UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2017~~2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36670

FAIRMOUNT SANTROL HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware		34-1831554
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

8834 Mayfield Road

Chesterland, Ohio 44026

(Address of Principal Executive Offices) (Zip Code)

(800) 255-7263

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of Common Stock outstanding, par value $0.01 per share, as of ~~November~~May 68, ~~2017~~2018: ~~224~~225,~~092~~117,~~378~~303

Fairmount Santrol Holdings Inc. and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended ~~September~~March 3031, ~~2017~~2018

Table of Contents

	Page
Part I – Financial Information
Item 1 – Financial Statements (Unaudited)
Condensed Consolidated Statements of Income (Loss)	3
Condensed Consolidated Statements of Comprehensive Income (Loss)	4
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	2437
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	3546
Item 4 – Controls and Procedures	3647
Part II – Other Information	3747
Item 1 – Legal Proceedings	3747
Item 1A – Risk Factors	3748
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	3748
Item 3 – Defaults upon Senior Securities	3848
Item 4 – Mine Safety Disclosures	3848
Item 5 – Other Information	3848
Item 6 – Exhibits	3848
Exhibit Index	3949
Signatures	4050

Fairmount Santrol Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016			2017			2016
	2018			2017
	(in thousands, except per share amounts)						~~(in thousands, except per share amounts)~~
Revenues	$	~~280~~273,~~050~~338		$	~~134~~172,~~775~~583		$	~~685,859~~		$	~~394,482~~
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)		~~180~~186,~~582~~078			~~114~~134,~~873~~203			~~475,470~~			~~347,466~~
Operating expenses
Selling, general and administrative expenses		3127,~~105~~353			1722,~~242~~470			~~79,438~~			~~60,560~~
Depreciation, depletion and amortization expense		2017,~~174~~225			17,~~759~~246			~~59,462~~			~~54,401~~
Asset impairments		-			-			-			90,654
Other operating income		(729	)		(1,060	)
Restructuring charges		-			-			-			1,155
Income (loss) from operations		43,411			(276	)
Other operating expense (income)		(1,594	)		9,362			(2,299	)		9,266
Interest expense		13,783			12,537
Income (loss) from operations		49,783			(24,461	)		73,788			(169,020	)
Income (loss) before provision (benefit) for income taxes		29,628			(12,813	)
Interest expense, net		12,110			16,175			37,630			50,043
Provision (benefit) for income taxes		872			(1,160	)
Other non-operating income		-			-			-			(5	)
Net income (loss)		28,756			(11,653	)
Income (loss) before provision (benefit) for income taxes		37,673			(40,636	)		36,158			(219,058	)
Less: Net income attributable to the non-controlling interest		3			178
Provision (benefit) for income taxes		2,754			(20,013	)		2,126			(98,786	)
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	$	28,753		$	(11,831	)
Net income (loss)		34,919			(20,623	)		34,032			(120,272	)
Earnings (loss) per share
Less: Net income (loss) attributable to the non-controlling interest		(25	)		2			193			15
Basic	$	0.13		$	(0.05	)
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	$	34,944		$	(20,625	)	$	33,839		$	(120,287	)
Diluted	$	0.13		$	(0.05	)
Earnings (loss) per share
Weighted average number of shares outstanding
Basic	$	~~0.16~~224,484		$	~~(0.11~~223,739	)	$	~~0.15~~		$	~~(0.71~~	)
Diluted	$	~~0.15~~228,940		$	~~(0.11~~223,739	)	$	~~0.15~~		$	~~(0.71~~	)
Weighted average number of shares outstanding
Basic		224,082			183,620			223,947			168,904
Diluted		226,400			183,620			229,304			168,904

The accompanying notes are an integral part of these condensed consolidated financial statements.

Fairmount Santrol Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016			2017		2016
	2018			2017
	(in thousands)						~~(in thousands)~~
Net income (loss)	$	3428,~~919~~756		$	(2011,~~623~~653	)	$	~~34,032~~	$	~~(120,272~~	)
Other comprehensive income (loss), before tax
Other comprehensive income, before tax
Foreign currency translation adjustment		325			(2	)		767		(362	)
Foreign currency translation		16			(39	)
Pension obligations		6160			6661			~~183~~		~~174~~
Change in fair value of derivative agreements		1,704			893			3,877		(7,321	)
Amortization and change in fair value of derivative agreements		1,069			1,613
Total other comprehensive income (loss), before tax		2,090			957			4,827		(7,509	)
Total other comprehensive income, before tax		1,145			1,635
Provision (benefit) for income taxes related to items of other comprehensive income (loss)		650			(66	)		2,575		(3,226	)
Provision for income taxes related to items of other comprehensive income (loss)		538			1,316
Comprehensive income (loss), net of tax		3629,~~359~~363			(1911,~~600~~334	)		~~36,284~~		~~(124,555~~	)
Comprehensive income (loss) attributable to the non-controlling interest		(25	)		2			193		15
Comprehensive income attributable to the non-controlling interest		3			178
Comprehensive income (loss) attributable to Fairmount Santrol Holdings Inc.	$	3629,~~384~~360		$	(1911,~~602~~512	)	$	~~36,091~~	$	~~(124,570~~	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Fairmount Santrol Holdings Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	~~188~~84,~~257~~768		$	~~194~~127,~~069~~967
Accounts receivable, net of allowance for doubtful accounts of $2,136 and $3,055
Accounts receivable, net of allowance for doubtful accounts of $1,237 and $2,003
at September 30, 2017 and December 31, 2016, respectively		155,070			78,942
at March 31, 2018 and December 31, 2017, respectively		179,234			156,916
Inventories, net		6864,~~304~~895			5270,~~650~~528
Prepaid expenses and other assets		67,~~843~~590			7,~~065~~765
Refundable income taxes		823			21,077
Total current assets		336,487			363,176
Total current assets		419,297			353,803
Property, plant and equipment, net		783,429			756,288
Property, plant and equipment, net		767,408			727,735
Deferred income taxes		351			350
Deferred income taxes		1,244			1,244
Goodwill		15,301			15,301
Intangibles, net		9592,~~234~~892			9593,~~341~~268
Other assets		710,~~740~~088			97,~~486~~711
Total assets	$	1,~~306~~238,~~224~~548		$	1,~~202~~236,~~910~~094
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	1118,~~772~~924		$	1019,~~707~~189
Accounts payable		6983,~~173~~852			3770,~~263~~633
Accrued expenses and deferred revenue		85,660			26,185
Accrued expenses		41,660			74,007
Total current liabilities		166,605			74,155
Deferred revenue		9,346			5,660
Long-term debt		782,735			832,306
Total current liabilities		153,782			169,489
Deferred income taxes		10,728			7,057
Long-term debt		715,316			729,741
Other long-term liabilities		50,300			38,272
Deferred income taxes		6,807			2,429
Total liabilities		1,010,368			951,790
Other long-term liabilities		36,901			42,189
Commitments and contingent liabilities (Note 13)
Total liabilities		912,806			943,848
Commitments and contingent liabilities (Note 14)
Equity
Preferred stock: $0.01 par value, 100,000 authorized shares
Shares outstanding: 0 at September 30, 2017 and December 31, 2016		-			-
Shares outstanding: 0 at March 31, 2018 and December 31, 2017		-			-
Common stock: $0.01 par value, 1,850,000 authorized shares
Shares outstanding: 224,092 and 223,601 at September 30, 2017
Shares issued: 242,366 at March 31, 2018 and December 31, 2017
and December 31, 2016, respectively		2,423			2,422
Shares outstanding: 224,895 and 224,291 at March 31, 2018 and
Additional paid-in capital		300,281			297,649
December 31, 2017, respectively		2,423			2,423
Retained earnings		298,258			264,852
Additional paid-in capital		294,500			299,912
Accumulated other comprehensive loss		(16,750	)		(19,002	)
Retained earnings		318,912			290,159
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock		584,212			545,921
Accumulated other comprehensive loss		(14,491	)		(15,098	)
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock		601,344			577,396
Less: Treasury stock at cost
Shares in treasury: 18,273 and 18,666 at September 30, 2017
Shares in treasury: 17,471 and 18,075 at March 31, 2018
and December 31, 2016, respectively		(288,662	)		(294,874	)
and December 31, 2017, respectively		(275,975	)		(285,520	)
Total equity attributable to Fairmount Santrol Holdings Inc.		~~295~~325,~~550~~369			~~251~~291,~~047~~876
Non-controlling interest		~~306~~373			73370
Total equity		~~295~~325,~~856~~742			~~251~~292,~~120~~246
Total liabilities and equity	$	1,~~306~~238,~~224~~548		$	1,~~202~~236,~~910~~094

The accompanying notes are an integral part of these condensed consolidated financial statements.

