Fairmount Santrol Holdings Inc. (formerly “FMSA Holdings Inc.”) and its consolidated subsidiaries (collectively, the “Company”) is a supplier of proppants and sand products. The Company is organized into two segments: Proppant Solutions and Industrial & Recreational Products. This segmentation is based on the end markets served, management structure, and the financial information that is reviewed by the chief operating decision maker in deciding how to allocate resources and assess performance.

The Proppant Solutions business serves the oil and gas recovery markets in the United States, Canada, Argentina, Mexico, China, northern Europe, and the United Arab Emirates, providing raw and coated proppants primarily for use in hydraulic fracturing. The raw sand and substrate for coated sand generally consists of high-purity silica sands produced at facilities in Illinois, Wisconsin, and Texas.

The Industrial & Recreational Products (“I&R”) business provides raw and coated sands to the foundry, building products, glass, turf and landscape, and filtration industries. Raw sand for the I&R business is produced at facilities in Ohio, Wisconsin, and Illinois.

In addition to its wholly-owned subsidiaries, the Company owns 90% of a holding company, Technimat LLC, which owns 70% of Santrol (Yixing) Proppant Co., a manufacturer of resin-based proppants located in China. The non-controlling interests in both entities are presented as “non-controlling interest” on the balance sheet.

Principal of Consolidation

The consolidated financial statements include the accounts of Fairmount Santrol Holdings Inc. and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Liquidity and Debt Obligations

Given the current volatility in the oil and gas market, upon which the Company depends for a majority of its revenues, as well as its upcoming term loan payments in the amount of $156,134 due in March 2017, these conditions could raise substantial doubt about the Company’s ability to satisfy its obligations on a current basis. Management has evaluated its plans to ensure adequate liquidity to meet its obligations in the coming year. In addition to reductions in operating costs, and selling, general, and administrative costs, management believes it has the ability to manage liquidity and meet its obligations throughout 2016, as well as the time the term loan payment is due in March 2017, through capital spending reductions, working capital improvements, permitted asset sales, current Revolving Credit Facility availability, and permitted borrowing under the terms of its credit agreement (see Note 10).

Meeting the forecast is depending upon management executing on its current plan and assumes there will not be significant further deterioration in the markets. A continued sustained downturn in the Company’s key markets could significantly impact its forecasts. While the Company believes its operations forecasts are reasonable, the forecasts are based on assumptions, and market conditions impacting the industry, primarily the proppant business, are uncertain. In the event the operating results are significantly worse than projected or the Company is unsuccessful in generating sufficient liquidity, the Company may not be able to satisfy its debt obligations and would be forced to restructure these obligations,

Revenue Recognition

Revenue is recognized when delivery of products has occurred, the selling price is fixed or determinable, collectability is reasonably assured and title and risk of loss have transferred to the customer. This generally occurs when products leave a distribution terminal or, in the case of direct shipments, when products leave a production facility. In a majority of cases, transportation costs to move product from a production facility to a storage terminal are borne by the Company and capitalized into the cost of inventory. These costs are included in the cost of sales as the product is sold. The Company derives its revenue by mining and processing minerals that its customers purchase for various uses. Its net sales are primarily a function of the price per ton realized and the volumes sold. In a number of instances, its net sales also include a separate charge for transportation services it provides to its customers.

In the Proppant Solutions segment, the Company primarily sells its products under market rate contracts with terms typically ranging from two to ten years. The Company invoices the majority of its customers on a per shipment basis when the customer takes possession of the product.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At various times, the Company maintains funds on deposit at its banks in excess of FDIC insurance limits.

Accounts Receivable

Trade accounts receivable are stated at the amount management expects to collect, and do not bear interest. Management provides for uncollectible amounts based on its assessment of the current status of individual accounts. Accounts receivable are net of allowance for doubtful accounts of $2,470 and $4,255 as of December 31, 2015 and 2014, respectively.

Inventories

Inventories are stated at the lower of cost or market. Certain subsidiaries determine cost using the last-in, first-out (LIFO) method. If the first-in, first-out (FIFO) method of inventory accounting had been used, inventories would have been higher by $2,912 and $2,960 at December 31, 2015 and 2014, respectively.

