The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
1.
|
Significant Accounting Policies
|
Basis of Presentation
The unaudited condensed consolidated financial statements of Fairmount Santrol Holdings Inc. and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal, recurring nature) and disclosures necessary for a fair statement of the financial position, results of operations, comprehensive income, and cash flows of the reported interim periods. The Condensed Consolidated Balance Sheets as of December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain reclassifications of prior year amounts have been made to conform to current year presentation. Interim results are not necessarily indicative of the results to be expected for the full year or any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as filed in the 2017 Annual Report on Form 10-K and notes thereto and information included elsewhere in this Quarterly Report on Form 10-Q.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revisions of Previously-Issued Financial Statements
The Company has revised previously-reported results to properly report stripping costs that were previously capitalized when incurred and amortized in subsequent periods. Such costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period the stripping costs are incurred. The Company also revised the asset impairment charge for the quarter ended June 30, 2016 to correct its estimated fair value for an impaired mine property included in the determination of the impairment charge. Additionally, the Company has included in the revised statements of cash flows a previously-omitted disclosure to show increase or decrease in accounts payable for additions to property, plant, and equipment. The Company assessed the materiality of these misstatements on prior periods’ financial statements and concluded that these misstatements were not material, individually or in aggregate, to any previously-issued financial statements. Refer to Note 2 for additional information.
Revenues
The Company derives its revenues by mining, manufacturing, and processing minerals that its customers purchase for various uses. Revenues are measured by the amount of consideration the Company expects to receive in exchange for transferring its product. The consideration the Company expects to receive is based on volumes and price of product as defined in the underlying contract. Depending on the contract, this may include the cost of transportation and may be net of discounts and rebates. In some instances, revenues also include a separate charge for transportation services the Company provides or arranges for customers.
On January 1, 2018, the Company adopted
Revenue from Contracts with Customers
(Topic 606). The adoption did not require a cumulative adjustment to opening retained earnings and did not have a material impact on revenues for the quarter ended March 31, 2018. Revenues are recognized as each performance obligation within the contract is satisfied; this occurs with the transfer of control of the Company’s product in accordance with delivery methods as defined in the underlying contract. Transfer of control to customers generally occurs when products leave the
8
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Company’s distribution terminals or, in the case of direct shipments, when products leave the Company’s production facilities, and customers
arrange for shipping and handling of product to its final destination. In those instances in which transfer of control occurs upon delivery to customers, the Company arranges for shipping and handling fees which are recorded as a cost of fulfillment. Tra
nsportation costs to move product from the Company’s production facilities to its storage terminals are borne by the Company and capitalized into inventory. These costs are included in cost of sales as the products are sold. The Company’s contracts may i
nclude one or multiple distinct performance obligations. Revenues are assigned to each performance obligation based on its relative standalone selling price, which is generally the contractually-stated price. Refer to Note
1
8
for further details.
Accounts Receivable – Contract Balances
Accounts receivable as presented in the consolidated balance sheets are related to the Company’s contracts and are recorded when the right to consideration becomes unconditional at the amount management expects to collect. Accounts receivable do not bear interest if paid when contractually due, and payments are generally due within thirty to forty-five days of invoicing. Accounts receivable, net of allowance for doubtful accounts, are $179,234 and $156,916 as of March 31, 2018 and December 31, 2017, respectively. The Company typically does not record contract assets, as the transfer of control of its products results in an unconditional right to receive consideration.
Deferred Revenues – Contract Balances
The Company enters into certain contracts with customers that include provisions requiring receipt of payment at the inception of the contract. Deferred revenue is recorded when payment is received or due in advance of the performance obligation. Changes in deferred revenue were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
Beginning balance
|
|
$
|
8,963
|
|
Deferral of revenue
|
|
|
5,000
|
|
Recognition of unearned revenue
|
|
|
(678
|
)
|
Ending balance
|
|
$
|
13,285
|
|
At March 31, 2018 and December 31, 2017, respectively, deferred revenue balances of $9,346 and $5,660 were recorded as current liabilities. At March 31, 2018 and December 31, 2017, respectively, deferred revenue balances of $3,939 and $3,303 were recorded in other long-term liabilities.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 –
Revenue from Contracts with Customers (Topic 606)
. Topic 606 supersedes the revenue recognition requirements in
Topic 605 – Revenue Recognition
and clarifies the principles for recognizing revenue and creates common revenue recognition guidance between GAAP and International Financial Reporting Standards. Revenues are recognized when customers obtain control of promised goods or services and at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, the ASU requires disclosure of the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers.
On January 1, 2018, the Company adopted the ASU for all contracts which were not completed as of January 1, 2018 using the modified retrospective transition method. The adoption did not require a cumulative adjustment to opening retained earnings and did not have a material impact on revenues for the quarter ended March 31, 2018. See Note 18 for further details.
In March 2017, the FASB issued ASU No. 2017-07 –
Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The ASU requires that an employer report the service cost component in the same line item in the income statement as other compensation costs arising from services rendered by the pertinent employees during the period. The ASU also requires only the service
9
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
cost component to be eligible for capitalization when applicable. The ASU is effective for annual reporting periods beginning after December 15, 2017 including interim periods within those annual
periods with early adoption permitted. The Company
has adopted this ASU
as of January 1, 2018, however, has determined it has no material impact on its consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 –
Leases (Topic 842)
, which requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expense on their income statements over the lease term. The ASU also requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for fiscal years, and related interim periods, beginning after December 15, 2018 and early adoption is permitted, and mandates a modified retrospective transition method. The Company believes the adoption of this ASU will likely have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities and is in the process of analyzing its lease portfolio and evaluating systems to comply with adoption.
In August 2017, the FASB issued ASU No. 2017-12 –
Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities
. The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Subject matters addressed include risk component hedging, accounting for the hedged item in fair value hedges of interest rate risk, recognition and presentation of the effects of hedging instruments, amounts excluded from the assessment of hedge effectiveness, and effectiveness testing. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. All transition requirements and elections should be applied to existing hedging relationships as of the date of adoption and reflected as of the beginning of the fiscal year of adoption. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.
In February 2018, the FASB issued ASU No. 2018-02 –
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The FASB is providing ongoing guidance on certain accounting and tax effects of the legislation in the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted in December 2017. Specifically, the ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from this legislation. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The ASU should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.
In March 2018, the FASB issued ASU no. 2018-05
–
Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.
This ASU amends certain SEC material in Topic 740 for the income tax accounting implication of the Tax Act. This ASU adds guidance to the FASB Accounting Standards Codification regarding the Tax Act. The additional guidance, among other things, includes accounting for income tax effects of the Tax Act during the measurement period and required disclosures of the income tax effects of the Tax Act under a measurement period approach. The ASU is effective upon inclusion in the FASB Codification.
2
.
|
Revisions of Previously-Issued Financial Statements
|
The Company has revised previously-reported results to properly report stripping costs that were previously capitalized when incurred and amortized in subsequent periods. Such costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period the stripping costs are incurred. The Company also revised the asset impairment charge for the quarter ended June 30, 2016 to correct its estimated fair value for an impaired mine property included in the determination of the impairment charge. Additionally, the Company has included in the revised statements of cash flows a previously-
10
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
omitted disclosure to show increase or d
ecrease in accounts payable for additions to property, plant, and equipment.
The Company assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99,
Materiality
, c
odified in ASC 250,
Presentation of Financial Statements
, and concluded that these misstatements were not material, individually or in the aggregate, to any previously-issued financial statements. In accordance with ASC 250 (SAB No. 108,
Considering the E
ffects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
), the unaudited condensed consolidated financial statements and notes to consolidated financial statements as of December 31, 2017 and March 31, 2017, an
d for the period ended March 31, 2017, which are presented herein, have been revised.
