portion of deferred revenue primarily represents a combination of refundable and nonrefundable customer prepayments for which related current performance obligations do not yet exist, but are expected to arise, before the expiration of the contract. Our residual unfulfilled performance obligations are comprised primarily of long-term equipment rental arrangements in which we recognize revenues equal to what we have a right to invoice. Generally, no variable consideration exists related to our remaining performance obligations and no consideration is excluded from the associated transaction prices. However, the decrease in the event that holderscurrent year deferred revenue balance is partially attributable to revenue recognized as variable consideration from shortfall penalties assessed to multiple customers according to contract terms. During the three and nine months ending September 30, 2020, we have recognized revenue as variable consideration from shortfall penalties according to contract terms in the amounts of surety bonds, issued on behalf$2.2 million and $19.8 million, respectively, of us by Travelers, executewhich $1.5 million and $3.0 million, respectively, were included in deferred revenue. In some cases, amounts recorded are estimates which are in negotiation and may increase or decrease.
Foreign Operations
The following table includes information related to our foreign operations for the bonds. Asthree and nine months ended September 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2020 | Three Months Ended
September 30, 2019 | Nine Months Ended
September 30, 2020 | Nine Months Ended
September 30, 2019 |
| Total Sales | | $ | 22,084 | | $ | 26,081 | | $ | 65,948 | | $ | 73,589 | |
| Pre-tax income | | $ | 3,220 | | $ | 3,491 | | $ | 11,299 | | $ | 10,309 | |
| Net income | | $ | 2,544 | | $ | 2,758 | | $ | 8,927 | | $ | 8,144 | |
Foreign operations constituted approximately $32.8 million and $28.4 million of consolidated assets as of September 30, 2017, Travelers had $10.6 million in bonds outstanding for us. The majority of these bonds, $10.3 million, relate to reclamation requirements issued by various governmental authorities. Reclamation bonds remain outstanding until2020 and 2019, respectively.
NOTE T— RELATED PARTY TRANSACTIONS
There were no related party transactions during the mining area is reclaimedthree and the authority issues a formal release. The remaining bonds relate to such indefinite purposes as licenses, permits, and tax collection.nine months ended September 30, 2020 or 2019.
NOTE O—U— 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 217 products400 product types and materials used in a variety of industries, including container glass, fiberglass, specialty glass, flat glass, building products, fillers and extenders, foundry products, chemicals, recreation products and filtration products.
An operating segment’s performance is primarily evaluated based on segment contribution margin, which excludes 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 AB - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of our Financial Statements.2019 Annual Report on Form 10-K.
The following table presents sales and segment contribution margin (in thousands) for the reportingreportable segments and other operating results not allocated to the reportedreportable segments for the three and nine months ended September 30, 20172020 and 2016:2019:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | 2020 | | 2019 | 2020 | | 2019 |
| Sales: | | | | | | |
| Oil & Gas Proppants | $ | 66,343 | | | $ | 242,707 | | $ | 294,553 | | | $ | 776,248 | |
| Industrial & Specialty Products | 110,129 | | | 119,107 | | 324,055 | | | 359,170 | |
| Total sales | 176,472 | | | 361,814 | | 618,608 | | | 1,135,418 | |
| Segment contribution margin: | | | | | | |
| Oil & Gas Proppants | 31,478 | | | 50,557 | | 90,540 | | | 180,601 | |
| Industrial & Specialty Products | 42,353 | | | 44,397 | | 120,821 | | | 139,103 | |
| Total segment contribution margin | 73,831 | | | 94,954 | | 211,361 | | | 319,704 | |
| Operating activities excluded from segment cost of sales | (4,951) | | | (16,773) | | (26,405) | | | (59,617) | |
| Selling, general and administrative | (27,216) | | | (40,208) | | (96,394) | | | (113,523) | |
| Depreciation, depletion and amortization | (40,069) | | | (47,126) | | (115,604) | | | (136,625) | |
| Goodwill and other asset impairments | (222) | | | (130) | | (108,044) | | | (130) | |
| Interest expense | (19,274) | | | (24,733) | | (63,730) | | | (72,476) | |
| Other (expense) income, net, including interest income | (409) | | | 3,280 | | 15,592 | | | 19,076 | |
| Income tax benefit | 4,094 | | | 7,671 | | 63,785 | | | 7,259 | |
| Net loss | $ | (14,216) | | | $ | (23,065) | | $ | (119,439) | | | $ | (36,332) | |
| Less: Net loss attributable to non-controlling interest | (254) | | | (28) | | (778) | | | (121) | |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (13,962) | | | $ | (23,037) | | $ | (118,661) | | | $ | (36,211) | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Sales: | | | | | | | |
| Oil & Gas Proppants | $ | 286,369 |
| | $ | 86,782 |
| | $ | 714,345 |
| | $ | 225,573 |
|
| Industrial & Specialty Products | 58,654 |
| | 50,966 |
| | 165,940 |
| | 151,679 |
|
| Total sales | 345,023 |
| | 137,748 |
| | 880,285 |
| | 377,252 |
|
| Segment contribution margin: | | | | | | | |
| Oil & Gas Proppants | 96,087 |
| | (1,897 | ) | | 206,149 |
| | (7,041 | ) |
| Industrial & Specialty Products | 23,978 |
| | 21,587 |
| | 67,462 |
| | 59,967 |
|
| Total segment contribution margin | 120,065 |
| | 19,690 |
| | 273,611 |
| | 52,926 |
|
| Operating activities excluded from segment cost of sales | (2,965 | ) | | (1,368 | ) | | (6,135 | ) | | (4,558 | ) |
| Selling, general and administrative | (29,602 | ) | | (18,472 | ) | | (77,955 | ) | | (48,560 | ) |
| Depreciation, depletion and amortization | (24,673 | ) | | (17,175 | ) | | (69,898 | ) | | (46,940 | ) |
| Interest expense | (8,347 | ) | | (6,684 | ) | | (24,098 | ) | | (19,974 | ) |
| Other income (expense), net, including interest income | 1,502 |
| | 493 |
| | (2,168 | ) | | 2,891 |
|
| Income tax (expense) benefit | (14,707 | ) | | 12,177 |
| | (20,103 | ) | | 30,102 |
|
| Net income (loss) | $ | 41,273 |
| | $ | (11,339 | ) | | $ | 73,254 |
| | $ | (34,113 | ) |
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 September 30, 2020, goodwill of $301.7$185.6 million has been allocated to these segments with $277.10 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 as of September 30, 2017.Products.
NOTE P— SUBSEQUENT EVENTS
On October 3, 2017, we paid a cash dividend of $0.0625 per share to common stockholders of record on September 15, 2017, which had been declared by our Board of Directors on July 21, 2017.
On November 2, 2017, our Board of Directors declared a quarterly cash dividend of $0.0625 per share to common stockholders of record at the close of business December 15, 2017, payable on January 5, 2018.
Also on November 2, 2017, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through December 11, 2018. 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.
|
| | | | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as the Consolidated Financial Statements,consolidated financial statements, the accompanying notes and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 (the "2016"2019 Annual Report").
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.”
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q 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. 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.
For example, all statements we make relating to our estimated and projected costs; the impact of the COVID-19 pandemic on our future plans and results of operations; reserve and finished products estimates; demand for our products; the strategies of our customers; anticipated expenditures, cash flows, growth rates and financial results; our plans and objectives for future operations, growth or initiatives; strategies and 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 expect, including but not limited to: global economic conditions; fluctuations in demand for commercial silica, diatomaceous earth, perlite, clay and cellulose; fluctuations in demand for frac sand or the development of either effective alternative proppants or new processes to replace hydraulic fracturing; changes in production spending by companies in the oil and gas industry and changes in the level of oil and natural gas exploration and development; general economic, political and business conditions in key regions of the world; effects of the COVID-19 pandemic on our customers and end users of our products; pricing pressure; weather and seasonal factors; the cyclical nature of our customers’ business; our inability to meet our financial and performance targets and other forecasts or expectations; our substantial indebtedness and pension obligations, including restrictions on our operations imposed by our indebtedness; operational modifications, delays or cancellations; prices for electricity, natural gas and diesel fuel; our ability to maintain our transportation network; changes in government regulations and regulatory requirements, including those related to mining, explosives, chemicals, and oil and gas production; silica-related health issues and corresponding litigation; and other risks and uncertainties detailed in this Quarterly Report on Form 10-Q and our most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the U.S. Securities and Exchange Commission (“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 the known factors described above, and it is impossible for us to anticipate all factors that could affect our actual results. As 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 outcomes may vary materially from those reflected in our forward-looking statements. The forward-looking statements
included in this Quarterly Report on Form 10-Q 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 SEC, and our other public communications.
