COVIA HOLDINGS CORP, 10-K filed on 3/22/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Mar. 19, 2019
Jun. 29, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol CVIA    
Entity Registrant Name COVIA HOLDINGS CORPORATION    
Entity Central Index Key 0001722287    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Shell Company false    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Common Stock Shares Outstanding   131,419,651  
Entity Public Float     $ 765,759,783
v3.19.1
Consolidated Statements of Income (Loss) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]                      
Revenues $ 441,330 $ 523,368 $ 508,418 $ 369,821 $ 335,913 $ 347,808 $ 324,079 $ 287,312 $ 1,842,937 $ 1,295,112 $ 982,696
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) 359,534 405,602 355,311 260,319 234,549 244,694 231,145 218,271 1,380,766 928,659 752,736
Operating expenses                      
Selling, general and administrative expenses 45,828 43,164 31,377 25,224 32,832 24,210 21,220 20,825 145,593 99,087 83,845
Depreciation, depletion and amortization expense 63,996 68,584 36,744 27,131 29,363 24,639 23,896 23,662 196,455 101,560 105,049
Goodwill and other asset impairments (10,609) 265,343 12,300           267,034   9,634
Restructuring charges 7,204 14,750             21,954   2,700
Other operating expense (income), net (4,694) (974) 644   1,273 (6) 813 1,022 (5,024) 3,102 4,275
Operating income (loss) from continuing operations (19,929) (273,101) 72,042 57,147 37,896 54,271 47,005 23,532 (163,841) 162,704 24,457
Interest expense, net 24,997 23,530 9,497 2,298 2,019 5,104 5,250 2,280 60,322 14,653 23,999
Other non-operating expense, net (1,327) 9,043 38,923 8,193 21,540 1,374   3,075 54,832 25,989 31,560
Income (loss) from continuing operations before provision (benefit) for income taxes                 (278,995) 122,062 (31,102)
Provision (benefit) for income taxes 4,511 (16,848) 6,454 9,870 (45,285) 20,090 11,566 4,804 3,987 (8,825) (25,332)
Net income (loss) from continuing operations (48,110) (288,826) 17,168 36,786 59,622 27,703 30,189 13,373 (282,982) 130,887 (5,770)
Less: Net income from continuing operations attributable to the non-controlling interest 29 (32) 106           103    
Net income (loss) from continuing operations attributable to Covia Holdings Corporation (48,139) (288,794) 17,062 36,786 59,622 27,703 30,189 13,373 (283,085) 130,887 (5,770)
Income from discontinued operations, net of tax     3,830 8,757 10,763 2,441 6,612 3,468 12,587 23,284 9,435
Net income (loss) attributable to Covia Holdings Corporation $ (48,139) $ (288,794) $ 20,892 $ 45,543 $ 70,385 $ 30,144 $ 36,801 $ 16,841 $ (270,498) $ 154,171 $ 3,665
Continuing operations earnings (loss) per share                      
Basic $ (0.37) $ (2.20) $ 0.14 $ 0.31 $ 0.50 $ 0.23 $ 0.25 $ 0.11 $ (2.26) $ 1.09 $ (0.05)
Diluted (0.37) (2.20) 0.14 0.31 0.50 0.23 0.25 0.11 (2.26) 1.09 (0.05)
Earnings (loss) per share                      
Basic (0.37) (2.20) 0.17 0.38 0.59 0.25 0.31 0.14 (2.16) 1.29 0.03
Diluted $ (0.37) $ (2.20) $ 0.17 $ 0.38 $ 0.59 $ 0.25 $ 0.31 $ 0.14 $ (2.16) $ 1.29 $ 0.03
Weighted average number of shares outstanding                      
Basic 131,182 131,154 123,460 119,645 119,645 119,645 119,645 119,645 125,514 119,645 119,645
Diluted 131,182 131,154 124,166 119,645 119,645 119,645 119,645 119,645 125,514 119,645 119,645
v3.19.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) from continuing operations $ (282,982) $ 130,887 $ (5,770)
Income from discontinued operations, net of tax 12,587 23,284 9,435
Net income (loss) before other comprehensive income (loss) (270,395) 154,171 3,665
Other comprehensive income (loss), before tax      
Foreign currency translation adjustments 1,182 2,606 2,100
Employee benefit obligations 48,321 (1,991) 5,823
Amortization and change in fair value of derivative instruments (5,083)    
Total other comprehensive income, before tax 44,420 615 7,923
Provision (benefit) for income taxes related to items of other comprehensive income 11,417 (111) 2,239
Comprehensive income (loss), net of tax (237,392) 154,897 9,349
Comprehensive income attributable to the non-controlling interest 103    
Comprehensive income (loss) attributable to Covia Holdings Corporation $ (237,495) $ 154,897 $ 9,349
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 134,130 $ 308,059
Accounts receivable, net of allowance for doubtful accounts of $4,488 and $3,682 at December 31, 2018 and 2017, respectively 267,268 219,719
Inventories, net 162,970 79,959
Other receivables 40,306 27,963
Prepaid expenses and other current assets 20,941 16,322
Current assets of discontinued operations   66,906
Total current assets 625,615 718,928
Property, plant and equipment, net 2,834,361 1,136,104
Deferred tax assets, net 8,740 7,441
Goodwill 131,655 53,512
Intangibles, net 137,113 25,596
Other non-current assets 18,633 2,416
Non-current assets of discontinued operations   96,101
Total assets 3,756,117 2,040,098
Current liabilities    
Current portion of long-term debt 15,482 50,045
Accounts payable 145,070 101,983
Accrued expenses 130,161 88,208
Current liabilities of discontinued operations   10,027
Total current liabilities 290,713 250,263
Long-term debt 1,612,887 366,967
Employee benefit obligations 54,789 97,798
Deferred tax liabilities, net 267,350 62,614
Other non-current liabilities 75,425 29,057
Non-current liabilities of discontinued operations   8,084
Total liabilities 2,301,164 814,783
Commitments and contingent liabilities (Note 19)
Equity    
Preferred stock: $0.01 par value, 15,000 authorized shares at December 31, 2018 Shares outstanding: 0 at December 31, 2018 and 2017
Common stock: $0.01 par value, 750,000 and 178,000 authorized shares at December 31, 2018 and 2017, respectively, Shares issued: 158,195 at December 31, 2018 and 2017, Shares outstanding: 131,188 and 119,645 at December 31, 2018 and 2017, respectively 1,777 1,777
Additional paid-in capital 388,027 43,941
Retained earnings 1,647,959 1,918,457
Accumulated other comprehensive loss (95,225) (128,228)
Total equity attributable to Covia Holdings Corporation before treasury stock 1,942,538 1,835,947
