NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Emerge Energy Services LP (“Emerge”) is a Delaware limited partnership that completed its initial public offering (“IPO”) on May 14, 2013 to become a publicly traded partnership. The combined entities of Superior Silica Sands LLC (“SSS”), a Texas limited liability company, Allied Energy Company LLC (“AEC”), an Alabama limited liability company, and Emerge Energy Services Operating LLC (“Emerge Operating”), a Delaware limited liability company, represent the predecessor for accounting purposes (the “Predecessor”) of Emerge. Emerge acquired Direct Fuels LLC (“Direct Fuels”) in a business combination concurrent with the IPO on May 14, 2013,
References to the “Partnership,” “we,” “our” or “us” when used for dates or periods ended prior to the IPO, refer collectively to the Predecessor. References to the “Partnership,” “we,” “our” or “us” when used for dates or periods ended on or after the IPO, refer collectively to Emerge and all of its subsidiaries, including Direct Fuels.
We are a growth-oriented energy services company engaged in the business of mining, producing, and distributing silica sand that is a key input for the hydraulic fracturing of oil and gas wells. The Sand business conducts mining and processing operations from facilities located in Wisconsin and Texas. In addition to mining and processing silica sand for the oil and gas industry, the Sand business sells its product for use in building products and foundry operations.
The Fuel business operates transmix processing facilities located in the Dallas-Fort Worth area and in Birmingham, Alabama. The Fuel business also offers third-party bulk motor fuel storage and terminal services, biodiesel refining, sale and distribution of wholesale motor fuels, reclamation services (which consists primarily of cleaning bulk storage tanks used by other petroleum terminal and others) and blending of renewable fuels.
On August 31, 2016, we entered into an Amended and Restated Purchase and Sale Agreement, dated August 31, 2016 (the “Restated Purchase Agreement”), with Susser Petroleum Operating Company LLC and Sunoco LP (together, “Sunoco”). The Restated Purchase Agreement amended and restated in its entirety the previously disclosed Purchase and Sale Agreement, dated June 23, 2016, between the Partnership and Sunoco in connection with the closing of the sale by Emerge to Sunoco of all of the issued and outstanding ownership interests in our Fuel business. Pursuant to the Restated Purchase Agreement, Sunoco paid Emerge a purchase price of approximately $167.7 million in cash (subject to certain working capital and other adjustments in accordance with the terms of the Restated Purchase Agreement), of which $14.25 million is placed into several escrow accounts to satisfy potential claims from Sunoco for indemnification under the Restated Purchase Agreement. Any escrowed funds remaining after certain periods of time set forth in the Restated Purchase Agreement will be released to Emerge, provided that no unsatisfied indemnity claims exist at such time.
Accordingly, at March 31, 2016, the assets and liabilities of our fuel business were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented. We now operate our continuing business in a single sand segment. We report silica sand activities as our continuing operations and fuel operations as our discontinued operations.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2015 Annual Report on Form 10-K. These financial statements include the accounts of all of our subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications do not impact net income and do not reflect a material change in the information previously presented in our Condensed Consolidated Statements of Operations.
NOTE 2 – DISCONTINUED OPERATIONS
At March 31, 2016, the assets and liabilities of our fuel business were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented in accordance with ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
Summarized assets and liabilities of the fuel business, classified as held for sale as of March 31, 2016 and December 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
($ in thousands)
|
|
Trade and other receivables, net
|
$
|
11,945
|
|
|
$
|
8,247
|
|
|
Inventories
|
6,482
|
|
|
12,457
|
|
|
Prepaid expenses and other current assets
|
3,168
|
|
|
2,749
|
|
|
Current assets held for sale
|
$
|
21,595
|
|
|
$
|
23,453
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
56,627
|
|
|
$
|
54,110
|
|
|
Intangible assets, net
|
22,678
|
|
|
24,124
|
|
|
Goodwill
|
29,264
|
|
|
29,264
|
|
|
Other assets, net
|
44
|
|
|
43
|
|
|
Long-term assets held for sale
|
$
|
108,613
|
|
|
$
|
107,541
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
4,777
|
|
|
$
|
10,088
|
|
|
Accrued liabilities
|
6,155
|
|
|
5,107
|
|
|
Total liabilities held for sale
|
$
|
10,932
|
|
|
$
|
15,195
|
|
|
The following corporate costs were allocated to discontinued operations for the quarter ended March 31, 2016 and all prior periods presented:
|
|
•
|
Interest on the revolver was allocated to the discontinued operation based on the allocation of debt between sand and fuel business.
|
|
|
•
|
Equity-based compensation costs recognized for the Fuel business employees was allocated to discontinued operations.
|
|
|
•
|
The taxes paid on behalf of the Fuel business were compiled by review of prior tax filings and payments. These amounts were allocated to discontinued operations.
|
|
|
•
|
General corporate overhead costs were not allocated to discontinued operations.