LIFO inventories comprise 18% and 16% of inventories reflected in the accompanying Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively. The cost of inventories of all other subsidiaries is determined using the FIFO method. In 2013, the Company recognized $4,958 permanent write-down in the value of finished goods inventory, net of expected recoveries from suppliers. The inventory write-down is included in cost of sales. In the year ended December 31, 2014, the Company recorded a write-down of $908 of certain inventory to recognize a permanent decline in the value of the inventory, which is included in other operating expense. In the year ended December 31, 2015, the Company recorded $1,590 of adjustments to increase the inventory reserve to recognize the decline in value of work-in-process and finished goods inventory, which is recorded in cost of sales.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Expenditures, including interest, for property, plant, and equipment and items that substantially increase the useful lives of existing assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred.

Depreciation on property, plant, and equipment is computed on a straight-line basis over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Depletion expense calculated for depletable land and mineral rights is based on cost multiplied by a depletion factor. The depletion factor varies based on production and other factors, but is generally equal to annual tons mined divided by total estimated remaining reserves for the mine.

The estimated service lives of property and equipment are principally as follows:

Construction in progress is stated at cost, which includes the cost of construction and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use. Construction in progress at December 31, 2015, represents machinery and facilities under installation.

The Company capitalizes interest cost 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 $4,903 and $6,765 in 2015 and 2014, respectively.

Depreciation and depletion expense was $62,218, $54,111, and $35,917 in years ended December 31, 2015, 2014, and 2013, respectively.

Included in land and improvements are occupancy rights in China of $354 that are held for a term of 50 years until December 2057. As of December 31, 2015, these assets are further classified as held-for-sale.

The Company reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of property, plant, and equipment may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets or asset groups. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations and are included in other assets. In connection with the refinancing of the Company’s debt in September 2013 (see Note 10), the Company incurred financing costs of $15,132 of which $14,171 were capitalized. In connection with the refinancing, the Company wrote off $11,358 of costs that were previously capitalized. In 2014, the Company incurred additional deferred financing charges in connection with the amendment of the existing credit agreement whereby the applicable margin for B-1 and B-2 base rate and Eurodollar loans was reduced (refer to Note 10). In connection with the amendment to the Revolving Credit Facility in 2015, the Company wrote off $864 of costs that were previously capitalized.

The following table presented deferred financing costs as of December 31, 2015 and 2014:

Goodwill and Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate that impairment may have occurred. The Company evaluates qualitative factors such as economic performance, industry conditions, and other factors to determine if it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an indication of goodwill impairment exists. The second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to the excess. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a definite-lived intangible asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the assets or asset groups.

The evaluation of goodwill or other intangible assets for possible impairment includes 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 the Company 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 the Company believes its assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.

Earnings per Share

Basic and diluted earnings per share is presented for net income attributable to Fairmount Santrol Holdings Inc. Basic earnings per share is computed by dividing income available to Fairmount Santrol Holdings Inc. 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 common shares to include the additional common shares that would be outstanding after exercise of outstanding stock options and restricted stock units. Potential common shares in the diluted earnings per share calculation are excluded to the extent that they would be anti-dilutive.

Derivatives and Hedging Activities

Due to its variable-rate indebtedness, the Company is exposed to fluctuations in interest rates. The Company uses interest rate swaps to manage this exposure. These derivative instruments are recorded on the balance sheet at their fair values. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. For cash flow hedges in which the Company is hedging the variability of cash flows related to a variable-rate liability, the effective portion of the gain or loss on the derivative instrument is reported in other comprehensive income in the periods during which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges is recognized in current period earnings. As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive income (loss) related to the interest rate swaps are reclassified into income to obtain a net cost on the debt obligation equal to the effective yield of the fixed rate of each swap. In the event that an interest rate swap is terminated prior to maturity, gains or losses in accumulated other comprehensive income (loss) remain deferred and are reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.

The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlying exposures in accordance with GAAP. Both at inception and for each reporting period, the Company assesses whether the financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposure.

Foreign Currency Translation

Assets and liabilities of all foreign operations are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as accumulated other comprehensive income (loss) in equity.