Fairmount Santrol Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

	Equity (deficit) attributable to Fairmount Santrol Holdings Inc.
	Equity attributable to Fairmount Santrol Holdings Inc.
					Additional						Other												Non-
	Common		Common		Paid-in			Retained			Comprehensive			Treasury			Treasury						Controlling
	Stock		Stock Units		Capital			Earnings			Income (Loss)			Stock			Stock Units			Subtotal			Interest			Total
	(in thousands)
Balances at December 31, 2015	$	2,391		161,433	$	776,705		$	405,044		$	(17,693	)	$	(1,227,663	)		77,765		$	(61,216	)	$	848		$	(60,368	)
Balances at December 31, 2016	$	2,422		223,601	$	297,649		$	237,466		$	(19,002	)	$	(294,874	)		18,666		$	223,661		$	73		$	223,734
Re-issuance of treasury stock		-		-257		~~(292,675~~-	)		-			-			~~454~~4,~~537~~061			(~~28,750~~257	)		~~161~~4,~~862~~061			-			~~161~~4,~~862~~061
Share-based awards exercised or distributed		17-		~~30,514~~81		(3,~~933~~575	)		-			-			-			~~(99~~-	)		(3,~~950~~575	)		-			(3,~~950~~575	)
Stock compensation expense		-		-		73,~~366~~116			-			-			-			-			73,~~366~~116			-			73,~~366~~116
Tax effect of stock options exercised, forfeited, or expired		-		-		(1,051	)		-			-			-			-			(1,051	)		-			(1,051	)
Transactions with non-controlling interest		-		-		-			-			-			-			-			-			(551	)		(551	)
Net income (loss)		-		-		-			(120,287	)		-			-			-			(120,287	)		15			(120,272	)
Other comprehensive loss		-		-		-			-			(4,283	)		-			-			(4,283	)		-			(4,283	)
Balances at September 30, 2016	$	2,408		191,947	$	494,278		$	284,757		$	(21,976	)	$	(773,126	)		48,916		$	(13,659	)	$	312		$	(13,347	)
Balances at December 31, 2016	$	2,422		223,601	$	297,649		$	264,852		$	(19,002	)	$	(294,874	)		18,666		$	251,047		$	73		$	251,120
Re-issuance of treasury stock		-		393		-			-			-			6,212			(393	)		6,212			-			6,212
Share-based awards exercised or distributed		1		98		(5,649	)		-			-			-			-			(5,648	)		-			(5,648	)
Stock compensation expense		-		-		8,281			-			-			-			-			8,281			-			8,281
Impact of adoption of ASU 2016-09, net of tax		-		-		-			(433	)		-			-			-			(433	)		-			(433	)
Transactions with non-controlling interest		-		-		-			-			-			-			-			-			40(1	)		40(1	)
Net income		-		-		-			33,839			-			-			-			33,839			193			34,032
Net (loss) income		-		-		-			(11,831	)		-			-			-			(11,831	)		178			(11,653	)
Other comprehensive income		-		-		-			-			2,252			-			-			2,252			-			2,252
Other comprehensive loss		-		-		-			-			319			-			-			319			-			319
Balances at September 30, 2017	$	2,423		224,092	$	300,281		$	298,258		$	(16,750	)	$	(288,662	)		18,273		$	295,550		$	306		$	295,856
Balances at March 31, 2017	$	2,422		223,939	$	297,190		$	225,202		$	(18,683	)	$	(290,813	)		18,409		$	215,318		$	250		$	215,568
Balances at December 31, 2017	$	2,423		224,291	$	299,912		$	290,159		$	(15,098	)	$	(285,520	)		18,075		$	291,876		$	370		$	292,246
Re-issuance of treasury stock		-		604		-			-			-			9,545			(604	)		9,545			-			9,545
Share-based awards exercised or distributed		-		-		(8,832	)		-			-			-			-			(8,832	)		-			(8,832	)
Stock compensation expense		-		-		3,420			-			-			-			-			3,420			-			3,420
Net income		-		-		-			28,753			-			-			-			28,753			3			28,756
Other comprehensive income		-		-		-			-			607			-			-			607			-			607
Balances at March 31, 2018	$	2,423		224,895	$	294,500		$	318,912		$	(14,491	)	$	(275,975	)		17,471		$	325,369		$	373		$	325,742

The accompanying notes are an integral part of these condensed consolidated financial statements.

Fairmount Santrol Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016
	2018			2017
	(in thousands)
Net income (loss)	$	3428,~~032~~756		$	(~~120~~11,~~272~~653	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and depletion		5315,~~638~~198			5015,~~891~~334
Amortization		92,~~508~~945			83,~~471~~130
Reserve for doubtful accounts		(~~421~~764	)		~~2,645~~(447	)
Write-off of deferred financing costs		389			-
Gain on disposal of fixed assets		(10	)		(714	)
Asset impairments		-			90,654
Gain on interest rate swaps		(99	)		-
Inventory write-downs and reserves		1,266			10,302
Deferred income taxes and taxes payable		3,578			107
(Gain) loss on disposal of fixed assets		(404	)		315
Stock compensation expense		3,420			2,416
Deferred income taxes and taxes payable		3,965			(80,248	)
Stock compensation expense		7,582			7,366
Change in operating assets and liabilities:
Accounts receivable		(7521,~~707~~554	)		(515,~~035~~956	)
Inventories		~~(16~~5,~~920~~633	)		7(9,~~039~~038	)
Prepaid expenses and other assets		(23,~~745~~120	)		~~1,873~~867
Refundable income taxes		20,255			5,922
Accounts payable		5,613			12,981
Accounts payable		20,659			4,723
Accrued expenses		(33,431	)		9,744
Accrued expenses and deferred revenue		52,373			3,875
Deferred revenue		3,686			16,969
Net cash provided by (used in) operating activities		107,470			(11,479	)
Net cash provided by operating activities		9,851			23,740
Cash flows from investing activities
Proceeds from sale of fixed assets		~~3,124~~205			~~5,630~~957
Capital expenditures and stripping costs		(3637,~~470~~823	)		(284,~~712~~574	)
Leasehold interest payments for sand reserves		(20,000	)		-
Net cash used in investing activities		(37,618	)		(3,617	)
Earnout payments		(250	)		(1,631	)
Net cash used in investing activities		(53,596	)		(24,713	)
Cash flows from financing activities
Payments on long-term debt		(6,469	)		(8,670	)
Payments on term loans		(4,375	)		(2,170	)
Prepayments on term loans		(50,000	)		(69,580	)
Payments on capital leases and other long-term debt		(1,163	)		(817	)
Payments on capital leases and other long-term debt		(3,491	)		(5,067	)
Payments on revolving credit facility		(10,000	)		-
Proceeds from option exercises		563			3,950
Proceeds from share-based awards exercised or distributed		713			486
Proceeds from primary stock offering		-			161,862
Tax payments for withholdings on share-based awards exercised or distributed		(623	)		(982	)
Tax payments for withholdings on share-based awards exercised or distributed		(1,097	)		(3,650	)
Transactions with non-controlling interest		-			(1	)
Tax effect of stock options exercised, forfeited, or expired		-			(1,051	)
Net cash used in financing activities		(15,448	)		(3,484	)
Transactions with non-controlling interest		40			(551	)
Foreign currency adjustment		16			(44	)
Net cash provided by (used in) financing activities		(60,454	)		77,243
(Decrease) increase in cash and cash equivalents		(43,199	)		16,595
Change in cash and cash equivalents related to assets classified as held-for-sale		-			1,376
Foreign currency adjustment		768			(479	)
Increase (decrease) in cash and cash equivalents		(5,812	)		41,948
Cash and cash equivalents:
Beginning of period		~~194~~127,~~069~~967			~~171~~194,~~486~~069
End of period	$	~~188~~84,~~257~~768		$	~~213~~210,~~434~~664
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	$	14,853		$	11,717
Income taxes paid (refunded)		375			(1,601	)
Non-cash investing activities:
Equipment purchased under capital leases		-			4,175
Decrease in accounts payable for additions to property, plant, and equipment	$	(7,606	)	$	(1,301	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

1.	Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of Fairmount Santrol Holdings Inc. and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal, recurring nature) and disclosures necessary for a fair statement of the financial position, results of operations, comprehensive income, and cash flows of the reported interim periods. The ~~condensed~~Condensed ~~consolidated~~Consolidated ~~balance~~Balance ~~sheet~~Sheets as of December 31, ~~2016~~2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain reclassifications of prior year amounts have been made to conform to current year presentation. Interim results are not necessarily indicative of the results to be expected for the full year or any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as filed in the ~~2016~~2017 Annual Report on Form 10-K and notes thereto and information included elsewhere in this Quarterly Report on Form 10-Q.

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. Actual results could differ from those estimates.