|
Summarized results of the discontinued operations for the three months ended March 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
|
|
|
|
($ in thousands)
|
|
Revenues (1)
|
$
|
80,481
|
|
|
$
|
107,717
|
|
|
Cost of goods sold (excluding depreciation, depletion and amortization) (1)
|
75,700
|
|
|
102,075
|
|
|
Depreciation and amortization
|
2,354
|
|
|
2,639
|
|
|
Selling, general and administrative expenses
|
1,598
|
|
|
1,886
|
|
|
Interest expense, net
|
597
|
|
|
288
|
|
|
Other
|
—
|
|
|
(4
|
)
|
|
Income (loss) from discontinued operations before provision for income taxes
|
232
|
|
|
833
|
|
|
Provision for income taxes
|
6
|
|
|
97
|
|
|
Income (loss) from discontinued operations, net of taxes
|
$
|
226
|
|
|
$
|
736
|
|
|
|
|
|
|
|
(1) Fuel revenues and cost of goods sold include excise taxes and similar taxes:
|
$
|
13,083
|
|
|
$
|
11,795
|
|
|
On August 31, 2016, we completed the sale of our Fuel business pursuant to the terms of the Restated Purchase Agreement. The purchase price was $
167.7 million
, subject to adjustment based on actual working capital conveyed at closing. The following escrow accounts were established at closing:
|
|
•
|
$7 million
of the sales price was withheld as a general escrow associated with certain indemnification obligations. Any unutilized escrow balance, plus any accrued interest thereon, will be paid
54
months from the closing date;
|
|
|
•
|
$4 million
of the sales price was withheld as a hydrotreater escrow to satisfy any cost overruns of the Birmingham hydrotreater completion. Any unutilized escrow balance, along with any accrued interest thereon, will be paid
60
days after the substantial completion of the Birmingham hydrotreater;
|
|
|
•
|
$2.25 million
of the sales price was withheld as the Renewable Fuel Standard (“RFS") escrow account. The unutilized RFS escrow will be released, along with any accrued interest thereon, no later than
four
months from the closing date; and
|
|
|
•
|
$1 million
of the sales price was withheld as a pipeline escrow account. Any unutilized escrow balance, along with any accrued interest thereon, will be released with the general escrow.
|
The following table represents the estimated gain on sale from the Fuel business recognized in the third quarter of 2016 (in thousands). These amounts will be adjusted as more information becomes available during the the third quarter of 2016.
|
|
|
|
|
|
Purchase price
|
$
|
167,736
|
|
|
Adjustments:
|
|
|
Working capital true-up
|
3,398
|
|
|
Other adjustments
|
(2,911
|
)
|
|
General escrow
|
(7,000
|
)
|
|
Hydrotreater escrow
|
(4,000
|
)
|
|
Other escrow
|
(3,250
|
)
|
|
Net proceeds
|
153,973
|
|
|
Less:
|
|
|
Net book value of assets and liabilities sold
|
(127,757
|
)
|
|
Escrow receivable
|
10,597
|
|
|
Transaction costs including commissions
|
(7,320
|
)
|
|
Gain on sale of Fuel business
|
$
|
29,493
|
|
|
3.
OTHER FINANCIAL DATA
Assets held for sale
We consider assets to be held for sale when management commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, we record the carrying value of the assets at the lower of its carrying value or its estimated fair value, less costs to sell. In accordance with generally accepted accounting principles, assets held for sale are not depreciated. We will periodically evaluate the carrying value of our property, plant and equipment based upon the estimated cash flows to be generated by the related assets. If impairment is indicated, a loss will be recognized.
Discontinued Operations
The results of discontinued operations are presented separately, net of tax, from the results of ongoing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by the discontinued segment that may be reasonably segregated from the costs of the ongoing operations of the Company. The assets and liabilities have been accounted for as discontinued operations in our Condensed Consolidated Balance Sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in our Condensed Consolidated Statements of Operations for all periods presented. See Note 2 - Discontinued Operations for further detail.
Allowance for Doubtful Accounts
The allowance for doubtful accounts was
$3.6 million
and
$1.9 million
at
March 31, 2016
and
December 31, 2015
, respectively. Of these amounts, allowance for doubtful accounts for continuing operations totaled
$3.1 million
and
$1.4 million
at
March 31, 2016
and
December 31, 2015
, respectively.
Inventories
Inventories for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Sand finished goods
|
$
|
13,184
|
|
|
$
|
12,224
|
|
|
Sand work in process
|
9,122
|
|
|
17,796
|
|
|
Sand raw materials and supplies
|
93
|
|
|
142
|
|
|
Total
|
$
|
22,399
|
|
|
$
|
30,162
|
|
|
During the first quarter of 2016, we wrote down
$5.4 million
of our sand inventory based on our lower or cost or market analysis. We attribute this write down to declining market conditions and a significant decline in prices.
We classified
$6.5 million
and
$12.5 million
of our inventories related to our fuel business to assets held for sale as of
March 31, 2016
and
December 31, 2015
, respectively. See Note 2 - Discontinued operations for further information.
Property, Plant and Equipment
Property, plant and equipment for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Machinery and equipment (1)
|
$
|
87,357
|
|
|
$
|
87,357
|
|
|
Buildings and improvements (1)
|
66,280
|
|
|
66,215
|
|
|
Land and improvements (1)
|
45,065
|
|
|
45,065
|
|
|
Mineral reserves
|
30,181
|
|
|
30,181
|
|
|
Construction in progress
|
3,312
|
|
|
2,532
|
|
|
Capitalized reclamation costs
|
2,445
|
|
|
2,445
|
|
|
Total cost
|
234,640
|
|
|
233,795
|
|
|
Accumulated depreciation and depletion
|
58,435
|
|
|
54,275
|
|
|
Net property, plant and equipment
|
$
|
176,205
|
|
|
$
|
179,520
|
|
|
(1) Includes assets under capital lease
We classified
$56.6 million
and
$54.1 million
of our property, plant and equipment related to our fuel business to assets held for sale as of
March 31, 2016
and
December 31, 2015
, respectively. See Note 2 - Discontinued operations for further information.
We recognized
$5.1 million
and
$4.7 million
of depreciation and depletion expense for the
three
months ended
March 31, 2016
and
2015
, respectively. Of these amounts, depreciation and depletion expense for continuing operations totaled
$4.2 million
and
$3.8 million
at
March 31, 2016
and
2015
, respectively.
Property, plant and equipment that have been included as part of the assets held for sale are no longer depreciated from the time that they are classified as such. We will periodically evaluate the carrying value of its property, plant and equipment based upon the estimated cash flows to be generated by the related assets. If impairment is indicated, a loss will be recognized.