Concentration of Labor

Approximately 16% of the Company’s domestic labor force is covered under two union agreements that expire in 2016 and one union agreement that expires in 2018. The Company is in the process of negotiating new union agreements for those that expire in 2016.

Concentration of Credit Risk

At December 31, 2015, the Company had one customer whose receivable balance exceeded 10% of total receivables. Approximately, 35% of the Company’s accounts receivable balance is from this customer. At December 31, 2014, the Company had two customers whose receivable balances exceeded 10% of its total receivables. Approximately, 21% and 18% of the accounts receivable balance were from these two customers, respectively.

Income Taxes

The Company uses the asset and liability method to account for deferred income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. A valuation allowance is established if management believes it is more likely than not that some portion of the deferred tax assets will not be realized.

Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.

The Company recognizes a tax benefit associated with an uncertain tax position when the tax position is more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued related to unrecognized tax uncertainties in income tax expense.

Asset Retirement Obligation

The Company estimates the future cost of dismantling, restoring, and reclaiming operating excavation sites and related facilities in accordance with federal, state, and local regulatory requirements. The Company records the initial estimated present value of reclamation costs as an asset retirement obligation and increases the carrying amount of the related asset by a corresponding amount. The Company allocates reclamation costs to expense over the life of the related assets and adjusts the related liability for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate. 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, respectively.

Research and Development (R&D)

The Company’s research and development expenses consist of personnel and other direct and indirect costs for internally-funded project development. Total expenses for R&D for the years ended December 31, 2015, 2014, and 2013 were $5,036, $6,286, and $5,364, respectively. Total research and development expenditures represented 0.61%, 0.46%, and 0.54% of revenues in 2015, 2014, and 2013, respectively.

Change in Classification

During 2014, the Company modified the presentation of certain recoverable value-added taxes and other taxes remitted in Mexico to more appropriately reflect the nature of the underlying tax-related receivables. The consolidated statements of cash flows were modified to reflect the reclassification and resulted in $1,366 being reclassified from the change in accounts receivable to the change in prepaids and other assets for the year ended December 31, 2013. There was no net effect to cash flows provided by operating activities for the period.

In accordance with Accounting Standards Update No. 2015-17 – Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes, the Company has elected to early adopt the Standard on a prospective basis and classify deferred income tax assets and liabilities as non-current. See Note 3 for further detail.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is a separate line within equity that reports the Company’s cumulative income that has not been reported as part of net income. Items that are included in this line are the income or loss from foreign currency translation, actuarial gains and losses and prior service cost related to pension liabilities, and the unrealized gains and losses on certain investments or hedges, net of taxes. The components of accumulated other comprehensive income (loss) attributable to Fairmount Santrol Holdings Inc. at December 31, 2015 and 2014 were as follows:

The following table presents the changes in accumulated other comprehensive income by component for the year ended December 31, 2015:

The following table presents the reclassifications out of accumulated other comprehensive income during the year ended December 31, 2015:

In July 2015, the FASB issued Accounting Standards Update No. 2015-11 – Inventory (Topic 330) – Simplifying the Measurement of Inventory. An entity should measure inventory within the scope of this update at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendment is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is in the process of evaluating the effect of the new guidance on its financial statements and disclosures.

