COMMITMENTS AND CONTINGENCIES

Contractual Obligations

The following table presents the minimum contractual obligations for contractual commitments as of December 31, 2015.



	Railcar Leases (1)		Other Operating Leases		Royalty Commitments		Purchase Commitments (2)

	($ in thousands)
Year ending December 31,
2016	$	59,161	$	1,607	$	230	$	27,556
2017	55,500		914		230		23,376
2018	62,448		574		230		24,517
2019	66,618		320		230		22,527
2020	57,908		269		230		21,322
Thereafter	245,376		2,774		1,710		48,805
Total	$	547,011	$	6,458	$	2,860	168,103
Less amount representing interest							(1,304		)
Total less interest							$	166,799


(1)	Includes minimum amounts payable under various operating leases as well estimated costs necessary to transport leased railcars from the manufacturer to our site for initial placement in service for those railcars to be delivered in the future.


(2)	Includes various obligations for services as well as estimated payments for business acquisition obligation, inclusive of expected contingent consideration, based on forecasted volumes.

Operating Leases

We lease railcars, rail track, locomotives, office and terminal facilities, land, and equipment with various terms in connection with our daily operations. Operating lease expense for the years ended December 31, 2015, 2014 and 2013 totaled $35.6 million, $21.5 million and $6.0 million, respectively.

Royalty Commitments

We maintain various royalty agreements related to the extraction of sand in Wisconsin, of which certain agreements require minimum payments if minimum volumes are not extracted on an annual basis. For the years ended December 31, 2015, 2014, and 2013, we met or exceeded our minimum commitment requirements under all of our royalty agreements.

Purchase Commitments

We entered into several transload services agreements in 2014 with terms from five to ten years with minimum annual commitments. In May 2012, we entered into a railway shipping agreement requiring us to pay a shortfall penalty if minimum annual tonnage levels are not shipped for a term of 10 years commencing on December 1, 2012. We maintain minimum annual purchase commitments with a third-party wet sand supplier with an original term of five years. In addition, we acquired certain sand mining and processing assets in a business acquisition for which we will pay the consideration, including estimated contingent consideration, over five to seven years based on volumes of sand extracted (see Note 2 above for further discussion). For the years ended December 31, 2015, 2014 and 2013, we met or exceeded our minimum commitment requirements under all of our purchase agreements.

Capital Lease Obligations

In April 2014, a five-year contract with a sand processor (“Processor”) became effective to support our sand business in Wisconsin. Under this contract, the Processor financed and built a wet wash processing plant near our Wisconsin operations. As part of the agreement, the Processor wet washes our sand, creates stockpiles of washed sand and maintains the plant and equipment. During the term of the agreement the Processor will own the wet plant along with the equipment and other temporary structures used to support this activity. At the end of the five-year term of the agreement or following a default under the contract by the Processor, we have the right to take ownership of the wet plant and other equipment without charge. Subject to certain conditions, ownership of the plant and equipment will transfer to us at the expiration of the term. We accounted for the wet plant as a capital lease obligation. The original capitalized lease asset and corresponding capital lease obligation totaled $3.3 million. Due to higher than anticipated purchase volumes during 2014, we anticipate we will extinguish the capital lease earlier than originally planned. However, we will still be subject to minimum sand purchase obligations after the capital lease is repaid.

Other Commitments and Contingencies

Excise Tax Penalty

In 2012, we received an IRS notice of a penalty totaling $340,000 due to failure to file terminal operator reports in electronic format. We filed these returns in paper format. Management protested the audit findings through IRS appeal channels. On May 29, 2015, IRS offered to reduce the penalty to $50,000 which we accepted and paid on June 9, 2015.