~~Recent~~Revisions ~~Accounting~~of ~~Pronouncements~~Previously-Issued Financial Statements

InThe ~~February~~Company ~~2016,~~has ~~the~~revised ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016~~previously-02reported –results ~~Leases~~to ~~(ASC~~properly ~~842),~~report ~~which~~stripping ~~sets~~costs ~~out~~that ~~the~~were ~~principles~~previously ~~for~~capitalized ~~the~~when ~~recognition,~~incurred ~~measurement, presentation,~~ and ~~disclosure~~amortized ofin ~~leases~~subsequent ~~for both parties to a contract (i~~periods.~~e. lessees and lessors).~~ ~~The~~Such ~~new~~costs ~~standard~~incurred ~~requires~~during ~~lessees~~the toproduction ~~apply~~phase of a ~~dual~~mine ~~approach,~~are ~~classifying~~variable ~~leases~~production ascosts ~~either~~that ~~finance~~should orbe ~~operating~~included ~~leases~~in ~~based on~~ the ~~principle~~costs of ~~whether or not~~ the ~~lease~~inventory isproduced ~~effectively~~during ~~a financed purchase by~~ the ~~lessee. This~~period ~~classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over~~ the ~~term~~stripping ofcosts ~~the~~are ~~lease, respectively~~incurred. AThe ~~lessee~~Company is also ~~required~~revised tothe ~~record a right-of-use~~ asset ~~and~~impairment acharge ~~lease liability~~ for ~~all~~the ~~leases~~quarter ~~with~~ended aJune ~~term~~30, of2016 ~~greater~~to ~~than~~correct ~~twelve~~its ~~months~~estimated ~~regardless~~fair ofvalue ~~their classification. The new standard requires lessors to account~~ for ~~leases using~~ an ~~approach~~impaired ~~that~~mine isproperty ~~substantially~~included ~~equivalent~~in tothe ~~existing~~determination ~~guidance~~of ~~for~~the ~~sales-type~~impairment ~~leases, direct financing leases and operating leases~~charge. ~~The~~Additionally, the Company ~~believes~~has ~~that~~included in the ~~adoption~~revised statements of ~~this~~cash ~~standard~~flows ~~will likely have~~ a ~~material~~previously-omitted ~~impact~~disclosure to ~~its~~show ~~condensed~~increase ~~consolidated~~or ~~balance~~decrease ~~sheet~~in ~~for~~accounts ~~the~~payable ~~recognition~~for ofadditions ~~certain~~to ~~operating~~property, ~~and~~plant, ~~land lease arrangements as right-of-use assets~~ and ~~lease liabilities~~equipment. The Company isassessed in the ~~process~~materiality of ~~analyzing~~these ~~its~~misstatements ~~lease~~on ~~arrangements~~prior ~~and~~periods’ ~~evaluating~~financial ~~its~~statements ~~systems~~and toconcluded ~~comply~~that ~~with~~these ~~the~~misstatements ~~standards~~were ~~retrospective~~not ~~adoption~~material, ~~requirements. ASC~~individually ~~842~~or ~~supersedes~~in ~~the previous leases standard~~aggregate, ~~ASC~~to ~~840~~any –previously-issued ~~Leases~~financial ~~and~~statements. Refer isto ~~effective~~Note on2 ~~January~~for 1,additional ~~2019, with early adoption permitted~~information.

In April and May 2016, the FASB issued ASU No. 2016-10 – Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing, ASU No. 2016-11 – Revenue Recognition and Derivatives and Hedging – Recession of SEC Guidance, ASU No. 2016-12 – Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients and in December 2016, the FASB issued ASU No. 2016-20 – Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These ASUs each affect the guidance of the new revenue recognition standard in ASU No. 2014-09 – Revenue from Contracts with Customers and related subsequent ASUs. This guidance is effective beginning January 1, 2018. The Company has reviewed its various customer contracts in both of its business segments with a combination of applicable sales, legal, and Revenues

The Company derives its revenues by mining, manufacturing, and processing minerals that its customers purchase for various uses. Revenues are measured by the amount of consideration the Company expects to receive in exchange for transferring its product. The consideration the Company expects to receive is based on volumes and price of product as defined in the underlying contract. Depending on the contract, this may include the cost of transportation and may be net of discounts and rebates. In some instances, revenues also include a separate charge for transportation services the Company provides or arranges for customers.

On January 1, 2018, the Company adopted 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 quarter ended March 31, 2018. Revenues are recognized as each performance obligation within the contract is satisfied; this occurs with the transfer of control of the Company’s product in accordance with delivery methods as defined in the underlying contract. Transfer of control to customers generally occurs when products leave the

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

~~accounting~~Company’s ~~personnel. In~~distribution ~~this~~terminals ~~review~~or, in the ~~Company~~case ~~has identified several indicators~~ of ~~potential~~direct ~~variable consideration~~shipments, ~~including~~when ~~price~~products ~~adjustments~~leave in the ~~contracts~~Company’s asproduction ~~well~~facilities, asand ~~provisions~~customers ~~similar~~arrange tofor ~~take-or-pay~~shipping ~~arrangements~~and ~~that~~handling ~~could~~of ~~modify~~product ~~the~~to ~~timing~~its offinal ~~revenue recognition~~destination. ~~The~~In ~~Company~~those isinstances ~~implementing~~in ~~formal~~which ~~procedures~~transfer toof ~~monitor~~control ~~these~~occurs ~~indicators~~upon ~~but~~delivery ~~currently~~to ~~does~~customers, ~~not~~the ~~believe~~Company ~~they~~arranges ~~will~~for ~~result~~shipping inand ahandling ~~change~~fees inwhich ~~the~~are ~~timing~~recorded ofas ~~revenue~~a ~~recognition~~cost of fulfillment. ~~Should~~Transportation ~~further~~costs ~~information~~to ~~present~~move ~~itself~~product tofrom the ~~contrary, the~~ Company’s ~~intends~~production facilities to ~~use~~its ~~the~~storage ~~modified~~terminals ~~retrospective~~are ~~approach~~borne ~~and~~by ~~will~~the ~~record~~Company aand ~~cumulative-effect~~capitalized ~~adjustment~~into toinventory. These ~~equity~~costs asare ofincluded ~~the~~in ~~beginning~~cost of ~~the~~sales ~~fiscal~~as ~~year~~the ofproducts ~~adoption~~are sold. The Company’s ~~has~~contracts ~~proceeded~~may include one or multiple distinct performance obligations. Revenues are assigned to ~~assessment~~each ~~and~~performance ~~development~~obligation ofbased on its relative standalone selling price, which is generally the ~~expanded~~contractually-stated ~~financial~~price. Refer ~~statement~~to ~~disclosures~~Note 18 for further details.

InAccounts ~~January~~Receivable ~~2017, the FASB issued ASU No. 2017-04~~ – ~~Intangibles~~Contract – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. The ASU eliminates Step 2 from goodwill impairment testing. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. As a result of the ASU, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The ASU is effective beginning January 1, 2020, with early adoption permitted, and applied prospectively. The Company believes that the adoption of this standard will likely not have a material impact on its financial statements and disclosures.Balances

InAccounts ~~March~~receivable ~~2017,~~as ~~the~~presented ~~FASB~~in ~~issued~~the ~~ASU~~consolidated ~~No.~~balance ~~2017-07~~sheets –are ~~Compensation~~related –to ~~Retirement Benefits (Topic 715) – Improving~~ the ~~Presentation~~Company’s ofcontracts ~~Net Periodic Pension Cost~~ and ~~Net~~are ~~Periodic~~recorded ~~Postretirement~~when ~~Benefit~~the ~~Cost. The~~right ~~ASU~~to ~~requires~~consideration ~~that~~becomes anunconditional ~~employer~~at ~~report~~ the ~~service~~amount ~~cost~~management ~~component~~expects into ~~the~~collect. Accounts ~~same~~receivable ~~line~~do ~~item~~not inbear ~~the~~interest ~~income~~if ~~statement~~paid aswhen ~~other~~contractually ~~compensation~~due, ~~costs~~and ~~arising~~payments ~~from~~are ~~services~~generally ~~rendered~~due bywithin ~~the~~thirty ~~pertinent~~to ~~employees~~forty-five ~~during~~days ~~the~~of ~~period as well as appropriately described relevant line items~~invoicing. ~~The~~Accounts ~~ASU~~receivable, ~~also~~net ~~requires~~of ~~only~~allowance ~~the service cost component to be eligible~~ for ~~capitalization~~doubtful ~~when~~accounts, ~~applicable. The~~are ~~ASU~~$179,234 isand ~~effective~~$156,916 ~~beginning~~as ~~January~~of 1March 31, 2018 ~~with~~and ~~early~~December ~~adoption~~31, ~~permitted~~2017, respectively. The ~~income~~Company ~~statement~~typically ~~components~~does ofnot ~~the~~record ~~ASU~~contract ~~should~~assets, beas ~~applied retrospectively while~~ the ~~balance~~transfer ~~sheet component should be applied prospectively. The Company is in the process~~ of ~~evaluating~~control ~~the impact~~ of ~~this~~its ~~new~~products ~~guidance~~results onin ~~its~~an ~~financial~~unconditional ~~statements~~right ~~and~~to ~~disclosures~~receive consideration.