Intangible Assets Other Than Goodwill
Our intangible assets for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
March 31, 2016:
|
|
|
|
|
|
|
Patents
|
$
|
7,170
|
|
|
$
|
950
|
|
|
$
|
6,220
|
|
|
Supply and transportation agreements
|
542
|
|
|
27
|
|
|
515
|
|
|
Non-compete agreement
|
100
|
|
|
17
|
|
|
83
|
|
|
Total
|
$
|
7,812
|
|
|
$
|
994
|
|
|
$
|
6,818
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
Patents
|
$
|
7,000
|
|
|
$
|
234
|
|
|
$
|
6,766
|
|
|
Supply and transportation agreements
|
471
|
|
|
—
|
|
|
471
|
|
|
Non-compete agreement
|
100
|
|
|
14
|
|
|
86
|
|
|
Total
|
$
|
7,571
|
|
|
$
|
248
|
|
|
$
|
7,323
|
|
|
We classified
$22.7 million
and
$24.1 million
of our intangible assets other than goodwill related to our fuel business to assets held for sale as of
March 31, 2016
and
December 31, 2015
, respectively. See Note 2 - Discontinued operations for further information.
We recognized
$2.2 million
and
$1.7 million
of amortization expense for the
three
months ended
March 31, 2016
and
2015
, respectively.
Of these amounts, amortization expense for continuing operations totaled
$0.7 million
and
$0 million
for the three months ended
March 31, 2016
and
2015
, respectively.
Other Assets, Net
Other assets, net for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Prepaid lease assets, net of current portion*
|
$
|
11,108
|
|
|
$
|
11,796
|
|
|
Other
|
1,434
|
|
|
1,434
|
|
|
Total
|
$
|
12,542
|
|
|
$
|
13,230
|
|
|
|
|
*
|
The cost to transport leased railcars from the manufacturer to our site for initial placement in service is capitalized and amortized over the term of the lease (typically
five
to
seven
years). This balance reflects the non-current portion of these capitalized costs.
|
We classified
$44 thousand
and
$43 thousand
of our other assets, net related to our fuel business to assets held for sale as of
March 31, 2016
and
December 31, 2015
, respectively. See Note 2 - Discontinued operations for further information.
Accrued Liabilities
Accrued liabilities for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Current portion of business acquisition obligations
|
$
|
2,316
|
|
|
$
|
2,843
|
|
|
Logistics
|
1,636
|
|
|
2,486
|
|
|
Deferred compensation
|
1,191
|
|
|
1,191
|
|
|
Salaries and other employee-related
|
767
|
|
|
491
|
|
|
Sales, excise, property and income taxes
|
740
|
|
|
198
|
|
|
Accrued interest
|
734
|
|
|
947
|
|
|
Derivative contract liability
|
727
|
|
|
472
|
|
|
Current portion of contract termination
|
160
|
|
|
135
|
|
|
Sand purchases and royalties
|
145
|
|
|
520
|
|
|
Maintenance
|
76
|
|
|
—
|
|
|
Mining
|
57
|
|
|
—
|
|
|
Purchase of intangible assets
|
—
|
|
|
2,500
|
|
|
Other
|
1,044
|
|
|
1,511
|
|
|
Total
|
$
|
9,593
|
|
|
$
|
13,294
|
|
|
We classified
$6.2 million
and
$5.1 million
of our accrued liabilities related to our fuel business to liabilities held for sale as of
March 31, 2016
and
December 31, 2015
, respectively. See Note 2 - Discontinued operations for further information.
Other Long-term Liabilities
Other long-term liabilities for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Contract and project terminations
|
$
|
5,121
|
|
|
$
|
1,162
|
|
|
Asset retirement obligation due
|
2,591
|
|
|
2,570
|
|
|
Other
|
1,000
|
|
|
1,000
|
|
|
Total
|
$
|
8,712
|
|
|
$
|
4,732
|
|
|
Contract and project terminations
In 2014 and 2015, we began development of sand processing facilities in Independence, Wisconsin and other small projects in Ohio and Missouri. Due to a number of complications, such as an increase in projected operating costs and a decline in the market price and demand for frac sand in early 2015, we determined that these projects were no longer economically viable. In 2015, we recorded a
$9.3
million charge to earnings, of which
$9.2
million related to the Independence, Wisconsin facilities. This charge to earnings included items such as engineering, legal and other professional service fees, site preparation costs, and writedowns of assets to estimated net realizable value.
Management committed to a plan to discontinue these projects in April 2015. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 420,
Exit or Disposal Cost Obligations,
any contract termination charges and estimated values of continuing contractual obligations for which we will receive no future value will be recognized as a charge to earnings as of the contract termination date or cease-use date. We estimated these contract termination charges to be approximately
$1.4 million
. These liabilities will be reviewed periodically and may be adjusted when necessary, but we do not expect any such adjustments to be significant.
During the first quarter of 2016, we negotiated concessions on the majority of our railcar leases pursuant to which we cancelled or deferred deliveries on rail cars and reduced cash payments on a substantial portion of the existing rail cars in our fleets. In return for these concessions, we incurred a contract termination charge of
$4 million
. We issued at par an Unsecured Promissory Note in the aggregate principal amount of
$4 million
with interest payable in cash or, in certain situations, in-kind, when certain financial metrics have been met. This note bears interest at a rate of
five percent
per annum and is due and payable within
30 days
following the date on which financial statements are publicly available covering the first date on which these financial metrics have been met.
The following table illustrates the various contract termination liabilities and exit and disposal reserves included in Accrued liabilities and Other long-term liabilities in our Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
($ in thousands)
|
|
Balance at December 31, 2015
|
$
|
1,297
|
|
|
Contract termination charges
|
4,000
|
|
|
Accretion
|
24
|
|
|
Payments
|
(24
|
)
|
|
Balance at March 31, 2016
|
$
|
5,297
|
|
|
Mining and Wet Sand Processing Agreement
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
.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, restricted cash and equivalents, accounts receivable, accounts payable and debt instruments. The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable are representative of their fair values due to their short maturities. The carrying amounts of our revolving credit facility approximates fair value because the underlying instrument includes provisions that adjust our interest rates based on current market rates.