Less: Treasury stock at cost Shares in treasury: 27,007 and 38,550 at December 31, 2018 and 2017, respectively (488,141) (610,632)
Total equity attributable to Covia Holdings Corporation 1,454,397 1,225,315
Non-controlling interest 556  
Total equity 1,454,953 1,225,315
Total liabilities and equity $ 3,756,117 $ 2,040,098
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 4,488 $ 3,682
Preferred stock, par value $ 0.01  
Preferred stock, shares authorized 15,000,000  
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 750,000,000 178,000,000
Common stock, shares issued 158,195,000 158,195,000
Common stock, shares outstanding 131,188,000 119,645,000
Shares in treasury 27,007,000 38,550,000
v3.19.1
Consolidated Statements of Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Subtotal [Member]
Non-controlling Interest [Member]
Beginning balances at Dec. 31, 2015 $ 1,104,984 $ 1,777 $ 37,856 $ 1,800,166 $ (124,183) $ (610,632) $ 1,104,984  
Beginning balances, shares at Dec. 31, 2015   119,645       38,550    
Dividends declared (50,000)     (50,000)     (50,000)  
Transfer of Unimin Brazil to a Sibelco subsidiary 6,085   6,085       6,085  
Net (loss) income 3,665     3,665     3,665  
Other comprehensive income (loss) 5,684       5,684   5,684  
Ending balances at Dec. 31, 2016 1,070,418 $ 1,777 43,941 1,753,831 (118,499) $ (610,632) 1,070,418  
Ending balances, shares at Dec. 31, 2016   119,645       38,550    
Adoption of accounting standards update related to reclassification of certain tax effects       10,455 (10,455)      
Net (loss) income 154,171     154,171     154,171  
Other comprehensive income (loss) 726       726   726  
Ending balances at Dec. 31, 2017 1,225,315 $ 1,777 43,941 1,918,457 (128,228) $ (610,632) 1,225,315  
Ending balances, shares at Dec. 31, 2017   119,645       38,550    
Net (loss) income (270,395)     (270,498)     (270,498) $ 103
Other comprehensive income (loss) 33,003       33,003   33,003  
Distribution of HPQ Co. to Sibelco (165,383)         $ (165,383) (165,383)  
Distribution of HPQ Co. to Sibelco, shares   (15,097)       15,097    
Cash Redemption (520,377)         $ (520,377) (520,377)  
Cash Redemption, shares   (18,528)       18,528    
Consideration transferred for share-based awards 40,414   40,414       40,414  
Issuance of Covia common stock to Fairmount Santrol Holdings Inc. stockholders 1,103,247   296,221     $ 807,026 1,103,247  
Issuance of Covia common stock to Fairmount Santrol Holdings Inc. stockholders. shares   45,044       (45,044)    
Share-based awards exercised or distributed 464   (761)     $ 1,225 464  
Share-based awards exercised or distributed, shares   124       (124)    
Stock compensation expense 8,212   8,212       8,212  
Transactions with non-controlling interest 453             453
Ending balances at Dec. 31, 2018 $ 1,454,953 $ 1,777 $ 388,027 $ 1,647,959 $ (95,225) $ (488,141) $ 1,454,397 $ 556
Ending balances, shares at Dec. 31, 2018   131,188       27,007    
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Net income (loss) attributable to Covia Holdings Corporation $ (270,498) $ 154,171 $ 3,665
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation, depletion, and amortization 200,525 112,705 116,259
Amortization of deferred financing costs 3,489    
Prepayment penalties on Senior Notes 2,213    
Goodwill and other asset impairments 267,034   9,634
Restructuring charges 21,954    
Inventory write-downs 6,744    
Loss on disposal of fixed assets 107    
Change in fair value of interest rate swaps, net (296)    
Deferred income tax benefit (6,542) (47,215) (18,528)
Stock compensation expense 8,212    
Net income from non-controlling interest 103    
Earnings of investee companies     (1,022)
Loss on sale of subsidiary     12,923
Other, net (7,507) (1,308) 3,182
Change in operating assets and liabilities, net of business combination effect:      
Accounts receivable 105,850 (55,554) (39,117)
Inventories 14,653 (7,383) 7,832
Prepaid expenses and other assets (6,067) 5,101 (10,888)
Accounts payable (59,062) 32,405 (2,062)
Accrued expenses (33,525) 39,285 11,345
Net cash provided by operating activities 247,387 232,207 93,223
Cash flows from investing activities      
Proceeds from sale of fixed assets 3,180 695 23
Capital expenditures (264,052) (108,854) (73,516)
Cash of HPQ Co. distributed to Sibelco prior to Merger (31,000)    
Payments to Fairmount Santrol Holdings Inc. shareholders, net of cash acquired (64,697)    
Other investing activities   770 2,239
Net cash used in investing activities (356,569) (107,389) (71,254)
Cash flows from financing activities      
Proceeds from borrowings on Term Loan 1,650,000    
Payments on Term Loan (8,250)    
Proceeds from borrowings on term debt   49,642 12,725
Payments on term debt   (103) (210,331)
Prepayment on Senior Notes (100,000)    
Fees for Term Loan and Senior Notes prepayment (36,733)    
Payments on capital leases and other long-term debt (36,818)    
Fees for Revolver (4,500)    
Cash Redemption payment to Sibelco (520,377)    
Proceeds from share-based awards exercised or distributed 464    
Tax payments for withholdings on share-based awards exercised or distributed (318)    
Dividends paid   (50,000)  
Net cash used in financing activities (66,799) (461) (197,606)
Effect of foreign currency exchange rate changes 2,052 341 (480)
Increase (decrease) in cash and cash equivalents (173,929) 124,698 (176,117)
Cash and cash equivalents:      
Beginning of period [including cash of Discontinued Operations (Note 4)] 308,059 183,361 359,478
End of period 134,130 308,059 183,361
Supplemental disclosure of cash flow information:      
Interest paid, net of capitalized interest (67,960) (17,360) (23,040)
Income taxes paid (15,532) (32,390) $ (5,206)
Non-cash investing activities:      
Increase (decrease) in accounts payable and accrued expenses for additions to property, plant, and equipment 12,222 $ (3,063)  
Unimin [Member]      
Cash flows from financing activities      
Prepayment on term loans (314,642)    
Fairmount Santrol Holdings Inc [Member]      
Cash flows from financing activities      
Prepayment on term loans $ (695,625)    
v3.19.1
Organization
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