In August 2015, the FASB issued Accounting Standards Update No. 2015-14, which deferred the application of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, and the interim periods within that year. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 – Revenue from Contracts with Customers (ASU 2014-09). Under ASU 2014-09, companies recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services (ASC Topic 606). The new requirements significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. As such, for a public business entity with a calendar year-end, the ASU would be effective on January 1, 2018, for both its interim and annual reporting periods. This proposal represents a one-year deferral from the original effective date. The Company is in the process of evaluating the effect of the new guidance on its financial statements and disclosures.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15 – Interest – Imputation of Interest (Subtopic 835-30), which provides guidance on debt issuance costs related to line-of-credit agreements and notes that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit agreement, regardless of whether there are any outstanding borrowings on the line-of-credit agreement. The Company does not believe this Standard has any impact on the treatment of its debt issuance cost, as it currently follows this treatment for costs associated with its Revolving Credit Facility.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 – Income Taxes – Balance Sheet Classification of Deferred Taxes (Topic 740), which provides guidance on the simplification of balance sheet presentation of deferred taxes and requires that deferred tax assets and liabilities be classified as non-current in a classified statement of financial position based on an analysis of each taxpaying component within a jurisdiction. The Update would be effective for the fiscal year beginning January 1, 2017, however, the Company has elected early adoption of this guidance, as is permitted under the Standard, and has applied it on a prospective basis for the fiscal year ended December 31, 2015. Due to this prospective treatment, prior periods presented have not been adjusted. The adoption of this Standard does not have an impact on the Company’s financial position, however, it does impact the classification of the Consolidated Balance Sheets and certain ratios.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 – Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Update is expected to impact the Company’s consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee. ASC 842 supersedes the previous leases standard, ASC 840 – Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements and disclosures.

At December 31, 2015 and 2014, inventories consisted of the following:

At December 31, 2015 and 2014, property, plant, and equipment consisted of the following:

At December 31, 2015 and 2014, accrued expenses consisted of the following:

At December 31, 2015 and 2014, other long-term liabilities consisted of the following:

The Company made no acquisitions in 2015 and 2014, respectively. In 2013, the Company made three acquisitions. On April 30, 2013, the Company acquired 100% of Self-Suspending Proppant LLC (“SSP”) for total consideration of $56,320 plus contingent consideration. The Company accounted for this transaction as an acquisition of a group of assets. SSP owned the exclusive rights to certain intellectual property related to providing proppant with enhanced performance attributes through proprietary coating technology. The contingent consideration is a fixed percentage of the cumulative product margin, less certain adjustments, generated by Propel SSP sales and any other product incorporating SSP technology for the five years commencing on October 1, 2015. Because the earnout is dependent on future sales and the related cost of sales, the amounts of which are highly uncertain, it is not possible to estimate the amount that will be paid. The Company entered into an Amendment to this agreement on December 17, 2015. This Amendment (a) extends the period during which the aggregate earnout payments must equal or exceed $45,000 from the two-year period ending October 1, 2017 until the three-year period ending October 1, 2018; and (b) provides that the aggregate earnout payments during the two-year period ending October 1, 2017 must equal or exceed $15,000 and granted the Seller a security interest in 51% of the equity interests in the Company to secure such $15,000. The Amendment does not alter the final threshold earnout amount, which continues to be $195,000 (inclusive of the prior earnout amounts, if any) by October 1, 2020. The contingent consideration will be capitalized, and the associated amortization expense will be recognized, at the time a payment is probable and reasonably estimable.

On June 12, 2013, the Company purchased Great Plains Sands, LLC (“Great Plains”), located in Minnesota, for total purchase consideration of $73,579. The Company accounted for this acquisition under ASC 805 as a business combination. Included in the purchase amount is contingent consideration of $9,600 for additional payments due to the seller based on the acquired plant meeting certain operating targets. The contingent consideration was paid in July 2014. The goodwill of $3,887 is primarily attributable to the synergies expected to arise after the acquisition. The Company expects that all of the goodwill generated in this acquisition will be deductible for tax purposes. The production facilities were not complete at the time of the acquisition, and accordingly there were no pre-acquisition revenues or cost of sales. As a result, pro forma results would not be meaningful in evaluating the financial effect of this acquisition. It is not practicable to determine revenue and net income included in the Company’s operating results relating to Great Plains since the date of acquisition because Great Plains has been fully integrated into the Company’s operations, and the operating results of Great Plains can therefore not be separately identified.

