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8-K - 8-K - Bison Merger Sub I, LLCd178530d8k.htm

Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE

FAIRMOUNT SANTROL ANNOUNCES FIRST-QUARTER 2016 RESULTS

 

    Compared to fourth-quarter 2015, total Company volumes were up 10%, with Proppant Solutions volumes up 12% and Industrial & Recreational volumes up 6%

 

    71% of Northern White frac sand volumes shipped via unit train

 

    Revenues of $145.5 million up 8% sequentially

 

    Net loss of $11.8 million, with Adjusted EBITDA of $10.0 million, up from $4.7 million of Adjusted EBITDA in fourth-quarter 2015

 

    In second-quarter 2016, approximately $70 million of the Company’s B-1 term loan was extended to July 2018, reducing March 2017 maturity to $17 million

CHESTERLAND, Ohio – May 10, 2016 Fairmount Santrol (NYSE: FMSA), a leading provider of high-performance sand and sand-based products, today announced results for the first quarter of 2016.

First-Quarter 2016 Results

First-quarter 2016 revenues were $145.5 million, up 8% from $134.9 million in the fourth quarter of 2015, and down 52% from $301.5 million for the same period in 2015. Overall volumes sold were 2.1 million tons for the quarter, an increase of 10% from 1.9 million tons in the fourth quarter of 2015 and a decline of 8% from 2.3 million tons in the first quarter of 2015.

Adjusted EBITDA for the first quarter, which excludes stock compensation expense of $1.7 million, was $10.0 million compared with $4.7 million in the fourth quarter of 2015. Fourth-quarter 2015 Adjusted EBITDA excluded the impact from stock compensation expense, restructuring costs and impairment charges totaling $74.4 million. The sequential increase in Adjusted EBITDA was largely due to higher overall volumes and the realization of continued cost reduction efforts.

For first-quarter 2016, the Company had a net loss of $11.8 million, or $(0.07) per diluted share, compared with a net loss of $90.8 million, or $(0.56) per diluted share, in the fourth quarter of 2015. Net income for first- quarter 2015 was $30.8 million, or $0.18 per diluted share.

“We are encouraged by our first-quarter performance, as we were able to increase volumes sequentially in both our Proppant Solutions and Industrial & Recreational segments while continuing to improve our efficiencies and reduce our costs across all categories,” said Jenniffer Deckard, President and Chief Executive Officer. “Our differentiated capabilities and strong customer relationships, combined with the hard work and resilience of our team, drove our overall performance. However, industry fundamentals have continued to be challenging.”

Deckard added, “Liquidity is a top priority for Fairmount Santrol and in the second quarter we are pleased to have successfully worked with our valued lending partners to extend approximately $70 million of our B-1 term loans to July 2018. We are continuing to take the actions necessary to enhance our flexibility and improve our cost position, including the difficult second-quarter 2016 decisions to idle two facilities in Wisconsin and to further reduce positions across the organization. These actions resulted in an additional 10% combined workforce reduction, bringing total workforce reductions to approximately 40% since early 2015. We now believe we are appropriately staffed for our current business levels, and for the market environment in which we are operating.”

 

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Deckard concluded, “We have concentrated our business into our most cost-effective locations, including the recently completed expansion of our low-cost, optimally located Wedron, Illinois, sand processing facility. We are also building upon our legacy of innovation by introducing new products that are aligned with today’s unique customer needs. While the market remains challenging and unpredictable, we believe we are well positioned to manage through the downturn and to participate in the eventual market recovery.”

Business Segments

Proppant Solutions Segment

Proppant Solutions volumes for the first quarter of 2016 were 1.5 million tons, up 12% compared with the fourth quarter of 2015 and down 14% compared with the prior-year period. Raw frac sand volumes were 1.4 million tons, a 13% sequential increase and a 5% decline compared with volumes for the same period a year ago. Coated proppant volumes were 112,704 tons, 1% lower versus the fourth quarter of 2015 and a 61% decline from the prior-year period.