1.

Organization

Nature of Operations

Covia Holdings Corporation, including its consolidated subsidiaries (collectively, “we,” “us,” “our,” “Covia,” and “Company”), is a leading provider of diversified mineral-based and material solutions for the Industrial and Energy markets.  We provide a wide range of specialized silica sand, nepheline syenite, feldspar, calcium carbonate, clay, kaolin, lime, and lime products for use in the glass, ceramics, coatings, foundry, polymers, construction, water filtration, sports and recreation, and oil and gas markets in North America and around the world.  Our Industrial segment provides raw, value-added and custom-blended products to the glass, ceramics, coatings, polymers, construction, foundry, filtration, sports and recreation and various other industries, primarily in North America.  Our Energy segment offers the oil and gas industry a comprehensive portfolio of raw frac sand, value-added-proppants, well-cementing additives, gravel-packing media and drilling mud additives that meet or exceed the API standards.  Our products serve hydraulic fracturing operations in the U.S., Canada, Argentina, Mexico, China, and northern Europe.

The Merger

On June 1, 2018 (the “Merger Date”), Unimin Corporation (“Unimin”) completed a business combination (the “Merger”) with Fairmount Santrol Holdings Inc. (“Fairmount Santrol”).  Upon closing of the Merger, Fairmount Santrol merged into a wholly-owned subsidiary of Unimin and ceased to exist as a separate corporate entity.  Immediately following the closing of the Merger, Unimin changed its name and began operating as Covia.  Fairmount Santrol common stock was delisted from the New York Stock Exchange (“NYSE”) prior to the market opening on June 1, 2018 and Covia commenced trading under the ticker symbol “CVIA” on that date.  Upon the consummation of the Merger, the former stockholders of Fairmount Santrol (including holders of certain Fairmount Santrol equity awards) received, in the aggregate, $170,000 in cash consideration and approximately 35% of the common stock of Covia.  Approximately 65% of Covia common stock is owned by SCR-Sibelco NV (“Sibelco”), previously the parent company of Unimin.  See Note 4 for further discussion of the Merger.

In connection with the Merger, the Company completed a debt refinancing transaction, with Barclays Bank PLC as administrative agent, by entering into a $1,650,000 senior secured term loan (“Term Loan”) and a $200,000 revolving credit facility (“Revolver”).  The proceeds of the Term Loan were used to repay the indebtedness of Unimin and Fairmount Santrol and to pay the cash portion of the Merger consideration and expenses related to the Merger.  See Note 11 for further discussion of the refinancing transaction and terms of such indebtedness.

As a condition to the Merger, Unimin contributed assets of its Electronics segment to Sibelco North America, Inc. (“HPQ Co.”), a newly-formed wholly owned subsidiary of Unimin, in exchange for all of the stock of HPQ Co. and the assumption by HPQ Co. of certain liabilities.  Unimin distributed all of the stock of HPQ Co. to Sibelco in exchange for 170 shares (or 15,097 shares subsequent to the stock split, see Note 6) of Unimin common stock held by Sibelco.  See Note 5 for a discussion of HPQ Co. which is presented as discontinued operations in these consolidated financial statements.

Costs and expenses incurred related to the Merger are recorded in Other non-operating expense, net in the accompanying Consolidated Statements of Income and include legal, accounting, valuation and financial advisory services, integration and other costs totaling $51,112 and $19,300 for the years ended December 31, 2018 and 2017, respectively.  

Unimin was determined to be the acquirer in the Merger for accounting purposes, and the historical financial statements and the historical amounts included in the Notes to the Consolidated Financial Statements relate to Unimin.  The Consolidated Balance Sheet at December 31, 2018 reflects Covia; however, the Consolidated Balance Sheet at December 31, 2017 reflects Unimin only.  The presentation of information for periods prior to the Merger Date are not fully comparable to the presentation of information for periods presented after the Merger Date because the results of operations for Fairmount Santrol are not included in such information prior to the Merger Date.

v3.19.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with GAAP and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the Consolidated Balance Sheet as of December 31, 2018 and 2017, and the Consolidated Statements of Income (Loss), Comprehensive Income (Loss), Equity and Cash Flows for the years ended December 31, 2018, 2017 and 2016.

The accompanying consolidated financial statements comprise Covia Holdings Corporation and its wholly-owned and majority-owned subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation.

On June 1, 2018, Unimin effected an 89:1 stock split with respect to its shares of common stock (see Note 6).  Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented.  Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the stock split.

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.  The more significant areas requiring the use of management estimates and assumptions relate to: business combination purchase price allocation, and the useful life of definite-lived intangible assets; asset retirement obligations; estimates of allowance for doubtful accounts; estimates of fair value for reporting units and asset impairments (including impairments of goodwill and other long-lived assets); adjustments of inventories to net realizable value; post-employment, post-retirement and other employee benefit liabilities; valuation allowances for deferred tax assets; and reserves for contingencies and litigation.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the use of valuation experts.  Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.

Reclassifications

Certain reclassifications of prior period presentations have been made to conform to the current period presentation.

Revenue Recognition

We derive our revenues by mining, manufacturing, and processing minerals that our customers purchase for various uses.  Revenues are primarily derived from contracts with customers with terms typically ranging from one to eight years in length, and are measured by the amount of consideration we expect to receive in exchange for transferring our products.  The consideration we expect to receive is based on the volumes and price of the product per ton as defined in the underlying contract.  The price per ton is based on the market value for similar products plus costs associated with transportation and transloading, as applicable.  Depending on the contract, this may also be net of discounts and rebates.  The transaction price is not adjusted for the effects of a significant financing component, as the time period between transfer of control of the goods and expected payment is one year or less.  Sales, value-added, and other similar taxes collected are excluded from revenue.

On January 1, 2018, we adopted ASU No. 2014-09 – 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 year ended December 31, 2018.  Revenues are recognized as each performance obligation within the contract is satisfied; this occurs with the transfer of control of our product in accordance with delivery methods as defined in the underlying contract.  Transfer of control to customers generally occurs when products leave our facilities or at other predetermined control transfer points.  We have elected to continue to account for shipping and handling activities that occur after control of the related good transfers, as a cost of fulfillment instead of a separate performance obligation.  Transportation costs to move product from our production facilities to our distribution terminals are borne by us and capitalized into inventory.  These costs are included in cost of goods sold as the products are sold.  Our contracts may include 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.

Our 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 collectability.  At December 31, 2018 and 2017, we had no revenues or accounts receivable related to shortfall payments.

We disaggregate revenues by major source consistent with our segment reporting.  See Note 21 for further detail.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash as well as liquid investments with original maturities of three months or less.  Our cash and cash equivalents are held on deposit and are available to us on demand without restriction, prior notice, or penalty.  At December 31, 2018, we had time deposits totaling $60,000 held with two U.S. banking institutions.  

Accounts Receivable

Accounts receivable as presented in the consolidated balance sheets are related to our contracts and are recorded when the right to consideration becomes likely 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.  We typically do not record contract assets, as the transfer of control of our products results in an unconditional right to receive consideration.

Allowance for Doubtful Accounts

The collectability of all outstanding receivables is reviewed and evaluated by management.  This review includes consideration for the risk profile of the receivables, customer credit quality and certain indicators such as the aging of past-due amounts and general economic conditions.  If it is determined that a receivable balance will not likely be recovered, an allowance for such outstanding receivable balance is established.

Inventories

The cost of inventories is based on the weighted average principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition.  In the case of finished goods and work-in-process, cost includes an appropriate share of production overhead.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling costs.  Inventories are written down to net realizable value when the cost of the inventories exceeds that value.

Consumables and regularly-replaced spare parts are stated at cost, less any provision for obsolescence.

Property, Plant, and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation, depletion and impairment losses (if any).  Cost includes expenditures that are directly attributable to the acquisition of the asset.  The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the present value of the costs of dismantling and removing the items and restoring the site on which they are located.

Where components of a large item have different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within Other operating expense, net in the Consolidated Statements of Income (Loss).