Property Value Assurance

On May 13, 2013, we entered into a mining agreement with the Town of Sioux Creek, Wisconsin (“Sioux Creek”) that addresses local regulations related to the operation of our future facility in Sioux Creek. The agreement expires at the end of twenty years. The agreement covers hours and days of operation, royalty payments, control of light and noise, and a property value guaranty or assurance (“PVA”). The PVA provision requires our guaranty of certain owners' property values, as defined in Sioux Creek's ordinance which could require us to make future payments to the specified property owners, if any. The ordinance states that any adjoining property owner, that was an owner prior to commencement of operations, that markets their property for third-party sale subsequent to commencement of operations may have their property appraised by a real estate appraiser in the State of Wisconsin to determine fair market value as if the mining operation did not exist (if the mine operator and land owner do not agree on the appraiser both may chose an appraiser and the average of the two appraisals shall determine fair market value). Certain provisions allow the mine operator to purchase the property or to reimburse the landowner for any shortfall between the selling price and the fair market value established by appraisal within a six months timeframe.

On November 9, 2013, we entered into a mining agreement with the Town of Auburn, Wisconsin (“Auburn”) that addresses local regulations related to sand mining and sand processing activities at our New Auburn, Wisconsin facility. The agreement expires on December 31, 2043. The agreement covers hours of operation, use of roads, control of light and noise, air quality and fugitive dust, control of waste materials, groundwater standards, and a PVA. The PVA provisions include our guaranty of certain owners' property values, as defined in the agreement, and set forth the terms by which we could be required to make future payments to the specified property owners, if any. We are required to pay the property owner the excess of fair market value over selling price, if any. In addition, if the owner's property fails to sell after 270 days from the date listed for sale, we are obligated to purchase the property for fair market value. The agreement defines fair market value using one of two methods: (i) the value identified in the Town's 2011 tax rolls plus 10%; or, in the event the property owner believes the other method does not accurately reflect fair market value, (ii) a then current appraisal prepared by a third party expert using comparable values for similar properties not located within one-quarter mile of a mine site. In the event the property owner sells the property for an amount exceeding fair market value, we are under no obligation to make payment. The PVA provision runs with the land and is binding on the property owners, us, and their heirs, grantees, representatives, successors, and assigns.

In December 2015, we entered into an agreement to purchase certain properties and assume leases and other related agreements for future development of sand mining and processing facilities in Wisconsin. Given the current challenging market conditions for proppant demand, we do not plan to begin development until the North American oil and gas markets improve. Under a mining agreement with a local town, we have assumed contingent obligations to indemnify owners of approximately 141 properties for diminution of value associated with mine operations and limited moving expenses when each landowner decides to sell a property, even if no mine is yet in operation. As these contingent liabilities cannot be reasonably estimated, no liability has been recorded.

We have not accrued a liability related to the PVAs noted above as management does not believe a future payment is probable or reasonably estimable as of December 31, 2015. We have paid less than $0.1 million for these guarantees to date.

Letters of Credit

As of December 31, 2015, we had various letters of credit outstanding totaling $8.0 million. These letters of credit support various railcar lease obligations as well as reclamation obligations for sand mining properties.

Litigation and Potentially Uninsured Liabilities

We are subject to various claims and litigation arising in the ordinary course of business. We maintain general liability insurance with limits and deductibles that management believes prudent in light of our exposure to loss and the cost of insurance. We had recognized no liabilities as of December 31, 2015 and 2014 related to uninsured claims and litigation, and current uninsured litigation matters are not expected to have a material adverse effect on our financial position, liquidity or results of operations. We expense legal costs related to claims and litigation in the period incurred.

Environmental Matter

On November 21, 2013, the EPA issued a General Notice Letter and Information Request (“Notice”) under Section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), to one of our subsidiaries operating within the Fuel segment. The Notice provides that the subsidiary may have incurred liability with respect to the Reef Environmental site in Alabama, and requested certain information in accordance with Section 107(a) of CERCLA. We timely responded to the Notice. At this time, no specific claim for cost recovery has been made by the EPA (or any other potentially responsible party) against us. There is uncertainty relating to our share of environmental remediation liability, if any, because our allocable share of wastewater is unknown and the total remediation cost is also unknown. Consequently, management is unable to estimate the possible loss or range of loss, if any. We have not recorded a loss contingency accrual as of December 31, 2015 and 2014. In the opinion of management, the outcome of such matters is not expected to have a material adverse effect on our financial position, liquidity or results of operations.