InDeferred ~~August~~Revenues ~~2017, the FASB issued ASU No. 2017-12~~ – ~~Derivatives~~Contract and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities. The ASU 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 effectives, and effectiveness testing. The ASU is effective beginning January 1, 2019, with early adoption permitted. All transition requirement 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. The Company is in the process of evaluating the impact of this new guidance on its financial statements and disclosures. Balances

2The Company enters into certain contracts with customers that include provisions requiring receipt of payment at the inception of the contract. Deferred ~~Inventories,~~revenue ~~net~~is recorded when payment is received or due in advance of the performance obligation. Changes in deferred revenue were as follows:

At September 30, 2017 and December 31, 2016, inventories consisted of the following:

	Three Months Ended March 31,
	2018
Beginning balance	$	8,963
Deferral of revenue		5,000
Recognition of unearned revenue		(678	)
Ending balance	$	13,285

	September 30, 2017			December 31, 2016
Raw materials	$	8,385		$	7,465
Work-in-process		15,371			12,681
Finished goods		45,802			33,760
		69,558			53,906
Less: LIFO reserve		(1,254	)		(1,256	)
Inventories, net	$	68,304		$	52,650

At March 31, 2018 and December 31, 2017, respectively, deferred revenue balances of $9,346 and $5,660 were recorded as current liabilities. At March 31, 2018 and December 31, 2017, respectively, deferred revenue balances of $3,939 and $3,303 were recorded in other long-term liabilities.

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). Topic 606 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, the ASU 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 the ASU 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 quarter ended March 31, 2018. See Note 18 for further details.

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. The ASU 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. The ASU also requires only the service

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

3cost component to be eligible for capitalization when applicable. The ~~Property~~ASU is effective for annual reporting periods beginning after December 15, ~~Plant~~2017 including interim periods within those annual periods with early adoption permitted. The Company has adopted this ASU as of January 1, ~~and~~2018, ~~Equipment~~however, ~~net~~has determined it has no material impact on its consolidated financial statements and disclosures.

AtRecently ~~September~~Issued ~~30,~~Accounting ~~2017~~Pronouncements ~~and December 31, 2016, property, plant, and equipment consisted of the following:~~

	September 30, 2017			December 31, 2016
Land and improvements	$	81,865		$	86,298
Mineral reserves and mine development		306,074			253,766
Machinery and equipment		589,591			596,962
Buildings and improvements		187,584			161,057
Furniture, fixtures, and other		3,486			3,440
Construction in progress		31,406			6,748
		1,200,006			1,108,271
Accumulated depletion and depreciation		(432,598	)		(380,536	)
Property, plant, and equipment, net	$	767,408		$	727,735

In February 2016, the FASB issued ASU No. 2016-02 – Leases (Topic 842), which requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expense on their income statements over the lease term. The ASU also requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for fiscal years, and related interim periods, beginning after December 15, 2018 and early adoption is permitted, and mandates a modified retrospective transition method. The Company believes the adoption of this ASU will likely have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities and is in the process of analyzing its lease portfolio and evaluating systems to comply with adoption.

~~Under~~In ~~ASC~~August ~~360 Property~~2017, ~~Plant, and Equipment,~~ the ~~Company~~FASB isissued ~~required~~ASU toNo. ~~evaluate~~2017-12 ~~the~~– ~~recoverability~~Derivatives ofand ~~the~~Hedging ~~carrying~~(Topic ~~amount~~815) of– ~~its~~Targeted ~~long-lived~~Improvements ~~assets~~to ~~whenever~~Accounting ~~events~~for orHedging ~~changes~~Activities. The inASU ~~circumstances~~expands ~~indicate~~and ~~that~~refines ~~the~~hedge ~~carrying~~accounting ~~amount~~for ofboth ~~the~~nonfinancial ~~asset~~and ~~may~~financial ~~not~~risk becomponents ~~recoverable. Based~~and onaligns the ~~adverse~~recognition ~~business~~and ~~conditions~~presentation ~~and~~of the ~~idling~~effects of ~~certain~~the ~~assets~~hedging ininstrument ~~2016,~~and the ~~Company~~hedged ~~evaluated~~item ~~certain~~in ofthe ~~its~~financial ~~asset~~statements. Subject ~~groups~~matters ~~that~~addressed ~~contained~~include ~~mineral~~risk ~~reserves~~component ~~and~~hedging, ~~other~~accounting ~~long-lived~~for ~~assets~~the ~~contained~~hedged item in ~~the~~fair ~~Proppant~~value ~~Solutions~~hedges ~~segment~~of ~~and~~interest ~~concluded~~rate ~~that~~risk, ~~the~~recognition ~~carrying~~and ~~amounts~~presentation of ~~those~~the ~~assets~~effects ~~were~~of ~~not~~hedging ~~recoverable. Fair~~instruments, ~~value~~amounts ~~was~~excluded ~~determined by prices obtained~~ from ~~third~~the ~~parties~~assessment ~~for~~of ~~the~~hedge ~~assets~~effectiveness, and ~~from~~effectiveness ~~estimating~~testing. The ~~the~~ASU ~~net~~is ~~present~~effective ~~value~~for offiscal ~~the~~years ~~future~~beginning ~~cash~~after ~~flows~~December ~~over~~15, ~~the~~2018, ~~life~~and ofinterim ~~the~~periods ~~assets. Using~~within ~~Level~~those 3fiscal ~~inputs~~years ofwith ~~the~~early ~~fair~~adoption ~~value~~permitted. All ~~hierarchy,~~transition ~~critical~~requirements ~~assumptions~~and ~~for~~elections ~~these~~should ~~valuations~~be ~~included~~applied ~~future~~to ~~selling~~existing ~~prices~~hedging ofrelationships ~~products,~~as ~~future~~of ~~operating costs, and~~ the ~~cost~~date of ~~capital. The~~adoption ~~Company~~and ~~incurred~~reflected ~~$90,654~~as of ~~such~~the ~~asset~~beginning ~~impairments~~of in the ~~nine~~fiscal ~~months~~year ~~ended~~of ~~September 30, 2016~~adoption. ~~These~~The ~~impairments~~Company ~~are~~is ~~recorded as asset impairments~~ in ~~operating expenses in~~ the ~~Condensed~~process ~~Consolidated Statements~~ of ~~Income~~evaluating ~~(Loss). There~~the ~~were~~impact noof ~~such~~this ~~impairments~~new ~~included~~guidance inon ~~the~~its ~~nine~~consolidated ~~months~~financial ~~ended~~statements ~~September~~and ~~30, 2017~~disclosures.

OnIn ~~July~~February 182018, ~~2017,~~ the ~~Company~~FASB ~~entered~~issued ~~into~~ASU aNo. 402018-~~year~~02 ~~lease~~– ~~agreement~~Income ~~for~~Statement ~~approximately~~– ~~3,250~~Reporting ~~acres~~Comprehensive Income (Topic 220): Reclassification of ~~sand~~Certain ~~reserves~~Tax inEffects ~~Winkler~~from ~~County,~~Accumulated ~~Texas~~Other Comprehensive Income. The ~~Company~~FASB ~~has~~is ~~capitalized~~providing ~~the~~ongoing ~~entire~~guidance ~~$40,000~~on ~~leasehold~~certain ~~interest~~accounting ~~obligation~~ and ~~related~~tax ~~exploratory~~effects ~~and~~of ~~transaction~~the ~~costs~~legislation toin ~~mineral~~the ~~reserves~~Tax Cuts and ~~mine~~Jobs ~~development. The~~Act ~~initial~~(the ~~payment~~“Tax ~~of $20~~Act”),~~000~~ which was ~~paid~~enacted atin ~~lease~~December ~~commencement~~2017. ~~The~~Specifically, ~~remaining~~the ~~$20,000~~ASU isallows ~~payable~~a inreclassification ~~two~~from ~~installments~~accumulated ofother ~~$10,000~~comprehensive ~~each~~income ~~upon~~to ~~the~~retained ~~occurrence~~earnings offor ~~certain~~stranded ~~probable~~tax ~~events~~effects resulting from this legislation. The ~~first~~ASU ~~remaining~~is ~~installment~~effective ~~was~~for ~~payable~~fiscal ~~upon~~years ~~the~~beginning ~~issuance~~after ofDecember ~~all federal~~15, ~~state~~2018, and ~~local~~interim ~~permits,~~periods ~~and~~within ~~the~~those ~~final~~fiscal ~~remaining~~years ~~installment~~with isearly ~~payable~~adoption ~~upon~~permitted. The ASU should be applied either in the ~~earlier~~period of ~~two~~adoption ~~years~~or ~~from~~retrospectively ~~the~~to ~~commencement~~each ~~date~~period ofin which the ~~agreement~~effect orof the ~~date~~change in the ~~Company~~U.S. ~~makes~~federal ~~its~~corporate ~~first~~income ~~sale~~tax ~~from~~rate ~~this~~in ~~property~~the Tax Act is recognized. ~~Additionally,~~The ~~the~~ Company is ~~obligated~~in ~~for~~the ~~certain~~process ~~royalty~~of ~~payments~~evaluating ~~based~~the impact of this new guidance on ~~volumes~~its ~~sold~~consolidated financial statements and disclosures.