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the related assets from the date that they are installed and are ready for use, or with respect to internally constructed assets, from the date that the asset is completed and ready for use. The estimated service lives of property, plant and equipment are principally as follows:

 

Land and improvements

 

15-40 years

 

Mineral rights properties

 

10-20 years

 

Machinery and equipment

 

2-30 years

 

Buildings and improvements

 

10-40 years

 

Railroad equipment

 

10-25 years

 

Furniture, fixtures, and other

 

3-10 years

 

 

Mine exploration and mine development costs include expenditures to determine the existence and quality of a mineral body, drilling, gaining access to and preparing locations for drilling, clearing ground, drainage and building ramps and access ways.  Mine exploration and mine development costs are expensed if data shows no probable and proven reserves.  We begin capitalizing mine exploration and mine development costs at the point when proven and probable reserves are established and cease capitalization of these costs when the production of the mine commences.  Mine exploration and mine development costs are amortized over the shorter of 10 years or the life of the mine using the units-of-production method.

Stripping costs are costs of removing overburden and waste materials to gain access to mineral reserves.  Prior to the production phase of the mine, stripping costs are capitalized.  The production phase of a mine is deemed to begin when saleable materials, beyond a de minimum amount, are produced.  Stripping costs incurred during the production phase are variable production costs included in the costs of inventory, to be recognized in cost of sales in the same period as the sale of inventory.  The determination of the production phase becomes complex when second and subsequent pits at multiple pit-mines are developed.  The stripping costs of second and subsequent pits are expensed if they are determined to be part of the integrated operations of the first pit which is in the production phase.  The stripping costs of second and subsequent pits in a mine are capitalized if the pits are not integrated operations and are separate and distinct areas within the mine.  Capitalized stripping costs are amortized on a units of production method.

Assets under construction are stated at cost, which includes the cost of construction and other direct costs attributable to the construction.  No provision for depreciation is made on assets under construction until such time as the relevant assets are completed and put into use.

We capitalize interest costs incurred on funds used to construct property, plant, and equipment.  The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.  Interest cost capitalized was $8,640 in 2018.  Historically, we funded all construction of property, plant, and equipment through cash on hand and no interest was capitalized as part of projects.

Depreciation and depletion expense was $171,750, $98,802, and $102,515 in the years ended December 31, 2018, 2017, and 2016, respectively.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations.  Deferred financing costs associated with terms loans are included in long-term debt and deferred financing costs associated with the revolving credit facility are included in other assets.  

At December 31, 2017, we did not have deferred financing costs.  The following table presents deferred financing costs as of December 31, 2018:

 

 

 

December 31, 2018

 

Deferred financing costs

 

$

40,151

 

Accumulated amortization

 

 

(3,489

)

Deferred financing costs, net

 

$

36,662

 

 

Goodwill

Goodwill is tested annually for impairment at the reporting unit level, and is tested for impairment more frequently if events and circumstances indicate that the reporting unit might be impaired.  In testing goodwill for impairment, we perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.  When performing a qualitative assessment, we evaluate qualitative factors such as economic performance, industry conditions, and other factors.  If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then a quantitative assessment is performed to determine the reporting unit’s fair value.  If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value.

The evaluation of goodwill for possible impairment includes estimating fair value using one or a combination of valuation techniques, such as discounted cash flows or comparable companies’ earnings multiples or transactions.  These valuations require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital.  Although we believe our assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.  Refer to Note 10 for additional information.  

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets

We periodically evaluate whether current events or circumstances indicate that the carrying value of our long-lived assets, including property, plant and equipment, mineral reserves or mineral rights and definite-lived intangible assets may not be recoverable.  If such circumstances are determined to exist, an estimate of future cash flows produced by the asset group or individual assets within the asset group is compared to the carrying value to determine whether an impairment exists.  If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available.  If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.  A detailed determination of the fair value may be carried forward from one year to the next if certain criteria have been met.  We report an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

Factors we generally consider important in our evaluation and that could trigger an impairment review of the carrying value of the asset group or individual assets within the asset group include expected operating trends, significant changes in the way assets are used, underutilization of our tangible assets, discontinuance of certain products by us or by our customers, and significant negative industry or economic trends.

The recoverability of the carrying value of our development stage mineral properties is dependent upon the successful development, start-up and commercial production of our mineral deposits and related processing facilities.  Our evaluation of mineral properties for potential impairment primarily includes assessing the existence or availability of required permits and evaluating changes in our mineral reserves, or the underlying estimates and assumptions, including estimated production costs.  Assessing the economic feasibility requires certain estimates, including the prices of products to be produced and processing recovery rates, as well as operating and capital costs.

The evaluation of such assets for possible impairment includes a qualitative assessment of macroeconomic conditions, industry and market environments, overall performance of the reporting segment and specific events.  If the qualitative assessment indicates the asset may be impaired, then a quantitative assessment is performed which requires estimating fair value using one or a combination of valuation techniques, such as discounted cash flows or based on comparable companies or transactions.  These valuations require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital.  Deviations from these assumptions and estimates could produce a materially different result.

Earnings per Share

Basic and diluted earnings per share is presented for net income (loss) attributable to us.  Basic earnings per share is computed by dividing income (loss) available to our common stockholders by the weighted-average number of outstanding common shares for the period.  Diluted earnings per share is computed by increasing the weighted-average number of outstanding shares of common stock to include the additional shares of common stock that would be outstanding after exercise of outstanding stock options and restricted stock units calculated using the treasury stock method.  Potential shares of common stock in the diluted earnings per share calculation are excluded to the extent that they would be anti-dilutive.

Prior to the Merger, we had no stock options, warrants, convertible securities, or other potentially dilutive financial instruments and, therefore, there is no difference in the number basic weighted average shares outstanding and diluted weighted average shares outstanding.

Derivatives and Hedging Activities

Due to our variable-rate indebtedness, we are exposed to fluctuations in interest rates.  We enter into interest rate swap agreements as a means to partially hedge our variable interest rate risk.  The derivative instruments are reported at fair value in other non-current assets and other long-term liabilities.  Changes in the fair value of derivatives are recorded each period in accumulated other comprehensive loss.  For derivatives not designated as hedges, the gain or loss is recognized in current earnings.  No components of our hedging instruments were excluded from the assessment of hedge effectiveness.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional value.  The gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.  See Note 13 for further information.

Foreign Currency Translation

The financial statements of subsidiaries with a functional currency other than the reporting currency are translated into U.S. dollars using month-end exchange rates for assets and liabilities and average monthly exchange rates for income and expenses.  Any translation adjustments are recorded in accumulated other comprehensive loss within stockholders’ equity.  Foreign currency exchange gains or losses that arise from currency exchange rate changes on transactions denominated in currencies other than the functional currency are recorded in the Consolidated Statements of Income (Loss), as applicable.

Concentration of Labor

Approximately 34% of our labor force is covered under union agreements in the U.S., Canada and Mexico.  These agreements are renegotiated when their terms expire.  There are three agreements that are due to be renegotiated in 2019 for the U.S. and Canada, which represents approximately 16% of the U.S. and Canada agreements.  There are nine agreements in Mexico that are renegotiated annually.  

Concentration of Credit Risk

At December 31, 2018, we had two customers whose accounts receivable balances exceeded 10% of total receivables.  These two customers each comprised approximately 10% of our accounts receivable balance at December 31, 2018.  At December 31, 2017, we had one customer whose accounts receivable balance approximated 13% of our accounts receivable balance.

