| OTHER FINANCIAL DATA | OTHER FINANCIAL DATA Adoption of ASC 606, Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers , ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASC 606 replaced most existing revenue recognition guidance in United States Generally Accepted Accounting Principles (“GAAP”) when it became effective for fiscal years beginning after December 15, 2017. ASC 606 permits the use of either the retrospective or cumulative effect transition method. We conducted and completed a comprehensive review of contracts and their associated business terms and conditions and performed detailed analyses on the impact of this standard to our contracts. Based on our evaluation, we adopted the new standard on January 1, 2018, using the full retrospective method. Because accounting for revenue under contracts did not materially change for us under the new standard as explained below, prior period consolidated financial statements did not require adjustment. We recognize revenue at a point in time when obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped for direct sales to customers or when the product is picked up by a customer either at our plant location or transload location. Our contracts contain one performance obligation which is the delivery of sand to the customer at a point in time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. We recognize the cost for shipping as an expense in cost of sales when control over the product has transferred to the customer. Sales taxes collected concurrently with revenue-producing activities are excluded from revenue. Our sand products are sold to United States and Canada-based customers primarily in the energy industry. Demand for our product is impacted by the economic conditions related to the energy industry, particularly fluctuations in oil and gas prices. This affects the nature, amount, timing and uncertainty of our revenue. Changes in the price of oil and gas relative to other inflationary measures could make our products more or less affordable and therefore affect our sales. We also sell a small quantity of non-frac sand to customers outside the energy industry. Our payment terms vary by the type and location of our customers. The term between invoicing and the payment due date is 30 days in most cases. For certain customers, we require payment before the product is delivered. The following table presents our revenues disaggregated by nature of product: Three Months Ended March 31, 2018 March 31, 2017 $ in thousands Tons in thousands $ in thousands Tons in thousands Frac sand revenues $ 105,971 1,437 $ 75,182 1,245 Non-frac sand revenues 779 66 162 6 Total revenues $ 106,750 1,503 $ 75,344 1,251 We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. On an ongoing basis, the collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts. We evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors, including the age of the outstanding balances, evaluation of customers’ current and past financial condition, recent payment history, current economic environment, and discussions with our personnel and with the customers directly. Accounts are written off when it is determined the receivable will not be collected. If circumstances change, our estimates of the collectability of amounts could change by a material amount. A limited number of our contracts have variable consideration, including shortfall fees and demurrage fees. For a limited number of customers, we sell under long-term, minimum purchase supply agreements. These agreements define, among other commitments, the volume of product that our customers must purchase, the volume of product that we must provide, and the price that we will charge for each product. The shortfall fees are billed when the customer does not meet the minimum purchases over a period of time defined in each contract. As we do not have the ability to predict the customer’s orders over the period, there are constraints around our ability to recognize the variability in consideration related to this condition. Demurrage fees are assessed to customers for not returning the railcar timely and according to the terms of the contract. Estimation of demurrage fees is also constrained as we cannot estimate when the customer will pick up the product from the railcar upon delivery. Shortfall fees and demurrage represent an immaterial amount of revenue historically. For these contracts we estimate our position quarterly using the most likely outcome method, including customer-provided forecasts and historical buying patterns, and we accrue for any asset or liability these arrangements may create. The effect of accruals for variable consideration on our consolidated financial statements is immaterial. After a thorough and extensive analysis of all of our long-term, minimum purchase supply agreements and a review of the standard terms of the purchase orders, we determined that there is no material change in the transaction price and amounts allocated to performance obligations, or the timing of satisfaction of performance obligations under ASC 606 compared to our accounting for these items in previous periods. Discontinued Operations On August 31, 2016, we completed the sale of our Fuel business pursuant to the terms of the Fuel Business Purchase Agreement. The purchase price was $167.7 million , subject to adjustment based on actual working capital conveyed