Retirement Plan
We sponsor a 401(k) plan for substantially all employees that provides for us to match
100%
of participant contributions up to
5%
of the participant’s pay. Additionally, we can make discretionary contributions as deemed appropriate by management. Our employer contributions to these plans for continuing operations totaled
$90 thousand
and
$170 thousand
for the
three
months ended
March 31, 2016
and
2015
, respectively. We classified
$54 thousand
and
$89 thousand
to Income (loss) from discontinued operations, net of taxes for the
three
months ended
March 31, 2016
and
2015
, respectively.
As of July 1, 2016, we have suspended all employer contributions to this plan.
Seasonality
For our Sand business, winter weather affects the months during which we can wash and wet-process sand in Wisconsin. Seasonality is not a significant factor in determining our ability to supply sand to our customers because we accumulate a stockpile of wet sand feedstock during non-winter months. During the winter, we process the stockpiled sand to meet customer requirements. However, we sell sand for use in oil and natural gas production basins where severe weather conditions may curtail drilling activities. This is particularly true in drilling areas located in the northern U.S. and western Canada. If severe winter weather precludes drilling activities, our frac sand sales volume may be adversely affected. Generally, severe weather episodes affect production in the first quarter with effects possibly continuing into the second quarter.
Concentration of Credit Risk
We provide credit, in the normal course of business, to customers located throughout the United States and Canada. We encounter a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. We perform ongoing credit evaluations of our customers and generally do not require collateral. The trade receivables (as a percentage of total trade receivables) as of
March 31, 2016
and
December 31, 2015
from such significant customers are set forth below:
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Customer A
|
12
|
%
|
|
11
|
%
|
|
Customer B
|
*
|
|
|
12
|
%
|
|
Customer C
|
*
|
|
|
12
|
%
|
|
An asterisk indicates balance is less than ten percent.
For continuing operations, the trade receivables (as a percentage of total trade receivables) as of
March 31, 2016
and
December 31, 2015
from such significant customers are set forth below:
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Customer A
|
27
|
%
|
|
16
|
%
|
|
Customer D
|
19
|
%
|
|
10
|
%
|
|
Customer E
|
15
|
%
|
|
13
|
%
|
|
Customer F
|
13
|
%
|
|
*
|
|
|
Customer G
|
12
|
%
|
|
*
|
|
|
Customer B
|
*
|
|
|
17
|
%
|
|
Customer C
|
*
|
|
|
18
|
%
|
|
An asterisk indicates balance is less than ten percent.
Significant customers
No
individual customer represented 10% of total revenues for the
three
months ended
March 31, 2016
, while
one
customer represented
13%
of revenues for the
three
months ended
March 31, 2015
.
The table shows our significant customers for our continuing operations for the three months ended March 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Customer A
|
34
|
%
|
|
*
|
|
|
Customer E
|
18
|
%
|
|
13
|
%
|
|
Customer F
|
*
|
|
|
21
|
%
|
|
Customer C
|
*
|
|
|
27
|
%
|
|
An asterisk indicates revenue is less than ten percent.
Geographical Data
Although we own
no
long-term assets outside the United States, our Sand business began selling product in Canada during 2013. We recognized
$5.7 million
and
$14.0 million
of revenues in Canada for the
three
months ended
March 31, 2016
and
2015
, respectively. All other sales have occurred in the United States.
Interim Indicators of Impairment
Goodwill
The
$29.3 million
balance of goodwill at
March 31, 2016
is related solely to our Fuel business. As of March 31, 2016, we were actively engaged in locating buyers for our fuel business. Accordingly, at March 31, 2016, Goodwill is classified as held for sale on the Condensed Consolidated Balance Sheets.
Long-Lived Assets
We believe the decrease in our common units’ market value is attributable primarily to our Sand business’ decreasing profits and the frac sand industry’s downturn. Therefore, we have assessed the recoverability of long-lived assets for our Sand business, and determined that the carrying values are recoverable from our forecasted cash flows as of
March 31, 2016
.
Recent Accounting Pronouncements
In May 2014, August 2015 and May 2016, the FASB issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
, ASU 2015-14,
Revenue from Contracts with Customers
,
Deferral of the Effective Date
, and ASU 2016-12,
Revenue from Contracts with Customers
,
Narrow-Scope Improvements and Practical Expedients
, respectively, as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual periods beginning after December 15, 2017 with early adoption permitted on January 1, 2017 and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the effect of adopting this new accounting guidance.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements—Going Concern
. This ASU requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are evaluating the effect of adopting this new accounting guidance but do not expect adoption will have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02,
Leases.
This ASU requires lessees to recognize lease assets and lease liabilities generated by contracts longer than a year on their balance sheet. The ASU also requires companies to disclose in the footnotes to their financial statements information about the amount, timing, and uncertainty for the payments they make for the lease agreements. ASU 2016-02 is effective for public companies for annual periods and interim periods within those annual periods beginning after December 31, 2018. Early adoption is permitted for all entities. We are evaluating the effect of adopting this new accounting guidance.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2016. We adopted this ASU as of January 1, 2016. As a result, we changed our accounting policy to recognize forfeitures as they occur. The adoption of ASU 2016-09 did not have a material effect on our consolidated financial statements.
4.
LONG-TERM DEBT
Following is a summary of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Revolving credit facility:
|
|
|
|
|
Principal
|
$
|
301,261
|
|
|
$
|
302,063
|
|
|
Deferred financing costs
|
(6,714
|
)
|
|
(6,125
|
)
|
|
Total long-term debt
|
$
|
294,547
|
|
|
$
|
295,938
|
|
|
Revolving Credit Facility
On June 27, 2014, we entered into an amended and restated revolving credit and security agreement (as amended, the “Credit Agreement”) among Emerge Energy Services LP, as parent guarantor, each of its subsidiaries, as borrowers (the “Borrowers”), and PNC Bank, National Association, as administrative agent and collateral agent (the “agent”), and the lenders thereto. The Credit Agreement matures on June 27, 2019 and, prior to giving effect to the amendments described below, consisted of a
$350 million
revolving credit facility, which includes a sub-limit of up to
$30 million
for letters of credit. Substantially all of the assets of the Borrowers are pledged as collateral under the Credit Agreement.
