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8-K/A - AMENDMENT TO FORM 8-K - Hi-Crush Inc.d581990d8ka.htm
EX-99.3 - EX-99.3 - Hi-Crush Inc.d581990dex993.htm
EX-99.1 - EX-99.1 - Hi-Crush Inc.d581990dex991.htm
EX-23.1 - EX-23.1 - Hi-Crush Inc.d581990dex231.htm

Exhibit 99.2

 

D & I Silica, LLC

Financial Statements

For the Three Months Ended March 31, 2013 and 2012

(Unaudited)


D & I SILICA, LLC

Index to Financial Statements

(Unaudited)

 

Condensed Balance Sheets as of March 31, 2013 and December 31, 2012

   1

Condensed Statements of Operations for the Three Months Ended March 31, 2013 and 2012

   2

Condensed Statement of Cash Flows for the Three Months Ended March 31, 2013 and 2012

   3

Condensed Statement of Members’ Capital for the Three Months Ended March 31, 2013

   4

Notes to Condensed Financial Statements

   5


D & I SILICA, LLC

Condensed Balance Sheets

(in thousands)

(Unaudited)

 

     March 31,      December 31,  
     2013      2012  

Assets

     

Current assets

     

Cash

   $ 1,051       $ 185   

Restricted cash

     645         645   

Accounts receivable

     16,862         13,943   

Inventories

     5,433         3,508   

Prepaid expenses and other current assets

     923         887   
  

 

 

    

 

 

 

Total current assets

     24,914         19,168   

Property, plant and equipment, net

     27,625         24,726   

Deferred charges, net

     12         13   

Other assets

     4,715         4,864   
  

 

 

    

 

 

 

Total Assets

   $ 57,266       $ 48,771   
  

 

 

    

 

 

 

Liabilities and Members’ Capital

     

Current liabilities

     

Accounts payable

   $ 12,830       $ 8,515   

Accrued liabilities

     2,371         662   

Current portion of long-term debt

     2,763         2,763   

Deferred revenue

     112         112   
  

 

 

    

 

 

 

Total current liabilities

     18,076         12,052   

Long-term debt

     3,369         4,144   
  

 

 

    

 

 

 

Total liabilities

     21,445         16,196   
  

 

 

    

 

 

 

Commitments and contingencies

     —           —     

Members’ capital

     

Members’ capital

     35,821         32,575   
  

 

 

    

 

 

 

Total members’ capital

     35,821         32,575   
  

 

 

    

 

 

 

Total Liabilities and Members’ Capital

   $ 57,266       $ 48,771   
  

 

 

    

 

 

 

See Notes to Unaudited Condensed Financial Statements

 

1


D & I SILICA, LLC

Condensed Statements of Operations

(in thousands)

(Unaudited)

 

     Three Months     Three Months  
     Ended     Ended  
     March 31, 2013     March 31, 2012  

Revenues

   $ 28,442      $ 35,383   

Cost of goods sold

     22,641        26,822   
  

 

 

   

 

 

 

Gross profit

     5,801        8,561   
  

 

 

   

 

 

 

Operating expenses

    

General and administrative

     1,276        816   
  

 

 

   

 

 

 

Total operating expenses

     1,276        816   
  

 

 

   

 

 

 

Income from operations

     4,525        7,745   

Other income (expense)

    

Other income

     —          135   

Interest expense

     (36     (21
  

 

 

   

 

 

 

Total other income (expense)

     (36     114   
  

 

 

   

 

 

 

Net income

   $ 4,489      $ 7,859   
  

 

 

   

 

 

 

See Notes to Unaudited Condensed Financial Statements

 

2


D & I SILICA, LLC

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

 

     Three Months     Three Months  
     Ended     Ended  
     March 31, 2013     March 31, 2012  

Operating activities

    

Net income

   $ 4,489      $ 7,859   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,597        1,126   

Government grants for the purchase of fixed assets

     —          (134

Changes in operating assets and liabilities:

    

Accounts receivable

     (2,919     (4,899

Inventories

     (1,925     (2,338

Prepaids and other current assets

     (37     1,165   

Other assets

     117        (2,097

Accounts payable

     2,151        1,110   

Accrued liabilities

     1,709        2,371   

Deferred revenue

     —          (49
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,182        4,114   
  

 

 

   

 

 

 

Investing activities

    

Increase in restricted cash, net

     —          (644

Capital expenditures for property, plant and equipment

     (2,298     (3,420
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,298     (4,064
  

 

 

   

 

 

 

Financing activities

    

Proceeds from issuance of long-term debt

     —          916   

Repayments of long-term debt

     (775     (205

Distributions paid

     (1,243     (700
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (2,018     11   
  