at closing. The following escrow accounts were established at closing: • $7 million of the sales price was withheld as a general escrow associated with certain indemnification obligations. Any unutilized escrow balance, plus any accrued interest thereon, will be paid 54 months from the closing date. • $4 million of the sales price was withheld as a hydrotreater escrow to satisfy any cost overruns of the Birmingham hydrotreater completion. In 2017, we wrote off the entire receivable relating to hydrotreator completion delays and cost overruns. • $2.25 million of the sales price was withheld as the Renewable Fuel Standard escrow account. The entire amount, along with interest thereon, was collected in April 2017. • $1 million of the sales price was withheld as a pipeline escrow account. Any unutilized escrow balance, along with any accrued interest thereon, will be released with the general escrow. Escrow receivables are recorded at the net present values of estimated future recoveries and will be adjusted as contingencies are resolved. Private Placement In connection with our private placement in August 2016, we issued to the purchaser a warrant to purchase approximately 890,000 common units at an exercise price of $10.82 per common unit. The warrant, which expires on August 16, 2022, was exercisable immediately upon issuance and contains a cashless exercise provision and other customary provisions and protections, including anti-dilution protections. This warrant is classified as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity, and is included in Other long-term liabilities on our Condensed Consolidated Balance Sheets. This warrant has not been exercised as of March 31, 2018 . Allowance for Doubtful Accounts The allowance for doubtful accounts totaled $17.0 thousand at March 31, 2018 , and December 31, 2017 . Inventories Inventories consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Sand finished goods $ 9,959 $ 12,914 Sand work in process 4,751 14,650 Sand raw materials and supplies 179 261 Total $ 14,889 $ 27,825 Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Prepaid mining costs $ 3,381 $ 1,011 Prepaid lease assets, current (1) 2,415 2,496 Prepaid insurance 772 875 Prepaid transload services 693 1,274 Other 912 675 Total $ 8,173 $ 6,331 (1) The cost to transport leased railcars from the manufacturer to our site for initial placement in service is capitalized and amortized over the term of the lease (typically five to seven years). This balance reflects the current portion of these capitalized costs. Property, Plant and Equipment Property, plant and equipment consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Machinery and equipment (1) $ 92,925 $ 92,353 Buildings and improvements (1) 66,545 66,444 Mineral reserves 49,091 49,091 Land and improvements (1) 47,597 45,567 Construction in progress 34,870 15,696 Capitalized reclamation costs 2,521 2,521 Total cost 293,549 271,672 Accumulated depreciation and depletion 89,736 85,702 Net property, plant and equipment $ 203,813 $ 185,970 (1) Includes assets under capital lease . We classified $393,000 and $292,000 as assets held for sale as of March 31, 2018 , and December 31, 2017 . We recognized $4.1 million and $3.9 million of depreciation and depletion expense for the three months ended March 31, 2018 , and 2017 , respectively. Intangible Assets Our intangible assets consisted of the following: Cost Accumulated Amortization Net ($ in thousands) March 31, 2018: Patents $ 7,443 $ 6,936 $ 507 Non-compete agreement 100 37 63 Total $ 7,543 $ 6,973 $ 570 December 31, 2017: Patents $ 7,443 $ 6,188 $ 1,255 Supply and transportation agreements 569 226 343 Non-compete agreement 100 34 66 Total $ 8,112 $ 6,448 $ 1,664 We recognized $0.8 million of amortization expense for each of the three months ended March 31, 2018 and 2017 . Other Assets, Net Other assets, net consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Deferred lease asset (1) $ 8,763 $ 8,775 Prepaid lease assets, net of current portion (2) 6,575 7,153 Escrow receivable, non-current (3) 5,772 5,684 Other 1,453 2,810 Total $ 22,563 $ 24,422 (1) During 2016, we completed negotiations with various railcar lessors pursuant to which we terminated future orders of railcars, deferred future railcar deliveries and reduced and deferred payments on existing leases. The cost of deferring future railcar deliveries was recorded as a deferred lease asset. This asset will be amortized over the terms of the associated leases as those railcars enter service. (2) The cost to transport leased railcars from the manufacturer to our site for initial placement in service is capitalized and amortized over the term of the lease (typically five to seven years). This balance reflects the non-current portion of these capitalized costs. (3) Non-current receivables are recorded at net present value of estimated recoveries and will be adjusted as contingencies are resolved. Accrued Liabilities Accrued liabilities consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Logistics $ 2,816 $ 5,898 Fuel sale related liabilities 2,478 2,475 Current portion of business acquisition obligations 1,790 1,952 Mining 1,544 170 Salaries and other employee-related 1,209 4,633 Sales, excise, property and income taxes 871 1,953 Deferred compensation 848 848 Sand purchases and royalties 768 311 Accrued interest 578 2,552 Construction 434 7,122 Professional