Income Taxes

Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences.  This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse.  Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority.  For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority.  The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.  Such adjustments are recognized entirely in the period in which they are identified.  The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.

We evaluate quarterly the realizability of our deferred tax assets by assessing the need for a valuation allowance and by adjusting the amount of such allowance, if necessary.  The factors used to assess the likelihood of realization are our forecast of future taxable income in the appropriate jurisdiction to utilize the asset, and available tax planning strategies that could be implemented to realize the net deferred tax assets.  Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets.  Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: a decline in sales or margins, increased competition or loss of market share.

In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions.  These audits can involve complex issues, which may require an extended time to resolve.  We believe that adequate provisions for income taxes have been made for all years.

Typically, the largest permanent item in computing both our effective rate and taxable income is the deduction for statutory depletion.  The depletion deduction is dependent upon a mine-by-mine computation of both gross income from mining and taxable income.

The Tax Act subjects us to current tax on our GILTI.  To the extent that tax expense is incurred under the GILTI provisions, it will be treated as a component of income tax expense in the period incurred.

Asset Retirement Obligation

We estimate the future cost of dismantling, restoring, and reclaiming operating excavation sites and related facilities in accordance with federal, state, and local regulatory requirements.  We record the initial estimated present value of these costs as an asset retirement obligation and increase the carrying amount of the related asset by a corresponding amount.  The related asset is classified as property, plant, and equipment and amortized over its useful life.  We adjust the related asset and liability for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate.  Cost estimates are escalated for inflation and market risk premium, then discounted at the credit adjusted risk free rate.  If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized in the period the obligation is settled.  As of December 31, 2018 and 2017, we had asset retirement obligations of $31,199 and $12,472, respectively.  We recognized accretion expense of $2,543, $1,369, and $915 in the years ended December 31, 2018, 2017, and 2016, respectively.  These amounts are included in Other operating expense, net in the Consolidated Statements of Income (Loss).  Other than those asset retirement obligations that were assumed and recorded in connection with the Merger and accretion expense, there were no changes in the liability during these periods.  

Research and Development (“R&D”)

Our R&D expenses consist of personnel and other direct and indirect costs for internally-funded project development.  Total expenses for R&D for the year ended December 31, 2018 were $2,210 and are recorded in selling, general and administrative expenses in the Consolidated Statements of Income (Loss).  Total R&D expenses represented 0.1% of revenues in 2018.  R&D expenses in 2017 and 2016 were not material.  

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is a separate line within the Consolidated Statements of Equity that reports the Company’s cumulative income (loss) that has not been reported as part of net income (loss).  Items that are included in this line are the income (loss) from foreign currency translation, actuarial gains (losses) and prior service cost related to pension and other post-employment liabilities and unrealized gains on interest rate hedges.  The components of accumulated other comprehensive loss attributable to Covia Holdings Corporation at December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

 

Gross

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

(53,389

)

 

$

-

 

 

$

(53,389

)

Amounts related to employee benefit obligations

 

 

(52,496

)

 

 

14,574

 

 

 

(37,922

)

Unrealized gain (loss) on interest rate hedges

 

 

(5,083

)

 

 

1,169

 

 

 

(3,914

)

 

 

$

(110,968

)

 

$

15,743

 

 

$

(95,225

)

 

 

 

December 31, 2017

 

 

 

Gross

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

(54,571

)

 

$

-

 

 

$

(54,571

)

Amounts related to employee benefit obligations

 

 

(100,817

)

 

 

27,160

 

 

 

(73,657

)

 

 

$

(155,388

)

 

$

27,160

 

 

$

(128,228

)

 

The following table presents the changes in accumulated other comprehensive loss by component for the year ended December 31, 2018:

 

 

 

Year Ended December 31, 2018

 

 

 

Foreign

 

 

Amounts related

 

 

Unrealized

 

 

 

 

 

 

 

currency

 

 

to employee

 

 

gain (loss)

 

 

 

 

 

 

 

translation

 

 

benefit

 

 

on interest

 

 

 

 

 

 

 

adjustments

 

 

obligations

 

 

rate hedges

 

 

Total

 

Beginning balance

 

$

(54,571

)

 

$

(73,657

)

 

$

-

 

 

$

(128,228

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

before reclassifications

 

 

1,182

 

 

 

31,829

 

 

 

(4,714

)

 

 

28,297

 

Amounts reclassified from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accumulated other comprehensive loss

 

 

-

 

 

 

3,906

 

 

 

800

 

 

 

4,706

 

Ending balance

 

$

(53,389

)

 

$

(37,922

)

 

$

(3,914

)

 

$

(95,225

)

 

 

 

Year Ended December 31, 2017

 

 

 

Foreign

 

 

Amounts related

 

 

 

 

 

 

 

currency

 

 

to employee

 

 

 

 

 

 

 

translation

 

 

benefit

 

 

 

 

 

 

 

adjustments

 

 

obligations

 

 

Total

 

Beginning balance

 

$

(57,177

)

 

$

(61,322

)

 

$

(118,499

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

before reclassifications

 

 

2,606

 

 

 

(7,823

)

 

 

(5,217

)

Amounts reclassified from accumulated

 

 

 

 

 

 

 

 

 

 

 

 

other comprehensive loss

 

 

-

 

 

 

(4,512

)

 

 

(4,512

)

Ending balance

 

$

(54,571

)

 

$

(73,657

)

 

$

(128,228

)

 

In connection with the adoption of ASU 2018-02, we have included $10,455 in amounts reclassified from accumulated other comprehensive loss for the reclassification of stranded tax effects resulting from the Tax Act.  This amount has been reclassified from accumulated other comprehensive loss to retained earnings within Shareholders’ Equity.

The following table presents the reclassifications out of accumulated other comprehensive loss during the years ended December 31, 2018, 2017, and 2016:

 

 

 

Amount reclassified

 

 

 

 

 

from accumulated

 

 

 

Year Ended December 31, 2018

 

other comprehensive

 

 

Affected line item on

Details about accumulated other comprehensive loss

 

loss

 

 

the statement of income (loss)

Change in fair value of derivative swap agreements

 

 

 

 

 

 

Interest rate hedging contracts

 

$

1,040

 

 

Interest expense, net

Tax effect

 

 

(240

)

 

Provision for income taxes

 

 

$

800

 

 

Net of tax

Amortization of employee benefit obligations

 

 

 

 

 

 

Prior service costs

 

$

1,675

 

 

Other non-operating expense, net

Actuarial losses

 

 

3,606

 

 

Other non-operating expense, net

Tax effect

 

 

(1,375

)

 

Provision for income taxes

 

 

 

3,906

 

 

Net of tax

Total reclassifications for the period

 

$

4,706

 

 

Net of tax

 

 

 

Amount reclassified

 

 

 

 

 

from accumulated

 

 

 

Year Ended December 31, 2017

 

other comprehensive

 

 

Affected line item on

Details about accumulated other comprehensive loss

 

loss

 

 

the statement of income (loss)

Amortization of employee benefit obligations

 

 

 

 

 

 

Prior service cost

 

$

552

 

 

Other non-operating expense, net

Actuarial losses

 

 

5,745

 

 

Other non-operating expense, net

Tax effect

 

 

(354

)

 

Provision for income taxes

Total reclassifications for the period

 

$

5,943

 

 

Net of tax

 

 

 

Amount reclassified

 

 

 

 

 

from accumulated

 

 

 

Year Ended December 31, 2016

 

other comprehensive

 

 

Affected line item on

Details about accumulated other comprehensive loss

 

loss

 

 

the statement of income (loss)

Amortization of employee benefit obligations

 

 

 

 

 

 

Prior service cost

 

$

541

 

 

Other non-operating expense, net

Actuarial losses

 

 

18,577

 

 

Other non-operating expense, net

Tax effect

 

 

(7,347

)

 

Provision for income taxes

Total reclassifications for the period

 

$

11,771

 

 

Net of tax

 

v3.19.1
Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2018
Accounting Changes And Error Corrections [Abstract]  
Recent Accounting Pronouncements

3.