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 acquisition of EP Minerals, LLC ("EPM") and its affiliated companies in 2018, we are an industry leader in the production of industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite.
During our 117-year120-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver 247 productsover 400 diversified product types to customers across theseour end markets. As of September 30, 2017,2020, we operate 19operated 23 production facilities across the United States andStates. We control 760485 million tons of reserves of commercial silica, which we believe can be processed to make 316177 million tons of finished products that meet American Petroleum Institute (API)API frac sand specifications. On August 16, 2016, we completed the acquisitionspecifications, and 79 million tons of New Birmingham, Inc. ("NBI"). On August 22, 2016, we completed the acquisitionreserves of Sandbox Enterprises, LLC ("Sandbox" or the “Sandbox acquisition”) as a “last mile” logistics solution for frac sand in the oildiatomaceous earth, perlite, and gas industry. On April 1, 2017, we completed the acquisition of White Armor(the "White Armoracquisition"), 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.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.key business acquisitions during the periods presented, see Note E - Business Combinations to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
Recent Trends and Outlook
Oil and gas proppants end market trends
Increased demand for frac sand between 2008
The COVID-19 pandemic and 2014 was drivenrelated economic repercussions coupled with an inadequate supply response and exacerbated by the growthlack of global storage capacity, has resulted in a precipitous decline in crude oil prices. While the useOrganization of hydraulic fracturingthe Petroleum Exporting Countries and other oil producing nations ("OPEC+") agreed in April to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future. These events have negatively affected and are expected to continue to negatively affect our Oil & Gas Proppants segment. Demand for our proppant and logistics services has declined as a meansour customers reduce their capital budgets and drilling operations in response to extract hydrocarbons from shale formations. Accordinglower oil prices.
In response to the 2014 Proppant Market Report, PropTester Inc., published February 2015, global frac sand consumption grew ateffects of the pandemic on our Oil & Gas Proppants Segment, we have taken a 51.2% compound annual growth rate from 2009number of steps to 2014. This included 53.7% growthreduce our costs of operations. We have dramatically reduced all discretionary spending, reduced officer salaries, 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 frac sand demand from 2013 to 2014. We significantly expanded our sales effortsresponse to the frac sand marketpandemic, the speed and effectiveness of responses to combat the virus, the extent of the resurgence in 2008cases, and experienced rapid growththe effects of low oil prices on the global economy generally. These effects could also aggravate the risk factors identified in our sales associated with our oil and gas activities from 2008 until 2014.
Declines in oil prices starting in 2015 reduced oil and gas drilling and completion activity in North America during 2015 and most of 2016. As of September 30, 2016,Annual Report on Form 10-K for the U.S. land rig count had fallen over 70% from its peak in 2014. Demand for frac sand fell in conjunction with the rig count and activity levels, partially offset by higher proppant per well to optimize recovery and production rates. Beginning in the last quarter of 2016, leading indicators have suggested the stabilization and increase in North American oil and gas drilling and completion activity. As of September 30, 2017, U.S. land rig count has increased 43% sincefiscal year ended December 31, 2016. Driven by the corresponding increase in frac sand demand, sales, tons sold2019.
Sales and average selling price all increasedper ton in our Oil & Gas Proppants Segment decreased sequentially during the three months ended September 30, 20172020, compared to the three months ended June 30, 2017, March 31, 2017 and2020. The decreases were due to reduction in overall demand due to the economic conditions discussed above as well as a decrease in shortfall revenue recognized sequentially. The sequential increase in tons sold is attributable to a slight increase in activity in West Texas. Our results for the three–month period ended September 30, 2020 in this segment are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016, as summarized below.2020.
| | | Amounts in thousands except per ton data | | | | Percentage Change for Three Months Ended | |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, 2017 vs. June 30, 2017 | | June 30, 2017 vs. March 31, 2017 | | March 31,
2017 vs. December 31, 2016 | |
| Amounts in thousands, except per ton data | | Amounts in thousands, except per ton data | Three Months Ended | | Percentage Change |
| Oil & Gas Proppants | 2017 | | 2017 | | 2017 | | 2016 | | September 30, 2017 vs. June 30, 2017 | | June 30, 2017 vs. March 31, 2017 | | March 31,
2017 vs. December 31, 2016 | Oil & Gas Proppants | September 30,
2020 | | June 30, 2020 | | March 31, 2020 | | September 30, 2020 vs. June 30, 2020 | | June 30, 2020 vs. March 31, 2020 |
| Sales | $ | 286,369 |
| | $ | 235,018 |
| | $ | 192,959 |
| | $ | 136,977 |
| | Sales | $ | 66,343 | | | $ | 72,495 | | | $ | 155,715 | | | (8) | % | | (53) | % |
| Tons Sold | 3,147 |
| | 2,745 |
| | 2,532 |
| | 2,081 |
| | 15 | % | | 8 | % | | 22 | % | Tons Sold | 1,282 | | | 1,112 | | | 3,202 | | | 15 | % | | (65) | % |
| Average Selling Price per Ton | $ | 91.00 |
| | $ | 85.62 |
| | $ | 76.21 |
| | $ | 65.82 |
| | 6 | % | | 12 | % | | 16 | % | Average Selling Price per Ton | $ | 51.75 | | | $ | 65.19 | | | $ | 48.63 | | | (21) | % | | 34 | % |
However, if recovery inIf oil and gas drilling and completion activity does not continue, demand forgrow 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 further actions to reduce cost 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 vendor’s logistics capabilities have become an important differentiating factor when competing for business on both a spot and contract basis. Many of our customers increasingly seek convenient in-basin and wellhead proppant delivery capability from their proppant supplier. We believe that, over time, proppant customers will prefer to consolidate their purchases across a smaller group of suppliers with robust logistics capabilities and a broad offering of high performance proppants. For a discussion of customer credit risk, see the Credit Risk section in Part I, Item 3 of this Quarterly Report on Form 10-Q.
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 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.
customers;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 September 30, 2017, we have storage capacity at 58 transloads located near all of the major shale basins in the
needs;
United States. Our acquisition of Sandbox extends our delivery capability directly to our customers' wellhead locations, which increases efficiency and provides a lower cost logistics solution for our customers. Sandbox has operations in Midland/Odessa, Texas; Morgantown, West Virginia; western North Dakota; northeast of Denver, Colorado; Oklahoma City, OK; and Cambridge, Ohio, where its major customers are located.
Evaluate•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 late 2017 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 our 2016 Annual Report, including the risk factor entitled, “If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition may be adversely affected.”
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Maintain•maintaining financial strength and flexibility. We intend to maintain financial strength and flexibility to enable us to better pursue acquisitions and new growth opportunities as they arise and manage through any oil and gas proppant industry downturn. As of September 30, 2017, we had $463.7 million of cash on hand and $45.2 million of availability under our Revolver.
flexibility.How We Generate Our Sales
Products
We derive our product sales primarily by mining processing and deliveringprocessing 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 fiveten largest customers accounted for approximately 38%23% and 32% of total sales duringfor the three and nine months ended September 30, 2017. Sales to our two largest customers, Schlumberger N.V.2020, respectively, and Halliburton Company accounted43% and 42% for 11%the three and 10% of our total revenues during the nine months ended September 30, 2017,2019, respectively. No other customercustomers accounted for 10% or more of our total sales.sales for the three or nine months ended September 30, 2020. Sales to one of our customers accounted for 11% and 12% for the three and nine months ended September 30, 2019, respectively. No other customers accounted for 10% or more of our total sales during the same period. At September 30, 2020, one of our customer's accounts receivable represented 15% of our total trade accounts receivable. At December 31, 2019, the same customer's accounts receivable represented 12% of our total trade accounts receivable. No other customers accounted for 10% or more of our total trade accounts receivable during the same period.
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 provided advance payments for future shipments. A percentage of these advance payments is recognized as revenue with each ton of applicable product shipped to the customer. Selling more tons underminimum purchase 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 our 2016 Annual Report—"A large portion of our sales is generated by our top ten customers, and the loss of, or significant reduction in, purchases by our largest customers could
adversely affect our operations,” these customers may not continue to purchase the same levels of product in the future due to a variety of reasons, contract requirements notwithstanding.