Borrowings under the Credit Agreement accrue interest at a rate equal to either, at our option, (i) the London interbank offered rate (LIBOR) plus
4.25%
or (ii) a base rate, which will be the base commercial lending rate of the agent, as publicly announced to be in effect from time to time, plus
3.25%
. At March 31, 2016, our outstanding borrowings under the Credit Agreement bore
interest at a weighted-average rate of
5.26%
. We also incur a commitment fee of
0.375%
on committed amounts that are neither used for borrowings nor under letters of credit.
The Credit Agreement contains various covenants and restrictive provisions and requires maintenance of certain financial covenants. For periods prior to June 30, 2018 or such earlier time as our total leverage ratio (as defined in the Credit Agreement) is less than
3.50
to 1.00 as of the end of any two consecutive fiscal quarters (the “ratio compliance date”), we will be subject to the following covenants and restrictions:
|
|
•
|
the
$350 million
total aggregate commitment under the Credit Agreement will be reduced in an amount equal to the net proceeds of any notes offerings we may make in the future;
|
|
|
•
|
we will be required to maintain at least
$25 million
of excess availability (as defined in the Credit Agreement) under the Credit Agreement; and
|
|
|
•
|
we will be required to generate consolidated EBITDA in certain minimum amounts beginning with the quarter ending December 31, 2015 and rolling forward thereafter.
|
After the ratio compliance date, we will be required to maintain the following financial covenants in lieu of the covenants and restrictions in place prior to the ratio compliance date: (i) an interest coverage ratio (as defined in the Credit Agreement) of not less than
3.00
to 1.00 and (ii) a total leverage ratio (as defined in the Credit Agreement) of not greater than
3.50
to 1.00. As of March 31, 2016, our total leverage ratio exceeded the threshold of
3.50
to 1.00.
In addition, the Credit Agreement places restrictions on our ability to commence certain other actions, including:
|
|
•
|
our subsidiaries’ ability to make distributions to us (to permit us to make distributions to unitholders) if, after giving pro forma effect to such distribution, our total leverage ratio would be greater than or equal to
4.00
to 1.00, or the excess availability under the Credit Agreement would be less than the greater of
$43.75 million
or
12.5%
of the total aggregate commitments;
|
|
|
•
|
our ability to enter into certain substantial acquisition or merger agreements with third-party businesses or making certain other investments; and
|
|
|
•
|
our ability to make capital expenditures for growth and maintenance through March 31, 2019 above certain amounts per quarter.
|
On March 1, 2016, we entered into Amendment No. 3 to the Credit Agreement to permit us to incur certain second lien obligations.
As of March 31, 2016, we had undrawn availability under the Credit Agreement totaling
$23.6 million
and, as a result, we were not in compliance with the financial covenant to maintain at least
$25 million
of excess availability. In addition, we failed to generate sufficient consolidated EBITDA for the period ended March 31, 2016 to satisfy the covenant under the Credit Agreement. On April 20, 2016, we notified the agent of this event of default under the Credit Agreement and began discussions with the agent to obtain a waiver regarding the event of default and to otherwise arrive at a long-term solution to the Partnership’s liquidity requirements, including the reduction of outstanding borrowings under the Credit Agreement through the sale of our Fuel business.
On May 20, 2016, we, the Borrowers, the lenders and the agent entered into Amendment No. 4 to the Credit Agreement to permit the Partnership and the Borrowers to issue an unsecured promissory note and warrants to one of our lessors in return for concessions and various long-term leases. On May 20, 2016, we, the Borrowers, the lenders and the agent also entered into Amendment No. 5 to the Credit Agreement. Amendment No. 5, among other things, provided a limited waiver of the event of default under the Credit Agreement for failure to maintain financial covenants as of March 31, 2016 and provided a period of covenant relief with respect to the requirements to maintain
$25 million
of excess availability under the Credit Agreement or to generate the minimum amounts of consolidated EBITDA for the quarter ended March 31, 2016. The limited waiver and covenant relief provided in Amendment No. 5 continued until the earlier of July 8, 2016 or the execution of a definitive agreement for the sale of our Fuel business (as subsequently amended, the “Covenant Reversion Date”).
Prior to the Covenant Reversion Date, we were subject to the following covenants and restrictions:
|
|
•
|
we were restricted from making dividends or distributions to our unitholders, and the Borrowers were restricted from making dividends or distributions to us; and
|
|
|
•
|
we were restricted from making capital expenditures in our Sand business in excess of
$570,000
in the aggregate or from making capital expenditures in our Fuel business for purposes other than completing installation of hydro treaters at the facilities.
|
In addition, Amendment No. 5 increased the interest rates applicable to borrowings under the Credit Agreement to either, at our option, (i) LIBOR plus
5.00%
or (ii) the base rate plus
4.00%
and also provided for the following revisions:
|
|
•
|
the total aggregate commitment under the Credit Agreement was reduced from
$350 million
to
$325 million
and the sublimit on letters of credit was reduced from
$30 million
to
$20 million
;
|
|
|
•
|
the dominion period (as defined in the Credit Agreement), whereby our and our subsidiaries’ cash receipts are swept on a daily basis and used to reduce outstanding borrowings, was extended until the revolving credit facility matures; and
|
|
|
•
|
the threshold amounts for an event of default upon the occurrence of judicial actions, judgments or cross defaults were decreased from
$10 million
to
$5 million
.
|
On May 27, 2016, June 10, 2016, June 15, 2016 and June 17, 2016, we, the Borrowers, the lenders and the agent entered into Amendments No. 6, 7, 8 and 9, respectively, to the Credit Agreement to delay the onset of the Covenant Reversion Date while we negotiated a purchase and sale agreement for the Fuel business. We reached a definitive agreement for the sale of the Fuel business on June 23, 2016. On June 30, 2016, we, the Borrowers, the lenders and the agent entered into Amendment No. 10 to the Credit Agreement for the purpose of further extending the Covenant Reversion Date until the earlier of September 2, 2016 or the closing of the sale of the Fuel business.