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) (“ASU 2014-09”).  ASU 2014-09 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, ASU 2014-09 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 ASU 2014-09 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 year ended December 31, 2018.

In March 2016, the FASB issued ASU No. 2016-09 – Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based payment transactions.  ASU 2016-09 requires all tax effects of share-based payments to be recorded through the income statement, windfall tax benefits to be recorded when the benefit arises, and excess tax benefits-related cash flows to be reported as operating activities in the statement of cash flows.  Regarding withholding requirements, ASU 2016-09 allows entities to withhold an amount up to the employees’ maximum individual tax rates without classifying the award as a liability.  Such withholdings are to be recorded as financing activities in the statement of cash flows.  ASU 2016-09 also permits entities to make an accounting policy election for the impact of forfeitures on expense recognition, either recognized when forfeitures are estimated or when forfeitures occur.  On January 1, 2018, the Company adopted ASU 2016-09, and elected to recognize forfeitures when they occur.  The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

In October 2016, the FASB issued ASU No. 2016-16 – Income Taxes (Topic 740) – Intra-Entity Transfers of Assets other than Inventory (“ASU 2016-16”).  ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs.  ASU 2016-16 also eliminates the exception for an intra-entity transfer of an asset other than inventory.  On January 1, 2018, the Company adopted ASU 2016-16 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 the consolidated financial statements.

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 (“ASU 2017-07”).  ASU 2017-07 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 as well as appropriately described relevant line items.  ASU 2017-07 also disallows capitalization of the other components of net periodic benefit costs and requires those costs to be presented in the income statement separately from the service cost component and outside of a subtotal of income from operations.  ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted.  Companies are required to retrospectively apply the requirement for a separate presentation in the income statement of service costs and other components of net benefit cost and prospectively adopt the requirement to limit the capitalization of benefit costs to the service component.  Application of a practical expedient is allowed permitting an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.  The Company adopted ASU 2017-07 as of January 1, 2018 and utilized the practical expedient to estimate the impact on the prior comparative period information presented in the interim and annual financial statements.  Previously, the Company capitalized all net periodic benefit costs incurred for plant personnel in inventory and recorded the majority of net periodic benefit costs incurred by corporate personnel and retirees into selling, general, and administrative expenses.  After the adoption, the Company records all components of net periodic benefit costs, aside from service costs, as a component of Other non-operating expense, net in the Consolidated Statements of Income.

The following is a reconciliation of the effect of the reclassification of the net benefit cost in the Company’s Consolidated Statements of Income for the years ended December 31, 2017 and 2016:  

 

 

 

Year Ended December 31, 2017

 

 

 

As Reported

 

 

Adjustments

 

 

As Revised

 

Cost of goods sold (excluding depreciation, depletion,

 

 

 

 

 

 

 

 

 

 

 

 

and amortization shown separately)

 

$

932,983

 

 

$

(4,324

)

 

$

928,659

 

Selling, general and administrative expenses

 

 

101,452

 

 

 

(2,365

)

 

 

99,087

 

Other non-operating expense, net

 

$

19,300

 

 

$

6,689

 

 

$

25,989

 

 

 

 

Year Ended December 31, 2016

 

 

 

As Reported

 

 

Adjustments

 

 

As Revised

 

Cost of goods sold (excluding depreciation, depletion,

 

 

 

 

 

 

 

 

 

 

 

 

and amortization shown separately)

 

$

754,465

 

 

$

(1,729

)

 

$

752,736

 

Selling, general and administrative expenses

 

 

100,921

 

 

 

(17,076

)

 

 

83,845

 

Other non-operating expense, net

 

 

15,623

 

 

 

19,659

 

 

 

35,282

 

Other operating expense

 

$

5,129

 

 

$

(854

)

 

$

4,275

 

In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).  ASU 2017-12 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.  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.  On August 1, 2018, the Company entered into hedge accounting for its interest rate swaps and elected to early adopt ASU 2017-12 at the date of designation.  The adoption did not result in a cumulative effect adjustment in the Consolidated Balance Sheets.  See Note 13 for further detail.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 – Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize a right-of-use asset and lease liability on their consolidated balance sheet related to the rights and obligations created by most leases, while continuing to recognize expense on their consolidated statements of income over the lease term.  ASU 2016-02 also requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted the new standard on January 1, 2019 using a modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application.  Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The Company has elected the ‘package of practical expedients’ which permits us not to reassess under the new standard, our prior conclusions about lease identification, lease classification, initial direct costs and the treatment of land easements.  We did not elect the use-of-hindsight practical expedient.  We have elected the short-term lease recognition exemption for all of our leased assets, including those assets in transition, such that for those leases that qualify, we will not recognize right-of-use assets or lease liabilities.  We have also elected to not separate lease and non-lease components for all of our leases.

The Company believes the adoption will have a material impact on its consolidated financial statements.  While we continue to assess all of the effects of adoption, the most significant effects relate to our rail cars which are subject to operating leases.  On adoption, we expect to recognize additional lease liabilities ranging from $385,000 to $415,000 with corresponding right-of-use assets ranging from $415,000 to $445,000.

In June 2016, the FASB issued ASU No. 2016-13 – Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).  ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  Additionally, ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected through the use of an allowance of expected credit losses.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and requires a modified retrospective approach.  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 (“ASU 2018-05”).  ASU 2018-05 provides guidance regarding the recording of tax impacts where uncertainty exists, in the period of adoption of the Tax Act, which allowed companies to reflect provisional amounts for those specific income tax effects of the Tax Act for which the accounting under ASC Topic 740 is incomplete but for which a reasonable estimate could be determined.  See Note 15 for further detail.