On September 6, 2013, the Company purchased certain assets and assumed certain liabilities from FTS International Services, LLC (“FTSI”) and affiliates. The Company acquired sand reserves, frac sand production capacity, resin-coating capacity, and logistics assets consisting of terminals and railcars. The assets are located in various states, including Texas, Wisconsin, Missouri, Alabama, and Illinois. In connection with this acquisition, the Company also entered into a ten year supply agreement with FTSI. In April 2014, the agreed upon quantities of certain raw sand required under the supply agreement were lowered to 80% of the original quantity. The total consideration was $347,704. The Company accounted for this acquisition under ASC 805 as a business combination. The goodwill of $49,456 is primarily attributable to the synergies expected to arise after the acquisition. The Company expects that all of the goodwill generated in this acquisition will be deductible for tax purposes. The historical financial information for the assets acquired was impracticable to obtain, and inclusion of pro forma information would require the Company to make estimates and assumptions regarding these assets’ historical financial results that may not be reasonable or accurate. As a result, pro forma results are not presented. It is not practicable to determine revenue and net income included in the Company’s operating results relating to FTSI since the date of acquisition because FTSI has been fully integrated into the Company’s operations, and the operating results of FTSI can therefore not be separately identified.

The purchase price for each of these acquisitions was assigned to the fair value of the assets acquired. Such determination of fair value is based on valuation models that incorporate the present value of expected future cash flows and profitability projections. There are many assumptions and estimates underlying the determination of the fair value. Although the Company believes its assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.

The purchase price for the three transactions in 2013 has been allocated to the fair value of the assets acquired and liabilities assumed as follows:

The Company capitalized $1,320 of transaction related expenses in connection with the SSP transaction. The Company recognized $7,113 of transaction related expenses in connection with the Great Plains and FTSI acquisitions, which is included in selling, general and administrative expenses.

The following table summarizes the activity in goodwill for the years ended December 31, 2015 and 2014:

Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company evaluates goodwill on an annual basis in the fourth quarter and when management believes indicators of impairment exist. Due to the significant changes in the oil and gas business climate during 2015 and the declines in the Company’s stock price and debt fair values, the Company assessed qualitative factors and determined that it could not conclude it was more likely than not that the fair value of its goodwill exceeded its carrying value for the goodwill recorded in the Proppant Solutions reporting unit.

Accordingly, the Company proceeded to a quantitative evaluation of potential impairment of its goodwill. This evaluation was based on the income (or discounted cash flows) approach. Key assumptions include future growth or recovery rates in the business, the long-term discount rate, and expected terminal values of a business exit. The Company estimated the value of its two goodwill reporting units based on management’s best current available estimates of the future cash flows to arrive at the income approach estimate of fair value. Based on these estimates, the Company has concluded there has been an impairment loss in the goodwill attributable to the Proppant Solutions segment in the three months ended December 31, 2015.

The Company then estimated the fair values of all tangible and intangible assets in the segments as of December 31, 2015 and concluded that the fair value of the Proppant Solutions segment goodwill has declined to zero. An impairment charge of $69,246 was recorded in the three months ended December 31, 2015. The Company did not recognize any impairment losses for goodwill or other intangible assets in the years ended December 31, 2014 and 2013.

Currency translation and other relates to the impact of the change in foreign currency exchange rates from international entities on goodwill, an adjustment to the initial FTSI purchase price allocation from exercising an option to acquire an additional mining facility, and an adjustment recorded to goodwill related to the post-acquisition settlement of escrow proceeds. Goodwill on a certain property was originally recorded in the Proppant Solutions segment. When the property transitioned to Industrial & Recreational Products usage, it was transferred to that segment. In 2015, the property was idled and returned to the Proppant Solutions segment, where the write-off of goodwill related to that property was recorded.

Information regarding acquired intangible assets as of December 31, 2015 and 2014 is as follows:

The acquired technology from the SSP acquisition will be amortized ratably over its estimated useful life once product using the technology is fully commercialized. The supply agreement was previously amortized ratably over the life of the agreement, which was 10 years. However, in May 2015, the supply agreement was amended, extending the maturity date from September 2023 to December 2024. The supply agreement is now being amortized over the amended life.

Estimated future amortization expense related to intangible assets at December 31, 2015 is as follows:

At December 31, 2015 and 2014, long-term debt consisted of the following:

On September 5, 2013, the Company entered into the Second Amended and Restated Credit Agreement (the “2013 Amended Credit Agreement”). The 2013 Amended Credit Agreement initially contained a revolving credit facility (“Revolving Credit Facility”) and two tranches of term loans, a term B-1 facility (“Term B-1 Loans”) and a term B-2 facility (“Term B-2 Loans”). The Revolving Credit Facility and the Term B-1 and B-2 Loans are secured by a first priority lien on substantially all of the Company’s domestic assets.