As of September 30, 2017, we have ten take-or-pay supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2018 and 2020.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 adjustmentcertain contractual adjustments. Sometimes these agreements may undergo negotiations regarding pricing and volume requirements, particularly in responsevolatile market conditions. When these negotiations occur, 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 certain metrics such as market indices or changesbe delivered, in cost.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 our 2019 Annual Report, 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 September 30, 2020, we had eleven minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2021 and 2034. As of September 30, 2019, we had twenty-two minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2019 and 2034. Collectively, sales to customers with take-or-payminimum purchase supply agreements accounted for 28%34% and 21%57% of our total company revenueOil & Gas Proppants segment sales during the three and nine months ended September 30, 20172020, respectively, and 2016, respectively. Although sales under take-or-pay supply agreements may result in us realizing lower margins than we otherwise might during periods of high market prices, we believe such lower margins are offset by61% for both the benefits derived from the product mixthree 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.nine months ended September 30, 2019.
Historically we have not entered into long-term take-or-pay contracts with our customers in In the industrial and specialty products end markets we have not historically entered into long-term minimum purchase supply agreements with our customers because of the high cost to our customers of switching providers. With these customers,We may periodically do so when capital or other investment is required to meet customer needs. Instead, we often enter into pricesupply agreements whichwith our customers with targeted volumes and terms of one to five years. Prices under these agreements are typically negotiated annually.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.decisions, and we believe the presentation of these metrics provides useful information to our investors regarding our financial condition and results of operations for the same reasons.
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 certainselling, general, and administrative costs, 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, legalplant capacity expansion expenses, and human resources.facility closure costs.
Segment contribution margin is not a measure of our financial performance under GAAP and should not be considered an alternative or superior to measures derived in accordance with GAAP. For more details on the reconciliationOur 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 OU - Segment Reporting to our Consolidated Financial Statements in Part I, Item 11. of this Quarterly Report on Form 10-Q.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP measure, is included in this report because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA. In addition, our Revolver contains a consolidated total net leverage ratio that we must meet as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 25% of the Revolver commitment, which is calculated based on our Adjusted EBITDA. Noncompliance with the financial ratio covenant contained in the Revolver could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the Term Loan. Moreover, the Revolver and the Term Loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our Adjusted EBITDA.
Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative 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 non-recurring charges.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, (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| | 2020 | | 2019 | 2020 | | 2019 |
| Net loss attributable to U.S. Silica Holdings, Inc. | $ | (13,962) | | | $ | (23,037) | | $ | (118,661) | | | $ | (36,211) | |
| Total interest expense, net of interest income | 19,801 | | | 23,711 | | 63,290 | | | 69,683 | |
| Provision for taxes | (4,094) | | | (7,671) | | (63,785) | | | (7,259) | |
| Total depreciation, depletion and amortization expenses | 40,069 | | | 47,126 | | 115,604 | | | 136,625 | |
| EBITDA | 41,814 | | | 40,129 | | (3,552) | | | 162,838 | |
Non-cash incentive compensation (1) | 5,523 | | | 3,722 | | 12,758 | | | 10,566 | |
Post-employment expenses (excluding service costs) (2) | 161 | | | 426 | | 1,301 | | | 1,301 | |
Merger and acquisition related expenses (3) | 285 | | | 4,873 | | 1,280 | | | 15,747 | |
Plant capacity expansion expenses (4) | 744 | | | 3,918 | | 5,324 | | | 16,229 | |
Contract termination expenses (5) | — | | | 60 | | — | | | 1,060 | |
Goodwill and other asset impairments (6) | 222 | | | 130 | | 108,044 | | | 130 | |
Business optimization projects (7) | 24 | | | 49 | | 39 | | | 55 | |
Facility closure costs (8) | 1,881 | | | 3,523 | | 5,716 | | | 10,604 | |
Gain on valuation change of royalty note payable (9) | — | | | (2,004) | | — | | | (16,104) | |
Other adjustments allowable under the Credit Agreement (10) | 675 | | | 3,583 | | 9,431 | | | 10,323 | |
| Adjusted EBITDA | $ | 51,329 | | | $ | 58,409 | | $ | 140,341 | | | $ | 212,749 | |
|
| | | | | | | | | | | | | | | |
| (All amounts in thousands) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income (loss) | $ | 41,273 |
| | $ | (11,339 | ) | | $ | 73,254 |
| | $ | (34,113 | ) |
| Total interest expense, net of interest income | 6,900 |
| | 6,211 |
| | 19,852 |
| | 18,731 |
|
| Provision for taxes | 14,707 |
| | (12,177 | ) | | 20,103 |
| | (30,102 | ) |
| Total depreciation, depletion and amortization expenses | 24,673 |
| | 17,175 |
| | 69,898 |
| | 46,940 |
|
| EBITDA | 87,553 |
| | (130 | ) | | 183,107 |
| | 1,456 |
|
Non-cash incentive compensation (1) | 6,567 |
| | 3,720 |
| | 18,519 |
| | 9,075 |
|
Post-employment expenses (excluding service costs) (2) | 194 |
| | (184 | ) | | 923 |
| | 780 |
|
Business development related expenses (3) | 2,355 |
| | 4,667 |
| | 5,384 |
| | 5,635 |
|
Other adjustments allowable under our existing credit agreement (4) | 7 |
| | 185 |
| | 6,527 |
| | 1,937 |
|
| Adjusted EBITDA | $ | 96,676 |
| | $ | 8,258 |
| | $ | 214,460 |
| | $ | 18,883 |
|
| | | | | | | | |
| | |
| (1) | | Reflects equity-based and other equity-related compensation expense. |
(1)
(2) | 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. 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 MP - Pension and Post-retirementPost-Retirement Benefits to our Consolidated Financial Statements in Part 1,I, Item 1 of this Quarterly Report on Form 10-Q.10-Q for more information. |
(3) | Merger and acquisition related expenses include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items 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 if we continue to pursue future plant capacity expansions. |
| (5) | Reflects contract termination expenses related to business development activitiesstrategically exiting a service contract. While these expenses are not operational in connection withnature 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 growth and expansion initiatives.contracts. |
(4)
(6) | Reflects miscellaneous adjustments permitted under our existing credit agreement. The nine months ended September 30, 2017 amount includes2020 reflect $108.0 million of asset impairments related to goodwill, long-lived assets, operating lease right-of-use assets and inventory related to idled facilities in our Oil & Gas Proppants segment. See Note G - Inventories, Note H - Property, Plant and Mine Development, Note I - Goodwill and Intangible Assets, and Note Q - Leases to our Condensed Consolidated Financial Statements in Part I, Item 1 of our Quarterly Report on Form 10-Q for more information. The three and nine months ended September 30, 2019 reflect a contract restructuring cost$0.1 million asset impairment related to rail cars that will not be utilized before the end of $6.3their leases. |
| (7) | Reflects costs incurred related to business optimization projects 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 related to idled sand facilities and closed corporate offices, including severance costs and remaining contracted costs such as office lease costs, maintenance, and utilities. 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) | Gain 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. The gain is not operational in nature and is not expected to continue for any singular event on an ongoing basis. |
| (10) | Reflects miscellaneous adjustments permitted under the Credit Agreement, such as recruiting fees and relocation costs. The nine months ended September 30, 2020 also included $2.2 million in transload shortfalls and exit fees, $4.4 million in inventory adjustments, $5.7 million in severance costs, and $11.8 million in legal expense due to 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. See Note E - Business Combinations to our Condensed Consolidated Financial Statements in Part I, Item 1 of our Quarterly Report on Form 10-Q for more information. The nine months ended September 30, 2019 also included $6.2 million of loss contingencies reserve, partially offset by insurance proceeds of $2.2 million. |
Adjusted EBITDA-Trailing Twelve Months
Our revolving credit facility (the "Revolver") contains 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 September 30, 2020, we are in compliance with all covenants under our Credit Facility, and our Revolver usage was $25.0 million (not including $25.4 million allocated for 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 5.85:1.00 as of September 30, 2020, we may draw up to approximately $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver. The calculation of the consolidated leverage ratio incorporates the Adjusted EBITDA-trailing twelve months as follows:
| | | | | | | | |
| (All amounts in thousands, except calculated ratio) | | September 30, 2020 |
| | |
| Total debt | | $ | 1,253,217 | |
| Finance leases | | — | |
| Total consolidated debt | | $ | 1,253,217 | |
| | |
| Adjusted EBITDA-trailing twelve months | | $ | 213,917 | |
Pro forma Adjusted EBITDA including impact of acquisitions (1) | | — | |
Other adjustments for covenant calculation (2) | | 253 | |
| Total Adjusted EBITDA-trailing twelve months for covenant calculation | | $ | 214,170 | |
| | |
Consolidated leverage ratio(3) | | 5.85 | |
| | | | | | | | |
| | |
| (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 Three Months Ended September 30, 2017 2020and 20162019
Sales
| | | | | | | | | | | | | | | | | |
| (In thousands except per ton data) | Three Months Ended
September 30, | | Percent
Change |
| | 2020 | | 2019 | | '20 vs.'19 |
| Sales: | | | | | |
| Oil & Gas Proppants | $ | 66,343 | | | $ | 242,707 | | | (73) | % |
| Industrial & Specialty Products | 110,129 | | | 119,107 | | | (8) | % |
| Total sales | $ | 176,472 | | | $ | 361,814 | | | (51) | % |
| Tons: | | | | | |
| Oil & Gas Proppants | 1,282 | | | 3,896 | | | (67) | % |
| Industrial & Specialty Products | 957 | | | 954 | | | — | % |
| Total Tons | 2,239 | | | 4,850 | | | (54) | % |
| Average Selling Price per Ton: | | | | | |
| Oil & Gas Proppants | $ | 51.75 | | | $ | 62.30 | | | (17) | % |
| Industrial & Specialty Products | $ | 115.08 | | | $ | 124.85 | | | (8) | % |
| Overall Average Selling Price per Ton | $ | 78.82 | | | $ | 74.60 | | | 6 | % |
|
| | | | | | | | | | | | | | |
| (All numbers in thousands except per ton data) | Three Months Ended
September 30, | | Amount Change | | Percent Change |
| | 2017 | | 2016 | | '17 vs.'16 | | '17 vs.'16 |
| Sales: | | | | | | | |
| Oil & Gas Proppants | $ | 286,369 |
| | $ | 86,782 |
| | $ | 199,587 |
| | 230 | % |
| Industrial & Specialty Products | 58,654 |
| | 50,966 |
| | 7,688 |
| | 15 | % |
| Total Sales | $ | 345,023 |
| | $ | 137,748 |
| | $ | 207,275 |
| | 150 | % |
| Tons: | | | | | | | |
| Oil & Gas Proppants | 3,147 |
| | 1,617 |
| | 1,530 |
| | 95 | % |
| Industrial & Specialty Products | 928 |
| | 876 |
| | 52 |
| | 6 | % |
| Total Tons | 4,075 |
| | 2,493 |
| | 1,582 |
| | 63 | % |
| Average Selling Price per Ton: | | | | | | | |
| Oil & Gas Proppants | $ | 91.00 |
| | $ | 53.67 |
| | $ | 37.33 |
| | 70 | % |
| Industrial & Specialty Products | 63.20 |
| | 58.18 |
| | 5.02 |
| | 9 | % |
| Overall Average Selling Price per Ton: | $ | 84.67 |
| | $ | 55.25 |
| | $ | 29.42 |
| | 53 | % |
Total sales increased 150%decreased 51% for the three months ended September 30, 20172020 compared to the three months ended September 30, 2016,2019, driven by a 63% increase54% decrease in total tons sold, andpartially offset by a 53%6% increase in overall average selling price. Tons sold in-basin represented 51% and 42% of total company tons sold for the three months ended September 30, 2017 and 2016, respectively.
The increasedecrease in total sales was primarilymainly driven by Oil & Gas Proppants sales, which increased 230%decreased 73% for the three months ended September 30, 20172020 compared to the three months ended September 30, 2016.2019. Oil & Gas Proppants tons sold increased 95% and average selling price increased 70%decreased 17% and tons sold decreased 67%. These increases weredecreases 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 year over year growth in demand for our frac sand and the acquisitions of Sandbox, NBI and MS Sand.
Industrial & Specialty Products sales, increased by 15%which decreased 8% for the three months ended September 30, 20172020 compared to the three months ended September 30, 2016, driven by a 6% increase in2019. Industrial & Specialty Products tons sold remained relatively consistent and a 9% increase in average selling price. The increase in average selling price decreased by 8%. The decrease was primarily a result of new higher-margin product sales and price increases.due to current economic conditions related to the COVID-19 pandemic.
Cost of Sales (excluding depreciation, depletion, and amortization)
Cost of sales increaseddecreased by $108.5$176.0 million, or 91%62%, to $227.9$107.6 million for the three months ended September 30, 20172020 compared to $119.4$283.6 million for the three months ended September 30, 2016. As a percentage of sales, cost of sales decreased to 66% for the three months ended September 30, 2017 compared to 87% for the same period in 2016.2019. These changes result from the main components of cost of sales as discussed below. As a percentage of sales, cost of sales represented 61% for the three months ended September 30, 2020 compared to 78% for the same period in 2019.
We incurred $133.2$35.5 million and $64.7$131.5 million of transportation and related costs for the three months ended September 30, 20172020 and 2016,2019, respectively. This increaseThe $96.0 million decrease was mainly due to increasedan overall decrease in demand in the Oil & Gas Proppants segment, more tons sold throughfrom local in-basin plants which have lower logistics costs, carrier rate reductions in our transloads andSandBox operations, as well as decreased rail car expense resulting from lease concessions in the Sandbox acquisition.amount of $20.5 million. See Note Q - Leases for more information on the lease concessions. As a percentage of sales, transportation and related costs decreased to 39%represented 20% for the three months ended September 30, 20172020 compared to 47%36% for the same period in 2016.2019.
We incurred $34.9$26.0 million and $20.8$50.5 million of operating labor costs for the three months ended September 30, 20172020 and 2016,2019, respectively. The $14.1$24.5 million increasedecrease in labor costs incurredcost was primarilymainly due to more tons sold and incremental costs related to Sandbox operations.idled facilities. As a percentage of sales,
operating labor costs represented 10%15% for the three months ended September 30, 20172020 compared to 15%14% for the same period in 2016.2019.
We incurred $8.7$7.9 million and $6.3$13.4 million of electricity and drying fuel (principally natural gas) costs for the three months ended September 30, 20172020 and 2016,2019, respectively. The $2.4$5.5 million increasedecrease in electricity and drying fuel costs incurred was mainly due to more tons sold.idled sand facilities. As a percentage of sales, electricity and drying fuel costs represented 3%4% for both the three months ended September 30, 2017 compared to 5% for the same period in 2016.
2020 and 2019.
We incurred $15.1$11.0 million and $8.5$26.4 million of maintenance and repair costs for the three months ended September 30, 20172020 and 2016,2019, respectively. The increase$15.4 million decrease in maintenance and repair costs incurred was mainly due to higher production volumeidled sand facilities, reduced costs at our SandBox operations due to lower volumes, and incremental costs related to Sandbox operations.a decrease in plant capacity expansion expenses. As a percentage of sales, maintenance and repair costs represented 4%6% and 7% for the three months ended September 30, 2017 compared to 6% for the same period in 2016.2020 and 2019, respectively.
Segment Contribution Margin
OilIndustrial & Gas ProppantsSpecialty Products contribution margin increaseddecreased by $98.0$2.0 million to $96.1$42.4 million for the three months ended September 30, 20172020 compared to $(1.9)$44.4 million for the three months ended September 30, 2016,2019, driven by a $199.6$9.0 million increasedecrease in segment revenue and partially offset by higher segment$6.9 million decrease in cost of sales.
IndustrialOil & Specialty ProductsGas Proppants contribution margin increaseddecreased by $2.4$19.1 million or 11%, to $24.0$31.5 million for the three months ended September 30, 20172020 compared to $21.6$50.6 million for the three months ended September 30, 2016,2019, driven by increased higher-margin productsa $176.4 million decrease in sales, partially offset by a $157.3 million decrease in cost of sales. The decrease in segment contribution margin was mainly driven by decreased sand pricing as a percentageresult of total sales.a shift to in basin sand, and an overall decrease in demand.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increaseddecreased by $11.1$13.0 million, or 60%32%, to $29.6$27.2 million for the three months ended September 30, 20172020 compared to $18.5$40.2 million for the three months ended September 30, 2016.2019. The increasenet decrease was primarily due to cost reduction measures implemented during the following factors:first nine months of 2020, including reducing all discretionary spending, reduced officer salaries, and lowered headcount.
Compensation-related In total, our selling, general and administrative expenses represented approximately 15% and 11% of our sales for the three months ended September 30, 2020 and 2019, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increaseddecreased by $9.6$7.0 million, or 15%, to $40.1 million for the three months ended September 30, 20172020 compared to the three months ended September 30, 2016, mainly driven by increased equity-based compensation and incremental personnel expense related to our NBI, Sandbox and MS Sand employees.
Bad debt expense increased by $1.1$47.1 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, mainly due to increased sales.