In August 2018, the FASB issued ASU No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).  ASU 2018-13 removes and modifies existing disclosure requirements on fair value measurement, namely regarding transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements.  Additionally, ASU 2018-13 adds further disclosure requirements for Level 3 fair value measurements, specifically changes in unrealized gains and losses and other quantitative information.  ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.  The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”).  The amendments in ASU 2018-14 remove various disclosures that no longer are considered cost-beneficial, namely amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost over the next fiscal year.  Further, ASU 2018-14 requires disclosure or clarification of the reasons for significant gains or losses related to changes in the benefit obligation for the period, as well as projected and accumulated benefit obligations in excess of plan assets.  ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and should be applied on a retrospective basis, with early adoption permitted.  The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”).  The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.  ASU 2018-15 requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.  ASU 2018-15 also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals.  ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  ASU 2018-15 should can be applied either retrospectively or prospectively to all implementation costs incurred after its adoption.  The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

In October 2018, the FASB issued ASU No. 2018-16 – Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting (“ASU 2018-16”).  The amendments in ASU 2018-16 allow the OIS rate based on SOFR as a U.S. benchmark interest rate and are an attempt to help facilitate the LIBOR to SOFR transition, as well as provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes.  Since the Company early-adopted ASU 2017-12, ASU 2018-16 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  ASU 2018-16 should be applied on a prospective basis for qualifying new or re-designated hedging relationships entered into on or after the date of adoption.  As previously noted, the Company early-adopted ASU 2017-12 and will apply the new guidance of ASU 2018-16 in the event the Company enters into new hedging relationships on or after December 15, 2018.

In November 2018, the FASB issued ASU No. 2018-18 – Collaborative Arrangements (Topic 808) — Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”).  The amendments in ASU 2018-18 provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for revenue under ASC 606.  ASU 2018-18 specifically addresses when the participant is a customer in the context of a unit of account, adds unit-of-account guidance in ASC 808 to align with guidance with ASC 606, and precludes presenting the collaborative arrangement transaction together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.  ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption is permitted and should be applied retrospectively.  The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

v3.19.1
Merger and Purchase Accounting
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Merger and Purchase Accounting

4.

Merger and Purchase Accounting  

As previously noted, on June 1, 2018, Fairmount Santrol was merged into a subsidiary of Unimin, after which Fairmount Santrol ceased to exist as a separate corporate entity.  Refer to Note 1 for additional information related to the Merger.

The Merger Date fair value of consideration transferred was $1,313,660, which consisted of share-based awards, cash, and Covia common stock.  The consideration transferred to Fairmount Santrol’s stockholders included cash of $170,000.  The cash portion of the Merger consideration was funded with proceeds of the Term Loan, as well as cash on Unimin’s balance sheet.  See Note 11 for additional information.

The operating results of Fairmount Santrol since the Merger Date are included in the consolidated financial statements.  The Merger qualifies as a business combination and is accounted for using the acquisition method of accounting.  

The estimates of fair values of the assets acquired and liabilities assumed were based on information available as of the Merger Date.  During the third and fourth quarter of 2018, the Company refined certain underlying inputs and assumption in its valuation models and finalized the purchase accounting fair value assessment as of December 31, 2018.  The following table summarizes the purchase price accounting of the acquired assets and liabilities assumed as of June 1, 2018, including measurement period adjustments.

 

 

 

June 1, 2018

 

 

 

 

 

 

June 1, 2018

 

 

 

(as previously reported)

 

 

Adjustments

 

 

(as adjusted)

 

Cash and cash equivalents

 

$

105,303

 

 

$

-

 

 

$

105,303

 

Inventories, net

 

 

107,393

 

 

 

612

 

 

 

108,005

 

Accounts receivable

 

 

159,373

 

 

 

-

 

 

 

159,373

 

Property, plant, and equipment, net

 

 

1,485,785

 

 

 

164,091

 

 

 

1,649,876

 

Intangible assets, net

 

 

148,830

 

 

 

(12,608

)

 

 

136,222

 

Prepaid expenses and other assets

 

 

9,563

 

 

 

-

 

 

 

9,563

 

Other non-current assets

 

 

19,836

 

 

 

(15,654

)

 

 

4,182

 

Total identifiable assets acquired

 

 

2,036,083

 

 

 

136,441

 

 

 

2,172,524

 

Debt

 

 

738,661

 

 

 

10,061

 

 

 

748,722

 

Other current liabilities

 

 

162,885

 

 

 

(2,768

)

 

 

160,117

 

Deferred tax liability

 

 

163,730

 

 

 

35,897

 

 

 

199,627

 

Other long-term liabilities

 

 

75,529

 

 

 

(30,360

)

 

 

45,169

 

Total liabilities assumed

 

 

1,140,805

 

 

 

12,830

 

 

 

1,153,635

 

Net identifiable assets acquired

 

 

895,278

 

 

 

123,611

 

 

 

1,018,889

 

Non-controlling interest

 

 

453

 

 

 

-

 

 

 

453

 

Goodwill

 

 

418,835

 

 

 

(123,611

)

 

 

295,224

 

Total consideration transferred

 

$

1,313,660

 

 

$

-

 

 

$

1,313,660

 

In addition to the changes in the balances noted above, the Company recorded an adjustment to increase Depreciation, depletion, and amortization expense of $1,994 during the year ended December 31, 2018 as a result of the adjustment to property, plant, and equipment and certain intangible assets.

The fair values were based on management’s analysis, including work performed by third-party valuation specialists.  A number of significant assumptions and estimates were involved in the application of valuation methods, including sales volumes and prices, royalty rates, production costs, tax rates, capital spending, discount rates, and working capital changes.  Cash flow forecasts were generally based on Fairmount Santrol’s pre-Merger forecasts.  Valuation methodologies used for the identifiable assets acquired and liabilities assumed utilize Level 1, Level 2, and Level 3 inputs including quoted prices in active markets and discounted cash flows using current interest rates.

Accounts receivable, other current liabilities, non-current assets and other long-term liabilities, excluding asset retirement obligations and contingent consideration included in other long-term liabilities, were valued at the existing carrying values as they represented the estimated fair value of those items at the Merger Date based on management’s judgement and estimates.

Raw material inventory was valued using the cost approach.  The fair value of work-in-process inventory and finished goods inventory is a function of the estimated selling price less the sum of any cost to complete, costs of disposal, holding costs and a reasonable profit allowance.

The fair value of non-depletable land was determined using the market approach which arrives at an indication of value by comparing the land being valued to land recently acquired in arm’s-length transactions or land listings for similar uses.  Building and site improvements were valued using the cost approach in which the value is established based on the cost of reproducing or replacing the asset, less depreciation from physical deterioration, functional obsolescence and economic obsolescence, if applicable.  Personal property assets with an active and identifiable secondary market, such as mobile equipment were valued using the market approach.  Other personal property assets such as machinery and equipment, furniture and fixtures, leasehold improvements, laboratory equipment and computer software, were valued using the cost approach which is based on replacement or reproduction costs of the assets less depreciation from physical deterioration, functional obsolescence and economic obsolescence, if applicable.  The fair value of the mineral reserves, which is included in property, plant, and equipment, net, were valued using the income approach which is predicated upon the value of the future cash flows that an asset will generate over its economic life.

The fair value of the customer relationship intangible assets was determined using the With and Without Method which is an income approach and considers the time needed to rebuild the customer base.  The fair value of the railcar leasehold interest was determined using the discounted cash flow method (“DCF Method”) which is an income approach.  The fair value of the trade name and technology intangible assets was determined using the Relief from Royalty Method which is an income approach and is based on a search of comparable third party licensing agreements and internal discussions regarding the significance of the trade names and technology and the profitability of the associated revenue streams.