In ~~October~~March ~~2017~~2018, the ~~Company~~FASB ~~paid~~issued anASU ~~installment~~no. 2018-05 – Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This ASU amends certain SEC material in Topic 740 for the income tax accounting implication of ~~$10,000~~the Tax Act. This ASU adds guidance to the FASB Accounting Standards Codification regarding the Tax Act. The ~~remaining~~additional ~~$10~~guidance,~~000~~ isamong ~~payable~~other ~~when~~things, ~~sand~~includes ~~begins~~accounting tofor beincome ~~sold~~tax ~~from~~effects of the ~~property,~~Tax ~~which~~Act during the ~~Company~~measurement ~~expects~~period ~~within~~and ~~twelve~~required ~~months~~disclosures of the ~~date~~income tax effects of ~~this~~the ~~Report. The~~Tax ~~capitalized~~Act ~~leasehold~~under ~~interest~~a ~~payments~~measurement ~~will~~period ~~begin~~approach. The toASU beis ~~recognized~~effective asupon ~~expense~~inclusion asin ~~production~~the ~~occurs.~~FASB Codification.

2.	Revisions of Previously-Issued Financial Statements

The Company has revised previously-reported results to properly report stripping costs that were previously capitalized when incurred and amortized in subsequent periods. Such costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period the stripping costs are incurred. The Company also revised the asset impairment charge for the quarter ended June 30, 2016 to correct its estimated fair value for an impaired mine property included in the determination of the impairment charge. Additionally, the Company has included in the revised statements of cash flows a previously-

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

4omitted disclosure to show increase or decrease in accounts payable for additions to property, plant, and equipment. The ~~Long~~Company assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that these misstatements were not material, individually or in the aggregate, to any previously-~~Term~~issued ~~Debt~~financial statements. In accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the unaudited condensed consolidated financial statements and notes to consolidated financial statements as of December 31, 2017 and March 31, 2017, and for the period ended March 31, 2017, which are presented herein, have been revised.

AtThe ~~September~~following 30tables show the impact of these revisions on all of the impacted line items from the Company’s (i) unaudited condensed consolidated financial statements for the three months ended March 31, 2017 and (ii) consolidated financial statements as of December 31, 2017 and 2016, ~~long-term~~and ~~debt~~for ~~consisted~~the ofyears ~~the~~ended ~~following~~December 31, 2017, 2016, and 2015:

	September 30, 2017			December 31, 2016
Consolidated Statement of Loss
Term B-2 Loans		671,596			719,632
	Three Months Ended March 31, 2017
Extended Term B-1 Loans		109,760			117,634
	As Reported			Adjustments			As Corrected
Industrial Revenue bond		10,000			10,000
	(in thousands, except per share amounts)
Revolving credit facility and other		72			88
Revenues	$	172,583		$	-		$	172,583
Capital leases, net		8,511			3,634
Cost of goods sold (excluding depreciation, depletion,
Deferred financing costs, net		(5,432	)		(7,975	)
and amortization shown separately)		131,752			2,451			134,203
		794,507			843,013
Operating expenses
Less: current portion		(11,772	)		(10,707	)
Selling, general and administrative expenses		22,470			-			22,470
Long-term debt including leases	$	782,735		$	832,306
Depreciation, depletion and amortization expense		19,442			(2,196	)		17,246
Other operating (income) expense		(1,060	)		-			(1,060	)
Income (loss) from operations		(21	)		(255	)		(276	)
Interest expense		12,537			-			12,537
Income (loss) before benefit from income taxes		(12,558	)		(255	)		(12,813	)
Benefit from income taxes		(1,148	)		(12	)		(1,160	)
Net income (loss)		(11,410	)		(243	)		(11,653	)
Less: Net income attributable to the non-controlling interest		178			-			178
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	$	(11,588	)	$	(243	)	$	(11,831	)
Loss per share
Basic	$	(0.05	)	$	-		$	(0.05	)
Diluted	$	(0.05	)	$	-		$	(0.05	)
Weighted average number of shares outstanding
Basic		223,739		―				223,739
Diluted		223,739		―				223,739

On April 28, 2016, the Company entered into an amendment to the 2013 Amended Credit Agreement that extended the maturity of certain of the Term B-1 Loans to July 15, 2018 (the “2016 Extended Term Loans”). The Company made a prepayment of principal of $69,580 and accrued interest of $227 on April 28, 2016 to the lenders consenting to the amendment.

On October 17, 2016, the Company repurchased $3,000 of the Extended Term B-1 Loans at 91.5% of par. On November 17, 2016, the Company fully prepaid the $16,766 of the Term B-1 Loans due March 2017 as well as the $69,580 of the 2016 Extended Term Loans. On November 29, 2016, the Company repurchased, at an average of 96.3% of par, a total of $213,000 of term loans, which consisted of $37,867 of the Extended Term B-1 Loans and $175,133 of the Term B-2 Loans. The related net gain on the October and November 2016 debt repurchases was $5,110. On June 27, 2017, the Company prepaid $50,000 of term loans at par, which consisted of $42,979 of the Term B-2 Loans and $7,021 of the Extended Term B-1 Loans and recognized expenses of $389 relating to the write-off of unamortized capitalized debt issuance costs.

As of September 30, 2017, the Term B-2 Loans, Extended Term B-1 Loans, and the Revolving Credit Facility had actual interest rates of 4.7%, 4.7%, and 5.2%, respectively.

The Revolving Credit Facility termination date is September 6, 2018. As of September 30, 2017, the Company’s leverage ratio was 5.20:1.00 which, under the terms of the Revolving Credit Facility, permitted $84,742 available unused capacity on the Revolving Credit Facility and $15,258 committed to outstanding letters of credit. As of September 30, 2017, the Company had not drawn on the Revolving Credit Facility.

The Company has a $10,000 Industrial Revenue Bond outstanding related to the construction of a mining facility in Wisconsin. The bond bears interest, which is payable monthly, at a variable rate. The rate was 0.95% at September 30, 2017. The bond matures on September 1, 2027 and is collateralized by a letter of credit of $10,000.

On November 1, 2017 (the “Closing Date”), the Company entered into a new five-year asset-based revolving credit facility (the “ABL Revolver”) with PNC Capital Markets LLC, as administrative agent, which replaced the existing revolving credit facility. The ABL Revolver has a borrowing capacity of up to $125,000 with an option to increase by $50,000 to $175,000. An initial draw upon closing of the ABL Revolver was used to partially refinance existing term debt, pay expenses associated with debt refinancing, and can be later used for funding capital expenditures, and providing ongoing working capital. The ABL Revolver is interest only at a rate derived from LIBOR plus 1.5% to 2.0%, depending on excess availability under the ABL Revolver, or from a Base Rate, which is the higher of the prime rate, the Federal Funds open rate plus 0.5% and the Daily LIBOR Rate plus 1.0%. The interest payments on the ABL Revolver are payable in quarterly installments, with the principal balance due at November 1, 2022. If the Term Loan B (subsequently defined) is still outstanding, then any balance outstanding under the ABL Revolver is due on May 1, 2022. Availability under the ABL Revolver is based upon an available borrowing base, which includes a specified percentage of eligible accounts receivable and inventory and excludes outstanding letters of credit and applicable reserves. In addition to interest charged on the ABL Revolver, the Company is also obligated

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

to pay certain fees, quarterly in arrears, including letter of credit fees and unused facility fees. The ABL Revolver includes financial covenants requiring a minimum fixed charge coverage ratio of 1.1, based on availability thresholds, and is primarily secured by all accounts receivable and inventory, with security interest second to the Term Loan B (subsequently defined) on substantially all other assets of the Company.

Consolidated Statement of Income
	Year Ended December 31, 2017
	As Reported			Adjustments			As Corrected
	(in thousands, except per share amounts)
Revenues	$	959,795		$	-		$	959,795
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)		659,758			11,443			671,201

Operating expenses
Selling, general and administrative expenses		113,240			-			113,240
Depreciation, depletion and amortization expense		79,144			(9,734	)		69,410
Other operating income		(1,072	)		-			(1,072	)
Income from operations		108,725			(1,709	)		107,016

Interest expense		56,408			-			56,408
Loss on debt extinguishment, net		2,898			-			2,898
Income before benefit from income taxes		49,419			(1,709	)		47,710

Benefit from income taxes		(4,666	)		(1,049	)		(5,715	)
Net income		54,085			(660	)		53,425
Less: Net income attributable to the non-controlling interest		297			-			297
Net income attributable to Fairmount Santrol Holdings Inc.	$	53,788		$	(660	)	$	53,128

Earnings per share
Basic	$	0.24		$	-		$	0.24
Diluted	$	0.23		$	-		$	0.23

Weighted average number of shares outstanding
Basic		223,993		―				223,993
Diluted		229,084		―				229,084

Additionally on the Closing Date, the Company entered into an agreement with Barclays Capital Inc., as administrative agent, for a $700,000 Senior Secured Term Loan (the “Term Loan B”) to refinance all of its existing Term B-2 Loans and Extended Term B-1 Loans. The Term Loan B was issued with original issue discount at 98.5% of face. The Term Loan B, which has a maturity date of November 1, 2022, requires quarterly interest payments and 2.5% annual principal amortization payments for the first half of the loan period, 5.0% for the second half of the loan period, with the balance payable at the maturity date. Interest accrues at the rate of the three-month LIBOR plus 6.0% with a LIBOR floor of 1.0%. The Term Loan B is secured by a first priority security interest in substantially all assets of the Company and its subsidiaries, except for accounts receivable and inventory, in which it has a second priority security interest. The Company has the option to prepay the Term Loan B. Should the Company choose to refinance the Term Loan B, it would be subject to a 1.02% premium if refinanced at a lower interest rate within one year of the Closing Date or a 1.01% premium if refinanced at a lower interest rate within two years of the Closing Date. There are no financial covenants governing the Term Loan B.