fees 200 373 Current portion of contract termination 85 210 Other 2,391 1,221 Total $ 16,012 $ 29,718 Other Long-term Liabilities Other long-term liabilities consisted of the following: March 31, 2018 December 31, 2017 ($ in thousands) Deferred lease obligation (1) $ 11,033 $ 9,561 Long-term promissory note 5,370 9,370 Asset retirement obligation 2,814 2,792 Warrants 2,134 2,811 Contract and project terminations 877 5,348 Total $ 22,228 $ 29,882 (1) We recognize lease expense for operating leases on a straight-line basis over the term of the lease, beginning on the date we take possession of the property. The difference between the cash paid to the lessor and the amount recognized as lease expense on a straight-line basis is included in deferred lease obligation. Long-term Promissory Note During the second quarter of 2016, we negotiated significant concessions on the majority of our railcar leases pursuant to which we cancelled or deferred deliveries on rail cars and reduced cash payments on a substantial portion of the existing rail cars in our fleets. In exchange for these concessions, we issued at par an unsecured promissory note in the aggregate principal amount of $8 million (the “PIK Note”) for delivery deferrals. The PIK Note bears interest at a rate of 10% per annum payable in cash or, in certain situations, in-kind, when certain financial metrics have been met. We began paying interest in cash as of January 1, 2018. This Note will mature on June 2, 2020. We paid $1.5 million of the principal balance during the three months ended March 31, 2018 , as part of our debt refinancing described in Note 4 to our Condensed Consolidated Financial Statements. We also issued warrants to purchase 370,000 common units representing limited partnership interests in the Partnership in exchange for these concessions during the second quarter of 2016. Contract and Project Terminations In December 2015, we gained access to a significant reserve base in Jackson County, Wisconsin through a business arrangement with a contracted customer. The assets acquired included certain owned and leased land, sand deposit leases and related prepaid royalties, and transferable mining and reclamation permits. In consideration for the assets, we amended and restated the existing supply agreement between the parties and entered into a new sand purchase option agreement that provided the customer with a market-based discount on sand purchased from us. Under the agreements, we have the option to supply the contracted tons from our existing footprint of northern white sand operations or construct a new sand mine and dry plant in Jackson County, Wisconsin. Due to changing market conditions and changing preferences of customer demand, we determined that these projects were no longer economically viable and decided to terminate the land owner agreements and the mine permits. We recorded a $1.9 million charge to earnings to write off the related prepaid royalties during the three months ended March 31, 2018 . As we terminated our permits for these properties, we will not owe any future royalty payments related to these properties. During 2016, we negotiated concessions on the majority of our railcar leases pursuant to which we cancelled or deferred deliveries on rail cars and reduced cash payments on a substantial portion of the existing rail cars in our fleets. In exchange for these concessions, we incurred a contract termination charge of $4 million . We issued at par an unsecured promissory note in the aggregate principal amount of $4 million with interest payable in cash or, in certain situations, in-kind, when certain financial metrics have been met. This note bore interest at a rate of five percent per annum. We fully extinguished this liability and paid $4.4 million in January 2018 as part of our debt refinancing described in Note 4 to our Condensed Consolidated Financial Statements. The following table illustrates the various contract termination liabilities and exit and disposal reserves included in Accrued liabilities and Other long-term liabilities in our Condensed Consolidated Balance Sheets: ($ in thousands) Balance at December 31, 2017 $ 5,557 Adjustments (221 ) Accretion 8 Payments (4,382 ) Balance at March 31, 2018 $ 962 Mining and Wet Sand Processing Agreement In April 2014, a five -year contract with a sand processor (“Processor”) became effective to support our Sand business in Wisconsin. In January 2015, the agreement was amended and extended to expire on December 31, 2021. Under this contract, the Processor financed and built a wet wash processing plant near our Wisconsin operations. As part of the agreement, the Processor wet washes our sand, creates stockpiles of washed sand and maintains the plant and equipment. During the term of the agreement the Processor will own the wet plant along with the equipment and other temporary structures used to support this activity. At the end of the term of the agreement or following a default under the contract by the Processor, we have the right to take ownership of the wet plant and other equipment without charge. Subject to certain conditions, ownership of the plant and equipment will transfer to us at the expiration of the term. We accounted for the wet plant as a capital lease obligation. Fair Value Measurements Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt instruments. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are representative of their fair values due to their short maturities. The carrying amounts of our revolving credit facility approximates fair value because the underlying instrument includes provisions that adjust our interest rates based on current market rates. The fair values of our other long-term liabilities are not materially different from their carrying values. On August 8, 2016, we, as part of the private placement described above, also issued a warrant to the purchaser to purchase approximately 890,000 common units at an exercise price of $10.82 per common unit. This warrant shall be exercisable for a period of six years from the closing date and include customary provisions and protections, including anti-dilution protections. The fair value of this warrant at issuance date was calculated at $5.56 per unit based on a Black Scholes valuation model, utilizing Level 2 inputs based on the hierarchy established in ASC 820, Fair Value Measurement. This liability is marked to market each quarter with fair value gains and losses recognized immediately in earnings and included in Other income (expense) on our Consolidated Statements of Operations. The warrant liability was $2.1 million and $2.8 million at March 31, 2018 , and December 31, 2017 , respectively. We recorded a a non-cash mark-to-market gain of $0.7 million during the three months ended March 31, 2018 , and a loss of $0.7 million during the three months ended March 31, 2017 . Retirement Plan We sponsor a 401(k) plan for substantially all employees that provides for us to match 100% of participant contributions up to 5% of the participant’s pay. Additionally, we can make discretionary contributions as deemed appropriate by management. As of May 1, 2017, we reestablished the employer 401(k) contributions, which was previously suspended on July 1, 2016. Employer contributions to these plans totaled $297,000 and $0 for the three months ended March 31, 2018 , and 2017 , respectively. Seasonality Winter weather affects the months during which we can wash and wet-process sand in Wisconsin. Seasonality is not a significant factor in determining our ability to supply sand to our customers because we accumulate a stockpile of wet sand feedstock during non-winter months. During the winter, we process the stockpiled sand to meet customer requirements. However, we sell sand for use in oil and natural gas production basins where severe weather conditions may curtail drilling activities. This is particularly true in drilling areas located in the northern U.S. and western Canada. If severe winter weather precludes drilling activities, our frac sand sales volume may be adversely affected. Generally, severe weather episodes affect production in the first quarter with effects possibly continuing into the second quarter. Concentration of Credit Risk We provide credit, in the normal course of business, to customers located throughout the United States and Canada. We encounter a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. We perform ongoing credit evaluations of our customers and generally do not require collateral. The trade receivables (as a percentage of total trade receivables) as of March 31, 2018 , and December 31, 2017 , from such significant customers are set forth below: March 31, 2018 December 31, 2017 Customer A 25 % 17 % Customer B 19 % 20 % Customer C * 13 % An asterisk indicates trade receivables less than ten percent. Significant customers The table shows the percent of revenue of our significant customers for our continuing operations represented for the three months ended March 31, 2018 , and 2017 . March 31, 2018 March 31, 2017 Customer A 28 % 17 % Customer B 12 % * Customer D 10 % 32 % An asterisk indicates revenue is less than ten percent. Geographical Data Although we own no long-term assets outside the United States, we began selling sand in Canada during 2013. We recognized $11.8 million and $5.4 million of revenues in Canada for the three months ended March 31, 2018 , and 2017 , respectively. All other sales have occurred in the United States. Recent Issued Accounting Pronouncement In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to recognize lease assets and lease liabilities generated by contracts longer than a year on their balance sheets. The ASU also requires companies to disclose in the footnotes to their financial statements information about the amount, timing, and uncertainty for the payments they make for the lease agreements. ASU 2016-02 is effective for public companies for annual periods and interim periods within those annual periods beginning after December 31, 2018. Early adoption is permitted for all entities. We currently have significant long-term operating leases for rail cars and transload facilities. Pursuant to the adoption, we will record substantial liabilities and corresponding assets for these leases. We have engaged an independent consultant to assist us in our assessment of our lease contracts. While we are not yet in a position to assess the full impact of the application of this ASU, we expect that the impact of recording the lease liabilities and the corresponding additional assets will have a significant impact on our financial position and results of operations and related disclosures in the notes to our consolidated financial statements. We plan to adopt this guidance on January 1, 2019. |