On August 31, 2016, we closed the sale of the Fuel business, used the net proceeds therefrom to repay outstanding borrowings under the Credit Agreement and entered into Amendment No. 11 to the Credit Agreement with the Borrowers, the lenders and the agent. Amendment No. 11, among other things, restated the Credit Agreement and provided a full waiver for all defaults or events of default arising out of our failure to comply with the financial covenant to generate minimum amounts of adjusted EBITDA during the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016 and the covenant to maintain the minimum amount of excess availability for any date prior to September 1, 2016.
Pursuant to Amendment No. 11, the Credit Agreement now provides for a maximum
$200 million
revolving credit facility with a
$20 million
sublimit on letters of credit, and requires the Partnership to maintain the following financial covenants:
|
|
•
|
a covenant to maintain
$20 million
of excess availability (as defined in the Credit Agreement), subject to decrease to
$15 million
upon the satisfaction of certain conditions;
|
|
|
•
|
a covenant to limit capital expenditures (as defined in the Credit Agreement) to certain maximum amounts for each quarter through March 31, 2019;
|
|
|
•
|
beginning with the quarter ending June 30, 2017, a covenant to generate consolidated EBITDA (as defined in the Credit Agreement) in certain minimum amounts;
|
|
|
•
|
beginning with the quarter ending March 31, 2018, a covenant to maintain an interest coverage ratio (as defined in the Credit Agreement) of not less than
2.00
to 1.00, which is scheduled to increase to
3.00
to 1.00 for the fiscal quarter ending March 31, 2019; and
|
|
|
•
|
a covenant to raise at least
$31.2 million
of net proceeds from the issuance and sale of common equity by November 30, 2016.
|
Following our entry into Amendment No. 11, we believe that we will be able to maintain compliance with the covenants and restrictions under the Credit Agreement, as amended, for at least the next 12 months.
5.
COMMITMENTS AND CONTINGENCIES
Contractual Obligations
The following table represents the remaining minimum contractual obligations as of
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railcar Leases (1)
|
|
Other Operating Leases (2)
|
|
Royalty Commitments (3)
|
|
Purchase Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Remainder of 2016
|
$
|
21,931
|
|
|
$
|
890
|
|
|
$
|
173
|
|
|
$
|
10,040
|
|
|
2017
|
27,921
|
|
|
597
|
|
|
230
|
|
|
21,026
|
|
|
2018
|
37,027
|
|
|
332
|
|
|
230
|
|
|
24,241
|
|
|
2019
|
37,995
|
|
|
259
|
|
|
230
|
|
|
22,439
|
|
|
2020
|
39,560
|
|
|
254
|
|
|
230
|
|
|
21,342
|
|
|
Thereafter
|
296,630
|
|
|
2,592
|
|
|
1,710
|
|
|
48,614
|
|
|
Total
|
$
|
461,064
|
|
|
$
|
4,924
|
|
|
$
|
2,803
|
|
|
147,702
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
(1,283
|
)
|
|
Total less interest
|
|
|
|
|
|
|
$
|
146,419
|
|
|
|
|
(1)
|
Includes minimum amounts payable under various operating leases for railcars as well as estimated costs to transport leased railcars from the manufacturer to our site for initial placement in service. During the first six months of 2016, we completed negotiations with various railcar lessors pursuant to which we terminated a future order of railcars, deferred future railcar deliveries and reduced and deferred payments on existing leases. We accrued
$4 million
in contract termination charges during the first quarter of 2016. These liabilities are included in Other long-term liabilities in our Condensed Consolidated Balance Sheets. We also incurred
$8 million
for delivery deferrals in the second quarter of 2016. We issued warrants to purchase
370,000
common units representing limited partnership interests in the partnership in exchange of these concessions during the second quarter of 2016. The above amounts include the impact of all concessions.
|
|
|
(2)
|
Includes lease agreements for land, facilities and equipment.
|
|
|
(3)
|
Represents minimum royalty payments for various sand mining locations. The amounts paid will differ based on amounts extracted.
|
|
|
(4)
|
Includes minimum amounts payable under a business acquisition agreement, long-term rail transportation agreements, transload facility agreements, and other purchase commitments.
|
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 business. 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
March 31, 2016
or
December 31, 2015
. In the opinion of management, the outcome of such matters will not have a material adverse effect on our financial position, liquidity or results of operations.
In January 2016, AEC experienced a leak in its proprietary fuel pipeline that connects the bulk storage terminal to the transmix facility located in Birmingham, Alabama. AEC management notified the controlling governmental agencies of this condition, and commenced efforts to locate the leak, determine the cause of the leak, repair the leak, and remediate known contamination to the proximate soils and sub-grade. These efforts remain in progress, and management does not expect the costs to repair and remediate these conditions to have a material impact on our financial position, results of operations, or cash flows.
Property Value Guarantees
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.
6.
RELATED PARTY TRANSACTIONS
Related party transactions for continuing operations included in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Wages and employee-related costs (1)
|
$
|
4,436
|
|
|
$
|
8,754
|
|
|
Lease expense
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Accounts receivable
|
$
|
1,210
|
|
|
$
|
295
|
|
|
Accounts payable and accrued liabilities
|
$
|
858
|
|
|
$
|
553
|
|
|
|
|
(1)
|
We do not have any employees. Our general partner manages our human resource assets, including fringe benefits and other employee-related charges. We routinely and regularly reimburse our general partner for any employee-related costs paid on our behalf, and report such costs as operating expenses.
|
7.