As of April 30, 2015, the Company entered into the Third Amendment to the Second Amended and Restated Credit Agreement (the “April 2015 Amendment”) to the 2013 Amended Credit Agreement. The April 2015 Amendment provides for the extension of the maturity date of $46,036 of outstanding Term B-1 Loans from March 15, 2017 (the “Stated B-1 Maturity Date”) to September 5, 2019 (the “Extended Maturity Date,” which is the same maturity date applicable to Term B-2 Loans under the 2013 Amended Credit Agreement). The Company paid a fee of approximately $1,151 to the lender as a consent fee.

As of May 15, 2015, the Company entered into the Fourth Amendment to the Second Amended and Restated Credit Agreement (the “May 2015 Amendment”). The May 2015 Amendment provides for the extension of the maturity date of $115,458 of outstanding Term B-1 Loans from the Stated B-1 Maturity Date to the Extended Maturity Date. Such loans (together with the other loans whose maturity dates were extended under the April 2015 Amendment, Extended Term B-1 Loans) effectively will be converted to Term B-2 Loans, and will be treated as Term B-2 Loans under the Credit Agreement for all purposes (including pricing), except for certain minor administrative differences and except that, prior to the Stated B-1 Maturity Date, Extended Term B-1 Loans shall continue to amortize as Term B-1 Loans. Upon giving effect to the April and May 2015 Amendments, the maturity date of approximately $161,495 in principal amount of outstanding Term B-1 Loans was so extended. The Company paid a fee of approximately $2,886 to the lender as a consent fee for the May 2015 Amendment.

After the April and May 2015 Amendments, $156,619 in principal amount of outstanding Term B-1 Loans mature on March 15, 2017 and $1,073,706 in principal amount of outstanding Term B-2 Loans (including Extended Term B-1 Loans) mature on September 5, 2019.

As of September 30, 2015, the Company entered into an amendment to the 2013 Amended Credit Agreement that modified the Revolving Credit Facility. These modifications consisted primarily of (i) a reduction in the U.S. revolving commitments from $124,000 to $99,000 (while the aggregate Canadian revolving commitment remained at $1,000) and (ii) changes in the financial covenant governing the availability of amounts under the Revolving Credit Facility if, and only if, the Company has drawn, including letters of credit, more than $31,250 on the Revolving Credit Facility. Generally, if the Company’s leverage ratio is greater than 4.75:1.00 during the period from the third quarter of 2015 through the fourth quarter of 2016, so long as the stated quarterly adjusted EBITDA thresholds are exceeded, the amount available to borrow under the Revolving Credit Facility is increased from $31,250 to $40,000. Commencing with the end of the first quarter of 2017, the quarterly adjusted EBITDA thresholds are discontinued and the full amount of the revolving commitment ($100,000) is available so long as the Company’s leverage ratio does not exceed a revised limit (6.50:1.00 for the first quarter of 2017 declining quarterly to 4.75:1.00 for the fourth quarter of 2017). As of December 31, 2015, the Company’s leverage ratio was 8.96:1.00.

As of December 31, 2015, there was $19,717 available capacity remaining on the Revolving Credit Facility and $11,533 committed to outstanding letters of credit since the quarterly cumulative EBITDA threshold was not met at December 31, 2015.

The Company has a $10,000 Industrial Revenue Bond outstanding related to the construction of manufacturing facility in Wisconsin. The bond bears interest, which is payable monthly, at a variable rate. The rate was 0.02% at December 31, 2015. The bond matures on September 1, 2027 and is collateralized by a letter of credit of $10,000.

Maturities of long-term debt are as follows:

Information pertaining to assets and related accumulated depreciation in the balance sheet for capital lease items is as follows:

The table below shows the computation of basic and diluted earnings per share for the years ended December 31, 2015, 2014, and 2013:

Because the Company experienced a loss in the year ended December 31, 2015, the calculation of diluted weighted average shares outstanding is not appropriate because the effect of including these potential common shares would be antidilutive. The calculation of diluted weighted average shares outstanding for the years ended December 31, 2014 and 2013 excludes 715,068 and 1,112,038 potential common shares because the effect of including these potential common shares would be antidilutive.