The Company anticipates recording a loss on extinguishment of debt in the fourth quarter of 2017, but is unable to make a meaningful estimate of the impact on the Company’s financial statements at the date of filing.

5. Accrued Expenses and Deferred Revenue

At September 30, 2017 and December 31, 2016, accrued expenses and deferred revenue consisted of the following:

	September 30, 2017		December 31, 2016
Accrued payroll and fringe benefits	$	11,068	$	7,018
Accrued bonus		29,280		3,536
Contingent consideration		5,244		2,507
Accrued income taxes		426		421
Accrued real estate taxes		4,401		4,821
Accrued leasehold interest payments		20,000		-
Deferred revenue		5,002		75
Other accrued expenses		10,239		7,807
Accrued expenses and deferred revenue	$	85,660	$	26,185

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

6. Earnings (Loss) per Share

Consolidated Statement of Loss
	Year Ended December 31, 2016
	As Reported			Adjustments			As Corrected
	(in thousands, except per share amounts)
Revenues	$	535,013		$	-		$	535,013
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)		459,714			9,803			469,517

Operating expenses
Selling, general and administrative expenses		79,140			-			79,140
Depreciation, depletion and amortization expense		72,276			(8,962	)		63,314
Goodwill and other asset impairments		93,148			(3,297	)		89,851
Restructuring charges		1,155			-			1,155
Other operating expense		8,899			-			8,899
Loss from operations		(179,319	)		2,456			(176,863	)

Interest expense		65,367			-			65,367
Gain on repurchase of debt, net		(5,110	)		-			(5,110	)
Other non-operating income		(10	)		-			(10	)
Loss before benefit from income taxes		(239,566	)		2,456			(237,110	)

Benefit from income taxes		(99,441	)		10,811			(88,630	)
Net loss		(140,125	)		(8,355	)		(148,480	)
Less: Net income attributable to the non-controlling interest		67			-			67
Net loss attributable to Fairmount Santrol Holdings Inc.	$	(140,192	)	$	(8,355	)	$	(148,547	)

Loss per share
Basic	$	(0.78	)	$	(0.05	)	$	(0.83	)
Diluted	$	(0.78	)	$	(0.05	)	$	(0.83	)

Weighted average number of shares outstanding
Basic		179,429		―				179,429
Diluted		179,429		―				179,429

The table below shows the computation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2017 and 2016, respectively:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Numerator:
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	$	34,944	$	(20,625	)	$	33,839	$	(120,287	)
Denominator:
Basic weighted average shares outstanding		224,082		183,620			223,947		168,904
Dilutive effect of employee stock options, RSUs, and PRSUs		2,318		-			5,357		-
Diluted weighted average shares outstanding		226,400		183,620			229,304		168,904
Earnings (loss) per common share – basic	$	0.16	$	(0.11	)	$	0.15	$	(0.71	)
Earnings (loss) per common share – diluted	$	0.15	$	(0.11	)	$	0.15	$	(0.71	)

The calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2017 excludes 11,066 and 6,389 potential common shares, respectively, because the effect of including these potential common shares would be antidilutive. Potentially dilutive shares of 5,940 and 6,864 were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share in the three and nine months ended September 30, 2016, respectively, because the Company was in a loss position in those periods.

As a result of ASU No. 2016-09 – Compensation – Stock Compensation (Topic 718), windfalls and excess tax benefits are no longer included in the calculation of assumed proceeds and the calculation of diluted weighted average shares outstanding. The Company adopted this guidance as of January 1, 2017 on a prospective basis, which could impact the comparability of earnings per share between periods presented. However, the Company was in a loss position for prior periods presented and, accordingly, basic and diluted earnings per share are calculated in the same manner.

As of September 30, 2017, the amount of outstanding options, restricted stock units (“RSUs”), and performance restricted stock units (“PRSUs”) was 13,611, 1,519, and 584, respectively.

7. Derivative Instruments

The Company enters into interest rate swap agreements as a means to partially hedge its variable interest rate risk on debt instruments. The notional value of these swap agreements is $420,000, which represents a total of approximately 54% of term debt outstanding at September 30, 2017 and effectively fixes the variable rate in a range of 2.92% to 3.12% for the portion of the debt that is hedged. The interest rate swap agreements terminate on 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 an interest rate swap is terminated prior to maturity, gains or losses in accumulated other

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

comprehensive income (loss) remain deferred and are reclassified into earnings in the periods in which the hedged forecasted transaction affects earnings.

Consolidated Statement of Loss
	Year Ended December 31, 2015
	As Reported			Adjustments			As Corrected
	(in thousands, except per share amounts)
Revenues	$	828,709		$	-		$	828,709
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)		608,845			7,175			616,020

Operating expenses
Selling, general and administrative expenses		85,191			-			85,191
Depreciation, depletion and amortization expense		66,754			(6,348	)		60,406
Goodwill and other asset impairments		87,476			-			87,476
Restructuring charges		9,221			-			9,221
Other operating expense		1,357			(378	)		979
Loss from operations		(30,135	)		(449	)		(30,584	)

Interest expense		62,242			-			62,242
Other non-operating expense		1,492			-			1,492
Loss before benefit from income taxes		(93,869	)		(449	)		(94,318	)

Benefit from income taxes		(1,939	)		(164	)		(2,103	)
Net loss		(91,930	)		(285	)		(92,215	)
Less: Net income attributable to the non-controlling interest		205			-			205
Net loss attributable to Fairmount Santrol Holdings Inc.	$	(92,135	)	$	(285	)	$	(92,420	)

Loss per share
Basic	$	(0.57	)	$	-		$	(0.57	)
Diluted	$	(0.57	)	$	-		$	(0.57	)

Weighted average number of shares outstanding
Basic		161,297		―				161,297
Diluted		161,297		―				161,297

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.

The following table summarizes the fair values and the respective classification in the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016:

		Assets (Liabilities)
Interest Rate Swap Agreements	Balance Sheet Classification	September 30, 2017			December 31, 2016
Designated as cash flow hedges	Other long-term liabilities	$	(10,140	)	$	(14,488	)
Designated as cash flow hedges	Other assets		-			39
		$	(10,140	)	$	(14,449	)

In order to represent the ineffective portion of interest rate swap agreements designated as hedges, the Company recognized in interest expense the following in the three and nine months ended September 30, 2017 and 2016:

Derivatives in	Location of Gain (Loss)
ASC 815-20 Cash Flow	Recognized in Income on	Three Months Ended September 30,					Nine Months Ended September 30,
Hedging Relationships	Derivative (Ineffective Portion)	2017		2016			2017			2016
Interest rate swap agreements	Interest expense (income)	$	3	$	(153	)	$	(71	)	$	46
		$	3	$	(153	)	$	(71	)	$	46

The Company currently expects $5,260 to be reclassified from accumulated other comprehensive income (loss) into interest expense within the next twelve months, although this amount could be impacted by the early termination of an interest rate swap agreement that occurred after period-end, and the refinancing of the Company’s long-term debt, as detailed in Note 4.

8. Fair Value Measurements

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 the acquisition of Self-Suspending Proppant LLC (“SSP”) 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 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.

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

The carrying 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 fair value of the Extended Term B-1 Loans and the Term B-2 Loans differs from amortized cost 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 following table presents the fair value as of September 30, 2017 and December 31, 2016 for the Company’s long-term debt:

Consolidated Statement of Comprehensive Loss
	Three Months Ended March 31, 2017
	As Reported			Adjustments			As Corrected
	(in thousands)
Net loss	$	(11,410	)	$	(243	)	$	(11,653	)
Other comprehensive income, before tax
Foreign currency translation		(39	)		-			(39	)
Pension obligations		61			-			61
Change in fair value of derivative agreements		1,613			-			1,613
Total other comprehensive income, before tax		1,635			-			1,635
Provision for income taxes related to items of other comprehensive income		1,316			-			1,316
Comprehensive loss, net of tax		(11,091	)		(243	)		(11,334	)
Comprehensive income attributable to the non-controlling interest		178			-			178
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.	$	(11,269	)	$	(243	)	$	(11,512	)

	Quoted Prices		Other
Consolidated Statement of Comprehensive Income
	in Active		Observable			Unobservable
	Year Ended December 31, 2017
	Markets		Inputs			Inputs
	As Reported		Adjustments			As Corrected
Long-Term Debt Fair Value Measurements	(Level 1)		(Level 2)			(Level 3)		Total
	(in thousands)
September 30, 2017
Net income	$	54,085	$	(660	)	$	53,425
Term B-2 Loans		-		666,025			-		666,025
Other comprehensive income, before tax
Extended Term B-1 Loans		-		107,979			-		107,979
Foreign currency translation		555		-			555
	$	-	$	774,004		$	-	$	774,004
Pension obligations		336		-			336
December 31, 2016
Change in fair value of derivative agreements		5,863		-			5,863
Term B-2 Loans		-		699,683			-		699,683
Total other comprehensive income, before tax		6,754		-			6,754
Extended Term B-1 Loans		-		114,308			-		114,308
Provision for income taxes related to items of other comprehensive income		2,850		-			2,850
	$	-	$	813,991		$	-	$	813,991
Comprehensive income, net of tax		57,989		(660	)		57,329
Comprehensive income attributable to the non-controlling interest		297		-			297
Comprehensive income attributable to Fairmount Santrol Holdings Inc.	$	57,692	$	(660	)	$	57,032

The following table presents the amounts carried at fair value as of September 30, 2017 and December 31, 2016 for the Company’s other financial instruments. Fair value of interest rate swap agreements is based on the present value of the expected future cash flows, considering the risks involved, and using discount rates appropriate for the maturity date. These are determined using Level 2 inputs.