EQUITY-BASED COMPENSATION
Effective May 14, 2013, we adopted our 2013 Long-Term Incentive Plan (the “LTIP”) for providing long-term incentives for employees, directors, and consultants who provide services to us, and provides for the issuance of an aggregate of up to
2,321,968
common units to be granted either as options, restricted units, phantom units, distribution equivalent rights, unit appreciation rights, unit award, profits interest units, or other unit-based award granted under the plan. All of our outstanding grants will be settled through issuance of limited partner common units.
For phantom units granted to employees in 2013, we currently assume a
43
-month vesting period, which represents management’s estimate of the amount of time until all vesting conditions have been met. Concurrent with the closing of a secondary offering in June 2014 and the exercise of the underwriters’ over-allotment in July 2014,
90,686
of these phantom units vested and common units were issued. For other phantom units granted to employees, we assume a
36
to
48
-month vesting period. Restricted units are awarded to our independent directors on each anniversary of our IPO, each with a vesting period of
one
year. Regarding distributions for independent directors and other employees, distributions are credited to a distribution equivalent rights account for the benefit of each participant and become payable generally within
45
days following the date of vesting. As of
March 31, 2016
, the unpaid liability for distribution equivalent rights totaled
$1.5 million
.
In 2016, we granted
21,000
time based phantom units to certain officers to vest in equal installments on each anniversary date of the grant over a period of
two
years.
The following table summarizes awards granted during the
three
months ended
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Units
|
|
Phantom
Units
|
|
Restricted
Units
|
|
Fair Value per Unit
at Award Date
|
|
Outstanding at December 31, 2015
|
225,000
|
|
|
216,804
|
|
|
8,196
|
|
|
$
|
21.22
|
|
|
Granted
|
21,000
|
|
|
21,000
|
|
|
—
|
|
|
$
|
3.28
|
|
|
Vested
|
(2,000
|
)
|
|
(2,000
|
)
|
|
—
|
|
|
$
|
54.00
|
|
|
Forfeitures
|
(5,238
|
)
|
|
(5,238
|
)
|
|
—
|
|
|
$
|
38.18
|
|
|
Outstanding at March 31, 2016
|
238,762
|
|
|
230,566
|
|
|
8,196
|
|
|
$
|
19.00
|
|
|
For the
three
months ended
March 31, 2016
and
2015
, we recorded non-cash equity-based compensation expense of
$0.3 million
and
$2.3 million
, respectively, in selling, general and administrative expenses. Non-cash equity-based compensation expense for continuing operations was
$0.2
million and
$2.0
million for the three months ended
March 31, 2016
and
2015
, respectively.
As of
March 31, 2016
, the unrecognized compensation expense related to the grants discussed above amounted to
$3.0 million
to be recognized over a weighted average of
1.07
years.
8.
INCOME TAXES
Continuing operations
Our provision for income taxes for continuing operations relates to: (i) Texas margin taxes for the Partnership, and (ii) an insignificant amount of Canadian income taxes on SSS earnings in Canada (most of our earnings are exempted under a U.S/Canada tax treaty). For federal income tax purposes, we report our income, expenses, gains, and losses as a partnership not subject to income taxes. As such, each partner is responsible for his or her share of federal and state income tax. Net earnings for financial statement purposes may differ significantly from taxable income reportable to each partner because of differences between the tax basis and financial reporting basis of assets and liabilities.
The composition of our provision for income taxes for continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Texas margin tax
|
$
|
20
|
|
|
$
|
172
|
|
|
Canadian income tax
|
—
|
|
|
9
|
|
|
Total provision for income taxes
|
$
|
20
|
|
|
$
|
181
|
|
|
We are responsible for our portion of the Texas margin tax that is included in our subsidiaries’ consolidated Texas franchise tax returns. For our operations in Texas, the effective margin tax rate is approximately
0.95%
as defined by applicable state law. The margin tax qualifies as an income tax under GAAP, which requires us to recognize the impact of this tax on the temporary differences between the financial statement assets and liabilities and their tax basis attributable to such tax.
Discontinued operations
Our provision for income taxes for discontinued operations relates to (i) Texas margin taxes for Direct Fuels, and (ii) federal and state income taxes for Emerge Energy Distributors Inc. (“Distributor”). Distributor reports its income, expenses, gains, and losses as a corporation and is subject to both federal and state income taxes.
Federal and state income tax expense for discontinued operations for the
three
months ended
March 31, 2016
and
2015
was
$6 thousand
and
$97 thousand
, respectively.
Effective Income Tax Rate
Distributor began operations in May 2013. For the
three
months ended
March 31, 2016
, Distributor’s effective income tax rate was
22%
. For Distributor, there were no significant differences between book and taxable income.
9.
EARNINGS PER COMMON UNIT
We compute basic earnings (loss) per unit by dividing net income (loss) by the weighted-average number of common units outstanding including participating securities. Participating securities include unvested equity-based payment awards that contain non-forfeitable rights to distributions.
Diluted earnings per unit is computed by dividing net income by the weighted-average number of common units outstanding, including participating securities, and increased further to include the number of common units that would have been outstanding had potential dilutive units been exercised. The dilutive effect of restricted units is reflected in diluted net income per unit by applying the treasury stock method. Under FASB ASC 260-10-45,
Contingently Issuable Shares
,
170,720
of our outstanding phantom units are not included in basic or diluted earnings per common unit calculations as of
March 31, 2016
. We incurred a net loss for the three months ended
March 31, 2016
, and therefore excluded all potentially dilutive restricted units from the diluted earnings per unit calculation for that period as their effect would have been anti-dilutive.