 

 

   

 

 

 

Net increase in cash

     866        61   

Cash, beginning of period

     185        2,910   
  

 

 

   

 

 

 

Cash, end of period

   $ 1,051      $ 2,971   
  

 

 

   

 

 

 

Supplemental disclosures:

    

Cash paid for interest

   $ 36      $ 21   

Non-cash investing and financing activities:

    

Increase (decrease) in accounts payable and accrued liabilities for additions to property, plant and equipment

   $ 2,164      $ (57

See Notes to Unaudited Condensed Financial Statements

 

3


D & I SILICA, LLC

Condensed Statement of Members’ Capital

(in thousands)

(Unaudited)

 

Balance at January 1, 2013

   $ 32,575   

Distributions

     (1,243

Net income

     4,489   
  

 

 

 

Balance at March 31, 2013

   $ 35,821   
  

 

 

 

See Notes to Unaudited Condensed Financial Statements

 

4


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

1. Business and Organization

D & I Silica, LLC (the “Company”) provides sand and related delivery services to oil and gas companies at delivery points in Pennsylvania, Ohio and New York. Most of the products and services are used for hydraulic fracturing Marcellus Shale and Utica Shale gas wells in Pennsylvania, Ohio and New York. As the Company earns all of its revenues through the sale of frac sand and related services, we have concluded that we have one operating segment for reporting purposes.

2. Basis of Presentation and Use of Estimates

The accompanying unaudited interim Condensed Consolidated Financial Statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s Financial Statements for the year ended December 31, 2012, which are included in the a Form 8-K filed by Hi-Crush Partners LP with the SEC on August 14, 2013. The year-end balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3. Significant Accounting Policies

Our significant accounting policies are disclosed in the notes to the Company’s annual financial statements, which are included in the Form 8-K as filed with the SEC on August 14, 2013.

Revenue Recognition

Frac sand revenues are recognized when legal title passes to the customer, which may occur at the rail origin, during transit or at the destination terminal, at which point delivery has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of sand deliveries are recorded as deferred revenue.

Transportation services revenues are recognized as the services have been completed, meaning the associated delivery has occurred or the related services have been rendered. At that point, delivery of the service has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of transportation services are recorded as deferred revenue.

Silo storage lease income attributable to silo storage leases is recorded on a straight-line basis over the term of the lease.

Inventories

Inventory consists of purchased frac sand in-transit, stored in rail cars, or held in silos. Inventory is stated at the lower of cost or market using the first-in, first-out method (“FIFO”). Costs applied to the inventory include the cost of purchased sand and associated freight costs. Silo tonnages are calculated by measuring the number of tons and applying the associated FIFO cost associated with the most recent shipments trans loaded into the silos. Reviews are performed related to the net realizable value of the inventory, giving consideration to quality, excessive levels, obsolescence and other factors.

Shipping and handling costs are charged to cost of goods sold when incurred.

 

5


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

Government Grants

Government grants received for the development of rail facilities are capitalized as a component of property, plant and equipment and recognized as other income during the period earned. The Company recognized grant income of $134 during the three months ended March 31, 2013, as reflected in other income.

Fair Value of Financial Instruments

The amounts reported in the balance sheet as current assets or liabilities, including cash, accounts receivable, accounts payable, accrued liabilities and deferred revenue approximate fair value due to the short-term maturities of these instruments. In addition, the amount recorded on the balance sheet pertaining to the long-term debt outstanding under the Company’s credit facilities approximated their fair value due to its floating interest rate. The fair value of these debts are categorized as a Level 2 measurement per the hierarchy within ASC 820, Fair Value Measurements, as it was based on observable inputs including credit ratings on debt issuances with similar credit risk profiles as the Company. See Note 7—Debt for information regarding borrowings under the Company’s credit facilities.

Income Taxes

The Company is a pass-through entity and is not considered a taxing entity for federal tax purposes. Therefore, there is not a provision for income taxes in the accompanying financial statements. The Company’s net income or loss is allocated to its members in accordance with the Company’s operating agreement. The members are taxed individually on their share of the Company’s earnings. At March 31, 2013, the Company did not have any liabilities for uncertain tax positions or gross unrecognized tax benefit. Tax years ended after 2009 remain subject to audit by taxing authorities.

Recent Accounting Pronouncements

In February 2013, the Financing Accounting Standards Board (“FASB”) issued amended guidance on the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Such arrangements may include debt, other contractual obligations, and settled litigation and judicial rulings. The amended guidance is to be applied retrospectively to all prior periods presented. This guidance will be effective for the Company beginning January 1, 2014. The Company anticipates that the adoption of this amended guidance will not materially affect its financial position, result of operations or cash flows.