Business development related expense decreased by $2.3 million to $2.4 million for the three months ended September 30, 2017 compared to $4.7 million for the three months ended September 30, 2016.2019. The decrease was primarilymainly driven by decreased production, a decrease in total depreciable assets due to cost related to our NBIidled plants and Sandbox acquisitions in 2016 partially offset by cost related to our MS Sand acquisition in 2017.
In total, our selling, generalsubsequent asset impairments which occurred during the fourth quarter of 2019 and administrative coststhe first and second quarters of 2020, and reduced capital spending. Depreciation, depletion and amortization expense represented approximately 9%23% and 13% of our sales for the three months ended September 30, 20172020 and 2016,2019, respectively.
Depreciation, DepletionGoodwill and AmortizationOther Asset Impairments
Depreciation,During the three months ended September 30, 2020, we recorded $0.2 million of asset impairment charges for operating right-of-use assets related to the Oil & Gas Proppants segment.
Operating Income (Loss)
Operating income for the three months ended September 30, 2020 was $1.4 million compared to an operating loss of $9.3 million for the three months ended September 30, 2019. The change was mainly driven by a 32% decrease in selling, general and administrative expenses, a 15% decrease in depreciation, depletion and amortization expense, increasedand a 62% decrease in cost of sales, partially offset by $7.5a 51% decrease in sales.
Interest Expense
Interest expense decreased by $5.4 million, or 44%22%, to $19.3 million for the three months ended September 30, 2020 compared to $24.7 million for the three months ended September 30, 2017 compared2019, mainly due to $17.2a decrease in interest rates, partially offset by a decrease in interest costs capitalized for property, plant and mine development and interest expense on the outstanding balance of the Revolver.
Other (Expense) Income, Net, Including Interest Income
Other (expense) income, net, decreased by $3.7 million, to expense of $0.4 million for the three months ended September 30, 2016. The year over year increase was mainly driven by our acquisitions as well as other continued capital spending. Depreciation, depletion and amortization costs represented approximately 7% and 12%2020 compared to income of our sales for the three months ended September 30, 2017 and 2016, respectively.
Operating Income (Loss)
Operating income increased by $80.2 million to $62.8$3.3 million for the three months ended September 30, 2017 compared2019, primarily driven by a decrease in interest income and the gain on valuation of the royalty note payable not recurring during 2020.
Provision for Income Taxes
For the three months ended September 30, 2020, we had a tax benefit of $4.1 million. For the three months ended September 30, 2019, we had tax benefit of $7.7 million. The effective tax rates were 22% and 25% for the three months ended September 30, 2020 and 2019, respectively. Without discrete items, which primarily consist of tax expense related to an operating lossequity compensation, the effective tax rates for the three months ended September 30, 2020 and 2019 would have been 26% and 27%, respectively.
During the three months ended September 30, 2020 and 2019, we recorded tax expense related to equity compensation of $(17.3)$0.3 million and $0.1 million, respectively.
Net (Loss) Income
Net (loss) income attributable to U.S. Silica Holdings, Inc., was net losses of $14.0 million and $23.0 million for the three months ended September 30, 2016. The increase was due to a 150% increase in total sales partially offset by a 91% increase in cost of sales, a 60% increase in selling, general2020 and administrative expense and a 44% increase in depreciation, depletion and amortization expense.
Interest Expense
Interest expense increased by $1.7 million, or 25%, to $8.3 million for the three months ended September 30, 2017 compared to $6.7 million for the three months ended September 30, 2016, driven by additional long-term liabilities assumed in conjunction with our NBI and Sandbox acquisitions.
Other Income, net, including interest income
Other income increased by $1.0 million, or 205%, to $1.5 million for the three months ended September 30, 2017 compared to $0.5 million for the three months ended September 30, 2016. The increase was primarily due to an increase in interest income earned during the three months ended September 30, 2017.
Provision for Income Taxes
The income tax expense increased by $26.9 million to $14.7 million for the three months ended September 30, 2017 compared to $12.2 million in income tax benefit for the three months ended September 30, 2016. The increase was due to increased profit before income tax during the three months ended September 30, 2017. The effective tax rate was 26% and 52% for the three months ended September 30, 2017 and 2016,2019, respectively. See accompanying Note L - Income Taxes of our Financial Statements for more information.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
Net Income (Loss)
Net income was $41.3 million for the three months ended September 30, 2017 compared to a net loss of $(11.3) million for the three months ended September 30, 2016. The year over year increase waschanges were due to the factors noted above.
Results of Operations for the Nine Months Ended September 30, 2017 2020and 20162019
| | | (All numbers in thousands except per ton data) | Nine Months Ended
September 30, | | Amount Change | | Percent Change | |
| (In thousands except per ton data) | | (In thousands except per ton data) | Nine Months Ended
September 30, | | Percent Change |
| | 2017 | | 2016 | | '17 vs. '16 | | '17 vs. '16 | | 2020 | | 2019 | | '20 vs.'19 |
| Sales: | | | | | | | | Sales: | | | | | |
| Oil & Gas Proppants | $ | 714,345 |
| | $ | 225,573 |
| | $ | 488,772 |
| | 217 | % | Oil & Gas Proppants | $ | 294,553 | | | $ | 776,248 | | | (62) | % |
| Industrial & Specialty Products | 165,940 |
| | 151,679 |
| | 14,261 |
| | 9 | % | Industrial & Specialty Products | 324,055 | | | 359,170 | | | (10) | % |
| Total Sales | $ | 880,285 |
| | $ | 377,252 |
| | $ | 503,033 |
| | 133 | % | |
| Total sales | | Total sales | $ | 618,608 | | | $ | 1,135,418 | | | (46) | % |
| Tons: | | | | | | | | Tons: | | | | |
| Oil & Gas Proppants | 8,424 |
| | 4,361 |
| | 4,063 |
| | 93 | % | Oil & Gas Proppants | 5,596 | | | 11,692 | | | (52) | % |
| Industrial & Specialty Products | 2,682 |
| | 2,642 |
| | 40 |
| | 2 | % | Industrial & Specialty Products | 2,708 | | | 2,892 | | | (6) | % |
| Total Tons | 11,106 |
| | 7,003 |
| | 4,103 |
| | 59 | % | Total Tons | 8,304 | | | 14,584 | | | (43) | % |
| Average Selling Price per Ton: | | | | | | | | Average Selling Price per Ton: | | | | |
| Oil & Gas Proppants | $ | 84.80 |
| | $ | 51.73 |
| | $ | 33.07 |
| | 64 | % | Oil & Gas Proppants | $ | 52.64 | | | $ | 66.39 | | | (21) | % |
| Industrial & Specialty Products | 61.87 |
| | 57.41 |
| | 4.46 |
| | 8 | % | Industrial & Specialty Products | $ | 119.67 | | | $ | 124.19 | | | (4) | % |
| Overall Average Selling Price per Ton: | $ | 79.26 |
| | $ | 53.87 |
| | $ | 25.39 |
| | 47 | % | |
| Overall Average Selling Price per Ton | | Overall Average Selling Price per Ton | $ | 74.50 | | | $ | 77.85 | | | (4) | % |
Total sales increased 133%decreased 46% for the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016,2019, driven by a 59% increase in total tons sold and a 47% increase4% decrease in overall average selling price. Tons sold in-basin represented 49%price and 36% ofa 43% decrease in total company tons sold for the nine months ended September 30, 2017 and 2016, respectively.sold.
The increasedecrease in total sales was mainly driven by Oil & Gas Proppants sales, which increased 217%decreased 62% for the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016.2019. Oil & Gas Proppants average selling price
decreased 21% and tons sold decreased 52%. The decrease in average selling price was mainly driven by more tons sold from local in-basin plants which have lower logistics costs and decreased sand pricing. These decreases are also a result of current environmental conditions related to the COVID-19 pandemic as well as overall supply being greater than demand.
The decrease in total sales was also driven by Industrial & Specialty Products sales, which decreased 10% for the nine months ended September 30, 2017 increased 93% and average selling price increased 64%. These increases were driven by the year over year growth in demand for our frac sand and the acquisitions of Sandbox, NBI and MS Sand.
Industrial & Specialty Products sales increased 9% for the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016 driven by a 2% increase in tons sold and an 8% increase in average selling price. The increase in2019. Industrial & Specialty Products average selling price decreased 4% and tons sold decreased by 6%. The decrease was primarily a result of new higher-margin product sales and price increases.
due to less tons sold due to current economic conditions related to the COVID-19 pandemic.