	Quoted Prices		Other
	in Active		Observable			Unobservable
	Markets		Inputs			Inputs
Recurring Fair Value Measurements	(Level 1)		(Level 2)			(Level 3)		Total
September 30, 2017
Interest rate swap agreements	$	-	$	(10,140	)	$	-	$	(10,140	)
	$	-	$	(10,140	)	$	-	$	(10,140	)
December 31, 2016
Interest rate swap agreements	$	-	$	(14,449	)	$	-	$	(14,449	)
	$	-	$	(14,449	)	$	-	$	(14,449	)

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

9. Common Stock and Stock-Based Compensation

Consolidated Statement of Comprehensive Loss
	Year Ended December 31, 2016
	As Reported			Adjustments			As Corrected
	(in thousands)
Net loss	$	(140,125	)	$	(8,355	)	$	(148,480	)
Other comprehensive loss, before tax
Foreign currency translation		(774	)		-			(774	)
Pension obligations		425			-			425
Change in fair value of derivative agreements		(3,018	)		-			(3,018	)
Total other comprehensive loss, before tax		(3,367	)		-			(3,367	)
Benefit from income taxes related to items of other comprehensive loss		(2,058	)		-			(2,058	)
Comprehensive loss, net of tax		(141,434	)		(8,355	)		(149,789	)
Comprehensive income attributable to the non-controlling interest		67			-			67
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.	$	(141,501	)	$	(8,355	)	$	(149,856	)

The Company granted options to purchase 464 and 1,740 shares of common stock in the nine months ended September 30, 2017 and 2016, respectively. The average grant date fair value was $9.73 and $2.24 for options issued in the nine months ended September 30, 2017 and 2016, respectively. The Company issued RSUs of 377 and 1,025 in the nine months ended September 30, 2017 and 2016, respectively. The Company issued PRSUs of 142 and 481 in the nine months ended September 30, 2017 and 2016, respectively.

Consolidated Statement of Comprehensive Loss
	Year Ended December 31, 2015
	As Reported			Adjustments			As Corrected
	(in thousands)
Net loss	$	(91,930	)	$	(285	)	$	(92,215	)
Other comprehensive loss, before tax
Foreign currency translation		(5,051	)		-			(5,051	)
Pension obligations		222			-			222
Change in fair value of derivative agreements		(1,836	)		-			(1,836	)
Total other comprehensive loss, before tax		(6,665	)		-			(6,665	)
Benefit from income taxes related to items of other comprehensive loss		(1,780	)		-			(1,780	)
Comprehensive loss, net of tax		(96,815	)		(285	)		(97,100	)
Comprehensive income attributable to the non-controlling interest		205			-			205
Comprehensive loss attributable to Fairmount Santrol Holdings Inc.	$	(97,020	)	$	(285	)	$	(97,305	)

				Weighted					Weighted		Performance			Weighted
				Average Exercise		Restricted			Average Price at		Restricted			Average Price at
	Options			Price, Options		Stock Units			RSU Issue Date		Stock Units			PRSU Issue Date
Outstanding at December 31, 2016		13,598		$	6.45		1,459		$	5.10		458		$	2.28
Granted		464			9.73		377			9.83		142			9.87
Exercised		(165	)		3.39		(251	)		2.62		-			-
Forfeited		(238	)		7.91		(66	)		6.20		(16	)		3.54
Expired		(48	)		15.96		-			-		-			-
Outstanding at September 30, 2017		13,611		$	6.56		1,519		$	6.64		584		$	4.10

The Company recorded $7,582 and $7,366 of stock compensation expense related to these options, RSUs, and PRSUs for the nine months ended September 30, 2017 and 2016, respectively. Stock compensation expense in the nine months ended September 30, 2016 included approximately $2,135 related to a modification of the retirement provisions of the Company’s Long Term Incentive Plans. The modification allows retirement-eligible individuals (defined as age 55, plus 10 years of service) to continue to vest in options following retirement and also allows retired participants to exercise options for up to 10 years from grant date. The modification also accelerates vesting and related expense for awards granted to retirement-eligible individuals. Stock compensation expense is included in selling, general, and administrative expenses on the Consolidated Statements of Income (Loss) and in additional paid-in capital on the Consolidated Balance Sheets.

10. Income Taxes

The Company computes and applies to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts. Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.

For the three months ended September 30, 2017, the Company recorded tax expense of $2,754 on income before income taxes of $37,673 resulting in an effective tax rate of 7.3%, compared to a tax benefit of $20,013 on a loss before income taxes of $40,636 resulting in an effective tax rate of 49.2% for the same period of 2016. The decrease in the effective tax rate is primarily attributable to the impact of a tax benefit from a loss carryback recorded in 2016 and an increase in depletion applied against forecasted results in 2017 as compared to 2016, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the three months ended September 30, 2017. The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.

For the nine months ended September 30, 2017, the Company recorded tax expense of $2,126 on income before income taxes of $36,158 resulting in an effective tax rate of 5.9%, compared to a tax benefit of $98,786 on a loss before income taxes of $219,058 resulting in an effective tax rate of 45.1% for the same period of 2016. The decrease in the effective tax rate is primarily attributable to the impact of a tax benefit from a loss carryback recorded in 2016, an increase in depletion applied against forecasted results in 2017, as compared to 2016 and discrete tax benefits related to stock compensation, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the nine months ended September 30, 2017. The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

11. Defined Benefit Plans

Consolidated Balance Sheet
	December 31, 2017
	As Reported			Adjustments			As Corrected
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	127,967		$	-		$	127,967
Accounts receivable, net of allowance for doubtful accounts of $2,003
at December 31, 2017		156,916			-			156,916
Inventories, net		70,528			-			70,528
Prepaid expenses and other assets		6,841			-			6,841
Refundable income taxes		924			-			924
Total current assets		363,176			-			363,176

Property, plant and equipment, net		785,513			(29,225	)		756,288
Deferred income taxes		350			-			350
Goodwill		15,301			-			15,301
Intangibles, net		93,268			-			93,268
Other assets		7,711			-			7,711
Total assets	$	1,265,319		$	(29,225	)	$	1,236,094

Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	19,189		$	-		$	19,189
Accounts payable		70,633			-			70,633
Accrued expenses		74,007			-			74,007
Deferred revenue		5,660			-			5,660
Total current liabilities		169,489			-			169,489

Long-term debt		729,741			-			729,741
Deferred income taxes		3,606			(1,177	)		2,429
Other long-term liabilities		42,189			-			42,189
Total liabilities		945,025			(1,177	)		943,848

Commitments and contingent liabilities
Equity
Preferred stock: $0.01 par value, 100,000 authorized shares
Shares outstanding: 0 at December 31, 2017		-			-			-
Common stock: $0.01 par value, 1,850,000 authorized shares
Shares issued: 242,366 at December 31, 2017
Shares outstanding: 224,291 at December 31, 2017		2,423			-			2,423
Additional paid-in capital		299,912			-			299,912
Retained earnings		318,207			(28,048	)		290,159
Accumulated other comprehensive loss		(15,098	)		-			(15,098	)
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock		605,444			(28,048	)		577,396
Less: Treasury stock at cost
Shares in treasury: 18,075 at December 31, 2017		(285,520	)		-			(285,520	)
Total equity attributable to Fairmount Santrol Holdings Inc.		319,924			(28,048	)		291,876
Non-controlling interest		370			-			370
Total equity		320,294			(28,048	)		292,246
Total liabilities and equity	$	1,265,319		$	(29,225	)	$	1,236,094

The Company maintains two defined benefit pension plans, the Wedron pension plan and the Troy Grove pension plan, covering union employees at certain facilities that provide benefits based upon years of service or a combination of employee earnings and length of service. The benefits under the Wedron plan were frozen effective December 31, 2012 and the benefits under the Troy Grove plan were frozen effective December 31, 2016.

Net periodic benefit cost recognized for other Company defined benefit pension plans for the three and nine months ended September 30, 2017 and 2016 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Components of net periodic benefit cost
Service cost	$	-			21		$	-		$	63
Interest cost		89			87			267			261
Expected return on plan assets		(127	)		(120	)		(381	)		(360	)
Amortization of prior service cost		-			-			-			-
Amortization of net actuarial loss		61			66			183			175
Net periodic benefit cost	$	23		$	54		$	69		$	139

The Company contributed $53 and $59 during the nine months ended September 30, 2017 and 2016, respectively. Total expected employer contributions during the year ending December 31, 2017 are $69.

12. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) attributable to Fairmount Santrol Holdings Inc. at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017
	Gross			Tax Effect		Net Amount
Foreign currency translation	$	(10,037	)	$	1,348	$	(8,689	)
Additional pension liability		(3,406	)		1,291		(2,115	)
Unrealized gain (loss) on interest rate hedges		(9,269	)		3,323		(5,946	)
	$	(22,712	)	$	5,962	$	(16,750	)

	December 31, 2016
	Gross			Tax Effect		Net Amount
Foreign currency translation	$	(10,804	)	$	2,533	$	(8,271	)
Additional pension liability		(3,589	)		1,291		(2,298	)
Unrealized gain (loss) on interest rate hedges		(13,146	)		4,713		(8,433	)
	$	(27,539	)	$	8,537	$	(19,002	)

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

The following table presents the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2017:

Consolidated Balance Sheet
	December 31, 2016
	As Reported			Adjustments			As Corrected
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	194,069		$	-		$	194,069
Accounts receivable, net of allowance for doubtful accounts of $3,055
at December 31, 2016		78,942			-			78,942
Inventories, net		52,650			-			52,650
Prepaid expenses and other assets		7,065			-			7,065
Refundable income taxes		21,077			-			21,077
Total current assets		353,803			-			353,803

Property, plant and equipment, net		727,735			(27,514	)		700,221
Deferred income taxes		1,244			-			1,244
Goodwill		15,301			-			15,301
Intangibles, net		95,341			-			95,341
Other assets		9,486			-			9,486
Total assets	$	1,202,910		$	(27,514	)	$	1,175,396

Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	10,707		$	-		$	10,707
Accounts payable		37,263			-			37,263
Accrued expenses		26,110			-			26,110
Deferred revenue		75			-			75
Total current liabilities		74,155			-			74,155

Long-term debt		832,306			-			832,306
Deferred income taxes		7,057			(128	)		6,929
Other long-term liabilities		38,272			-			38,272
Total liabilities		951,790			(128	)		951,662

Commitments and contingent liabilities
Equity
Preferred stock: $0.01 par value, 100,000 authorized shares
Shares outstanding: 0 at December 31, 2016		-			-			-
Common stock: $0.01 par value, 1,850,000 authorized shares
Shares issued: 242,267 at December 31, 2016
Shares outstanding: 223,601 at December 31, 2016		2,422			-			2,422
Additional paid-in capital		297,649			-			297,649
Retained earnings		264,852			(27,386	)		237,466
Accumulated other comprehensive loss		(19,002	)		-			(19,002	)
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock		545,921			(27,386	)		518,535
Less: Treasury stock at cost
Shares in treasury: 18,666 at December 31, 2016		(294,874	)		-			(294,874	)
Total equity attributable to Fairmount Santrol Holdings Inc.		251,047			(27,386	)		223,661
Non-controlling interest		73			-			73
Total equity		251,120			(27,386	)		223,734
Total liabilities and equity	$	1,202,910		$	(27,514	)	$	1,175,396

	Nine Months Ended September 30, 2017
							Unrealized
	Foreign			Additional			gain (loss)
	currency			pension			on interest
	translation			liability			rate hedges			Total
Beginning balance	$	(8,271	)	$	(2,298	)	$	(8,433	)	$	(19,002	)
Other comprehensive income (loss)
before reclassifications		(418	)		-			(829	)		(1,247	)
Amounts reclassified from accumulated
other comprehensive income (loss)		-			183			3,316			3,499
Ending balance	$	(8,689	)	$	(2,115	)	$	(5,946	)	$	(16,750	)

The following table presents the reclassifications out of accumulated other comprehensive income (loss) during the nine months ended September 30, 2017:

	Amount reclassified
	from accumulated
Details about accumulated other	other comprehensive			Affected line item on
comprehensive income (loss)	income (loss)			the statement of income (loss)
Change in fair value of derivative swap agreements
Interest rate hedging contracts	$	5,170		Interest expense
Tax effect		(1,854	)	Tax expense (benefit)
	$	3,316		Net of tax
Amortization of pension obligations
Prior service cost	$	-		Cost of sales
Actuarial losses		183		Cost of sales
		183		Total before tax
Tax effect		-		Tax expense
		183		Net of tax
Total reclassifications for the period	$	3,499		Net of tax

13. Commitments and Contingent Liabilities

The Company has entered into numerous mineral rights agreements, in which payments under the agreements are expensed as incurred. Certain agreements require annual payments while other agreements require payments based upon annual tons mined and others require a combination thereof. As of September 30, 2017, the Company is obligated for an additional $20,000 in future leasehold interest payments for the July 2017 Winkler County, Texas transaction, of which $10,000 was paid in October 2017. Please refer to Note 3 for further detail.

The Company has entered into agreements with third party terminal operators whereby certain minimum payments are due regardless of terminal utilization.

The Company leases certain machinery, equipment (including railcars), buildings and office space under operating lease arrangements. Total rent expense associated with these leases was $40,625 and $51,130 for the nine months ended September 30, 2017 and 2016, respectively.

The Company is subject to a contingent consideration arrangement related to the purchase of SSP, which was accounted for as an acquisition of a group of assets. The contingent consideration is based on a fixed percentage of the cumulative product margin, less certain adjustments, generated by sales of Propel SSP® and other products incorporating the SSP technology for five years commencing on October 1, 2015. The Company entered into an

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

amendment to the SSP purchase 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 SSP technology to secure such $15,000. The amendment does not alter the final threshold earnout amount, which continues to be $195,000 (inclusive of the $45,000 payment, if any) by October 1, 2020. In the event the Company does not make the final threshold earnout payment, the Company would continue to retain a portion of the ownership interest in the technology, the right to a portion of future profits and would no longer be obligated for future earnout payments. The contingent consideration is accrued and capitalized as part of the cost of the acquired technology from the SSP acquisition at the time a payment is probable and reasonably estimable. Based upon current information, as of September 30, 2017, the Company has capitalized and accrued $7,974, which approximates fair value and represents the estimate of the total remaining aggregate earnout payments the Company now intends to pay through October 1, 2020.

Consolidated Statement of Cash Flows
	Three Months Ended March 31, 2017
	As Reported			Adjustments			As Corrected
	(in thousands)
Net loss	$	(11,410	)	$	(243	)	$	(11,653	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and depletion		17,530			(2,196	)		15,334
Amortization		3,130			-			3,130
Reserve for doubtful accounts		(447	)		-			(447	)
Gain on disposal of fixed assets		(714	)		-			(714	)
Deferred income taxes and taxes payable		119			(12	)		107
Stock compensation expense		2,416			-			2,416
Change in operating assets and liabilities:
Accounts receivable		(15,956	)		-			(15,956	)
Inventories		(9,038	)		-			(9,038	)
Prepaid expenses and other assets		(1,078	)		1,945			867
Refundable income taxes		1,945			(1,945	)		-
Accounts payable		12,981			-			12,981
Accrued expenses and deferred revenue		26,489			(26,489	)		-
Accrued expenses		-			9,744			9,744
Deferred revenue		-			16,969			16,969
Net cash provided by operating activities		25,967			(2,227	)		23,740

Cash flows from investing activities
Proceeds from sale of fixed assets		957			-			957
Capital expenditures and stripping costs		(7,025	)		2,451			(4,574	)
Other investing activities		(758	)		758			-
Net cash used in investing activities		(6,826	)		3,209			(3,617	)

Cash flows from financing activities
Payments on term loans		(2,170	)		-			(2,170	)
Payments on capital leases and other long-term debt		(817	)		-			(817	)
Proceeds from share-based awards exercised or distributed		486			-			486
Tax payments for withholdings on share-based awards exercised or distributed		-			(982	)		(982	)
Transactions with non-controlling interest		(1	)		-			(1	)
Net cash used in financing activities		(2,502	)		(982	)		(3,484	)

Foreign currency adjustment		(44	)		-			(44	)
Increase in cash and cash equivalents		16,595			-			16,595

Cash and cash equivalents:
Beginning of period		194,069			-			194,069
End of period	$	210,664		$	-		$	210,664

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	$	11,717
Income taxes refunded		(1,601	)
Non-cash investing activities:
Equipment purchased under capital leases	$	4,175
Decrease in accounts payable for additions to property, plant, and equipment		(1,301	)

Fairmount Santrol Holdings Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share and acreage data)

(Unaudited)

Consolidated Statement of Cash Flows
	Year Ended December 31, 2017
	As Reported			Adjustments			As Corrected
	(in thousands)
Net income	$	54,085		$	(660	)	$	53,425
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion		71,397			(9,734	)		61,663
Amortization		12,784			-			12,784
Reserve for doubtful accounts		(387	)		-			(387	)
Write-off of deferred financing costs		389			-			389
Loss on debt extinguishment, gross		2,898			-			2,898
Inventory write-downs and reserves

Filing Compare · Bison Merger Sub I, LLC