Proppant Solutions revenues were $117.5 million in the first quarter, a 9% increase compared with $107.5 million in the fourth quarter of 2015 and a 57% decrease compared with $272.9 million in the same period a year ago. The sequential increase in revenues was driven by increased volumes sold and an increase of in-basin shipments. The positive impact from these factors was partially offset by pricing pressure across all product lines.

Adjusted contribution margin, which excludes $76,000 of restructuring costs for the Proppant Solutions segment, increased to $12.7 million in the first quarter compared with $9.5 million in the fourth quarter of 2015. Excess rail car costs reduced the adjusted contribution margins in first-quarter 2016 and fourth-quarter 2015 by $7.9 million and $9.0 million, respectively. Fourth-quarter 2015 contribution margin was adjusted for restructuring costs and impairment charges totaling $76.8 million. Contribution margin in the first quarter of 2015 was $83.8 million.

The Company continues to capitalize on the demand for cost-effective proppant solutions by leveraging its operational scale, extensive distribution network and unit train capabilities. In the first quarter of 2016, the Company shipped more than 70% of total Northern White frac sand volumes via unit trains. This was the fifth consecutive quarter in which the Company’s unit train deliveries increased.

Industrial and Recreational Products Segment

Industrial and Recreational volumes were 587,178 tons in first quarter 2016, up 6% from fourth-quarter 2015, and up approximately 11% compared with the first-quarter a year ago.

Revenues for the Industrial and Recreational segment were $28.0 million in first-quarter 2016, relatively flat with the $27.5 million last quarter and $28.6 million for the same period a year ago. Continued volume increases in the Company’s lower-priced Industrial and Recreational products offset some normal first-quarter seasonal declines as well as ongoing shifts in product mix.

Contribution margin for the Industrial and Recreational segment was $8.8 million in first-quarter 2016 versus $7.1 million in first-quarter 2015. The 25% year-over-year increase was predominately due to higher sales across almost all markets and reduced costs resulting from our implemented company-wide efficiency initiatives. Fourth-quarter 2015 contribution margin was $9.5 million and was adjusted for restructuring charges totaling $410,000.

Balance Sheet and Other Information

Cash and cash equivalents totaled $143.9 million, and total debt was $1.22 billion as of March 31, 2016.

 

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In the first quarter, operating cash flow was an $8.6 million use of cash, which was primarily due to an increase in first-quarter revenues and related accounts receivable, which we expect to collect in the second quarter, and the timing of certain large annual payments, such as real estate taxes and prior year incentives, that were made during the first quarter. Capital expenditures were $13.7 million in first-quarter 2016, which included $3.2 million of stripping costs. The majority of capital expenditures were related to the continued expansion of Fairmount Santrol’s Wedron facility, as the Company neared completion of this project. First-quarter 2016 capital expenditures were down 38% from fourth-quarter 2015 and down 57% from first-quarter 2015. The Company still expects full-year 2016 capital expenditures, excluding stripping costs, to be in a range of $15 million to $20 million.

On April 28, 2016, Fairmount Santrol amended its term loan facility. Under the terms of the amendment, the Company committed to certain of its B-1 lenders a prepayment of $69.6 million, plus accrued interest. Absent this prepayment, the Company would have been obligated to make a 2016 second-quarter excess cash flow payment of $39.3 million on April 29, 2016. This prepayment effectively accelerated $30.6 million of cash payments by the Company. These lenders in turn agreed to extend the maturity date to July 15, 2018, for $69.6 million of B-1 loans, which were originally due March 15, 2017.

Outlook

Due to the ongoing uncertainty in the oil and gas markets, the Company is continuing to suspend its earnings guidance.

Definition and Use of Certain GAAP and Non-GAAP Financial Measures

The Company defines EBITDA as net income before interest expense, income tax expense, depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA before non-cash stock-based compensation, transaction expenses, impairment of assets, loss on extinguishment of debt, gain or loss on disposal of assets, restructuring charges and certain other non-cash income or expenses. The Company believes EBITDA and adjusted EBITDA are useful because they allow management to more effectively evaluate our operational performance and compare the results of our operations from period to period without regard to our financing methods or capital structure.