The fair value of the acquired intangible assets and the related estimated useful lives at the Merger Date were the following:

 

 

 

Approximate

 

 

Estimated

 

 

Fair Value

 

 

Useful Life

Customer relationships

 

$

73,000

 

 

6 years

Railcar leasehold interests

 

 

40,914

 

 

1-15 years

Trade name

 

 

17,000

 

 

1 year

Technology

 

 

5,000

 

 

12 years

Other

 

 

308

 

 

95 years

Total approximate fair value

 

$

136,222

 

 

 

Goodwill is calculated as the excess of the purchase price over the fair value of net identifiable assets acquired.  Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Goodwill of $78,143 and $217,081 allocated to the Industrial and Energy reporting units respectively, is attributable to the earnings potential of Fairmount Santrol’s product and plant portfolio, anticipated synergies, the assembled workforce of Fairmount Santrol, and other benefits that the Company believes will result from the Merger.  During the third quarter of 2018 it was determined the goodwill allocated to the Energy reporting unit was impaired and was written off in its entirety.  Refer to Note 10 for additional information.  None of the goodwill is expected to be deductible for income tax purposes.

The carrying value of the debt approximated the fair value of the debt at June 1, 2018.

The deferred tax liability relates to the tax effect of fair value adjustments of the assets and liabilities acquired, including mineral reserves, property, plant and equipment and intangible assets.  

Asset retirement obligations are included in other long-term liabilities in the table of fair values noted above.  The related asset is included in property, plant, and equipment, net in the table of fair values noted above.  The asset retirement obligations assumed and related assets acquired in connection with the Merger were adjusted to reflect revised estimates of the future cost of dismantling, restoring, and reclaiming of certain sites and related facilities as of the Merger Date.

Included in other long-term liabilities is $9,500 for a pre-acquisition contingent consideration arrangement in the form of earnout payments, related to the purchase of the Propel SSP technology.  We entered into an amendment to the SSP purchase agreement on June 1, 2018.  Based on information and estimates at the time, we estimated the fair value of contingent consideration to be approximately $9,500.  Subsequent to the Merger Date, changes in projected cash flows were revised downward based on post-Merger decline in the market conditions for the Energy segment and a customer supply agreement that was not renewed at December 31, 2018.  These revisions gave rise to a reduction of the contingent consideration liability of approximately $5,000, which is recorded as income in Other operating expense (income) in the Consolidated Statements of Income (Loss).  The earnout payments are based on a fixed percentage of sales of Propel SSP® and other products incorporating the SSP technology for thirty years commencing on June 1, 2018.  The amendment eliminated the threshold payments of $195,000 which were previously required in order for the Company to retain 100% ownership of the technology.  It also provides for the non-exclusive right to license the technology at a negotiated rate.  The fair value of the earnout was determined using a scenario-based method due to the linear nature of the consideration payments.

The Company assumed the outstanding stock-based equity awards (the “Award(s)”) of Fairmount Santrol at the Merger Date.  Each outstanding Award of Fairmount Santrol was converted to a Covia award with similar terms and conditions at the exchange ratio of 5:1.  The Company recorded $40,414 of Merger consideration for the value of Awards earned prior to the Merger Date.  The remaining value represents post-Merger compensation expense of $10,416, which will be recognized over the remaining vesting period of the Awards.  In addition, at June 1, 2018, the Company recorded $2,400 of expense for Awards whose vesting was accelerated upon a change in control and certain other terms pursuant to the Merger agreement and therefore considered a Merger related expense and recorded in Other non-operating expense, net in the accompanying Consolidated Statements of Income (Loss).  Refer to Note 16 for additional information.

The Company has not separately disclosed the revenue and earnings of Fairmount Santrol from the Merger Date through December 31, 2018.  Due to the integration of Fairmount Santrol’s operations and customer contracts into the Covia supply chain network and customer contracts, it is impracticable to provide a reasonable estimate of these revenue and earnings.

Pro Forma Condensed Combined Financial Information (Unaudited)

The following unaudited pro forma condensed combined financial information presents the Company’s combined results as if the Merger had occurred on January 1, 2017.  The unaudited pro forma financial information was prepared to give effect to events that are (i) directly attributable to the Merger; (ii) factually supportable; and (iii) expected to have a continuing impact on the Company’s results.  All material intercompany transactions during the periods presented have been eliminated.  These pro forma results include adjustments for interest expense that would have been incurred to finance the transaction and reflect purchase accounting adjustments for additional depreciation, depletion and amortization on acquired property, plant and equipment and intangible assets.  The pro forma results exclude Merger related transaction costs and expenses that were incurred in conjunction with the Merger in the years ended December 31, 2018 and 2017:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

Revenues

 

$

2,320,269

 

 

$

2,254,907

 

Net income

 

 

(185,497

)

 

 

143,785

 

Earnings per share – basic

 

$

(1.48

)

 

$

1.20

 

Earnings per share – diluted

 

 

(1.48

)

 

 

1.20

 

The unaudited pro-forma condensed combined financial information is presented for information purposes only and is not intended to represent or to be indicative of the combined results of operations or financial position that would have been reported had the Merger been completed as of the date and for the period presented, and should not be taken as representative of the Company’s consolidated results of operations or financial condition following the Merger.  In addition, the unaudited pro-forma condensed combined financial information is not intended to project the future financial position or results of operations of Covia.

v3.19.1
Discontinued Operation – Disposition of Unimin’s Electronics Segment
12 Months Ended
Dec. 31, 2018
Discontinued Operations And Disposal Groups [Abstract]  
Discontinued Operation – Disposition of Unimin’s Electronics Segment

5.

Discontinued Operation – Disposition of Unimin’s Electronics Segment

On May 31, 2018, prior to, and as a condition to the closing of the Merger, Unimin transferred assets and liabilities of its global high purity quartz business, HPQ Co., to Sibelco in exchange for 170 shares (or 15,097 shares subsequent to the stock split) of Unimin common stock held by Sibelco.

The transaction was between entities under common control and therefore the Unimin common stock received from Sibelco was recorded at the carrying value of the net assets transferred at May 31, 2018, in the amount of $165,383, in Treasury stock within Equity.  The transfer of HPQ Co. to Sibelco was a tax-free transaction.

The disposition of HPQ Co. qualified as discontinued operations, as it represented a significant strategic shift of the Company’s operations and financial results.  In addition, the operations and cash flows of HPQ Co. could be distinguished, operationally and for financial reporting purposes, from the rest of the Company.

The historical balance sheet and statements of operations of the HPQ Co. business have been presented as discontinued operations in the condensed consolidated financial statements for periods prior to the Merger.  Discontinued operations include the results of HPQ Co., except for certain allocated corporate overhead costs and certain costs associated with transition services provided by the Company to HPQ Co.  These previously allocated costs remain part of continuing operations.

The carrying amounts of the major classes of assets and liabilities of the Company’s discontinued operations as of December 31, 2017 were as follows:

 

 

 

December 31, 2017