In December 2011 and January 2013, the FASB issued amended guidance on disclosures pertaining to certain assets and liabilities that are either offset in an entity’s financial statements or those that are subject to a master netting agreement or similar arrangement. The scope of these disclosures is limited to derivatives, repurchase agreements and securities lending transactions. The Company adopted this guidance effective January 1, 2013, and, as it only impacts disclosures, it did not affect the Company’s financial position, result of operations or cash flows.

4. Inventories

Inventories consisted of the following:

 

     March 31,      December 31,  
     2013      2012  

Finished goods

   $ 5,433       $ 3,508   
  

 

 

    

 

 

 

 

6


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

5. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

 

     March 31,     December 31,  
     2013     2012  

Land

   $ 135      $ 135   

Buildings and improvements

     1,546        1,546   

Equipment

     3,575        3,474   

Material handling

     24,662        9,046   

Rail sidings and site improvements

     6,980        6,766   

Vehicles and railcars

     1,387        1,342   

Construction-in-progress

     119        11,633   
  

 

 

   

 

 

 
     38,404        33,942   

Less: Accumulated depreciation

     (10,779     (9,216
  

 

 

   

 

 

 
   $ 27,625      $ 24,726   
  

 

 

   

 

 

 

Depreciation expense was $1,563 and $1,115 for the three months ended March 31, 2013 and 2012, respectively.

6. Other Assets

Other assets consisted of the following:

 

     March 31,      December 31,  
     2013      2012  

Mine production rights, net

   $ 536       $ 544   

Advance to supplier

     3,763         3,869   

Other

     416         451   
  

 

 

    

 

 

 
   $ 4,715       $ 4,864   
  

 

 

    

 

 

 

Amortization expense for mine production rights was $34 and $9 for the three months ended March 31, 2013 and 2012, respectively

 

7


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

7. Debt

Long-term debt consisted of the following:

 

     March 31,     December 31,  
     2013     2012  

Note payable to bank – due January 2017

   $ 3,799      $ 4,136   

Note payable to bank – due July 2014

     2,333        2,771   
  

 

 

   

 

 

 

Total

     6,132        6,907   

Less: current portion of long-term debt

     (2,763     (2,763
  

 

 

   

 

 

 

Long-term debt

   $ 3,369      $ 4,144   
  

 

 

   

 

 

 

Note Payable to Bank – Due January 2017

In 2011, the Company entered into a note payable with a bank with an initial principal amount of $5,065. Borrowings under the note bear interest at LIBOR plus 250 basis points. The note is to be repaid through monthly payments of $84 plus interest between February 2012 and January 2017. The note is secured by all Company assets.

Note Payable to Bank – Due July 2014

In 2011, the Company entered into a note payable with a bank with an initial principal amount of $3,500. Borrowings under the note bear interest at LIBOR plus 250 basis points. The note is to be repaid through monthly payments of $146 plus interest between August 2012 and July 2014. The note is secured by all Company assets.

Line of Credit

In 2011, the Company entered into a $5,000 line of credit with a bank which is secured by all of the Company’s assets. During 2012, the line of credit was increased to $15,000. Borrowings under the line of credit carry an interest rate equal to the LIBOR Flex Rate plus 200 basis points. No balance was outstanding under this line of credit as of March 31, 2013 and 2012.

Future maturities of long-term debt are as follows:

 

Nine months ended December 31, 2013

   $ 1,988   

Year ended December 31, 2014

     2,034   

Year ended December 31, 2015

     1,013   

Year ended December 31, 2016

     1,013   

Year ended December 31, 2017

     84   
  

 

 

 

Total

   $ 6,132   
  

 

 

 

8. Member Capital

The Company maintains one class of membership units directly owned by four members as of March 31, 2013.

Allocations of Net Income

Our operating agreement contains provisions for the allocation of net income and loss to members. For purposes of maintaining member capital accounts, the operating agreement specifies that items of income and loss shall be allocated among the members in accordance with their respective percentage ownership interest.

Distributions

The Company made cash distributions of $1,243 and $700 to its members during the three months ended March 31, 2013 and 2012, respectively.

 

8


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

9. Related Party Transactions

During the three months ended March 31, 2013 and 2012, the Company made sales to members and their affiliates totaling $1 and $43, respectively.

The Company has an obligation to pay a guaranteed payment to a member equal to $1.00 per ton of sand purchased from the A.F. Gelhar mine in Markesan, Wisconsin. Total guaranteed payments were $81 and $19 during the three months ended March 31, 2013 and 2012, respectively. Members may from time to time provide certain sales and administrative services at no charge to the Company. Prior to July 1, 2012, a member provided office space at no charge to the Company.