Segment contribution margin is defined as total revenues less the cost of goods sold to produce and deliver the products of each segment and selling, general and administrative expenses that are directly attributable to each segment. The definition excludes certain corporate costs not associated with the operations of the segment. Adjusted contribution margin is defined as contribution margin excluding the impact of transaction expenses, impairment of assets, loss on extinguishment of debt, gain or loss on disposal of assets, restructuring charges and certain other non-cash income or expenses.

Conference Call

Fairmount Santrol will host a conference call and live webcast for analysts and investors today, May 10th, at 10 a.m. Eastern Time to discuss the Company’s 2016 first-quarter financial results. Investors are invited to listen to a live audio webcast of the conference call, which will be accessible on the Investor Relations section of the Company’s website at FairmountSantrol.com. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. An archived replay of the call will also be available on the website following the call. The call can also be accessed live by dialing (877) 201-0168 or for international callers, (647) 788-4901. The passcode for the call is 97122681. A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406. The passcode for the replay is 97122681. The replay of the call will be available through May 17, 2016.

About Fairmount Santrol

Fairmount Santrol is a leading provider of high-performance sand and sand-based products used by oil and

 

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gas exploration and production companies to enhance the productivity of their wells. The Company also provides high-quality products, strong technical leadership and applications knowledge to end users in the foundry, building products, water filtration, glass, and sports and recreation markets. Its global logistics capabilities include a wide-ranging network of distribution terminals and rail cars that allow the Company to effectively serve customers wherever they operate. As one of the nation’s longest continuously operating mining organizations, Fairmount Santrol has developed a strong commitment to all three pillars of sustainable development, People, Planet and Prosperity. Correspondingly, the Company’s motto and action orientation is: “Do Good. Do Well.” For more information, visit FairmountSantrol.com.

Investor contact:

Sharon Van Zeeland

440-279-0204

Sharon.VanZeeland@fairmountsantrol.com

Media contact:

Kristin Lewis

440-279-0245

Kristin.Lewis@fairmountsantrol.com

Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These factors include: changes in prevailing economic conditions, including continuing pressure on and fluctuations in demand for, and pricing of, our products; possible adverse effects of being leveraged, including interest rate, event of default or refinancing risks, as well as potentially limiting the Company’s ability to invest in certain market opportunities; our ability to successfully develop and market new products, including Propel SSP™; our rights and ability to mine our property and our renewal or receipt of the required permits and approvals from government authorities and other third parties; our ability to implement capacity expansion plans within our time and budgetary parameters; increasing costs or a lack of dependability or availability of transportation services or infrastructure and geographic shifts in demand; changing legislative and regulatory initiatives relating to our business, including environmental, mining, health and safety, licensing, reclamation and other regulation relating to hydraulic fracturing (and changes in their enforcement and interpretation); silica-related health issues and corresponding litigation; seasonal and severe weather conditions; and other operating risks that are beyond our control.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Fairmount Santrol Holdings Inc.’s filings with the Securities and Exchange Commission (“SEC”). The risk factors and other factors noted in our filings with the SEC could cause our actual results to differ materially from those contained in any forward-looking statement.

 

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Fairmount Santrol

Condensed Consolidated Statements of Income (Loss)

(unaudited)

 

     Three Months Ended March 31,  
     2016     2015  
    

(in thousands, except per share

amounts)

 

Revenues

   $ 145,458      $ 301,490   

Cost of goods sold (excluding depreciation, depletion, amortization, and stock compensation expense shown separately)

     118,464        202,548   

Operating expenses

    

Selling, general and administrative expenses

     16,625        24,020   

Depreciation, depletion and amortization expense

     18,586        16,223   

Stock compensation expense

     1,653        1,883   

Restructuring charges

     76        324   

Other operating expense (income)

     330        (313
  

 

 

   

 

 

 

Income (loss) from operations

     (10,276     56,805   

Interest expense, net

     17,262        15,308   

Other non-operating expense (income)

     (5     —     
  

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (27,533     41,497   

Provision (benefit) for income taxes

     (15,754     10,617   
  

 

 

   

 

 

 

Net income (loss)

     (11,779     30,880   

Less: Net income (loss) attributable to the non-controlling interest

     (3     121   
  

 

 

   

 

 

 

Net income (loss) attributable to Fairmount Santrol Holdings Inc.