The following tables show the impact of these revisions on all of the impacted line items from the Company’s (i) unaudited condensed consolidated financial statements for the three months ended March 31, 2017 and (ii) consolidated financial statements as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016, and 2015:
Consolidated Statement of Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues
|
|
$
|
172,583
|
|
|
$
|
-
|
|
|
$
|
172,583
|
|
Cost of goods sold (excluding depreciation, depletion,
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization shown separately)
|
|
|
131,752
|
|
|
|
2,451
|
|
|
|
134,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
22,470
|
|
|
|
-
|
|
|
|
22,470
|
|
Depreciation, depletion and amortization expense
|
|
|
19,442
|
|
|
|
(2,196
|
)
|
|
|
17,246
|
|
Other operating (income) expense
|
|
|
(1,060
|
)
|
|
|
-
|
|
|
|
(1,060
|
)
|
Income (loss) from operations
|
|
|
(21
|
)
|
|
|
(255
|
)
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
12,537
|
|
|
|
-
|
|
|
|
12,537
|
|
Income (loss) before benefit from income taxes
|
|
|
(12,558
|
)
|
|
|
(255
|
)
|
|
|
(12,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
(1,148
|
)
|
|
|
(12
|
)
|
|
|
(1,160
|
)
|
Net income (loss)
|
|
|
(11,410
|
)
|
|
|
(243
|
)
|
|
|
(11,653
|
)
|
Less: Net income attributable to the non-controlling interest
|
|
|
178
|
|
|
|
-
|
|
|
|
178
|
|
Net income (loss) attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(11,588
|
)
|
|
$
|
(243
|
)
|
|
$
|
(11,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
-
|
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
-
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
223,739
|
|
|
―
|
|
|
|
223,739
|
|
Diluted
|
|
|
223,739
|
|
|
―
|
|
|
|
223,739
|
|
11
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues
|
|
$
|
959,795
|
|
|
$
|
-
|
|
|
$
|
959,795
|
|
Cost of goods sold (excluding depreciation, depletion,
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization shown separately)
|
|
|
659,758
|
|
|
|
11,443
|
|
|
|
671,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
113,240
|
|
|
|
-
|
|
|
|
113,240
|
|
Depreciation, depletion and amortization expense
|
|
|
79,144
|
|
|
|
(9,734
|
)
|
|
|
69,410
|
|
Other operating income
|
|
|
(1,072
|
)
|
|
|
-
|
|
|
|
(1,072
|
)
|
Income from operations
|
|
|
108,725
|
|
|
|
(1,709
|
)
|
|
|
107,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
56,408
|
|
|
|
-
|
|
|
|
56,408
|
|
Loss on debt extinguishment, net
|
|
|
2,898
|
|
|
|
-
|
|
|
|
2,898
|
|
Income before benefit from income taxes
|
|
|
49,419
|
|
|
|
(1,709
|
)
|
|
|
47,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
(4,666
|
)
|
|
|
(1,049
|
)
|
|
|
(5,715
|
)
|
Net income
|
|
|
54,085
|
|
|
|
(660
|
)
|
|
|
53,425
|
|
Less: Net income attributable to the non-controlling interest
|
|
|
297
|
|
|
|
-
|
|
|
|
297
|
|
Net income attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
53,788
|
|
|
$
|
(660
|
)
|
|
$
|
53,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
-
|
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
-
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
223,993
|
|
|
―
|
|
|
|
223,993
|
|
Diluted
|
|
|
229,084
|
|
|
―
|
|
|
|
229,084
|
|
12
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues
|
|
$
|
535,013
|
|
|
$
|
-
|
|
|
$
|
535,013
|
|
Cost of goods sold (excluding depreciation, depletion,
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization shown separately)
|
|
|
459,714
|
|
|
|
9,803
|
|
|
|
469,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
79,140
|
|
|
|
-
|
|
|
|
79,140
|
|
Depreciation, depletion and amortization expense
|
|
|
72,276
|
|
|
|
(8,962
|
)
|
|
|
63,314
|
|
Goodwill and other asset impairments
|
|
|
93,148
|
|
|
|
(3,297
|
)
|
|
|
89,851
|
|
Restructuring charges
|
|
|
1,155
|
|
|
|
-
|
|
|
|
1,155
|
|
Other operating expense
|
|
|
8,899
|
|
|
|
-
|
|
|
|
8,899
|
|
Loss from operations
|
|
|
(179,319
|
)
|
|
|
2,456
|
|
|
|
(176,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
65,367
|
|
|
|
-
|
|
|
|
65,367
|
|
Gain on repurchase of debt, net
|
|
|
(5,110
|
)
|
|
|
-
|
|
|
|
(5,110
|
)
|
Other non-operating income
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
Loss before benefit from income taxes
|
|
|
(239,566
|
)
|
|
|
2,456
|
|
|
|
(237,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
(99,441
|
)
|
|
|
10,811
|
|
|
|
(88,630
|
)
|
Net loss
|
|
|
(140,125
|
)
|
|
|
(8,355
|
)
|
|
|
(148,480
|
)
|
Less: Net income attributable to the non-controlling interest
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Net loss attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(140,192
|
)
|
|
$
|
(8,355
|
)
|
|
$
|
(148,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.78
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.83
|
)
|
Diluted
|
|
$
|
(0.78
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
179,429
|
|
|
―
|
|
|
|
179,429
|
|
Diluted
|
|
|
179,429
|
|
|
―
|
|
|
|
179,429
|
|
13
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues
|
|
$
|
828,709
|
|
|
$
|
-
|
|
|
$
|
828,709
|
|
Cost of goods sold (excluding depreciation, depletion,
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization shown separately)
|
|
|
608,845
|
|
|
|
7,175
|
|
|
|
616,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
85,191
|
|
|
|
-
|
|
|
|
85,191
|
|
Depreciation, depletion and amortization expense
|
|
|
66,754
|
|
|
|
(6,348
|
)
|
|
|
60,406
|
|
Goodwill and other asset impairments
|
|
|
87,476
|
|
|
|
-
|
|
|
|
87,476
|
|
Restructuring charges
|
|
|
9,221
|
|
|
|
-
|
|
|
|
9,221
|
|
Other operating expense
|
|
|
1,357
|
|
|
|
(378
|
)
|
|
|
979
|
|
Loss from operations
|
|
|
(30,135
|
)
|
|
|
(449
|
)
|
|
|
(30,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
62,242
|
|
|
|
-
|
|
|
|
62,242
|
|
Other non-operating expense
|
|
|
1,492
|
|
|
|
-
|
|
|
|
1,492
|
|
Loss before benefit from income taxes
|
|
|
(93,869
|
)
|
|
|
(449
|
)
|
|
|
(94,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
(1,939
|
)
|
|
|
(164
|
)
|
|
|
(2,103
|
)
|
Net loss
|
|
|
(91,930
|
)
|
|
|
(285
|
)
|
|
|
(92,215
|
)
|
Less: Net income attributable to the non-controlling interest
|
|
|
205
|
|
|
|
-
|
|
|
|
205
|
|
Net loss attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(92,135
|
)
|
|
$
|
(285
|
)
|
|
$
|
(92,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.57
|
)
|
|
$
|
-
|
|
|
$
|
(0.57
|
)
|
Diluted
|
|
$
|
(0.57
|
)
|
|
$
|
-
|
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
161,297
|
|
|
―
|
|
|
|
161,297
|
|
Diluted
|
|
|
161,297
|
|
|
―
|
|
|
|
161,297
|
|
14
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(11,410
|
)
|
|
$
|
(243
|
)
|
|
$
|
(11,653
|
)
|
Other comprehensive income, before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(39
|
)
|
|
|
-
|
|
|
|
(39
|
)
|
Pension obligations
|
|
|
61
|
|
|
|
-
|
|
|
|
61
|
|
Change in fair value of derivative agreements
|
|
|
1,613
|
|
|
|
-
|
|
|
|
1,613
|
|
Total other comprehensive income, before tax
|
|
|
1,635
|
|
|
|
-
|
|
|
|
1,635
|
|
Provision for income taxes related to items of other comprehensive income
|
|
|
1,316
|
|
|
|
-
|
|
|
|
1,316
|
|
Comprehensive loss, net of tax
|
|
|
(11,091
|
)
|
|
|
(243
|
)
|
|
|
(11,334
|
)
|
Comprehensive income attributable to the non-controlling interest
|
|
|
178
|
|
|
|
-
|
|
|
|
178
|
|
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(11,269
|
)
|
|
$
|
(243
|
)
|
|
$
|
(11,512
|
)
|
Consolidated Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net income
|
|
$
|
54,085
|
|
|
$
|
(660
|
)
|
|
$
|
53,425
|
|
Other comprehensive income, before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
555
|
|
|
|
-
|
|
|
|
555
|
|
Pension obligations
|
|
|
336
|
|
|
|
-
|
|
|
|
336
|
|
Change in fair value of derivative agreements
|
|
|
5,863
|
|
|
|
-
|
|
|
|
5,863
|
|
Total other comprehensive income, before tax
|
|
|
6,754
|
|
|
|
-
|
|
|
|
6,754
|
|
Provision for income taxes related to items of other comprehensive income
|
|
|
2,850
|
|
|
|
-
|
|
|
|
2,850
|
|
Comprehensive income, net of tax
|
|
|
57,989
|
|
|
|
(660
|
)
|
|
|
57,329
|
|
Comprehensive income attributable to the non-controlling interest
|
|
|
297
|
|
|
|
-
|
|
|
|
297
|
|
Comprehensive income attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
57,692
|
|
|
$
|
(660
|
)
|
|
$
|
57,032
|
|
15
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(140,125
|
)
|
|
$
|
(8,355
|
)
|
|
$
|
(148,480
|
)
|
Other comprehensive loss, before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(774
|
)
|
|
|
-
|
|
|
|
(774
|
)
|
Pension obligations
|
|
|
425
|
|
|
|
-
|
|
|
|
425
|
|
Change in fair value of derivative agreements
|
|
|
(3,018
|
)
|
|
|
-
|
|
|
|
(3,018
|
)
|
Total other comprehensive loss, before tax
|
|
|
(3,367
|
)
|
|
|
-
|
|
|
|
(3,367
|
)
|
Benefit from income taxes related to items of other comprehensive loss
|
|
|
(2,058
|
)
|
|
|
-
|
|
|
|
(2,058
|
)
|
Comprehensive loss, net of tax
|
|
|
(141,434
|
)
|
|
|
(8,355
|
)
|
|
|
(149,789
|
)
|
Comprehensive income attributable to the non-controlling interest
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(141,501
|
)
|
|
$
|
(8,355
|
)
|
|
$
|
(149,856
|
)
|
Consolidated Statement of Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(91,930
|
)
|
|
$
|
(285
|
)
|
|
$
|
(92,215
|
)
|
Other comprehensive loss, before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(5,051
|
)
|
|
|
-
|
|
|
|
(5,051
|
)
|
Pension obligations
|
|
|
222
|
|
|
|
-
|
|
|
|
222
|
|
Change in fair value of derivative agreements
|
|
|
(1,836
|
)
|
|
|
-
|
|
|
|
(1,836
|
)
|
Total other comprehensive loss, before tax
|
|
|
(6,665
|
)
|
|
|
-
|
|
|
|
(6,665
|
)
|
Benefit from income taxes related to items of other comprehensive loss
|
|
|
(1,780
|
)
|
|
|
-
|
|
|
|
(1,780
|
)
|
Comprehensive loss, net of tax
|
|
|
(96,815
|
)
|
|
|
(285
|
)
|
|
|
(97,100
|
)
|
Comprehensive income attributable to the non-controlling interest
|
|
|
205
|
|
|
|
-
|
|
|
|
205
|
|
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
(97,020
|
)
|
|
$
|
(285
|
)
|
|
$
|
(97,305
|
)
|
16
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
127,967
|
|
|
$
|
-
|
|
|
$
|
127,967
|
|
Accounts receivable, net of allowance for doubtful accounts of $2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2017
|
|
|
156,916
|
|
|
|
-
|
|
|
|
156,916
|
|
Inventories, net
|
|
|
70,528
|
|
|
|
-
|
|
|
|
70,528
|
|
Prepaid expenses and other assets
|
|
|
6,841
|
|
|
|
-
|
|
|
|
6,841
|
|
Refundable income taxes
|
|
|
924
|
|
|
|
-
|
|
|
|
924
|
|
Total current assets
|
|
|
363,176
|
|
|
|
-
|
|
|
|
363,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
785,513
|
|
|
|
(29,225
|
)
|
|
|
756,288
|
|
Deferred income taxes
|
|
|
350
|
|
|
|
-
|
|
|
|
350
|
|
Goodwill
|
|
|
15,301
|
|
|
|
-
|
|
|
|
15,301
|
|
Intangibles, net
|
|
|
93,268
|
|
|
|
-
|
|
|
|
93,268
|
|
Other assets
|
|
|
7,711
|
|
|
|
-
|
|
|
|
7,711
|
|
Total assets
|
|
$
|
1,265,319
|
|
|
$
|
(29,225
|
)
|
|
$
|
1,236,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
19,189
|
|
|
$
|
-
|
|
|
$
|
19,189
|
|
Accounts payable
|
|
|
70,633
|
|
|
|
-
|
|
|
|
70,633
|
|
Accrued expenses
|
|
|
74,007
|
|
|
|
-
|
|
|
|
74,007
|
|
Deferred revenue
|
|
|
5,660
|
|
|
|
-
|
|
|
|
5,660
|
|
Total current liabilities
|
|
|
169,489
|
|
|
|
-
|
|
|
|
169,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
729,741
|
|
|
|
-
|
|
|
|
729,741
|
|
Deferred income taxes
|
|
|
3,606
|
|
|
|
(1,177
|
)
|
|
|
2,429
|
|
Other long-term liabilities
|
|
|
42,189
|
|
|
|
-
|
|
|
|
42,189
|
|
Total liabilities
|
|
|
945,025
|
|
|
|
(1,177
|
)
|
|
|
943,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value, 100,000 authorized shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding: 0 at December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock: $0.01 par value, 1,850,000 authorized shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued: 242,366 at December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding: 224,291 at December 31, 2017
|
|
|
2,423
|
|
|
|
-
|
|
|
|
2,423
|
|
Additional paid-in capital
|
|
|
299,912
|
|
|
|
-
|
|
|
|
299,912
|
|
Retained earnings
|
|
|
318,207
|
|
|
|
(28,048
|
)
|
|
|
290,159
|
|
Accumulated other comprehensive loss
|
|
|
(15,098
|
)
|
|
|
-
|
|
|
|
(15,098
|
)
|
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock
|
|
|
605,444
|
|
|
|
(28,048
|
)
|
|
|
577,396
|
|
Less: Treasury stock at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in treasury: 18,075 at December 31, 2017
|
|
|
(285,520
|
)
|
|
|
-
|
|
|
|
(285,520
|
)
|
Total equity attributable to Fairmount Santrol Holdings Inc.