10. Leases

Operating Leases

The Company has entered into various operating lease agreements as follows:

 

Leased

Property or Rights

   Lease
Term
   Expense for the three months ended March 31,  
      2013      2012  

Railcars

   2-7 years    $ 416       $ 432   

Railcar equipment

   2 years      87         4   

Railroad rights of way

   Varies (1)      37         27   

 

(1) The terms of such leases vary, with most being annual leases with option renewals

Future minimum lease payments under such arrangements are as follows:

 

Nine months ended December 31, 2013

   $ 1,406   

Year ended December 31, 2014

     1,725   

Year ended December 31, 2015

     1,351   

Year ended December 31, 2016

     402   

Year ended December 31, 2017

     207   

Thereafter

     52   
  

 

 

 

Total

   $ 5,143   
  

 

 

 

Customer Leases

The Company has entered into two three year lease arrangements with customers which provide for their use of silos with 10,000 tons of sand storage capacity. The leases expire in August 2014 and January 2015, respectively. Lease income earned under these arrangements was $475 and $240 during the three months ended March 31, 2013 and 2012, respectively.

Future minimum lease payments receivable under such arrangements are as follows:

 

Nine months ended December 31, 2013

   $ 1,012   

Year ended December 31, 2014

     979   

Year ended December 31, 2015

     30   
  

 

 

 

Total

   $ 2,021   
  

 

 

 

 

9


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

12. Commitments and Contingencies

As of March 31, 2013, the Company maintained commitments for facility construction projects as follows:

 

     Construction      Estimated Cost      Estimated  
     Cost to Date      to Complete      Total Cost  

Facility construction projects

   $ 15,518       $ 303       $ 15,821   

The commitment for construction of certain storage tracks is net of a grant from the Commonwealth of Pennsylvania in the amount of $1,600, which will be received to offset the cost when completed.

The Company has commitments from two current silo lease customers for the lease of additional silo capacity once the construction on these new silos is complete. The leases are non-cancellable and are for terms of 3 to 5 years. These leases cover silos with a total capacity of 18,000 tons. Additional silo rent of $189 per month will be billable once these silos are complete. The total rent that will be due under these agreements is $9,790.

The Company has made a commitment to purchase sand from four suppliers under take-or-pay arrangements. The quantities are not in excess of current requirements. One supplier has asserted that the Company did not purchase the required product minimum during the year ended December 31, 2012. The Company believes that there is no obligation for payments made under the agreement.

The Company has issued a product warranty for the quality of sand it sells to customers. The Company has warranted that sand sold conforms to the specifications identified in the invoice. Limited warranty exists regarding the condition of the products at the time of delivery. There has been no significant prior claim history, and there is no liability accrued for future warranty claims, as none are expected.

The Company has agreed to maintain two county roads in Wisconsin which are used for transportation of sand from supplier to transload location. The costs to maintain these roads are expensed over the useful life of the road improvement. Any future obligation cannot be determined.

The Company maintains several letters of credit with financial institutions, primarily to bond local roads in Pennsylvania. As of March 31, 2013, these potential obligations are immaterial to the Company’s financial position.

The Company has an obligation to pay a guaranteed payment to a member equal to $1.00 for each ton of sand shipped from the A.F. Gelhar mine in Markesan, Wisconsin.

13. Concentration and Credit Risk

The Company provides sand and related delivery services to oil and gas companies which are primarily used for hydraulic fracturing Marcellus Shale and Utica Shale gas wells in Pennsylvania, New York and Ohio. The Company’s business is, therefore, dependent upon economic activity within this market. Sales to five customers accounted for 86% and 92% of the Company’s sales during the three months ended March 31, 2013 and 2012, respectively.

A concentration exists in the supply of sand purchased by the Company as there are a limited number of mines that specialize in sand used for hydraulic fracturing. The loss of one or more of these suppliers could cause a significant near-term impact to the Company’s supply chain.

Throughout 2013 and 2012, the Company has maintained cash balances in excess of federally insured amounts on deposit with financial institutions.

 

10


D & I SILICA, LLC

Notes to Unaudited Condensed Financial Statements

(Dollars in thousands, unless otherwise noted)

 

14. Subsequent Events

On May 13, 2013, the members of the Company entered into a definitive agreement to sell their membership interests to Hi-Crush Partners LP. Under the terms of the agreement, Hi-Crush Partners LP acquired the Company’s membership interests for $95,481 in cash and 1,578,947 common units representing limited partner interests in Hi-Crush Partners LP. The closing of the transaction took place on June 10, 2013, at which point all long-term debts of the Company were repaid with the proceeds from the transaction.

 

11