   $  (11,776)      $ 30,759   
  

 

 

   

 

 

 

Earnings (loss) per share

    

Basic

   $ (0.07   $ 0.19   

Diluted

   $ (0.07   $ 0.18   

Weighted average number of shares outstanding

    

Basic

     161,446        160,949   

Diluted

     161,446        166,331   

 

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Fairmount Santrol

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

     Three Months Ended March 31,  
     2016     2015  
     (in thousands)  

Net income (loss)

   $ (11,779   $ 30,880   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and depletion

     17,451        14,920   

Amortization

     2,827        2,993   

Reserve for doubtful accounts

     1,878        —     

Write-off and impairment of long-lived assets

     76        —     

Inventory reserve adjustment

     —          1,241   

(Gain) loss on sale of fixed assets

     (112     —     

Unrealized loss on interest rate swaps

     —          18   

Deferred income taxes and taxes payable

     (16,139     262   

Stock compensation expense

     1,653        1,883   

Change in operating assets and liabilities:

    

Accounts receivable

     (9,608     28,650   

Inventories

     1,103        14,624   

Prepaid expenses and other assets

     6,234        3,567   

Accounts payable

     1,980        (17,255

Accrued expenses

     (4,150     (4,363
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (8,586     77,420   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sale of fixed assets

     588        —     

Capital expenditures

     (13,744     (31,855
  

 

 

   

 

 

 

Net cash used in investing activities

     (13,156     (31,855
  

 

 

   

 

 

 

Cash flows from financing activities

    

Payments on long-term debt

     (3,128     (3,128

Change in other long-term debt and capital leases

     (1,724     (1,479

Proceeds from option exercises

     101        786   

Tax effect of stock options exercised and dividend equivalents

     (738     (124

Distributions to non-controlling interest

     (535     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,024     (3,945
  

 

 

   

 

 

 

Change in cash and cash equivalents related to assets classified as held-for-sale

     34        —     

Foreign currency adjustment

     118        (171
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (27,614     41,449   
  

 

 

   

 

 

 

Cash and cash equivalents:

    

Beginning of period

     171,486        76,923   
  

 

 

   

 

 

 

End of period

   $ 143,872      $ 118,372   
  

 

 

   

 

 

 

 

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Fairmount Santrol

Condensed Consolidated Balance Sheets

(unaudited)

 

     March 31, 2016     December 31, 2015  
     (in thousands)  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 143,872      $ 171,486   

Accounts receivable, net

     82,619        73,566   

Inventories

     69,392        70,494   

Prepaid expenses and other assets

     33,219        39,910   

Current assets classified as held-for-sale (includes cash, accounts receivable, inventories, and property, plant, and equipment)

     2,861        4,218   
  

 

 

   

 

 

 

Total current assets

     331,963        359,674   

Property, plant and equipment, net

     862,224        870,997   

Deferred income taxes

     834        834   

Goodwill

     15,301        15,301   

Intangibles, net

     95,354        96,482   

Other assets

     10,294        10,961   
  

 

 

   

 

 

 

Total assets

   $ 1,315,970      $ 1,354,249   
  

 

 

   

 

 

 

Liabilities and Equity

    

Current liabilities

    

Current portion of long-term debt

   $ 100,307      $ 17,385   

Accounts payable

     37,505        40,421   

Accrued expenses

     21,915        26,785   

Current liabilities directly related to current assets classified as held-for-sale (includes accounts payable and accrued expenses)

     456        934   
  

 

 

   

 

 

 

Total current liabilities

     160,183        85,525   

Long-term debt

     1,119,597        1,205,721   

Deferred income taxes

     73,502        89,569   

Other long-term liabilities

     36,327        33,802   
  

 

 

   

 

 

 

Total liabilities

     1,389,609        1,414,617   

Equity

    

Common stock

     2,392        2,391   

Additional paid-in capital

     777,720        776,705   

Retained earnings

     393,268        405,044   

Accumulated other comprehensive income (loss)

     (19,666     (17,693

Treasury stock at cost

     (1,227,663     (1,227,663

Non-controlling interest

     310        848   
  

 

 

   

 

 

 

Total equity (deficit)

     (73,639     (60,368
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,315,970      $ 1,354,249   
  

 

 

   

 

 

 

 

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Fairmount Santrol

Segment Reports

(unaudited)

 

     Three Months Ended March 31,  
     2016      2015  
     (in thousands, except volume amounts)  

Volume (tons)

     

Proppant Solutions

     

Raw sand

     1,413,248         1,487,414   

Coated proppant

     112,704         290,568   
  

 

 

    

 

 

 

Total Proppant Solutions

     1,525,952         1,777,982   

Industrial & Recreational Products

     587,178         530,768   
  

 

 

    

 

 

 

Total volumes

     2,113,130         2,308,750   
  

 

 

    

 

 

 

Revenues

     

Proppant Solutions

   $ 117,463       $ 272,869   

Industrial & Recreational Products

     27,995         28,621   
  

 

 

    

 

 

 

Total revenues

     145,458         301,490   

Segment contribution margin

     

Proppant Solutions

     12,608         83,819   

Industrial & Recreational Products

     8,846         7,076   
  

 

 

    

 

 

 

Total segment contribution margin

     21,454         90,895   

 

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Fairmount Santrol

Non-GAAP Financial Measures

(unaudited)

 

     Three Months Ended March 31,      Three Months Ended
December 31,
 
     2016     2015      2015  
     (in thousands)      (in thousands)  

Reconciliation of Adjusted EBITDA

       

Net (loss) income attributable to Fairmount Santrol Holdings Inc.

   $  (11,776)      $ 30,759       $  (90,831)   

Interest expense, net

     17,262        15,308         16,077   

Provision (benefit) for income taxes

     (15,754     10,617         (13,996

Depreciation, depletion, and amortization expense

     18,586        16,223         18,995   
  

 

 

   

 

 

    

 

 

 

EBITDA

     8,318        72,907         (69,755

Non-cash stock compensation expense(1)

     1,653        1,883         (2,655

Loss on disposal of assets(2)

     —          —           7,288   

Impairment of long-lived assets(3)

     76        —           299   

Restructuring charges(4)

     —          324         263   

Impairment of goodwill(5)

     —          —           69,246   
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 10,047      $ 75,114       $ 4,686   
  

 

 

   

 

 

    

 

 

 

 

       

(1)    Represents the cost in the period for stock-based awards issued to our employees.

       

(2)    Includes losses related to the sale and disposal of property, plant, and equipment.

       

(3)    Expenses associated with the impairment of an international production facility.

       

(4)    Expenses associated with restructuring activities and plant closures, including pension withdrawal and other liabilities, asset impairments and severance payments.

        

(5)    Expenses associated with the impairment of goodwill in the Proppant Solutions segment.

       

Reconciliation of adjusted segment contribution margin

       

Proppant Solutions

       

Segment contribution margin

   $ 12,608      $ 83,819       $ (67,364

Restructuring charges & other adjustments(A)

     76        —           76,833   
  

 

 

   

 

 

    

 

 

 

Proppant Solutions adjusted segment contribution margin

     12,684        83,819         9,469   

Industrial & Recreational Products

       

Segment contribution margin

     8,846        7,076         9,869   

Restructuring charges & other adjustments(B)

     —          —           (410
  

 

 

   

 

 

    

 

 

 

Industrial & Recreational Products adjusted segment contribution margin

     8,846        7,076         9,459   
  

 

 

   

 

 

    

 

 

 

Total adjusted segment contribution margin

   $ 21,530      $ 90,895       $ 18,928   
  

 

 

   

 

 

    

 

 

 

 

       
(A) Adjustments in the three months ended March 31, 2016 include expenses associated with the impairment of an international production facility. Adjustments in the three months ended December 31, 2015 include losses related to the sale and disposal of property, plant, and equipment, expenses associated with the impairment of an international production facility, and expenses associated with the impairment of goodwill.
(B) Adjustments in the three months ended December 31, 2015 include adjustments to the withdrawal liability of defined benefit pension plans.

 

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