Basic and diluted earnings per unit are computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
($ in thousands, except per unit data)
|
|
Net income (loss) from continuing operations
|
$
|
(34,441
|
)
|
|
$
|
8,755
|
|
|
Net income (loss) from discontinued operations
|
226
|
|
|
736
|
|
|
Net Income (loss)
|
$
|
(34,215
|
)
|
|
$
|
9,491
|
|
|
|
|
|
|
|
Weighted average common units outstanding
|
24,121,222
|
|
|
23,718,961
|
|
|
Weighted average phantom units deemed participating securities
|
59,849
|
|
|
409,048
|
|
|
Weighted average number of common units outstanding including participating securities (basic)
|
24,181,071
|
|
|
24,128,009
|
|
|
Weighted average potentially dilutive units outstanding
|
—
|
|
|
2,556
|
|
|
Weighted average number of common units outstanding (diluted)
|
24,181,071
|
|
|
24,130,565
|
|
|
|
|
|
|
|
Basic earnings (loss) per unit:
|
|
|
|
|
Earnings (loss) per common unit from continuing operations
|
$
|
(1.42
|
)
|
|
$
|
0.36
|
|
|
Earnings (loss) per common unit from discontinued operations
|
0.01
|
|
|
0.03
|
|
|
Basic earnings (loss) per common unit
|
$
|
(1.41
|
)
|
|
$
|
0.39
|
|
|
|
|
|
|
|
Diluted earnings (loss) per unit:
|
|
|
|
|
Earnings (loss) per common unit from continuing operations
|
$
|
(1.42
|
)
|
|
$
|
0.36
|
|
|
Earnings (loss) per common unit from discontinued operations
|
0.01
|
|
|
0.03
|
|
|
Diluted earnings (loss) per common unit
|
$
|
(1.41
|
)
|
|
$
|
0.39
|
|
|
10.
SEGMENT INFORMATION
Segment Information
We follow segment reporting in accordance with FASB ASC 280-10,
Disclosures about Segments of an Enterprise and Related Information
. We are actively engaged in locating buyers for our fuel business. Accordingly, at March 31, 2016, we have discontinued segment reporting. The assets and liabilities of the fuel business have been accounted for as assets held for sale in our consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in our consolidated statements of operations for all periods presented.
11.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We follow FASB ASC 820,
Fair Value Measurement
, which defines fair value, establishes a framework for measuring fair value, and specifies disclosures about fair value measurements. This guidance establishes a hierarchy for disclosure of the inputs to valuations used to measure fair value. The hierarchy prioritizes the inputs into three broad levels as follows.
|
|
•
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 inputs are measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources.
|
Our valuation models consider various inputs including (a) mark to market valuations, (b) time value and, (c) credit worthiness of valuation of the underlying measurement.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The following table shows the
three
interest rate swap agreements we entered into during 2013 to manage interest rate risk associated with our variable rate borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement Date
|
|
Effective Date
|
|
Maturity Date
|
|
Notional Amount
|
|
Fixed Rate
|
|
Variable Rate
|
|
Nov. 1, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$25,000,000
|
|
1.33200%
|
|
1 Month LIBOR
|
|
Nov. 7, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$25,000,000
|
|
1.25500%
|
|
1 Month LIBOR
|
|
Nov. 21, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$20,000,000
|
|
1.21875%
|
|
1 Month LIBOR
|
|
Our Fuel business utilizes financial hedging arrangements whereby we hedge a portion of our gasoline and diesel inventory, which reduces our commodity price exposure on some of our activities. The derivative commodity instruments we utilize consist mainly of futures traded on the New York Mercantile Exchange. As of
March 31, 2016
and
December 31, 2015
, we had
2
open commodity derivative contracts to manage fuel price risk.
We do not designate our derivative instruments as hedges under GAAP. As a result, we recognize derivatives at fair value on the consolidated balance sheet with resulting gains and losses reflected in interest expense in continuing operations (for interest rate swap agreements) and cost of goods sold for discontinued operations (for derivative commodity instruments), as reported in the condensed consolidated statements of operations. Our derivative instruments serve the same risk management purpose whether designated as a hedge or not. We derive fair values principally from published market interest rates and fuel price quotes (Level 2 inputs). The precise level of open position commodity derivatives is dependent on inventory levels, expected inventory purchase patterns, and market price trends. We do not use derivative financial instruments for trading or speculative purposes.
The fair values of outstanding derivative instruments and their classifications within our Condensed Consolidated Balance Sheets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Classification
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
640
|
|
|
$
|
621
|
|
|
Assets held for sale
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
727
|
|
|
$
|
472
|
|
|
Accrued liabilities
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
152
|
|
|
Liabilities held for sale
|
|
The effect of derivative instruments, none of which has been designated for hedge accounting, on our Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2016
|
|
2015
|
|
Classification
|
|
|
|
|
|
|
|
|
|
(expense $ in thousands)
|
|
|
|
Interest rate swaps
|
$
|
411
|
|
|
$
|
580
|
|
|
Interest expense, net
|
|
Commodity derivative contracts
|
19
|
|
|
571
|
|
|
Income from discontinued operations
|
|
|
$
|
430
|
|
|
$
|
1,151
|
|
|
|
|
12.
SUPPLEMENTAL CASH FLOW DISCLOSURES
The following supplemental disclosures may assist in the understanding of our Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Cash paid for interest
|
$
|
6,326
|
|
|
$
|
2,485
|
|
|
Cash paid for income taxes, net of refunds
|
$
|
(67
|
)
|
|
$
|
244
|
|
|
Distribution equivalent rights accrued, net of payments
|
$
|
—
|
|
|
$
|
288
|
|
|
Purchases of PP&E and intangible assets accrued but not paid at period-end
|
$
|
2,986
|
|
|
$
|
316
|
|
|
Purchases of PP&E accrued in a prior period and paid in the current period
|
$
|
864
|
|
|
$
|
5,238
|
|
|
13.
SUBSEQUENT EVENTS
On August 8, 2016, we entered into a Securities Purchase Agreement with an institutional investor to issue and sell in a private placement an aggregate principal amount of
$20 million
of the Partnership’s Series A Preferred Units and warrants that may be exercised to purchase common units representing limited partner interests in the Partnership (the “Private Placement”). The Securities Purchase Agreement contains certain customary representations and warranties accompanied by certain indemnification rights and certain customary and other closing conditions. The Private Placement closed on August 15, 2016.