|
|
|
319,924
|
|
|
|
(28,048
|
)
|
|
|
291,876
|
|
Non-controlling interest
|
|
|
370
|
|
|
|
-
|
|
|
|
370
|
|
Total equity
|
|
|
320,294
|
|
|
|
(28,048
|
)
|
|
|
292,246
|
|
Total liabilities and equity
|
|
$
|
1,265,319
|
|
|
$
|
(29,225
|
)
|
|
$
|
1,236,094
|
|
17
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
194,069
|
|
|
$
|
-
|
|
|
$
|
194,069
|
|
Accounts receivable, net of allowance for doubtful accounts of $3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2016
|
|
|
78,942
|
|
|
|
-
|
|
|
|
78,942
|
|
Inventories, net
|
|
|
52,650
|
|
|
|
-
|
|
|
|
52,650
|
|
Prepaid expenses and other assets
|
|
|
7,065
|
|
|
|
-
|
|
|
|
7,065
|
|
Refundable income taxes
|
|
|
21,077
|
|
|
|
-
|
|
|
|
21,077
|
|
Total current assets
|
|
|
353,803
|
|
|
|
-
|
|
|
|
353,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
727,735
|
|
|
|
(27,514
|
)
|
|
|
700,221
|
|
Deferred income taxes
|
|
|
1,244
|
|
|
|
-
|
|
|
|
1,244
|
|
Goodwill
|
|
|
15,301
|
|
|
|
-
|
|
|
|
15,301
|
|
Intangibles, net
|
|
|
95,341
|
|
|
|
-
|
|
|
|
95,341
|
|
Other assets
|
|
|
9,486
|
|
|
|
-
|
|
|
|
9,486
|
|
Total assets
|
|
$
|
1,202,910
|
|
|
$
|
(27,514
|
)
|
|
$
|
1,175,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
10,707
|
|
|
$
|
-
|
|
|
$
|
10,707
|
|
Accounts payable
|
|
|
37,263
|
|
|
|
-
|
|
|
|
37,263
|
|
Accrued expenses
|
|
|
26,110
|
|
|
|
-
|
|
|
|
26,110
|
|
Deferred revenue
|
|
|
75
|
|
|
|
-
|
|
|
|
75
|
|
Total current liabilities
|
|
|
74,155
|
|
|
|
-
|
|
|
|
74,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
832,306
|
|
|
|
-
|
|
|
|
832,306
|
|
Deferred income taxes
|
|
|
7,057
|
|
|
|
(128
|
)
|
|
|
6,929
|
|
Other long-term liabilities
|
|
|
38,272
|
|
|
|
-
|
|
|
|
38,272
|
|
Total liabilities
|
|
|
951,790
|
|
|
|
(128
|
)
|
|
|
951,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value, 100,000 authorized shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding: 0 at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock: $0.01 par value, 1,850,000 authorized shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued: 242,267 at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding: 223,601 at December 31, 2016
|
|
|
2,422
|
|
|
|
-
|
|
|
|
2,422
|
|
Additional paid-in capital
|
|
|
297,649
|
|
|
|
-
|
|
|
|
297,649
|
|
Retained earnings
|
|
|
264,852
|
|
|
|
(27,386
|
)
|
|
|
237,466
|
|
Accumulated other comprehensive loss
|
|
|
(19,002
|
)
|
|
|
-
|
|
|
|
(19,002
|
)
|
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock
|
|
|
545,921
|
|
|
|
(27,386
|
)
|
|
|
518,535
|
|
Less: Treasury stock at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in treasury: 18,666 at December 31, 2016
|
|
|
(294,874
|
)
|
|
|
-
|
|
|
|
(294,874
|
)
|
Total equity attributable to Fairmount Santrol Holdings Inc.
|
|
|
251,047
|
|
|
|
(27,386
|
)
|
|
|
223,661
|
|
Non-controlling interest
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
Total equity
|
|
|
251,120
|
|
|
|
(27,386
|
)
|
|
|
223,734
|
|
Total liabilities and equity
|
|
$
|
1,202,910
|
|
|
$
|
(27,514
|
)
|
|
$
|
1,175,396
|
|
18
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(11,410
|
)
|
|
$
|
(243
|
)
|
|
$
|
(11,653
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
17,530
|
|
|
|
(2,196
|
)
|
|
|
15,334
|
|
Amortization
|
|
|
3,130
|
|
|
|
-
|
|
|
|
3,130
|
|
Reserve for doubtful accounts
|
|
|
(447
|
)
|
|
|
-
|
|
|
|
(447
|
)
|
Gain on disposal of fixed assets
|
|
|
(714
|
)
|
|
|
-
|
|
|
|
(714
|
)
|
Deferred income taxes and taxes payable
|
|
|
119
|
|
|
|
(12
|
)
|
|
|
107
|
|
Stock compensation expense
|
|
|
2,416
|
|
|
|
-
|
|
|
|
2,416
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,956
|
)
|
|
|
-
|
|
|
|
(15,956
|
)
|
Inventories
|
|
|
(9,038
|
)
|
|
|
-
|
|
|
|
(9,038
|
)
|
Prepaid expenses and other assets
|
|
|
(1,078
|
)
|
|
|
1,945
|
|
|
|
867
|
|
Refundable income taxes
|
|
|
1,945
|
|
|
|
(1,945
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
12,981
|
|
|
|
-
|
|
|
|
12,981
|
|
Accrued expenses and deferred revenue
|
|
|
26,489
|
|
|
|
(26,489
|
)
|
|
|
-
|
|
Accrued expenses
|
|
|
-
|
|
|
|
9,744
|
|
|
|
9,744
|
|
Deferred revenue
|
|
|
-
|
|
|
|
16,969
|
|
|
|
16,969
|
|
Net cash provided by operating activities
|
|
|
25,967
|
|
|
|
(2,227
|
)
|
|
|
23,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
957
|
|
|
|
-
|
|
|
|
957
|
|
Capital expenditures and stripping costs
|
|
|
(7,025
|
)
|
|
|
2,451
|
|
|
|
(4,574
|
)
|
Other investing activities
|
|
|
(758
|
)
|
|
|
758
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(6,826
|
)
|
|
|
3,209
|
|
|
|
(3,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loans
|
|
|
(2,170
|
)
|
|
|
-
|
|
|
|
(2,170
|
)
|
Payments on capital leases and other long-term debt
|
|
|
(817
|
)
|
|
|
-
|
|
|
|
(817
|
)
|
Proceeds from share-based awards exercised or distributed
|
|
|
486
|
|
|
|
-
|
|
|
|
486
|
|
Tax payments for withholdings on share-based awards exercised or distributed
|
|
|
-
|
|
|
|
(982
|
)
|
|
|
(982
|
)
|
Transactions with non-controlling interest
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Net cash used in financing activities
|
|
|
(2,502
|
)
|
|
|
(982
|
)
|
|
|
(3,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustment
|
|
|
(44
|
)
|
|
|
-
|
|
|
|
(44
|
)
|
Increase in cash and cash equivalents
|
|
|
16,595
|
|
|
|
-
|
|
|
|
16,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
194,069
|
|
|
|
-
|
|
|
|
194,069
|
|
End of period
|
|
$
|
210,664
|
|
|
$
|
-
|
|
|
$
|
210,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
$
|
11,717
|
|
|
|
|
|
|
|
|
|
Income taxes refunded
|
|
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchased under capital leases
|
|
$
|
4,175
|
|
|
|
|
|
|
|
|
|
Decrease in accounts payable for additions to property, plant, and equipment
|
|
|
(1,301
|
)
|
|
|
|
|
|
|
|
|
19
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net income
|
|
$
|
54,085
|
|
|
$
|
(660
|
)
|
|
$
|
53,425
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
71,397
|
|
|
|
(9,734
|
)
|
|
|
61,663
|
|
Amortization
|
|
|
12,784
|
|
|
|
-
|
|
|
|
12,784
|
|
Reserve for doubtful accounts
|
|
|
(387
|
)
|
|
|
-
|
|
|
|
(387
|
)
|
Write-off of deferred financing costs
|
|
|
389
|
|
|
|
-
|
|
|
|
389
|
|
Loss on debt extinguishment, gross
|
|
|
2,898
|
|
|
|
-
|
|
|
|
2,898
|
|
Inventory write-downs and reserves
|
|
|
1,266
|
|
|
|
-
|
|
|
|
1,266
|
|
Loss on disposal of fixed assets
|
|
|
846
|
|
|
|
-
|
|
|
|
846
|
|
Unrealized loss on interest rate swaps
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
Deferred income taxes and taxes payable
|
|
|
(5,634
|
)
|
|
|
(1,049
|
)
|
|
|
(6,683
|
)
|
Stock compensation expense
|
|
|
10,071
|
|
|
|
-
|
|
|
|
10,071
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(77,587
|
)
|
|
|
-
|
|
|
|
(77,587
|
)
|
Inventories
|
|
|
(19,144
|
)
|
|
|
-
|
|
|
|
(19,144
|
)
|
Prepaid expenses and other assets
|
|
|
(2,398
|
)
|
|
|
-
|
|
|
|
(2,398
|
)
|
Refundable income taxes
|
|
|
20,154
|
|
|
|
-
|
|
|
|
20,154
|
|
Accounts payable
|
|
|
18,575
|
|
|
|
-
|
|
|
|
18,575
|
|
Accrued expenses
|
|
|
51,874
|
|
|
|
-
|
|
|
|
51,874
|
|
Deferred revenue
|
|
|
5,585
|
|
|
|
-
|
|
|
|
5,585
|
|
Net cash provided by operating activities
|
|
|
144,788
|
|
|
|
(11,443
|
)
|
|
|
133,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
4,939
|
|
|
|
-
|
|
|
|
4,939
|
|
Capital expenditures and stripping costs
|
|
|
(69,573
|
)
|
|
|
11,443
|
|
|
|
(58,130
|
)
|
Leasehold interest payments for sand reserves
|
|
|
(30,000
|
)
|
|
|
-
|
|
|
|
(30,000
|
)
|
Earnout payments
|
|
|
(4,170
|
)
|
|
|
-
|
|
|
|
(4,170
|
)
|
Net cash used in investing activities
|
|
|
(98,804
|
)
|
|
|
11,443
|
|
|
|
(87,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on term loan
|
|
|
689,500
|
|
|
|
-
|
|
|
|
689,500
|
|
Payments on term loans
|
|
|
(6,469
|
)
|
|
|
-
|
|
|
|
(6,469
|
)
|
Prepayments on term loans
|
|
|
(832,655
|
)
|
|
|
-
|
|
|
|
(832,655
|
)
|
Fees for debt restructure and repurchase of term loans
|
|
|
(2,790
|
)
|
|
|
-
|
|
|
|
(2,790
|
)
|
Payments on capital leases and other long-term debt
|
|
|
(4,752
|
)
|
|
|
-
|
|
|
|
(4,752
|
)
|
Proceeds from borrowing on revolving credit facility
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Payments on revolving credit facility
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
(5,000
|
)
|
Proceeds from option exercises
|
|
|
845
|
|
|
|
-
|
|
|
|
845
|
|
Tax payments for withholdings on share-based awards exercised or distributed
|
|
|
(1,321
|
)
|
|
|
-
|
|
|
|
(1,321
|
)
|
Net cash used in financing activities
|
|
|
(112,642
|
)
|
|
|
-
|
|
|
|
(112,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustment
|
|
|
556
|
|
|
|
-
|
|
|
|
556
|
|
Decrease in cash and cash equivalents
|
|
|
(66,102
|
)
|
|
|
-
|
|
|
|
(66,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
194,069
|
|
|
|
-
|
|
|
|
194,069
|
|
End of period
|
|
$
|
127,967
|
|
|
$
|
-
|
|
|
$
|
127,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
$
|
59,498
|
|
|
|
|
|
|
|
|
|
Income taxes refunded
|
|
|
(19,278
|
)
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchased under capital leases
|
|
$
|
10,988
|
|
|
|
|
|
|
|
|
|
Decrease in accounts payable for additions to property, plant, and equipment
|
|
|
(14,796
|
)
|
|
|
|
|
|
|
|
|
20
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(140,125
|
)
|
|
$
|
(8,355
|
)
|
|
$
|
(148,480
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
67,614
|
|
|
|
(8,962
|
)
|
|
|
58,652
|
|
Amortization
|
|
|
11,641
|
|
|
|
-
|
|
|
|
11,641
|
|
Reserve for doubtful accounts
|
|
|
1,851
|
|
|
|
-
|
|
|
|
1,851
|
|
Write-off of deferred financing costs
|
|
|
2,618
|
|
|
|
-
|
|
|
|
2,618
|
|
Gain on repurchase of debt, gross
|
|
|
(8,178
|
)
|
|
|
-
|
|
|
|
(8,178
|
)
|
Goodwill and other asset impairments
|
|
|
93,148
|
|
|
|
(3,297
|
)
|
|
|
89,851
|
|
Inventory write-downs and reserves
|
|
|
10,302
|
|
|
|
-
|
|
|
|
10,302
|
|
Loss on disposal of fixed assets
|
|
|
420
|
|
|
|
-
|
|
|
|
420
|
|
Deferred income taxes and taxes payable
|
|
|
(82,732
|
)
|
|
|
10,811
|
|
|
|
(71,921
|
)
|
Stock compensation expense
|
|
|
8,870
|
|
|
|
-
|
|
|
|
8,870
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,385
|
)
|
|
|
-
|
|
|
|
(4,385
|
)
|
Inventories
|
|
|
7,543
|
|
|
|
-
|
|
|
|
7,543
|
|
Prepaid expenses and other assets
|
|
|
11,496
|
|
|
|
-
|
|
|
|
11,496
|
|
Refundable income taxes
|
|
|
5,428
|
|
|
|
-
|
|
|
|
5,428
|
|
Accounts payable
|
|
|
4,196
|
|
|
|
-
|
|
|
|
4,196
|
|
Accrued expenses
|
|
|
11,718
|
|
|
|
-
|
|
|
|
11,718
|
|
Deferred revenue
|
|
|
75
|
|
|
|
-
|
|
|
|
75
|
|
Net cash provided by (used in) operating activities
|
|
|
1,500
|
|
|
|
(9,803
|
)
|
|
|
(8,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
5,670
|
|
|
|
-
|
|
|
|
5,670
|
|
Capital expenditures and stripping costs
|
|
|
(30,597
|
)
|
|
|
9,803
|
|
|
|
(20,794
|
)
|
Earnout payments
|
|
|
(1,287
|
)
|
|
|
-
|
|
|
|
(1,287
|
)
|
Net cash used in investing activities
|
|
|
(26,214
|
)
|
|
|
9,803
|
|
|
|
(16,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loans
|
|
|
(10,840
|
)
|
|
|
-
|
|
|
|
(10,840
|
)
|
Prepayments on term loans
|
|
|
(155,926
|
)
|
|
|
-
|
|
|
|
(155,926
|
)
|
Repurchase of term loans
|
|
|
(216,000
|
)
|
|
|
-
|
|
|
|
(216,000
|
)
|
Fees for debt restructure and repurchase of term loans
|
|
|
(450
|
)
|
|
|
-
|
|
|
|
(450
|
)
|
Payments on capital leases and other long-term debt
|
|
|
(5,947
|
)
|
|
|
-
|
|
|
|
(5,947
|
)
|
Proceeds from option exercises
|
|
|
6,438
|
|
|
|
-
|
|
|
|
6,438
|
|
Proceeds from primary stock offering
|
|
|
439,556
|
|
|
|
-
|
|
|
|
439,556
|
|
Tax payments for withholdings on share-based awards exercised or distributed
|
|
|
(8,092
|
)
|
|
|
-
|
|
|
|
(8,092
|
)
|
Tax effect of share-based awards exercised, forfeited, or expired
|
|
|
(1,100
|
)
|
|
|
-
|
|
|
|
(1,100
|
)
|
Transactions with non-controlling interest
|
|
|
(842
|
)
|
|
|
-
|
|
|
|
(842
|
)
|
Net cash provided by financing activities
|
|
|
46,797
|
|
|
|
-
|
|
|
|
46,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents related to assets classified as held-for-sale
|
|
|
1,376
|
|
|
|
-
|
|
|
|
1,376
|
|
Foreign currency adjustment
|
|
|
(876
|
)
|
|
|
-
|
|
|
|
(876
|
)
|
Increase in cash and cash equivalents
|
|
|
22,583
|
|
|
|
-
|
|
|
|
22,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
171,486
|
|
|
|
-
|
|
|
|
171,486
|
|
End of period
|
|
$
|
194,069
|
|
|
$
|
-
|
|
|
$
|
194,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
$
|
60,833
|
|
|
|
|
|
|
|
|
|
Income taxes refunded
|
|
|
(21,311
|
)
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchased under capital leases
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Increase in accounts payable for additions to property, plant, and equipment
|
|
|
8,100
|
|
|
|
|
|
|
|
|
|
21
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Consolidated
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Corrected
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(91,930
|
)
|
|
$
|
(285
|
)
|
|
$
|
(92,215
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
62,218
|
|
|
|
(6,348
|
)
|
|
|
55,870
|
|
Amortization
|
|
|
11,416
|
|
|
|
-
|
|
|
|
11,416
|
|
Reserve for doubtful accounts
|
|
|
1,968
|
|
|
|
-
|
|
|
|
1,968
|
|
Write-off of deferred financing costs
|
|
|
864
|
|
|
|
-
|
|
|
|
864
|
|
Goodwill and other asset impairments
|
|
|
76,038
|
|
|
|
-
|
|
|
|
76,038
|
|
Non-cash restructuring charges
|
|
|
1,162
|
|
|
|
-
|
|
|
|
1,162
|
|
Inventory write-downs and reserves
|
|
|
1,591
|
|
|
|
-
|
|
|
|
1,591
|
|
Loss on disposal of fixed assets
|
|
|
8,712
|
|
|
|
-
|
|
|
|
8,712
|
|
Unrealized loss on interest rate swaps
|
|
|
49
|
|
|
|
-
|
|
|
|
49
|
|
Deferred income taxes and taxes payable
|
|
|
20,983
|
|
|
|
(164
|
)
|
|
|
20,819
|
|
Stock compensation expense
|
|
|
4,525
|
|
|
|
-
|
|
|
|
4,525
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
127,718
|
|
|
|
-
|
|
|
|
127,718
|
|
Inventories
|
|
|
59,527
|
|
|
|
-
|
|
|
|
59,527
|
|
Prepaid expenses and other assets
|
|
|
23,234
|
|
|
|
-
|
|
|
|
23,234
|
|
Refundable income taxes
|
|
|
(26,506
|
)
|
|
|
-
|
|
|
|
(26,506
|
)
|
Accounts payable
|
|
|
(38,698
|
)
|
|
|
-
|
|
|
|
(38,698
|
)
|
Accrued expenses
|
|
|
(6,051
|
)
|
|
|
-
|
|
|
|
(6,051
|
)
|
Net cash provided by operating activities
|
|
|
236,820
|
|
|
|
(6,797
|
)
|
|
|
230,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and stripping costs
|
|
|
(113,750
|
)
|
|
|
6,797
|
|
|
|
(106,953
|
)
|
Other investing activities
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
(250
|
)
|
Net cash used in investing activities
|
|
|
(114,000
|
)
|
|
|
6,797
|
|
|
|
(107,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loans
|
|
|
(13,532
|
)
|
|
|
-
|
|
|
|
(13,532
|
)
|
Payments on capital leases and other long-term debt
|
|
|
(6,975
|
)
|
|
|
-
|
|
|
|
(6,975
|
)
|
Proceeds from option exercises
|
|
|
1,767
|
|
|
|
-
|
|
|
|
1,767
|
|
Tax payments for withholdings on share-based awards exercised or distributed
|
|
|
(826
|
)
|
|
|
-
|
|
|
|
(826
|
)
|
Tax effect of share-based awards exercised, forfeited, or expired
|
|
|
(1,472
|
)
|
|
|
-
|
|
|
|
(1,472
|
)
|
Transactions with non-controlling interest
|
|
|
(301
|
)
|
|
|
-
|
|
|
|
(301
|
)
|
Other financing activities
|
|
|
(4,578
|
)
|
|
|
-
|
|
|
|
(4,578
|
)
|
Net cash used in financing activities
|
|
|
(25,917
|
)
|
|
|
-
|
|
|
|
(25,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents related to assets classified as held-for-sale
|
|
|
(1,376
|
)
|
|
|
-
|
|
|
|
(1,376
|
)
|
Foreign currency adjustment
|
|
|
(964
|
)
|
|
|
-
|
|
|
|
(964
|
)
|
Increase in cash and cash equivalents
|
|
|
94,563
|
|
|
|
-
|
|
|
|
94,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
76,923
|
|
|
|
-
|
|
|
|
76,923
|
|
End of period
|
|
$
|
171,486
|
|
|
$
|
-
|
|
|
$
|
171,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
$
|
61,395
|
|
|
|
|
|
|
|
|
|
Income taxes refunded
|
|
|
(19,898
|
)
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchased under capital leases
|
|
$
|
4,552
|
|
|
|
|
|
|
|
|
|
Increase in accounts payable for additions to property, plant, and equipment
|
|
|
652
|
|
|
|
|
|
|
|
|
|
22
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
At March 31, 2018 and December 31, 2017, inventories consisted of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Raw materials
|
|
$
|
8,368
|
|
|
$
|
7,412
|
|
Work-in-process
|
|
|
10,303
|
|
|
|
14,819
|
|
Finished goods
|
|
|
46,848
|
|
|
|
48,931
|
|
|
|
|
65,519
|
|
|
|
71,162
|
|
Less: LIFO reserve
|
|
|
(624
|
)
|
|
|
(634
|
)
|
Inventories, net
|
|
$
|
64,895
|
|
|
$
|
70,528
|
|
4
.
|
Property, Plant, and Equipment, net
|
At March 31, 2018 and December 31, 2017, property, plant, and equipment consisted of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Land and improvements
|
|
$
|
83,491
|
|
|
$
|
85,012
|
|
Mineral reserves and mine development
|
|
|
228,356
|
|
|
|
222,271
|
|
Machinery and equipment
|
|
|
601,745
|
|
|
|
590,584
|
|
Buildings and improvements
|
|
|
186,631
|
|
|
|
186,466
|
|
Furniture, fixtures, and other
|
|
|
3,492
|
|
|
|
3,478
|
|
Construction in progress
|
|
|
81,125
|
|
|
|
54,661
|
|
|
|
|
1,184,840
|
|
|
|
1,142,472
|
|
Accumulated depletion and depreciation
|
|
|
(401,411
|
)
|
|
|
(386,184
|
)
|
Property, plant, and equipment, net
|
|
$
|
783,429
|
|
|
$
|
756,288
|
|
On July 18, 2017, the Company entered into a 40-year lease agreement for approximately 3,250 acres of sand reserves in Kermit, Texas. The Company has capitalized the entire $40,000 leasehold interest obligation and related exploratory and transaction costs to mineral reserves and mine development. The initial payment of $20,000 was paid at lease commencement. An additional $10,000 was paid in October 2017 upon the issuance of all federal, state, and local permits. The remaining $10,000 is payable upon the earlier of two years from the commencement date of the agreement or the date the Company makes its first sale of sand from this property, which the Company expects to be in the second quarter of 2018. The capitalized leasehold interest payments will begin to be recognized as expense as production occurs. Additionally, the Company is obligated for certain royalty payments based on volumes sold.
At March 31, 2018 and December 31, 2017, long-term debt consisted of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Term Loan B
|
|
$
|
685,184
|
|
|
$
|
688,990
|
|
Industrial Revenue Bond
|
|
|
10,000
|
|
|
|
10,000
|
|
ABL Revolver, Revolving Credit Facility, and other
|
|
|
35,056
|
|
|
|
45,073
|
|
Capital leases, net
|
|
|
8,738
|
|
|
|
9,884
|
|
Deferred financing costs, net
|
|
|
(4,738
|
)
|
|
|
(5,017
|
)
|
|
|
|
734,240
|
|
|
|
748,930
|
|
Less: current portion
|
|
|
(18,924
|
)
|
|
|
(19,189
|
)
|
Long-term debt including leases
|
|
$
|
715,316
|
|
|
$
|
729,741
|
|
23
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
On November 1, 2017 (the “Closing Date”), the Company entered into a new five-year asset-based revolving credit facility (the “ABL Revolver”) with PNC Capital Markets LLC, as administrative agent, which replaced the existing revolving credit facility. The
ABL Revolver has a borrowing capacity of up to $125,000 with an option to increase by $50,000 to $175,000. An initial draw of $50,000 upon closing of the ABL Revolver was used to partially refinance existing term debt, pay expenses associated with debt r
efinancing, and can be later used for funding capital expenditures, and providing ongoing working capital. The ABL Revolver is interest only at a rate derived from LIBOR plus 1.5% to 2.0% (depending on excess availability under the ABL Revolver) or from a
Base Rate, which is the higher of the prime rate, the Federal Funds open rate plus 0.5% and the Daily LIBOR Rate plus 1.0%. The interest payments on the ABL Revolver are payable in quarterly installments, with the principal balance due at November 1, 202
2. If the Term Loan B is still outstanding, then any balance outstanding under the ABL Revolver is due on May 1, 2022. Availability under the ABL Revolver is based upon an available borrowing base, which includes a specified percentage of eligible accoun
ts receivable and inventory and excludes outstanding letters of credit and applicable reserves. In addition to interest charged on the ABL Revolver, the Company is also obligated to pay certain fees, quarterly in arrears, including letter of credit fees a
nd unused facility fees. The ABL Revolver includes financial covenants requiring a minimum fixed charge coverage ratio of 1.1, based on availability thresholds, and is primarily secured by all accounts receivable and inventory, with security interest seco
nd to the Term Loan B on substantially all other assets of the Company.
Additionally, on the Closing Date, the Company entered into an agreement with Barclays Capital Inc., as administrative agent, for a $700,000 Senior Secured Term Loan (the “Term Loan B”) to refinance all of its existing Term B-2 Loans and Extended Term B-1 Loans. The Term Loan B was issued with original issue discount at 98.5% of face. The Term Loan B, which has a maturity date of November 1, 2022, requires quarterly interest payments and 2.5% annual principal amortization payments for the first half of the loan period, 5.0% for the second half of the loan period, with the balance payable at the maturity date. Interest accrues at the rate of the three-month LIBOR plus 6.0% with a LIBOR floor of 1.0%. The Term Loan B is secured by a first priority security interest in substantially all assets of the Company and its subsidiaries, except for accounts receivable and inventory, in which it has a second priority security interest. The Company has the option to prepay the Term Loan B. Should the Company choose to refinance the Term Loan B, it would be subject to a 1.02% premium if refinanced at a lower interest rate within one year of the Closing Date or a 1.01% premium if refinanced at a lower interest rate within two years of the Closing Date. In the event of a change in control of 35% or more of the voting interests of the Company and at the request of the lenders, the unpaid principal and interest of the Term Loan B may become immediately due and payable. There are no financial covenants governing the Term Loan B.
As of March 31, 2018, the Term Loan B and the ABL Revolver had actual interest rates of 8.3% and 3.6%, respectively. As of December 31, 2017, the Term Loan B and the ABL Revolver had actual interest rates of 7.7% and 3.3%, respectively.
As of March 31, 2018, the Company was in compliance with all covenants in accordance with the ABL Revolver. As of March 31, 2018, there was $90,000 available unused capacity on the ABL Revolver, $15,290 committed to outstanding letters of credit, and $611 withheld for collateral, leaving net availability at $74,099.
The Company has a $10,000 Industrial Revenue Bond outstanding related to the construction of a mining facility in Wisconsin. The bond bears interest, which is payable monthly, at a variable rate. The rate was 1.65% and 1.46% at March 31, 2018 and December 31, 2017, respectively. The bond matures on September 1, 2027 and is collateralized by a letter of credit of $10,000.
At March 31, 2018 and December 31, 2017, accrued expenses consisted of the following:
24
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Accrued payroll and fringe benefits
|
|
$
|
8,526
|
|
|
$
|
11,233
|
|
Accrued bonus
|
|
|
3,543
|
|
|
|
37,166
|
|
Accrued income taxes
|
|
|
386
|
|
|
|
504
|
|
Accrued real estate taxes
|
|
|
4,617
|
|
|
|
5,098
|
|
Accrued leasehold interest payments
|
|
|
10,000
|
|
|
|
10,000
|
|
Other accrued expenses
|
|
|
14,588
|
|
|
|
10,006
|
|
Accrued expenses
|
|
$
|
41,660
|
|
|
$
|
74,007
|
|
7
.
|
Earnings (Loss) per Share
|
The table below shows the computation of basic and diluted earnings (loss) per share for the three months ended March 31, 2018 and 2017, respectively:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fairmount Santrol Holdings Inc.
|
|
$
|
28,753
|
|
|
$
|
(11,831
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
224,484
|
|
|
|
223,739
|
|
Dilutive effect of employee stock options, RSUs, and PRSUs
|
|
|
4,456
|
|
|
|
-
|
|
Diluted weighted average shares outstanding
|
|
|
228,940
|
|
|
|
223,739
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share – basic
|
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
Earnings (loss) per common share – diluted
|
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
The calculation of diluted weighted average shares outstanding for the three months ended March 31, 2018 excludes 6,170 potential common shares because the effect of including these potential common shares would be antidilutive. Potentially dilutive shares of 4,739 were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share in the three months ended March 31, 2017 because the Company was in a loss position in that period.
8
.
|
Derivative Instruments
|
The Company enters into interest rate swap agreements as a means to partially hedge its variable interest rate risk on debt instruments. At March 31, 2018, the Company had one outstanding interest rate swap agreement. The notional value of this swap agreement as of March 31, 2018 and December 31, 2017 is $210,000 and represents approximately 30% of term debt outstanding at March 31, 2018 and December 31, 2017. The swap agreement terminates on September 5, 2019 and effectively fixes the variable rate to 2.92% for the portion of the debt that is hedged.
The derivative instruments are recorded on the balance sheet at their fair values. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated and qualifying as part of a hedging relationship and, if it is, depending on the type of hedging relationship.
The Company recognizes changes in fair value for derivatives not qualifying for hedge accounting in current period earnings. In the event an interest rate swap is terminated prior to maturity, gains or losses in accumulated other comprehensive loss remain deferred and are reclassified into earnings in the periods in which the hedged forecasted transaction affects earnings.
25
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlyin
g exposures in accordance with GAAP. Both at inception and for each reporting period, the Company assesses whether the financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposure
.
In December 2017, the Company determined that the existing swap agreement, which previously qualified for hedge accounting treatment, no longer qualified for hedge accounting, as the underlying transaction was no longer probable of occurring. No gain or loss was recognized and the remaining balance of accumulated other comprehensive loss associated with the swap agreement will be amortized into interest expense until September 2019, the date of the expected swap maturity.
In November 2017, a swap agreement with a notional value of $210,000 was terminated. Upon termination, the remaining balance in accumulated other comprehensive loss associated with the swap agreement will continue to be amortized and recorded as interest expense until September 2019, the date of the original expected swap maturity.
The following table summarizes the fair values and the respective classification in the Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017:
|
|
|
|
Assets (Liabilities)
|
|
Interest Rate Swap Agreements
|
|
Balance Sheet Classification
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Non-qualifying cash flow hedge
|
|
Other long-term liabilities
|
|
$
|
(1,394
|
)
|
|
$
|
(3,208
|
)
|
|
|
|
|
$
|
(1,394
|
)
|
|
$
|
(3,208
|
)
|
The Company recognized in interest expense the following in the three months ended March 31, 2018 and 2017, respectively, in order to represent the ineffective portion of interest rate swap agreements designated as hedges and interest rate swap agreements no longer qualifying for hedge accounting treatment:
Derivatives Designated as
|
|
Location of (Gain) Loss
|
|
|
|
|
|
|
|
|
ASC 815-20 Cash Flow
|
|
Recognized in Income on
|
|
Three Months Ended March 31,
|
|
Hedging Relationships
|
|
Derivative (Ineffective Portion)
|
|
2018
|
|
|
2017
|
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
-
|
|
|
$
|
(77
|
)
|
|
|
|
|
$
|
-
|
|
|
$
|
(77
|
)
|
Derivatives Not Designated
|
|
|
|
|
|
|
|
|
|
|
as ASC 815-20 Cash Flow
|
|
Location of (Gain) Loss
|
|
Three Months Ended March 31,
|
|
Hedging Relationships
|
|
Recognized in Income on Derivative
|
|
2018
|
|
|
2017
|
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
(99
|
)
|
|
$
|
-
|
|
|
|
|
|
$
|
(99
|
)
|
|
$
|
-
|
|
The Company currently expects $4,333 to be reclassified from accumulated other comprehensive loss into interest expense within the next twelve months.
9
.
|
Fair Value Measurements
|
Financial instruments held by the Company include cash equivalents, accounts receivable, accounts payable, long-term debt (including the current portion thereof) and interest rate swaps. The Company is also liable for contingent consideration from the acquisition of Self-Suspending Proppant LLC (“SSP”) that is subject to fair value measurement. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.
Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability
26
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
of the information used to determine fair values. Financial assets and liabilities at fair value will be classified and disclo
sed in one of the following three categories:
|
|
Level 1
|
Quoted market prices in active markets for identical assets or liabilities
|
Level 2
|
Observable market based inputs or unobservable inputs that are corroborated by market data
|
Level 3
|
Unobservable inputs that are not corroborated by market data
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying value of cash equivalents, accounts receivable, and accounts payable are considered to be representative of their fair values because of their short maturities. The carrying value of SSP approximates the fair value. The carrying value of the Company’s long-term debt (including the current portion thereof) is recognized at amortized cost. The carrying value of the ABL Revolver approximates fair value because its interest rate approximates the current rates available to the Company. The fair value of the Term Loan B differs from amortized cost and is valued at prices obtained from a readily-available source for trading non-public debt, which represent quoted prices for identical or similar assets in markets that are not active, and therefore is considered Level 2. The following table presents the fair value as of March 31, 2018 and December 31, 2017, respectively, for the Company’s long-term debt:
|
|
Quoted
Prices
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
Long-Term Debt Fair Value Measurements
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan B
|
|
$
|
-
|
|
|
$
|
704,320
|
|
|
$
|
-
|
|
|
$
|
704,320
|
|
|
|
$
|
-
|
|
|
$
|
704,320
|
|
|
$
|
-
|
|
|
$
|
704,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan B
|
|
$
|
-
|
|
|
$
|
708,750
|
|
|
$
|
-
|
|
|
$
|
708,750
|
|
|
|
$
|
-
|
|
|
$
|
708,750
|
|
|
$
|
-
|
|
|
$
|
708,750
|
|
The following table presents the amounts carried at fair value as of March 31, 2018 and December 31, 2017 for the Company’s other financial instruments. Fair value of interest rate swap agreements is based on the present value of the expected future cash flows, considering the risks involved, and using discount rates appropriate for the maturity date. These are determined using Level 2 inputs.
|
|
Quoted
Prices
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
Recurring Fair Value Measurements
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
-
|
|
|
$
|
(1,394
|
)
|
|
$
|
-
|
|
|
$
|
(1,394
|
)
|
|
|
$
|
-
|
|
|
$
|
(1,394
|
)
|
|
$
|
-
|
|
|
$
|
(1,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
-
|
|
|
$
|
(3,208
|
)
|
|
$
|
-
|
|
|
$
|
(3,208
|
)
|
|
|
$
|
-
|
|
|
$
|
(3,208
|
)
|
|
$
|
-
|
|
|
$
|
(3,208
|
)
|
27
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
10
.
|
Common Stock and Stock-Based Compensation
|
In the three months ended March 31, 2018, the Company did not grant any options to purchase shares of common stock and did not issue any performance restricted stock units (“PRSUs”). The Company granted options to purchase 443 shares of common stock in the three months ended March 31, 2017. The average grant date fair value was $10.03 for options issued in the three months ended March 31, 2017. The Company issued restricted stock units (“RSUs”) of 1,581 and 366 in the three months ended March 31, 2018 and 2017, respectively. The Company issued PRSUs of 139 in the three months ended March 31, 2017.
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Performance
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Exercise
|
|
|
Restricted
|
|
|
Average Price at
|
|
|
Restricted
|
|
|
Average Price at
|
|
|
|
Options
|
|
|
Price, Options
|
|
|
Stock Units
|
|
|
RSU Issue Date
|
|
|
Stock Units
|
|
|
PRSU Issue Date
|
|
Outstanding at December 31, 2017
|
|
|
13,393
|
|
|
$
|
6.63
|
|
|
|
1,517
|
|
|
$
|
6.63
|
|
|
|
584
|
|
|
$
|
4.10
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
1,581
|
|
|
|
4.56
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(355
|
)
|
|
|
2.58
|
|
|
|
(280
|
)
|
|
|
4.65
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(9
|
)
|
|
|
10.70
|
|
|
|
(6
|
)
|
|
|
10.03
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(4
|
)
|
|
|
16.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2018
|
|
|
13,025
|
|
|
$
|
6.73
|
|
|
|
2,812
|
|
|
$
|
5.67
|
|
|
|
584
|
|
|
$
|
4.10
|
|
The Company recorded $3,420 and $2,416 of stock compensation expense related to these options, RSUs, and PRSUs for the three months ended March 31, 2018 and 2017, respectively. Stock compensation expense is included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Income (Loss) and in additional paid-in capital on the Condensed Consolidated Balance Sheets.
The Company computes and applies to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts. Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.
For the three months ended March 31, 2018, the Company recorded tax expense of $872 on income before income taxes of $29,628 resulting in an effective tax rate of 2.9%, compared to a tax benefit of $1,160 on a loss before income taxes of $12,813 resulting in an effective tax rate of 9.1% for the same period of 2017. The decrease in the effective tax rate is primarily attributable to the decrease in the corporate income tax rate to 21% resulting from the Tax Act passed by the United States Government in December 2017. The decrease was partially offset by the reduced impact of the U.S. depletion deduction applied against forecasted results in 2018 as compared to 2017. The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.
The Tax Act subjects U.S. taxpayers to the base erosion minimum tax ("BEAT"), a potential limitation on U.S. interest deduction ("163(j)"), a potential tax deduction for foreign derived intangible income ("FDII"), and a current tax on its global intangible low-taxed income ("GILTI"). The Company estimates that the effect from the BEAT, 163(j), FDII and GILTI on its estimated annual effective tax rate will not be material.
For the three months ended March 31, 2018, the Company remains provisional for legislative changes of the Tax Act, most notably for the one-time transition tax on unremitted foreign earnings of $3,046. While substantially complete for which a reasonable estimate of such effects have been recorded, these estimates remain provisional as certain items may differ, potentially materially, due to further refinement of the calculations, changes in interpretations and assumptions made, and further guidance that may become available. The SEC has provided up to a one-year measurement period, ending December 22, 2018, for the Company to finalize the accounting for the impacts of the Tax Act.
28
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
1
2
.
|
Defined Benefit Plans
|
The Company maintains two defined benefit pension plans, the Wedron pension plan and the Troy Grove pension plan, covering union employees at certain facilities that provide benefits based upon years of service or a combination of employee earnings and length of service. Benefits under the Wedron plan were frozen effective December 31, 2012. Benefits under the Troy Grove plan were frozen effective December 31, 2016.
Net periodic benefit (income) cost recognized for Company defined benefit pension plans for the three months ended March 31, 2018 and 2017 is as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Components of net periodic benefit (income) cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
84
|
|
|
|
89
|
|
Expected return on plan assets
|
|
|
(141
|
)
|
|
|
(127
|
)
|
Amortization of net actuarial loss
|
|
|
56
|
|
|
|
61
|
|
Net periodic benefit (income) cost
|
|
$
|
(1
|
)
|
|
$
|
23
|
|
The Company did not contribute to the plans during the three months ended March 31, 2018 and contributed $19 during the three months ended March 31, 2017. Total expected employer contributions during the year ending December 31, 2018 are $28.
1
3
.
|
Accumulated Other Comprehensive Loss
|
The components of accumulated other comprehensive loss attributable to Fairmount Santrol Holdings Inc. at March 31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018
|
|
|
|
Gross
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation
|
|
$
|
(10,233
|
)
|
|
$
|
1,546
|
|
|
$
|
(8,687
|
)
|
Additional pension liability
|
|
|
(3,193
|
)
|
|
|
1,220
|
|
|
|
(1,973
|
)
|
Unrealized gain (loss) on interest rate hedges
|
|
|
(6,214
|
)
|
|
|
2,383
|
|
|
|
(3,831
|
)
|
|
|
$
|
(19,640
|
)
|
|
$
|
5,149
|
|
|
$
|
(14,491
|
)
|
|
|
December 31, 2017
|
|
|
|
Gross
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation
|
|
$
|
(10,249
|
)
|
|
$
|
1,849
|
|
|
$
|
(8,400
|
)
|
Additional pension liability
|
|
|
(3,253
|
)
|
|
|
1,220
|
|
|
|
(2,033
|
)
|
Unrealized gain (loss) on interest rate hedges
|
|
|
(7,283
|
)
|
|
|
2,618
|
|
|
|
(4,665
|
)
|
|
|
$
|
(20,785
|
)
|
|
$
|
5,687
|
|
|
$
|
(15,098
|
)
|
29
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
The following table presents the changes in accumulated other comprehensive
loss
by component for the
three months ended March 31, 2018
:
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Foreign
|
|
|
Additional
|
|
|
gain (loss)
|
|
|
|
|
|
|
|
currency
|
|
|
pension
|
|
|
on interest
|
|
|
|
|
|
|
|
translation
|
|
|
liability
|
|
|
rate hedges
|
|
|
Total
|
|
Beginning balance
|
|
$
|
(8,400
|
)
|
|
$
|
(2,033
|
)
|
|
$
|
(4,665
|
)
|
|
$
|
(15,098
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications
|
|
|
(287
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(287
|
)
|
Amounts reclassified from accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive loss
|
|
|
-
|
|
|
|
60
|
|
|
|
834
|
|
|
|
894
|
|
Ending balance
|
|
$
|
(8,687
|
)
|
|
$
|
(1,973
|
)
|
|
$
|
(3,831
|
)
|
|
$
|
(14,491
|
)
|
The following table presents the reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2018:
|
|
Amount
reclassified
|
|
|
|
|
|
from accumulated
|
|
|
|
Details about accumulated other
|
|
other comprehensive
|
|
|
Affected line item on
|
comprehensive loss
|
|
loss
|
|
|
the statement of income (loss)
|
Change in fair value of derivative swap agreements
|
|
|
|
|
|
|
Interest rate hedging contracts
|
|
$
|
1,069
|
|
|
Interest expense
|
Tax effect
|
|
|
(235
|
)
|
|
Tax
expense
|
|
|
$
|
834
|
|
|
Net of tax
|
Amortization of pension obligations
|
|
|
|
|
|
|
Actuarial losses
|
|
$
|
60
|
|
|
Cost of sales
|
Total reclassifications for the period
|
|
$
|
894
|
|
|
Net of tax
|
1
4
.
|
Commitments and Contingent Liabilities
|
The Company has entered into numerous mineral rights agreements, in which payments under the agreements are expensed as incurred. Certain agreements require annual payments while other agreements require payments based upon annual tons mined and others a combination thereof. As of March 31, 2018, the Company is obligated for an additional $10,000 in future leasehold interest payments for the July 2017 Kermit, Texas transaction. This obligation is expected to be paid in the second quarter of 2018. Please refer to Note 4 for further detail.
The Company has entered into agreements with third party terminal operators whereby certain minimum payments are due regardless of terminal utilization.
The Company leases certain machinery, equipment (including railcars), buildings and office space under operating lease arrangements. Total rent expense associated with these leases was $13,127 and $13,714 for the three months ended March 31, 2018 and 2017, respectively.
The Company is subject to a contingent consideration arrangement in the form of earnout payments, related to the purchase of SSP, which was accounted for as an acquisition of a group of assets. The earnout payments are based on a fixed percentage of the cumulative product margin, less certain adjustments, generated by sales of Propel SSP® and other products incorporating the SSP technology for five years commencing on October 1, 2015. The Company entered into an amendment to the SSP purchase agreement on December 17, 2015. This amendment (a) extends the period during which the threshold aggregate earnout payments equal or exceed $45,000 from the two-year period ending October 1, 2017 until the three-year period ending October 1, 2018; and (b) sets the threshold aggregate earnout payments during the two-year period ending October 1, 2017 to equal or exceed $15,000 and granted the
30
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
Seller a security interest in 51% of the equity interests in the SSP technology to secure such $15,000. The amendment does not alter the final threshold ear
nout amount, which continues to be $195,000 (inclusive of the $45,000 payment, if any) by October 1, 2020. In the event the Company does not make the final threshold earnout payment, the Company would continue to retain a portion of the ownership interest
in the technology, the right to a portion of future profits and would no longer be obligated for future earnout payments. It would also have the non-exclusive right to license the technology at a negotiat
ed rate. Estimated
earnout payments are accrued a
nd capitalized as part of the cost of the acquired technology from the SSP acquisition at the time a payment is probable and reasonably estimable. Based upon current information, the Company has capitalized
estimated
earnout payments of $
11,119
, which inc
lude
s total actual disbursements
of
$
5,45
7
made
through March 31, 2018.
The seller
elected not to exercise the claw-back of the technology as of October 1, 2017 as a result of the aggregate earnout payments being less than the $15,000 threshold at that
date. As of
March 31, 2018
, the accrued balance of the earnout liability
was $
5,66
2
, which represents the estimate of the total remaining aggregate earnout payments the Company expects to pay through October 1, 2020
.
Certain subsidiaries are defendants in lawsuits in which the alleged injuries are claimed to be silicosis-related and to have resulted, in whole or in part, from exposure to silica-containing products, allegedly including those sold by certain subsidiaries. In the majority of cases, there are numerous other defendants. In accordance with its insurance obligations, the defense of these actions has been tendered to and the cases are being defended by the subsidiaries’ insurance carriers. Management believes that the Company’s substantial level of existing and available insurance coverage combined with various open indemnities is more than sufficient to cover any exposure to silicosis-related expenses. An estimate of the possible loss, if any, cannot be made at this time.
The Company has been named as a defendant in several lawsuits in which alleged stockholders claim the Company and its directors violated securities laws in connection with the current proposed merger transaction (defined in Note 19). The Company and its directors believe these allegations lack merit. An estimate of the possible loss, if any, cannot be made at this time.
1
5
.
|
Transactions with Related Parties
|
The Company pays American Securities LLC (“American Securities”), in accordance with its policy, for Board of Directors’ fees and Company-related expenses, including reimbursement for travel and lodging, market research, and other miscellaneous consulting fees and expenses. Fees and expenses paid to American Securities were $47 and $86 in the three months ended March 31, 2018 and 2017, respectively.
The Company organizes its business into two reportable segments, Proppant Solutions and Industrial & Recreational Products. The reportable segments are consistent with how management views the markets served by the Company and the financial information reviewed by the chief operating decision maker in deciding how to allocate resources and assess performance.
The chief operating decision maker primarily evaluates an operating segment’s performance based on segment gross profit, which does not include any selling, general, and administrative costs or corporate costs.
31
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
Proppant Solutions
|
|
$
|
242,182
|
|
|
$
|
140,993
|
|
Industrial & Recreational Products
|
|
|
31,156
|
|
|
|
31,590
|
|
Total revenues
|
|
|
273,338
|
|
|
|
172,583
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit
|
|
|
|
|
|
|
|
|
Proppant Solutions
|
|
|
76,114
|
|
|
|
25,461
|
|
Industrial & Recreational Products
|
|
|
11,146
|
|
|
|
12,919
|
|
Total segment gross profit
|
|
|
87,260
|
|
|
|
38,380
|
|
|
|
|
|
|
|
|
|
|
Operating expenses excluded from segment gross profit
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
27,353
|
|
|
|
22,470
|
|
Depreciation, depletion, and amortization
|
|
|
17,225
|
|
|
|
17,246
|
|
Other operating income
|
|
|
(729
|
)
|
|
|
(1,060
|
)
|
Interest expense
|
|
|
13,783
|
|
|
|
12,537
|
|
Income (loss) before provision (benefit) for income taxes
|
|
$
|
29,628
|
|
|
$
|
(12,813
|
)
|
In the three months ended March 31, 2018, three customers exceeded 10% of revenues. These customers accounted for 29%, 11%, and 10% of revenues, respectively, in the three months ended March 31, 2018. In the three months ended March 31, 2017, three customers exceeded 10% of revenues. These customers accounted for 24%, 12%, and 11%, respectively, of revenues in the three months ended March 31, 2017. These are customers of the Company’s Proppant Solutions segment.
1
7
.
|
Goodwill and Intangibles
|
As of March 31, 2018, the balance of Goodwill was $15,301, which represents goodwill related to acquisitions in the Company’s Industrial & Recreational Products segment. As part of Company policy in its normal course of business, the Company performed a review of qualitative factors and concluded that, as of March 31, 2018, there were no events or changes in circumstances that would more likely than not result in an impairment of the carrying value of Goodwill.
As of March 31, 2018, the balance of the FTSI supply agreement, net of accumulated amortization, was $29,659. At March 31, 2018, the balance of the SSP intangible asset, net of accumulated amortization, was $63,225. Please refer to Note 14 for additional information related to SSP.
1
8
.
|
Revenues from Contracts with Customers
|
The Company’s revenues are primarily derived from contracts with customers with terms typically ranging from one to eight years in length.
Variable Consideration
The Company’s products may be sold with rebates, discounts, take-or-pay provisions, or other features which are accounted for as variable consideration. Rebates and discounts are not material and have not been separately disclosed.
Contracts that contain take-or-pay provisions obligate customers to pay shortfall payments if the required volumes, as defined in the contracts, are not purchased. Shortfall payments are recognized as revenues when the likelihood of the customer purchasing the minimum volume becomes remote, subject to renegotiation of the contract and
32
Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
collectability. At
March 31, 201
8
and
December 31, 2017
, the Company had no accounts receivable related to shortfall payments.
Disaggregated Revenues
The following table presents the Company’s revenues disaggregated by reportable segment and by product line for the three months ended March 31, 2018 and 2017:
|
|
Three Months Ended March 31, 2018
|
|
|
|
Proppant Solutions
|
|
|
I&R
|
|
|
Total
|
|
Product lines
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw sand
|
|
$
|
191,176
|
|
|
$
|
21,243
|
|
|
$
|
212,419
|
|
Value-added products
|
|
|
51,006
|
|
|
|
9,913
|
|
|
|
60,919
|
|
Total revenues
|
|
$
|
242,182
|
|
|
$
|
31,156
|
|
|
$
|
273,338
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
Proppant Solutions
|
|
|
I&R
|
|
|
Total
|
|
Product lines
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw sand
|
|
$
|
102,834
|
|
|
$
|
20,230
|
|
|
$
|
123,064
|
|
Value-added products
|
|
|
38,159
|
|
|
|
11,360
|
|
|
|
49,519
|
|
Total revenues
|
|
$
|
140,993
|
|
|
$
|
31,590
|
|
|
$
|
172,583
|
|
1
9
.
|
Proposed Merger with Unimin Corporation
|
On December 11, 2017, the Company entered into a merger agreement with Unimin Corporation (“Unimin”) and certain other parties with respect to the proposed combination of the businesses of Unimin and Fairmount Santrol. The merger agreement provides that, upon the satisfaction or waiver of the conditions contained in the agreement, a direct wholly owned subsidiary of Unimin will be merged with and into Fairmount Santrol, with Fairmount Santrol surviving such merger and becoming a direct wholly owned subsidiary of Unimin (the “Merger”). In accordance with the terms of the Merger agreement (“Merger Agreement”), Fairmount Santrol stockholders in the aggregate (including holders of certain Fairmount Santrol equity awards) will receive $170,000 in cash and approximately 35% of the common stock of Unimin, with SCR-Sibelco NV (“Sibelco”), the existing parent company of Unimin, owning the remaining 65%. The Merger is subject to, among other things, approval by Fairmount Santrol’s stockholders, listing of Unimin’s common stock on the New York Stock Exchange (“NYSE”), and certain regulatory approvals. The Company will hold a special meeting of its stockholders on May 25, 2018 (the “Special Meeting”) to vote to approve the Merger, among other items. Upon completion of the Merger, the Company would delist and no longer trade on the NYSE. The transaction is expected to close in mid-2018, subject to satisfaction of the closing conditions. Were the transaction to close, Internal Revenue Code Sections 382 and 383 could limit post-merger annual utilization of U.S. federal net operating losses and tax credits.
The Merger Agreement contains certain conditional termination rights and, if exercised, the Company may be required to pay Unimin a termination fee of $52,000.
The Company has incurred $11,645 of expenses associated with the Merger, which are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss). In the three months ended March 31, 2018, the Company has incurred $3,334 of such expenses, with the remaining balance primarily recorded in the fourth quarter of 2017.
For further information on the Merger, refer to the Merger Agreement, a copy of which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on December 12, 2017.
33
Introduction to Part I, Item 2 and Part II, Item 1 and Item 1A
We define various terms to simplify the presentation of information in this Quarterly Report on Form 10-Q (this “Report”). Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “Fairmount Santrol,” “our business” and “our company” refer to Fairmount Santrol Holdings Inc. and its consolidated subsidiaries and predecessor companies. We use Adjusted EBITDA herein as a non-GAAP measure of our financial performance. See further discussion of Adjusted EBITDA at Item 2 – Management’s Discussion and Analysis.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Report 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:
|
•
|
the price of oil and gas and the level of activity in the oil and gas industries;
|
|
•
|
the level of cash flows generated to provide adequate liquidity to meet our working capital needs, capital expenditures, and our lease and debt obligations;
|
|
•
|
increasing costs or a lack of dependability or availability of transportation services or infrastructure and geographic shifts in demand;
|
|
•
|
changes to leased terminal arrangements impacting our distribution network and ability to deliver our products to our customers;
|
|
•
|
actions of our competitors, including, but not limited to, their ability to increase production capacity to levels or established additional production facilities, which cause an imbalance in supply and demand resulting in lower market prices;
|
|
•
|
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;
|
|
•
|
fluctuations in demand and pricing for raw and coated sand-based proppants or the development of either effective alternative proppants or new processes to replace hydraulic fracturing;
|
|
•
|
continuing pressure on market-based pricing;
|
|
•
|
lower of cost or market inventory adjustments and/or obsolete inventory;
|
|
•
|
our ability to protect our intellectual property rights;
|
|
•
|
our ability to commercialize Propel SSP® proppants;
|
|
•
|
loss of, or reduction in, business from our largest customers;
|
|
•
|
our exposure to the credit risk of our customers and any potential material nonpayments, bankruptcies, and/or nonperformance by our customers;
|
|
•
|
our transactions in, and operating subsidiaries with, functional currencies other than the U.S. dollar. We are exposed to fluctuations in exchange rates of these currencies compared to the U.S. dollar, which is the primary currency in which we operate. These fluctuations may be significant, and may not be fully mitigated by risk management techniques, such as foreign currency hedging;
|
34
|
•
|
changes in U.S. or international political or economic conditions could adversely impact our operating results;
|
|
•
|
fluctuations in demand for industrial and recreational sand;
|
|
•
|
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 our Wedron Silica sand-mining facility for a significant portion of our sales, which currently supplies a large majority of our Northern White™ frac sand and a portion of our Industrial & Recreational Products (“I&R”) segment sand sold into our markets;
|
|
•
|
the availability of raw materials to support our manufacturing of value-added proppants;
|
|
•
|
diminished access to water;
|
|
•
|
challenges to our title to our mineral properties and water rights;
|
|
•
|
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, including financing for existing commitments such as future railcar deliveries;
|
|
•
|
the potential impairment of our asset groups, including our mineral reserves, plant, equipment, goodwill, and intangible assets as a result of market conditions;
|
|
•
|
substantial indebtedness, lease and pension obligations;
|
|
•
|
restrictions imposed by our indebtedness and lease obligations on our current and future operations;
|
|
•
|
the accuracy of our estimates of our mineral reserves and our ability to mine them;
|
|
•
|
potential disruption of our operations due to severe weather conditions, such as wind storms, ice storms, freezing temperatures, tornadoes, electrical storms, and floods, which occur in areas where we operate;
|
|
•
|
a shortage of skilled labor and rising labor costs in the mining industry;
|
|
•
|
increases in the prices of, or interruptions in the supply of, natural gas and electricity, or any other energy sources;
|
|
•
|
our ability to attract and retain key personnel, including the impact of the uncertainties relating to the Merger with Unimin;
|
|
•
|
our ability to maintain satisfactory labor relations;
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silica-related health issues and corresponding litigation and regulation;
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our ability to maintain effective quality control systems at our mining, processing, and production facilities;
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fluctuations in our sales and results of operations due to seasonality and other factors;
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interruptions or failures in our information technology systems;
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failure to comply with the provisions of the Foreign Corrupt Practices Act (“FCPA”);
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the impact of a terrorist attack or armed conflict;
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cybersecurity breaches;
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our failure to maintain adequate internal controls;
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extensive and evolving environmental, mining, health and safety, licensing, reclamation and other regulation (and changes in their enforcement or interpretation);
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our ability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property;
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legal, regulatory, and other matters that may affect our ability to complete the Merger with Unimin, including the inability to complete the Merger due to the failure to obtain stockholder approval or governmental or regulatory clearances;
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our ability to successfully integrate our business with Unimin’s business and to achieve anticipated synergies, and the anticipated cost, timing, and complexity of integration efforts;
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the future financial performance, anticipated liquidity, and capital expenditures of the combined company, and other risks related to the operation of the combined company; and
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other factors disclosed in the section entitled “Risk Factors” and elsewhere in this Report.
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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 the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this 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 SEC filings and public communications. You should evaluate all forward-looking statements made in this Report 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 Report 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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