Cost of Sales (excluding depreciation, depletion, and amortization)
Cost of sales increaseddecreased by $283.9$441.6 million, or 86%50%, to $612.8$433.7 million for the nine months ended September 30, 20172020 compared to $328.9$875.3 million for the nine months ended September 30, 2016. As a percentage of sales, cost of sales decreased to 70% for the nine months ended September 30, 2017 compared to 87% for the same period in 2016.2019. These changes result from the main components of cost of sales as discussed below. As a percentage of sales, cost of sales represented 70% for the nine months ended September 30, 2020 compared to 77% for the same period in 2019.
We incurred $349.6$149.3 million and $169.0$396.7 million of transportation and related costs for the nine months ended September 30, 20172020 and 2016,2019, respectively. This increaseThe $247.4 million decrease was mainly due to increasedan overall decrease in demand in the Oil & Gas Proppants segment, more tons sold throughfrom local in-basin plants which have lower logistics costs, carrier rate reductions in our transloads andSandBox operations, as well as decreased rail car expense resulting from lease concessions in the Sandbox acquisition.amount of $24.4 million. See Note Q - Leases for more information on the lease concessions. As a percentage of sales, transportation and related costs decreased to 40%represented 24% for the nine months ended September 30, 20172020 compared to 45%35% for the same period in 2016.2019.
We incurred $96.8$93.0 million and $57.3$156.7 million of operating labor costs for the nine months ended September 30, 20172020 and 2016,2019, respectively. The $39.5$63.7 million increasedecrease in labor costs incurred was primarilymainly due to more tons sold and incremental costs related to Sandbox operations.idled facilities. As a percentage of sales, operating labor costs represented 11%15% for the nine months ended September 30, 20172020 compared to 15%14% for the same period in 2016.2019.
We incurred $26.1$25.8 million and $18.9$42.5 million of electricity and drying fuel (principally natural gas) costs for the nine months ended September 30, 20172020 and 2016,2019, respectively. The increase$16.7 million decrease in electricity and drying fuel costs incurred was mainly due to more tons sold.idled sand facilities. As a percentage of sales, electricity and drying fuel costs represented 3%4% for both the nine months ended September 30, 2017 compared to 5% for the same period in 2016.2020 and 2019.
We incurred $42.9$36.4 million and $24.5$74.0 million of maintenance and repair costs for the nine months ended September 30, 20172020 and 2016,2019, respectively. The increase$37.6 million decrease in maintenance and repair costs incurred was mainly due to higher production volume, incrementalidled sand facilities, reduced costs relatedat our SandBox operations due to Sandbox operationslower volumes, and the addition of our Tyler, Texas facility.a decrease in plant capacity expansion expenses. As a percentage of sales, maintenance and repair costs decreased to 5%represented 6% and 7% for the nine months ended September 30, 2017 compared to 7% for the same period in 2016.2020 and 2019, respectively.
Segment Contribution Margin
OilIndustrial & Gas ProppantsSpecialty Products contribution margin increaseddecreased by $213.2$18.3 million to $206.1$120.8 million for the nine months ended September 30, 20172020 compared to $(7.0)$139.1 million for the nine months ended September 30, 2016,2019, driven by a 217% increase$35.1 million decrease in revenue, partially offset by a 118% higher segment$16.8 million decrease in cost of sales.
Industrial & Specialty Products The decrease in segment contribution margin increasedwas due to less tons sold due to current economic conditions related to the COVID-19 pandemic.
Oil & Gas Proppants contribution margin decreased by $7.5$90.1 million or 12%, to $67.5$90.5 million for the nine months ended September 30, 20172020 compared to $60.0$180.6 million for the nine months ended September 30, 2016,2019, driven by increased highera $481.7 million decrease in sales, partially offset by a $391.6 million decrease in cost of sales. The decrease in segment contribution margin products saleswas mainly driven by an overall decrease in demand and decreased sand pricing as a percentageresult of total sales and price increases.a shift to in basin sand, partially offset by $19.8 million in shortfall revenue recognized.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increaseddecreased by $29.4$17.1 million, or 61%15%, to $78.0$96.4 million for the nine months ended September 30, 20172020 compared to $48.6$113.5 million for the nine months ended September 30, 2016.2019. The increase was primarily due to the following factors:
Compensation related expense increased by $23.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 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 $1.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, mainly due to increased sales.
Business development related expense decreased by $0.3 million to $5.4 million for the nine months ended September 30, 2017 compared to $5.6 million for the nine months ended September 30, 2016. Thenet decrease was primarily due to cost related to our NBIreduction measures implemented during the first nine months of 2020, including reducing all discretionary spending, reduced officer salaries, and Sandbox acquisitions in 2016 partially offset by cost related to our MS Sand acquisition in 2017.lowered headcount.
In total, our selling, general and administrative costsexpenses represented approximately 9%16% and 13%10% of our sales for the nine months ended September 30, 20172020 and 2016,2019, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increaseddecreased by $23.0$21.0 million, or 49%15%, to $69.9$115.6 million for the nine months ended September 30, 20172020 compared to $46.9$136.6 million for the nine months ended September 30, 2016.2019. The year over
year increasedecrease was mainly driven by our acquisitions as well as otherdecreased production, a decrease in total depreciable assets due to idled plants and subsequent asset impairments which occurred during the fourth quarter of 2019 and the first and second quarters of 2020, and reduced capital spending. Depreciation, depletion and amortization costsexpense represented approximately 8%19% and 12% of our sales for the nine months ended September 30, 20172020 and 2016,2019, respectively.
Goodwill and Other Asset Impairments
During the nine months ended September 30, 2020, we recorded $108.0 million of asset impairment charges for long-lived assets and inventories of idled plants, operating right-of-use assets, and goodwill related to the Oil & Gas Proppants segment.
Operating Income (Loss)
Operating income increased(loss) decreased by $166.8$144.9 million or 354%, to $119.6operating loss of $135.1 million for the nine months ended September 30, 20172020 compared to $(47.1) millionoperating income of operating loss for the nine months ended September 30, 2016. The increase was due to a 133% increase in sales partially offset by an 86% increase in cost of sales, a 61% increase in selling, general and administrative expense and a 49% increase in depreciation, depletion and amortization expense.
Interest Expense
Interest expense increased by $4.1 million, or 21%, to $24.1$9.8 million for the nine months ended September 30, 2017 compared2019. The decrease was driven by a 46% decrease in sales, partially offset by a 15% decrease in depreciation, depletion and amortization expense, a 15% decrease in selling, general and administrative expenses and a 50% decrease in cost of sales during the nine months ended September 30, 2020.
Interest Expense
Interest expense decreased by $8.8 million, or 12%, to $20.0$63.7 million for the nine months ended September 30, 2016, driven by additional long-term liabilities assumed in conjunction with our NBI and Sandbox acquisitions.
Other Income (Expense), net, including interest income
Other expense increased by $5.1 million, or 175%2020 compared to $(2.2)$72.5 million for the nine months ended September 30, 2017 compared to other income of $2.9 million for the nine months ended 2016. The increase was primarily2019, mainly due to a contract restructuring cost incurred which wasdecrease in interest rates, partially reducedoffset by increaseda decrease in interest costs capitalized for property, plant and mine development and interest expense on the outstanding balance of the Revolver.
Other (Expense) Income, Net, Including Interest Income
Other income, during the nine months ended September 30, 2017.
Provision for Income Taxes
Income tax expense increased $50.2net, decreased by $3.5 million to $20.1$15.6 million for the nine months ended September 30, 20172020 compared to $30.1 million of income tax benefit for the nine months ended September 30, 2016. The increase was due to increased profit before income taxes partially offset by the equity compensation tax benefit recorded discretely for the nine months ended September 30, 2017. The effective tax rate was 22% and 47% for the nine months ended September 30, 2017 and 2016, respectively. See accompanying Note L - Income Taxes of our Financial Statements for more information.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
Net Income (Loss)
Net income was $73.3$19.1 million for the nine months ended September 30, 2017 compared2019. Other income for the nine months ended September 30, 2020 was primarily the gain on bargain purchase price of $15.2 million. Other income for the nine months ended September 30, 2019 was primarily the gain on the change in valuation of the royalty note payable of $16.1 million.
Provision for Income Taxes
For the nine months ended September 30, 2020, we had a tax benefit of $63.8 million. For the nine months ended September 30, 2019, we had tax benefit of $7.3 million. The effective tax rates were 35% and 17% for the nine months ended September 30, 2020 and 2019, respectively. Without discrete items, which primarily consist of tax expense related to equity compensation and a tax benefit related to the carryback of the NOLs, the effective tax rates for the nine months ended September 30, 2020 and 2019 would have been 24% and 29%, respectively.
During the nine months ended September 30, 2020 and 2019, we recorded tax expense related to equity compensation of $1.7 million and $4.5 million, respectively.
Net (Loss) Income
Net (loss) income attributable to U.S. Silica Holdings, Inc., was net losslosses of $(34.1)$118.7 million and $36.2 million for the nine months ended September 30, 2016.2020 and 2019, respectively. The year over year increase waschanges were due to the factors noted above.
Liquidity and Capital Resources
Overview
Our principal liquidity requirements have historically been to service our debt, to meet our working capital, capital expenditure and mine development expenditure needs, to return cash to our stockholders, and to 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. As of September 30, 2017,2020, our working capital was $560.8$238.9 million and we had $45.2$49.6 million of availability under the Revolver. Based on our consolidated leverage ratio of 5.85:1.00 as of September 30, 2020, we may draw up to approximately $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver. Additionally, at September 30, 2020, other receivables included $42.3 million of refunds related to NOL carryback claims filed for various tax years in accordance with certain provisions of the CARES Act, which we expect to receive during 2021.
In connection with the EPM 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 increases our existing senior debt by entering into a new $1.380 billion senior secured Credit Facility, consisting of a $1.280 billion Term Loan and a $100 million Revolver that may also be used for swingline loans or letters of credit, and we may elect to increase the Term Loan in accordance with the terms of the Credit Agreement. 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.
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 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 not to issue a dividend for the third quarter of 2020.
Cash Flow Analysis
A summary of operating, investing and financing activities (in thousands) is shown in the following table:
| | | | | | | | | | Nine Months Ended
September 30, |
| | Nine Months Ended
September 30, | | Percent Change | | 2020 | | 2019 |
| | 2017 | | 2016 | | '17 vs. '16 | |
| Net cash provided by (used in): | | | | | | |
| Net cash (used in) provided by: | | Net cash (used in) provided by: | | | |
| Operating activities | $ | 189,153 |
| | $ | 70 |
| | 270,119 | % | Operating activities | $ | (34,443) | | | $ | 116,381 | |
| Investing activities | (411,842 | ) | | (187,506 | ) | | 120 | % | Investing activities | (25,533) | | | (99,852) | |
| Financing activities | (24,886 | ) | | 174,419 |
| | (114 | )% | Financing activities | 9,159 | | | (31,738) | |
Net Cash Used in / Provided by Operating Activities
Operating activities consist primarily of net income (loss) adjusted for certain non-cash and working capital items. Adjustments to net income or loss 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 $189.2$34.4 million for the nine months ended September 30, 2017 compared2020. This was mainly due to $0.1a $119.4 million net loss adjusted for non-cash items, including $115.6 million in depreciation, depletion and amortization, $108.0 million in goodwill and other asset impairments, $65.6 million in deferred income taxes, $12.4 million in equity-based compensation, $6.3 million in deferred revenue, $24.4 million in gain on remeasurement of leases, and $1.8 million in other miscellaneous non-cash items. Also contributing to the change was an $81.2 million decrease in accounts receivable, a $15.2 million decrease in inventories, a $25.4 million increase in prepaid expenses and other current assets, an $102.4 million decrease in accounts payable and accrued liabilities, and a $25.1 million decrease in other operating assets and liabilities.
Net cash provided by operating activities was $116.4 million for the nine months ended September 30, 2016.2019. This $189.1was mainly due to a $36.3 million net loss adjusted for non-cash items, including $136.6 million in depreciation, depletion and amortization, a $16.1 million gain on valuation change of royalty note payable, $8.5 million in deferred income taxes, $10.6 million in equity-based compensation, $32.4 million in deferred revenue, and $4.9 million in other miscellaneous non-cash items. Also contributing to the change was a $3.8 million decrease in accounts receivable, $4.0 million received related to vendor incentive, an $8.5 million decrease in prepaid expenses and other current assets, a $39.5 million increase in cash provided by operations was mainly the result of a $107.4accounts payable and accrued liabilities, and $11.7 million increase in net incomeother operating assets and $81.7 million increase due to other components of operating activities.liabilities.
Net Cash Used in / Provided by 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 $411.8$25.5 million for the nine months ended September 30, 2017.2020. This was mainly due to capital expenditures of $289.5$27.8 million cash consideration of $119.7 million paid for acquisition of businesses and capitalized intellectual property costs of $2.6$0.5 million, offset by $2.7 million in proceeds from the sale of property, plant and equipment. Capital expenditures for the nine months ended September 30, 2020 were primarily related to the payment of capital expenditures accrued in 2019 and improvements and expansions at our industrial facilities in Millen, Georgia, and Columbia, South Carolina and maintenance and other capital improvement projects.
Net cash used in investing activities was $99.9 million for the nine months ended September 30, 2019. This was mainly due to capital expenditures of $97.9 million and capitalized intellectual property costs of $3.5 million. Capital expenditures for the nine months ended September 30, 20172019 were approximately $49.6 million for a purchase of reserves in Lamesa, Texas, $94.4 million for a purchase of reserves in Crane County, Texas, and $145.5 millionmainly for engineering, procurement and construction of our growth projects, primarily Lamesa and other maintenance and cost improvement capital projects.
Net cash used in investing activities was $187.5 million for the nine months ended September 30, 2016. This was dueequipment to $176.4 million of cash consideration that was paid for NBI and Sandbox acquisitions and capital expenditures of $32.8 million offset by $21.9 million in proceeds from sales and maturities of short-term investments. Capital expenditures for the nine months ended September 30, 2016 were primarily for a purchase of reserves adjacent toexpand our Ottawa, Illinois, facility, engineering, procurement and construction of our growth projectsSandBox operations, and other maintenance and cost improvement capital projects.
Subject to our continuing evaluation of market conditions, we anticipate that our capital expenditures in 20172020 will be approximately $375$30 million, which is primarily associated with previously announced growth projects and other maintenance and cost improvement capital projects, and near-
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 in 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, advance payments from our customers and capital leases.facilities.
Net cash used inprovided by financing activities was $24.9$9.2 million for the nine months ended September 30, 2017, driven by $15.3 million of dividends paid, $5.62020. This was mainly due to $10.2 million of long-term debt payments, $3.9$6.2 million of dividends paid, $1.2 million of contributions from non-controlling interest, and $0.6 million of tax payments related to shares withheld for vested restricted stock and $0.9 million of capital lease repayments partiallystock units, offset by $0.8a $25.0 million of proceedsdraw down from employee stock options exercised.the Revolver.
Net cash provided byused in financing activities was $174.4$31.7 million infor the nine months ended September 30, 2016, driven by $200.0 million of common stock issuances and $4.3 million of proceeds from options exercised, both of which were partially offset by $14.0 million common stock issuance costs, $10.7 million of dividends paid and $4.02019. This was mainly due to $20.2 million of long-term debt payments, $0.2including approximately $9.6 million for outstanding debt repurchase, $13.9 million of capital lease repayments and $1.0dividends paid, $2.9 million of tax payments related to shares withheld for vested restricted stock.stock and restricted stock units, partially offset by $5.2 million of capital contributions from a non-controlling interest.
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
There have been no significant changes outside of the ordinary course of business to our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 20162019 Annual Report. For more details on future minimum annual purchase commitments under suchand operating leases commitments, please see accompanying Note KO - Commitments and Contingencies and Note Q - Leases to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. As of September 30, 2017,2020, we had $12.3$26.0 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,”"Business", Item 1A, “Risk Factors”, Item 3, “Legal Proceedings”, and Item 7, “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters”Operations-Environmental Matters" in our 20162019 Annual Report.
Critical Accounting Policies and Estimates
Our unaudited condenseddiscussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformityaccordance with GAAP, whichaccounting principles generally accepted in the United States of America. The preparation of these financial statements requires managementus to make estimates and assumptions that affect the reported amountamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the datedates of
our the financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.periods. We evaluate ourthese estimates and judgmentsassumptions on an ongoing basis. Webasis and base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances. AllThe 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, including certain critical accounting policies are disclosed in our 2016 Annual Report.
Recent Accounting Pronouncements
New accounting guidance that we have recently adopted, as well as accounting guidance that has been recently issued but not yet adopted by us,and estimates, are included in Note AB - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of our 2019 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.
Recent Accounting Pronouncements
New accounting pronouncements that have been recently adopted are described in Note B - Summary of Significant Accounting Policies to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Availability of Reports; Website Access; Other Information
Our internetInternet 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 Reportsquarterly reports on Form 10-Q, our proxy statements, our Current Reportscurrent reports on Form 8-K, SEC Forms 3, 4 and 5 and any amendments to those reports filed or furnished pursuant to SectionSections 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, Compensation Committee and Nominating and Governance Committee charters, the Code of Conduct for our Board of Directors and Code of Conduct and Ethics for U.S. Silica employees (including the chief executive officer, chief financial officer and corporate controller) can also be found on our website. Any amendments or waivers to the Code of Conduct and Ethics applicable to the chief executive officer, chief financial officer and corporate controller can also be found in the “Investors” section of the U.S. Silica website. Stockholders may also request a free copy of these documents from: U.S. Silica Holdings, Inc., attn.: Investor Relations, 8490 Progress Drive,24275 Katy Freeway, Suite 300, Frederick, Maryland 21701 or IR@ussilica.com.
600, Katy, Texas 77494.
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| ITEM 3. | 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 in “Recent Trends and Outlook” and "How We Generate Our Sales" in Item 2 of this Quarterly Report on Form 10-Q,2. 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 September 30, 2017,2020, we have $490.4 millionhad $1.263 billion of debt outstanding under our senior credit facility.the Credit Agreement. Assuming no change in the amount outstanding, and LIBOR is greater than the 1.0% minimum base rate on the Term Loan, a hypothetical increase or decrease in interest rates by 1.0% would have changed our interest expense by $4.9$12.6 million per year.
We use interestLIBOR is expected to be discontinued after 2021 and there can be no assurance as to what alternative base rate derivativesmay replace LIBOR in the normal courseevent 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, including under the Credit Agreement, 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 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 valuediscontinuation of our derivative instruments (in thousands) at September 30, 2017 and December 31, 2016.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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 | | $ | 1 |
| | $ | 1 |
| | 2019 | | $249 million | | $ | 72 |
| | $ | 72 |
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(1)
| Agreements limit the LIBOR floating interest rate base to 4%. |
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' credit worthiness,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.
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| ITEM 4. | 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 September 30, 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 September 30, 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.
Changes in Internal Control over Financial Reporting
There were no changes in our existing 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 September 30, 20172020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the quarter ended September 30, 2017, we completed the integration of NBI's and continued to integrate Sandbox's processes, information technology systems and other components of internal control over financial reporting into our internal control structure.
We acquired MS Sand in August 2017. We anticipate excluding the internal control over financial reporting of 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 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. 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.
PART II—OTHER INFORMATION
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 threefew years has decreased to below pre-2001 levels, and we were named as a defendant in one, zero20, and twozero new silicosis cases filed in 2014, 20152019, 2018, and 2016,2017, respectively. The main driver of the increase in cases filed in 2018 was 16 claims arising out of a single location in Mississippi. During the nine months ended September 30, 2017, no additional2020, zero new claims were brought against us.U.S. Silica. As of September 30, 2017,2020, there were a total of approximately 5954 active silica-related productsproduct liability claims pending in which we wereU.S. Silica is a defendant and approximately 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 coveredcover 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 we 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 1A1A. Risk Factors of our 20162019 Annual Report “Risk Factors—Risks Related to Environmental, Mining and Other Regulation—Silica-related health issues andon Form 10-K.
One of our subsidiaries has also been named as a defendant in lawsuits regarding certain labor practices. If we are unsuccessful in defending the litigation, these cases could have aresult in material adverse effect on our business, reputation or results of operations.”
liability for us.
AsExcept as disclosed in Item 1A. Risk Factors in our Quarterly Report on Form 10-Q as of September 30, 2017,March 31, 2020, which is incorporated herein by reference, there have been no material changes tofrom the risk factors disclosed in Item 1A of Part I1A. Risk Factors in our 20162019 Annual Report.Report on Form 10-K.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Share Repurchase Program
The following table presents the total number of shares of our common stock that we purchasedrepurchased during the third 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 June 2012 share repurchase program:
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| 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) |
| July 1, 2020 - July 31, 2020 | 2,352 | | (2) | | $ | 2.77 | | | — | | | 126,540,060 | |
| August 1, 2020 - August 31, 2020 | 5,299 | | (2) | | $ | 4.20 | | | — | | | 126,540,060 | |
| September 1, 2020 - September 30, 2020 | 28,898 | | (2) | | $ | 4.02 | | | — | | | 126,540,060 | |
| Total | 36,549 | | | $ | 3.95 | | | — | | | |
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| 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) |
| July 2017 | | — |
| | $ | — |
| | | — |
| | |
| August 2017 | | 685 |
| (2) | $ | 25.21 |
| | | — |
| | |
| September 2017 | | 60 |
| (2) | $ | 28.81 |
| | | — |
| | |
| Total | | 745 |
| | $ | 25.50 |
| | | — |
| | $ | 33,173,725 |
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| (1) | | |
(1)
| A program coveringIn May 2018, our Board of Directors authorized and announced the repurchase of up to $25.0$200 million of our common stock was initially announced in June 2012 and was increased to $50.0 million in December 2014. In November 2017, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through December 11, 2018.stock. |
(2) | Represents sharesShares 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 July 31, August 31, and September 30, 2020, respectively. |
We did not repurchase any shares of common stock under our share repurchase program during the three and nine months ended September 30, 2020.
From September 30, 20172020 to the date of the filing of this Quarterly Report on Form 10-Q, we have not repurchased any shares of our common stock except in connection with the vesting of employee restricted stock and restricted stock units.
For more details on the stock repurchase program, see Note BD - Capital Structure and Accumulated Comprehensive Income (Loss) to our Financial Statements in Part I, Item 1I of this Quarterly Report on Form 10-Q.
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| ITEM 3. | DEFAULTSDEFAULT UPON SENIOR SECURITIES |
None.
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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, addressing 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 sand facility, are classified as mines and are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine 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 Quarterly Report filed on Form 10-Q.
Forward Looking StatementsNone.
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q 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,” “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. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or 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;
operating risks that 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 four 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 processes 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;
delay or failure by our customers to pay our outstanding receivables;
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 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 disclosed in Part I, Item 1A, “Risk Factors” of our 2016 Annual Report.
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 cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016 Annual Report. 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 SEC, including this Quarterly Report on Form 10-Q, and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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.
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| | | Incorporated by Reference |
Exhibit Number | Description | | Form | | File No. | | Exhibit | | Filing Date |
| | | 8-K | | 001-35416 | | 3.1 | | May 10, 2017 |
| | | 8-K | | 001-35416 | | 3.2 | | May 10, 2017 |
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| 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 Inline XBRL Taxonomy Extension Schema | | | | | | | | |
| 101.CAL Inline XBRL Taxonomy Extension Calculation | | | | | | | | |
| 101.LAB Inline XBRL Taxonomy Extension Labels | | | | | | | | |
| 101.PRE Inline XBRL Taxonomy Extension Presentation | | | | | | | | |
| 101.DEF Inline XBRL Taxonomy Extension Definition | | | | | | | | |
| 104* | Cover Page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 formatted in Inline XBRL (and contained in Exhibit 101) | | | | | | | | |
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ITEM 6.* | EXHIBITSFiled herewith |
| # | Furnished herewith |
| † | Certain information in Exhibit 10.1 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. The Company undertakes to furnish, supplementally, a copy of the unredacted exhibit to the Securities and Exchange Commission upon request. |
The information called for by this Item is incorporated herein by reference from
We will furnish to any of our stockholders a copy of any of the Exhibit Index included in this Quarterly Report on Form 10-Q.
above exhibits upon the written request of such stockholder.
SIGNATURES
Pursuant to the requirements 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 7th29th day of November, 2017.October 2020.
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| U.S. Silica Holdings, Inc. |
| |
| /s/ DONALD A. MERRIL |
| Name: | | Donald A. Merril |
| Title: | | Chief Financial Officer |
EXHIBIT INDEX
|
| | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | Description | | Form | | File No. | | Exhibit | | Filing Date |
| 3.1 | | | 8-K | | 001-35416 | | 3.1 | | May 10, 2017 |
| 3.2 | | | 8-K | | 001-35416 | | 3.2 | | May 10, 2017 |
| 4.1 |
| | S-1/A | | 333-175636 | | 4.1 | | December 7, 2011 |
| 10.1+ | | | 8-K | | 001-35416 | | 10.1 | | August 18, 2017 |
| 31.1* | | | | | | | | | |
| 31.2* | | | | | | | | | |
| 32.1* | | | | | | | | | |
| 32.2* | | | | | | | | | |
| 95.1* | | | | | | | | | |
| 99.1* | | | | | | | | | |
| 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 |
+ | Management contract or compensatory plan/arrangementName: | | Donald A. Merril |
* | Filed herewithTitle: | | Executive Vice President & Chief Financial Officer (Authorized Signatory and Principal Financial Officer) |
We will furnish any of our stockholders a copy of any of the above Exhibits not included herein 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.