The Company enters into interest rate swap agreements as a means to partially hedge its variable interest rate risk on debt instruments. The current notional value of these swap agreements is $525,225 at December 31, 2015 and effectively fixes the variable rate in a range of 0.83% to 3.115%. The total notional amount of these instruments is scheduled to increase over time to provide a partial hedge against variable interest rate debt. The interest rate swap agreements mature at various dates between March 15, 2017 and September 5, 2019.

The derivative instruments are recorded on the balance sheet at their fair values. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. For cash flow hedges in which the Company is hedging the variability of cash flows related to a variable-rate liability, the effective portion of the gain or loss on the derivative instrument is reported in other comprehensive income in the periods during which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges is recognized in current period earnings. As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive income (loss) related to the interest rate swaps are reclassified into income to obtain a net cost on the debt obligation equal to the effective yield of the fixed rate of each swap. In the event that an interest rate swap is terminated prior to maturity, gains or losses in accumulated other comprehensive income (loss) remain deferred and are reclassified into earnings in the periods in which the hedged forecasted transaction affects earnings.

The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlying exposures in accordance with GAAP. Both at inception and for each reporting period, the Company assesses whether the financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposure.

Certain of the interest rate swaps qualify for cash flow hedge accounting treatment. The following table summarizes the fair values and the respective classification in the Consolidated Balance Sheets as of December 31, 2015 and 2014:

The Company recognized $21 in interest expense, representing the ineffective portion of interest rate swap agreements designated as hedges, in the year ended December 31, 2014. In the years ended December 31, 2015 and 2013, respectively, the Company recognized $51 and $15 in interest income, representing the ineffective portion of interest rate swap agreements designated as hedges. The Company expects $5,063 to be reclassified from accumulated other comprehensive income into interest expense in the year ending December 31, 2016.

Financial instruments held by the Company include cash equivalents, accounts receivable, accounts payable, long-term debt (including the current portion thereof) and interest rate swaps. The Company is also liable for contingent consideration from an acquisition that is subject to fair value measurement. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.

Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1    Quoted market prices in active markets for identical assets or liabilities

Level 2    Observable market based inputs or unobservable inputs that are corroborated by market data

Level 3    Unobservable inputs that are not corroborated by market data

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The book value of cash equivalents, accounts receivable and accounts payable are considered to be representative of their fair values because of their short maturities. The carrying value of the Company’s long-term debt (including the current portion thereof) is recognized at amortized cost. The value of the Company’s Term B-1, Extended Term, and Term B-2 loans differs from amortized costs and is valued at prices obtained from a readily-available source for trading non-public debt, which represent quoted prices for identical or similar assets in markets that are not active, and therefore is considered Level 2. The fair value of the Company’s Term B-1 loan was $106,360 and $295,750, Extended Term loan was $76,922 and $0, and Term B-2 loan was $443,580 and $796,500 at December 31, 2015 and 2014, respectively.

As a result of the downturn in end markets in 2015, and in accordance with ASC 360-10, the fair value of certain of the Company’s long-lived assets held and used with a carrying value of $165,389 was written down to fair value of $79,385 and the fair value of certain of the Company’s long-lived assets held-for-sale with a carrying value of $2,635 was written down to fair value of $0. The resulting impairment charges of $86,004 and $2,635, respectively, were based on management’s estimate of the disposed value of the assets and were recognized in restructuring and other charges in income from operations in the current period.

The following table presents the amounts carried at fair value as of December 31, 2015 and 2014 for the Company’s other financial instruments.

The following table shows assets measured at fair value on a non-recurring basis. The fair value of goodwill and the SSP intangible asset are determined using Level 3 inputs. Please refer to Notes 9 and 22 for further discussion.

Income (loss) before provision (benefit) for income taxes includes the following components:

The components of the provision (benefit) for income taxes are as follows:

The effective tax rate for 2014 and 2013, respectively, was a provision on income, while 2015 was a provision on a loss. A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: