NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION
Organization.
Summit Midstream Partners, LP ("SMLP" or the "Partnership"), a Delaware limited partnership, was formed in May 2012 and began operations in October 2012 in connection with its initial public offering ("IPO") of common units representing limited partner interests. SMLP is a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. Our business activities are conducted through various operating subsidiaries, each of which is owned or controlled by our wholly owned subsidiary holding company, Summit Midstream Holdings, LLC ("Summit Holdings"), a Delaware limited liability company. References to the "Partnership," "we," or "our" refer collectively to SMLP and its subsidiaries.
Summit Midstream GP, LLC (the "general partner"), a Delaware limited liability company, manages our operations and activities. Summit Midstream Partners, LLC ("Summit Investments"), a Delaware limited liability company, is the ultimate owner of our general partner and has the right to appoint the entire board of directors of our general partner. Summit Investments is controlled by Energy Capital Partners II, LLC and its parallel and co-investment funds (collectively, "Energy Capital Partners" or our "Sponsor").
In addition to its approximate
2%
general partner interest in SMLP and SMLP's incentive distribution rights ("IDRs"), Summit Investments has indirect ownership interests in our common units. As of
September 30, 2016
, Summit Investments beneficially owned
29,854,581
SMLP common units.
Neither SMLP nor its subsidiaries have any employees. All of the personnel that conduct our business are employed by Summit Investments, but these individuals are sometimes referred to as our employees.
On February 25, 2016, the Partnership and Summit Midstream Partners Holdings, LLC (“SMP Holdings”), a wholly owned subsidiary of Summit Investments, entered into a contribution agreement (the "Contribution Agreement") pursuant to which SMP Holdings agreed to contribute to the Partnership substantially all of its limited partner interest in Summit Midstream OpCo, LP ("OpCo"), a Delaware limited partnership that owns (i) 100% of the issued and outstanding membership interests of Summit Midstream Utica, LLC ("Summit Utica"), Meadowlark Midstream Company, LLC ("Meadowlark Midstream") and Tioga Midstream, LLC ("Tioga Midstream" and collectively with Summit Utica and Meadowlark Midstream, the "Contributed Entities"), each a limited liability company and (ii) a
40%
ownership interest in each of Ohio Gathering Company, L.L.C. and Ohio Condensate Company, L.L.C. (collectively with OpCo and the Contributed Entities, the “2016 Drop Down Assets”) (the “2016 Drop Down”). The 2016 Drop Down closed on March 3, 2016. Subsequent to closing, a subsidiary of Summit Investments retained a
1%
noncontrolling interest in OpCo, which is managed by Summit Midstream OpCo GP, LLC ("OpCo GP"), a Delaware limited liability company and a wholly owned subsidiary of Summit Holdings.
Business Operations.
We provide natural gas gathering, treating and processing services as well as crude oil and produced water gathering services pursuant to primarily long-term and fee-based agreements with our customers. Our results are driven primarily by the volumes of natural gas that we gather, treat, compress and process as well as by the volumes of crude oil and produced water that we gather. Our gathering systems and the unconventional resource basins in which they operate are as follows:
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Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;
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Bison Midstream, LLC ("Bison Midstream"), an associated natural gas gathering system, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
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•
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Polar Midstream, LLC ("Polar Midstream" or "Polar and Divide"), crude oil and produced water gathering systems and transmission pipelines located in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
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Tioga Midstream, crude oil, produced water and associated natural gas gathering systems, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
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Grand River Gathering, LLC ("Grand River"), a natural gas gathering and processing system located in the Piceance Basin, which includes the Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado and eastern Utah;
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Niobrara gathering and processing system ("Niobrara G&P"), an associated natural gas gathering and processing system operating in the Denver-Julesburg ("DJ") Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado;
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DFW Midstream Services LLC ("DFW Midstream"), a natural gas gathering system, operating in the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and
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Mountaineer Midstream gathering system ("Mountaineer Midstream"), a natural gas gathering system, operating in the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia.
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Meadowlark Midstream is the legal entity which owns (i) certain crude oil and produced water gathering pipelines, which is managed and reported as part of the Polar and Divide system subsequent to the 2016 Drop Down and (ii) Niobrara G&P, which is managed and reported as part of the Grand River system subsequent to the 2016 Drop Down.
Ohio Gathering Company, L.L.C. ("OGC") and Ohio Condensate Company, L.L.C. ("OCC" and together with OGC, "Ohio Gathering") operate a natural gas gathering system and a condensate stabilization facility in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio.
Presentation and Consolidation.
We prepare our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These principles are established by the Financial Accounting Standards Board (the "FASB"). We make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates, including fair value measurements, the reported amounts of revenue and expense and the disclosure of contingencies. Although management believes these estimates are reasonable, actual results could differ from its estimates.
The unaudited condensed consolidated financial statements include the assets, liabilities and results of operations of SMLP and its subsidiaries. All intercompany transactions among the consolidated entities have been eliminated in consolidation. The financial position, results of operations and cash flows of (i) acquired drop down assets, liabilities and expenses or (ii) entities that were carved out of entities held by Summit Investments and included herein have been derived from the accounting records of the respective Summit Investments' subsidiary on a carve-out basis (see Note 2).
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and the regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, which are necessary to fairly present the unaudited condensed consolidated balance sheet as of September 30, 2016, the unaudited condensed consolidated statements of operations for the three- and nine-month periods ended September 30, 2016 and 2015, and the unaudited condensed consolidated statements of partners' capital and cash flows for the nine-month periods ended September 30, 2016 and 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our annual report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on February 29, 2016, and as updated and superseded by our current report on Form 8-K dated June 6, 2016 and by our current report on Form 8-K/A dated September 1, 2016 (the "2015 Annual Report"). The results of operations for an interim period are not necessarily indicative of results expected for a full year.
SMLP recognized its drop down acquisitions at Summit Investments' historical cost because the acquisitions were executed by entities under common control. The excess of Summit Investments' net investment over the purchase price paid and recognized for a contributed subsidiary is recognized as an addition to partners' capital, while the excess of purchase price paid and recognized over net investment is recognized as a reduction to partners' capital. Due to the common control aspect, we account for drop down transactions on an “as-if pooled” basis for the periods during which common control existed.
Reclassifications.
In the first quarter of 2016, we adopted Accounting Standards Update ("ASU") No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). As a result, we reclassified
$9.2 million
of deferred loan costs from other noncurrent assets to long-term debt at December 31, 2015 (see Note 2).
In 2015, we made certain reclassifications to conform to our current presentation. We evaluated our historical classification of (i) gathering fee revenue associated with certain Bison Midstream percent-of-proceeds contracts
and (ii) certain pass-through expenses for Bison Midstream. As a result of this evaluation, we determined that certain amounts that had previously been recognized in cost of natural gas and NGLs would be more appropriately reflected as gathering services and related fees and other revenues to enhance reporting transparency. The impact of these reclassifications, which had no impact on net loss, total partners' capital or segment adjusted EBITDA, follows.
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Three months ended
September 30, 2015
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Nine months ended
September 30, 2015
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(In thousands)
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Gathering services and related fees
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$
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2,795
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$
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9,263
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Other revenues
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513
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1,771
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Net impact on total revenues
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$
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3,308
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$
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11,034
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Cost of natural gas and NGLs
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$
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3,308
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$
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11,034
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Net impact on total costs and expenses
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$
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3,308
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$
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11,034
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment.
We record property, plant and equipment at historical cost of construction or fair value of the assets at acquisition. We capitalize expenditures that extend the useful life of an asset or enhance its productivity or efficiency from its original design over the expected remaining period of use. For maintenance and repairs that do not add capacity or extend the useful life of an asset, we recognize expenditures as an expense as incurred. We capitalize project costs incurred during construction, including interest on funds borrowed to finance the construction of facilities, as construction in progress. To the extent that Summit Investments incurred interest expense related to capital projects of assets that have been acquired by the Partnership, the associated interest expense is allocated to the drop down assets as a noncash equity contribution and capitalized into the basis of the asset.
We record depreciation on a straight-line basis over an asset’s estimated useful life. We base our estimates for useful life on various factors including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Estimates of useful lives follow.
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Useful lives
(In years)
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Gathering and processing systems and related equipment
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30
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Other
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4-15
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Construction in progress is depreciated consistent with its applicable asset class once it is placed in service. Land and line fill are not depreciated.
We base an asset’s carrying value on estimates, assumptions and judgments for useful life and salvage value. Upon sale, retirement or other disposal, we remove the carrying value of an asset and its accumulated depreciation from our balance sheet and recognize the related gain or loss, if any.
Accrued capital expenditures are reflected in trade accounts payable.
Equity Method Investments.
We account for investments in which we exercise significant influence using the equity method so long as we (i) do not control the investee and (ii) are not the primary beneficiary. We recognize these investments in investment in equity method investees in the accompanying consolidated balance sheets. We recognize our proportionate share of net income or loss on a one-month lag.
We recognize an other-than-temporary impairment for losses in the value of equity method investees when evidence indicates that the carrying amount is no longer supportable. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity method investee to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. We evaluate our equity method investments whenever evidence exists that would indicate a need to assess the investment for potential impairment.
Other Noncurrent Assets.
Other noncurrent assets primarily consist of external costs incurred in connection with the closing of our revolving credit facility and related amendments. We capitalize and then amortize these deferred loan costs on a straight-line basis over the life of the respective debt instrument. We recognize amortization of deferred loan costs in interest expense.
Deferred Purchase Price Obligation Income or Expense.
We recognize a liability for the Deferred Purchase Price Obligation (as defined later) to reflect the expected value of the remaining consideration to be paid in 2020 for the acquisition of the 2016 Drop Down Assets (the "Remaining Consideration"). We estimate Remaining Consideration by summing the calculations of (i) actual capital expenditures incurred and Business Adjusted EBITDA (as defined later) recognized from the 2016 Drop Down Assets during the period since closing the 2016 Drop Down to the current balance sheet date and (ii) estimates of projected capital expenditures and Business Adjusted EBITDA related to the 2016 Drop Down Assets for periods subsequent to the respective balance sheet date until December 31, 2019. We discount the Remaining Consideration using a commensurate risk-adjusted discount rate and recognize the change in present value of the Remaining Consideration in earnings in the period of change. Our recognition of the change in present value of the Remaining Consideration in the unaudited condensed consolidated statements of operations represents the change in present value, which comprises a time value of money concept, as well as (i) actual results from the 2016 Drop Down Assets and (ii) adjustments to projections and the expected value of the Remaining Consideration (see Note 16).
Commitments and Contingencies.
We record accruals for loss contingencies when we determine that it is probable that a liability has been incurred and that such economic loss can be reasonably estimated. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events and estimates of the financial impacts of such events. We recognize gain contingencies when their realization is assured beyond a reasonable doubt.
Noncontrolling Interest.
Noncontrolling interest represents the ownership interests of third-party entities in the net assets of our consolidated subsidiaries. For financial reporting purposes, we consolidate OpCo and its wholly owned subsidiaries with our wholly owned subsidiaries and the
1%
ownership interest in OpCo is reflected as noncontrolling interest in partners' capital. We reflect changes in our ownership of OpCo as adjustments to noncontrolling interest.
Earnings or Loss Per Unit ("EPU").
We determine basic EPU by dividing the net income or loss that is attributed, in accordance with the net income and loss allocation provisions of our partnership agreement, to limited partners under the two-class method, after deducting (i) the
1%
noncontrolling interest in OpCo (for periods subsequent to the 2016 Drop Down), (ii) any net income or loss of contributed subsidiaries that is attributable to Summit Investments, (iii) the general partner's approximate
2%
interest in net income or loss and (iv) any payment of IDRs, by the weighted-average number of limited partner units outstanding. Diluted EPU reflects the potential dilution that could occur if securities or other agreements to issue common units, such as unit-based compensation, were exercised, settled or converted into common units and included in the weighted-average number of units outstanding. When it is determined that potential common units resulting from an award subject to performance or market conditions should be included in the diluted EPU calculation, the impact is reflected by applying the treasury stock method.
Comprehensive Income or Loss.
Comprehensive income or loss is the same as net income or loss for all periods presented.
Environmental Matters.
We are subject to various federal, state and local laws and regulations relating to the protection of the environment. Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties and other sources are charged to expense when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties or insurers are recorded as assets when their realization is assured beyond a reasonable doubt.
Carve-Out Entities, Assets, Liabilities and Expenses.
For drop down transactions involving entities that were carved out of other entities, the majority of the assets and liabilities allocated to the carve-out entity are specifically identified based on the original entity's existing divisional organization. Goodwill is allocated to the carve-out entity based on initial purchase accounting estimates. Revenues and depreciation and amortization are specifically identified based on the relationship of the carve-out entity to the original entity's existing divisional structure. Operation and maintenance and general and administrative expenses are allocated to the carve-out entity based on volume throughput.
For drop down transactions involving assets, liabilities and expenses that were carved out of other entities, the majority of the assets and liabilities allocated to the carve-out are specifically identified based on the original entity's existing divisional organization. Depreciation and amortization are specifically identified based on the relationship of the carve-out entity to the original entity's existing divisional structure. General and administrative expenses are allocated to the carve-out entity based on an allocation of Summit Investments' consolidated expenses.
Allocation of Certain Liabilities in Drop Downs.
For drop down transactions involving assets for which their development was funded with debt incurred by Summit Investments or a subsidiary thereof, which was allocated to but not ultimately assumed by the Partnership and later replaced with bank borrowings or debt capital at the Partnership, we allocate a portion of that debt, net of deferred loan costs, to the drop down assets during the common control period. Interest expense is allocated and recognized during the common control period. Any outstanding debt balance or principal is included in the calculation of the excess or deficit of acquired carrying value over consideration paid and recognized.
Recent Accounting Pronouncements.
Accounting standard setters frequently issue new or revised accounting rules. We review new pronouncements to determine the impact, if any, on our financial statements. Accounting standards that have or could possibly have a material effect on our financial statements are discussed below.
Recently Adopted Accounting Pronouncements
. In April 2015, the FASB issued ASU 2015-03. Under ASU 2015-03, entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB amended ASU 2015-03 to address the presentation and subsequent measurement of debt issuance costs related to line of credit (“LOC”) arrangements. The amendment permits an entity to defer and present debt issuance costs as an asset and subsequently amortize deferred debt issuance costs ratably over the term of a LOC arrangement, regardless of whether there are outstanding borrowings under that LOC arrangement. This new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2015. The January 2016 adoption of this update resulted in a reclassification from other noncurrent assets to long-term debt of the debt issuance costs associated with our senior notes (see Note 9). Debt issuance costs associated with the Partnership's revolving credit facility will remain in other noncurrent assets. This standard had no impact on interest expense, net income or loss, EPU or partners' capital.
Accounting Pronouncements Pending Adoption
. We are currently in the process of evaluating the applicability and/or impact of the following accounting pronouncements:
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ASU No. 2014-09 Revenue From Contracts With Customers (Topic 606) ("ASU 2014-09"). Under ASU 2014-09, revenue will be recognized under a five-step model: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to performance obligations; and (v) recognize revenue when (or as) the performance obligation is satisfied. In its original form, ASU 2014-09 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; early adoption was not permitted. In July 2015, the FASB reaffirmed the guidance in its April 2015 proposed ASU that defers for one year the effective date of the ASU 2014-09 for both public and nonpublic entities reporting under U.S. GAAP and allows early adoption as of the original effective date. We expect to adopt the provisions of ASU 2014-09 effective January 1, 2018. We continue to evaluate both the impact of this new standard on our consolidated financial statements and the transition method we will utilize for adoption.
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ASU No. 2016-02 Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires that lessees recognize all leases on the balance sheet, with the exception of short-term leases. A lease liability will be recorded for the obligation of a lessee to make lease payments arising from a lease. A right-of-use asset, will be recorded which represents the lessee’s right to use, or to control the use of, a specified asset for a lease term. We are currently evaluating the impact of this guidance on lessor accounting but have made no determinations at this time. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15, 2018, and requires the modified retrospective approach for transition. We are currently evaluating the provisions of ASU 2016-02 to determine its impact on our financial statements and related disclosures and expect to adopt its provisions effective January 1, 2019.
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ASU No. 2016-08 Revenue From Contracts With Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). ASU 2016-08 does not change the core principle of Topic 606, rather it clarifies the implementation guidance on principal versus agent considerations. We expect to adopt the provisions of ASU 2016-08 effective January 1, 2018. Our position regarding the impact of and transition method for this update is the same as for ASU 2014-09.
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ASU No. 2016-09 Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects for share-based payment award transactions, including income tax consequences, the liability or equity classification of awards and classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016. It does not specify a single transition approach, rather it specifies retrospective, modified retrospective and/or prospective transition approaches based on the aspect being applied. As a partnership that is generally not subject to taxes, the primary impact of adopting ASU 2016-09 will be to change our classification of certain share-based payment awards activity in the statement of cash flows.
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ASU No. 2016-10 Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing ("ASU 2016-10"). ASU 2016-10 clarifies the following two aspects of Topic 606 (i) identifying performance obligations and (ii) the licensing implementation guidance, while retaining the related principles for those areas. We expect to adopt the provisions of ASU 2016-10 effective January 1, 2018. Our position regarding the impact of and transition method for this update is the same as for ASU 2014-09.
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ASU No. 2016-12 Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ("ASU 2016-12"). ASU 2016-12 does not change the core principle of the guidance in Topic 606. Rather, the amendments therein affect only the narrow aspects of Topic 606 including assessing the collectability criterion and issues related to contract modification at transition and completed contracts at transition. We expect to adopt the provisions of ASU 2016-12 effective January 1, 2018. Our position regarding the impact of and transition method for this update is the same as for ASU 2014-09.
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ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU 2016-15"). ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The applicable provisions relate to distributions received from equity method investees. ASU 2016-15 prescribes a method for differentiating between returns of investment (which should be classified as inflows from investing activities) and returns on investment (which should be classified as inflows from operating activities). With respect to distributions from equity method investees, entities make this determination by applying a cumulative-earnings approach or a nature of the distribution approach. The ASU formalizes each of these methods and allows an entity to choose either one as an accounting policy election. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017. Early adoption is permitted. The amendments in ASU 2016-15 are to be applied using a retrospective transition method to each period presented. We are currently evaluating the provisions of ASU 2016-15 to determine (i) whether we will elect the cumulative-earnings approach or the nature of the distribution approach and (ii) the impact on our financial statements and related disclosures.
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Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on our financial statements. For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on our financial position or results of operations, see Note 2 of the notes to the consolidated financial statements included in the 2015 Annual Report.
3. SEGMENT INFORMATION
As of September 30, 2016, our reportable segments are:
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the Utica Shale, which includes our ownership interest in Ohio Gathering and is served by Summit Utica;
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the Williston Basin, which is served by Bison Midstream, Polar and Divide and Tioga Midstream;
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the Piceance/DJ Basins, which is served by Grand River and Niobrara G&P;
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the Barnett Shale, which is served by DFW Midstream; and
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the Marcellus Shale, which is served by Mountaineer Midstream.
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Each of our reportable segments provides midstream services in a specific geographic area. Our reportable segments reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations.
As noted above, the Utica Shale reportable segment includes our investment in Ohio Gathering (see Note 7). Segment assets for the Utica Shale includes the associated investment in equity method investees. Income or loss from equity method investees, as reflected on the statements of operations, solely relates to Ohio Gathering and is recognized and disclosed on a one-month lag. No other line items in the statements of operations or cash flows, as disclosed in the tables below, include results for our investment in Ohio Gathering.
Corporate represents those assets and liabilities and revenues and expenses that are (i) not specifically attributable to a reportable segment, (ii) not individually reportable, or (iii) that have not been allocated to our reportable segments.
Assets by reportable segment follow.
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September 30,
2016
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December 31,
2015
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(In thousands)
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Assets:
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Utica Shale (1)
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$
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903,345
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$
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886,224
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Williston Basin
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715,789
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740,361
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Piceance/DJ Basins
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816,776
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866,095
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Barnett Shale
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401,424
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416,586
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Marcellus Shale
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226,748
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233,116
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Total reportable segment assets
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3,064,082
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3,142,382
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Corporate
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15,995
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22,290
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Total assets
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$
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3,080,077
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$
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3,164,672
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__________
(1) Represents the investment in equity method investees for Ohio Gathering and total assets for Summit Utica.
Revenues by reportable segment follow.
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Three months ended September 30,
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Nine months ended September 30,
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2016
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2015
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2016
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2015
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(In thousands)
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Revenues:
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Utica Shale
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$
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7,665
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$
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1,354
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$
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17,351
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$
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2,258
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Williston Basin
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30,194
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23,353
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87,710
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70,071
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Piceance/DJ Basins
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31,076
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63,743
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89,479
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125,720
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Barnett Shale
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19,490
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19,788
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60,747
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67,508
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Marcellus Shale
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6,648
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6,963
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19,992
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22,585
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Total reportable segment revenues and total revenues
|
$
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95,073
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$
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115,201
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$
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275,279
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$
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288,142
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Counterparties accounting for more than 10% of total revenues were as follows:
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Three months ended September 30,
|
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Nine months ended September 30,
|
|
2016
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2015
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2016
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2015
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Percentage of total revenues:
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Counterparty A - Piceance/DJ Basins
|
10
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%
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*
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*
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*
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Counterparty B - Piceance/DJ Basins
|
*
|
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34
|
%
|
|
*
|
|
17
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%
|
Counterparty C - Piceance/DJ Basins
|
*
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*
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|
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*
|
|
11
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%
|
__________
* Less than
10%
Depreciation and amortization, including the amortization expense associated with our favorable and unfavorable gas gathering contracts as reported in other revenues, by reportable segment follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
Utica Shale
|
$
|
961
|
|
|
$
|
335
|
|
|
$
|
2,756
|
|
|
$
|
691
|
|
Williston Basin
|
8,446
|
|
|
8,003
|
|
|
25,214
|
|
|
23,100
|
|
Piceance/DJ Basins
|
12,273
|
|
|
11,854
|
|
|
36,843
|
|
|
35,454
|
|
Barnett Shale
|
4,043
|
|
|
4,081
|
|
|
12,155
|
|
|
12,352
|
|
Marcellus Shale
|
2,224
|
|
|
2,170
|
|
|
6,665
|
|
|
6,508
|
|
Total reportable segment depreciation and amortization
|
27,947
|
|
|
26,443
|
|
|
83,633
|
|
|
78,105
|
|
Corporate
|
154
|
|
|
138
|
|
|
425
|
|
|
488
|
|
Total depreciation and amortization
|
$
|
28,101
|
|
|
$
|
26,581
|
|
|
$
|
84,058
|
|
|
$
|
78,593
|
|
Cash paid for capital expenditures by reportable segment follow.
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Capital expenditures:
|
|
|
|
Utica Shale
|
$
|
72,036
|
|
|
$
|
71,423
|
|
Williston Basin
|
30,687
|
|
|
110,720
|
|
Piceance/DJ Basins
|
15,421
|
|
|
16,712
|
|
Barnett Shale
|
2,716
|
|
|
4,909
|
|
Marcellus Shale
|
971
|
|
|
1,238
|
|
Total reportable segment capital expenditures
|
121,831
|
|
|
205,002
|
|
Corporate
|
904
|
|
|
427
|
|
Total capital expenditures
|
$
|
122,735
|
|
|
$
|
205,429
|
|
We assess the performance of our reportable segments based on segment adjusted EBITDA. We define segment adjusted EBITDA as total revenues less total costs and expenses; plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) impairments and (vi) other noncash expenses or losses, less other noncash income or gains. We define proportional adjusted EBITDA for our equity method investees as the product of (i) total revenues less total expenses, excluding impairments and other noncash income or expense items and (ii) amortization for deferred contract costs; multiplied by our ownership interest in Ohio Gathering during the respective period.
For the purpose of evaluating segment performance, we exclude the effect of corporate expenses, such as certain general and administrative expenses (including compensation-related expenses and professional services fees), transaction costs, interest expense, Deferred Purchase Price Obligation income or expense and income tax expense or benefit from segment adjusted EBITDA. In the first quarter of 2015, we discontinued allocating certain corporate expenses, primarily salaries, benefits, incentive compensation and rent expense, to our then-reportable segments. This change in allocation methodology was not implemented by Summit Investments with respect to Polar and Divide or the 2016 Drop Down Assets. As a result of accounting for their activity on an as-if pooled basis due to common control, general and administrative expense allocations were higher for Polar and Divide and the 2016 Drop Down Assets during their respective common control periods.
Segment adjusted EBITDA by reportable segment follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Reportable segment adjusted EBITDA:
|
|
|
|
|
|
|
|
Utica Shale (1)
|
$
|
17,042
|
|
|
$
|
11,031
|
|
|
$
|
50,071
|
|
|
$
|
22,651
|
|
Williston Basin
|
21,815
|
|
|
(5,800
|
)
|
|
60,745
|
|
|
17,817
|
|
Piceance/DJ Basins
|
28,074
|
|
|
26,162
|
|
|
79,120
|
|
|
83,070
|
|
Barnett Shale
|
13,128
|
|
|
13,143
|
|
|
41,118
|
|
|
45,444
|
|
Marcellus Shale
|
5,146
|
|
|
5,795
|
|
|
14,554
|
|
|
18,492
|
|
Total of reportable segments’ measures of profit or loss
|
$
|
85,205
|
|
|
$
|
50,331
|
|
|
$
|
245,608
|
|
|
$
|
187,474
|
|
__________
(1) Includes our proportional share of adjusted EBITDA for Ohio Gathering, based on a one-month lag.
A reconciliation of income or loss before income taxes to total of reportable segments' measures of profit or loss follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Reconciliation of income (loss) before income taxes and income (loss) from equity method investees to total of reportable segments' measures of profit or loss:
|
|
|
|
|
|
|
|
Income (loss) before income taxes and income (loss) from equity method investees
|
$
|
1,626
|
|
|
$
|
3,980
|
|
|
$
|
(20,700
|
)
|
|
$
|
6,522
|
|
Add:
|
|
|
|
|
|
|
|
Corporate expenses (1)
|
8,722
|
|
|
6,848
|
|
|
26,728
|
|
|
20,515
|
|
Interest expense
|
15,733
|
|
|
14,360
|
|
|
47,650
|
|
|
44,863
|
|
Deferred Purchase Price Obligation expense
|
6,188
|
|
|
—
|
|
|
31,116
|
|
|
—
|
|
Depreciation and amortization
|
28,101
|
|
|
26,581
|
|
|
84,058
|
|
|
78,593
|
|
Proportional adjusted EBITDA for equity method investees
|
10,059
|
|
|
10,177
|
|
|
35,173
|
|
|
21,992
|
|
Adjustments related to MVC shortfall payments
|
11,541
|
|
|
(21,354
|
)
|
|
33,818
|
|
|
1,914
|
|
Unit-based and noncash compensation
|
2,050
|
|
|
2,044
|
|
|
6,000
|
|
|
5,595
|
|
Loss on asset sales
|
34
|
|
|
—
|
|
|
168
|
|
|
24
|
|
Long-lived asset impairment
|
1,172
|
|
|
7,696
|
|
|
1,741
|
|
|
7,696
|
|
Less:
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Gain on asset sales
|
21
|
|
|
—
|
|
|
144
|
|
|
238
|
|
Total of reportable segments’ measures of profit or loss
|
$
|
85,205
|
|
|
$
|
50,331
|
|
|
$
|
245,608
|
|
|
$
|
187,474
|
|
__________
(1) Corporate expenses represents those results that are not specifically attributable to a reportable segment or that have not been allocated to our reportable segments, including certain general and administrative expense items and transaction costs, for the purpose of evaluating their performance.
We include adjustments related to MVC shortfall payments in our calculation of segment adjusted EBITDA to account for (i) the net increases or decreases in deferred revenue for MVC shortfall payments and (ii) our inclusion of expected annual MVC shortfall payments. With respect to the impact of a net change in deferred revenue for MVC shortfall payments, we treat increases in deferred revenue balances as a favorable adjustment to segment adjusted EBITDA, while decreases in deferred revenue balances are treated as an unfavorable adjustment to
segment adjusted EBITDA. We also include a proportional amount of any historical and expected MVC shortfall payments in each quarter prior to the quarter in which we actually recognize the shortfall payment. The expected MVC shortfall payment adjustments have not been billed to our customers and are not recognized in our unaudited condensed consolidated financial statements.
Adjustments related to MVC shortfall payments by reportable segment follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total
|
|
(In thousands)
|
Adjustments related to MVC shortfall payments:
|
|
|
|
|
|
|
|
Net change in deferred revenue for MVC shortfall payments
|
$
|
—
|
|
|
$
|
847
|
|
|
$
|
—
|
|
|
$
|
847
|
|
Expected MVC shortfall payments
|
4,195
|
|
|
6,412
|
|
|
87
|
|
|
10,694
|
|
Total adjustments related to MVC shortfall payments
|
$
|
4,195
|
|
|
$
|
7,259
|
|
|
$
|
87
|
|
|
$
|
11,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total
|
|
(In thousands)
|
Adjustments related to MVC shortfall payments:
|
|
|
|
|
|
|
|
Net change in deferred revenue for MVC shortfall payments
|
$
|
—
|
|
|
$
|
(30,451
|
)
|
|
$
|
—
|
|
|
$
|
(30,451
|
)
|
Expected MVC shortfall payments
|
3,470
|
|
|
5,541
|
|
|
86
|
|
|
9,097
|
|
Total adjustments related to MVC shortfall payments
|
$
|
3,470
|
|
|
$
|
(24,910
|
)
|
|
$
|
86
|
|
|
$
|
(21,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total
|
|
(In thousands)
|
Adjustments related to MVC shortfall payments:
|
|
|
|
|
|
|
|
Net change in deferred revenue for MVC shortfall payments
|
$
|
235
|
|
|
$
|
3,321
|
|
|
$
|
(677
|
)
|
|
$
|
2,879
|
|
Expected MVC shortfall payments
|
11,757
|
|
|
18,911
|
|
|
271
|
|
|
30,939
|
|
Total adjustments related to MVC shortfall payments
|
$
|
11,992
|
|
|
$
|
22,232
|
|
|
$
|
(406
|
)
|
|
$
|
33,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total
|
|
(In thousands)
|
Adjustments related to MVC shortfall payments:
|
|
|
|
|
|
|
|
Net change in deferred revenue for MVC shortfall payments
|
$
|
(27
|
)
|
|
$
|
(22,879
|
)
|
|
$
|
(1,700
|
)
|
|
$
|
(24,606
|
)
|
Expected MVC shortfall payments
|
8,997
|
|
|
17,738
|
|
|
(215
|
)
|
|
26,520
|
|
Total adjustments related to MVC shortfall payments
|
$
|
8,970
|
|
|
$
|
(5,141
|
)
|
|
$
|
(1,915
|
)
|
|
$
|
1,914
|
|
4. PROPERTY, PLANT AND EQUIPMENT, NET
Details on property, plant and equipment follow.
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Gathering and processing systems and related equipment
|
$
|
2,000,401
|
|
|
$
|
1,883,139
|
|
Construction in progress
|
48,772
|
|
|
75,132
|
|
Land and line fill
|
11,442
|
|
|
11,055
|
|
Other
|
33,596
|
|
|
32,427
|
|
Total
|
2,094,211
|
|
|
2,001,753
|
|
Less accumulated depreciation
|
241,153
|
|
|
188,970
|
|
Property, plant and equipment, net
|
$
|
1,853,058
|
|
|
$
|
1,812,783
|
|
Depreciation expense and capitalized interest follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Depreciation expense
|
$
|
17,609
|
|
|
$
|
16,082
|
|
|
$
|
52,574
|
|
|
$
|
47,067
|
|
Capitalized interest
|
1,354
|
|
|
920
|
|
|
3,133
|
|
|
2,281
|
|
5. AMORTIZING INTANGIBLE ASSETS AND UNFAVORABLE GAS GATHERING CONTRACT
Details regarding our intangible assets and the unfavorable gas gathering contract (included in other noncurrent liabilities), all of which are subject to amortization, follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Useful lives
(In years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net
|
|
|
|
(Dollars in thousands)
|
Favorable gas gathering contracts
|
18.7
|
|
$
|
24,195
|
|
|
$
|
(10,478
|
)
|
|
$
|
13,717
|
|
Contract intangibles
|
12.5
|
|
426,464
|
|
|
(137,614
|
)
|
|
288,850
|
|
Rights-of-way
|
26.1
|
|
152,586
|
|
|
(23,440
|
)
|
|
129,146
|
|
Total intangible assets
|
|
|
$
|
603,245
|
|
|
$
|
(171,532
|
)
|
|
$
|
431,713
|
|
|
|
|
|
|
|
|
|
Unfavorable gas gathering contract
|
10.0
|
|
$
|
10,962
|
|
|
$
|
(6,633
|
)
|
|
$
|
4,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Useful lives
(In years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net
|
|
|
|
(Dollars in thousands)
|
Favorable gas gathering contracts
|
18.7
|
|
$
|
24,195
|
|
|
$
|
(9,534
|
)
|
|
$
|
14,661
|
|
Contract intangibles
|
12.5
|
|
426,464
|
|
|
(111,052
|
)
|
|
315,412
|
|
Rights-of-way
|
26.3
|
|
150,143
|
|
|
(18,906
|
)
|
|
131,237
|
|
Total intangible assets
|
|
|
$
|
600,802
|
|
|
$
|
(139,492
|
)
|
|
$
|
461,310
|
|
|
|
|
|
|
|
|
|
Unfavorable gas gathering contract
|
10.0
|
|
$
|
10,962
|
|
|
$
|
(6,077
|
)
|
|
$
|
4,885
|
|
We recognized amortization expense in other revenues as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Amortization expense – favorable gas gathering contracts
|
$
|
(289
|
)
|
|
$
|
(351
|
)
|
|
$
|
(944
|
)
|
|
$
|
(1,152
|
)
|
Amortization expense – unfavorable gas gathering contract
|
167
|
|
|
166
|
|
|
556
|
|
|
504
|
|
We recognized amortization expense in costs and expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Amortization expense – contract intangibles
|
$
|
8,854
|
|
|
$
|
8,835
|
|
|
$
|
26,562
|
|
|
$
|
26,505
|
|
Amortization expense – rights-of-way
|
1,517
|
|
|
1,479
|
|
|
4,534
|
|
|
4,373
|
|
The estimated aggregate amortization expected to be recognized for the remainder of 2016 and each of the four succeeding fiscal years follows.
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets
|
|
Unfavorable gas gathering contract
|
|
(In thousands)
|
2016
|
$
|
10,810
|
|
|
$
|
264
|
|
2017
|
42,041
|
|
|
1,047
|
|
2018
|
41,495
|
|
|
1,035
|
|
2019
|
41,740
|
|
|
1,045
|
|
2020
|
44,388
|
|
|
938
|
|
6. GOODWILL
We evaluate goodwill for impairment annually on September 30. We also evaluate goodwill whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. We test goodwill for impairment using a two-step quantitative test. In the first step, we compare the fair value of the reporting unit to its carrying value, including goodwill. If the reporting unit’s fair value exceeds its carrying value, including goodwill, we conclude that the goodwill of the reporting unit has not been impaired and no further work is performed. If we determine that the reporting unit’s carrying value, including goodwill, exceeds its fair value, we proceed to step two. In step two, we compare the carrying value of the reporting unit, including goodwill, to its implied fair value. If we determine that the carrying value of a reporting unit, including goodwill, exceeds its implied fair value, we recognize the excess of the carrying value over the implied fair value as a goodwill impairment loss.
We performed our annual goodwill impairment testing for the Mountaineer Midstream reporting unit as of September 30, 2016 using a combination of the income and market approaches. We determined that its fair value substantially exceeded its carrying value, including goodwill; as such, there have been
no
impairments of goodwill during 2016.
Fourth Quarter 2015 Goodwill Impairment.
In the first quarter of 2016, we finalized our calculations of the fair values of the identified assets and liabilities in step two of the December 31, 2015 goodwill impairment testing for the Grand River and Polar and Divide reporting units. This process confirmed the preliminary goodwill impairments of
$45.5 million
for Grand River and
$203.4 million
for Polar and Divide that were recognized as of December 31, 2015.
Fair Value Measurement.
Our impairment determinations, in the context of (i) our annual impairment evaluations and (ii) our other-than-annual impairment evaluations involved significant assumptions and judgments, as discussed in the 2015 Annual Report. Differing assumptions regarding any of these inputs could have a significant effect on the various valuations. As such, the fair value measurements utilized within these models are classified as non-
recurring Level 3 measurements in the fair value hierarchy because they are not observable from objective sources. Due to the volatility of the inputs used, we cannot predict the likelihood of any future impairment.
7. EQUITY METHOD INVESTMENTS
Ohio Gathering owns, operates and is currently developing midstream infrastructure consisting of a liquids-rich natural gas gathering system, a dry natural gas gathering system and a condensate stabilization facility in the Utica Shale Play in southeastern Ohio. Ohio Gathering provides gathering services pursuant to primarily long-term, fee-based gathering agreements, which include acreage dedications.
In January 2014, Summit Investments acquired a
1%
ownership interest in Ohio Gathering from Blackhawk Midstream, LLC ("Blackhawk") for
$190.0 million
. Concurrent with this acquisition, Summit Investments made an
$8.4
million capital contribution to Ohio Gathering to maintain its
1%
ownership interest.
The ownership interest Summit Investments acquired from Blackhawk included an option to increase the holder's ownership interest in Ohio Gathering to
40%
(the "Option"). In May 2014, Summit Investments exercised the Option to increase its ownership to
40%
(the "Option Exercise") and made the following payments (i)
$326.6 million
of capital contribution true-ups, (ii) $
50.4
million of additional capital contributions to maintain its
40%
ownership interest and (iii)
$5.4
million of management fee payments that were recognized as capital contributions in its Ohio Gathering capital accounts. Concurrent with and subsequent to the Option Exercise, the non-affiliated owners have retained their respective
60%
ownership interest in Ohio Gathering (the "Non-affiliated Owners").
Summit Investments accounted for its initial ownership interests in Ohio Gathering under the cost method due to its ownership percentage and because it determined that it was not the primary beneficiary. Subsequent to the Option Exercise, Summit Investments accounted for its ownership interests in Ohio Gathering as an equity method investment because it had joint control with the Non-affiliated Owners, which gave it significant influence. This shift from the cost method to the equity method required that Summit Investments retrospectively reflect its investment in Ohio Gathering and the associated results of operations as if it had been utilizing the equity method since the inception of its investment.
Summit Investments recognized the
$190.0
million that it paid to Blackhawk as an investment in Ohio Gathering at inception. In addition, Ohio Gathering had assigned a value of
$7.5
million to the Option, recognized it initially as an asset and concurrently attributed the value of the Option to Blackhawk's capital account. Upon acquiring Blackhawk's interest, the Option was reclassified from Blackhawk's capital account to Summit Investments' capital account in Ohio Gathering's records. Neither of these transactions involved a flow of funds to or from Ohio Gathering. As such, they created a basis difference between its recorded investment in equity method investees and that recognized and attributed to Summit Investments by Ohio Gathering. In accordance with the retrospective recognition triggered by the Option Exercise, in February 2014, Summit Investments began amortizing these basis differences over the weighted-average remaining life of the contracts underlying Ohio Gathering's operations. The impact of amortizing these two basis differences will result in a net decrease to its investment in equity method investees.
Subsequent to the Option Exercise, Summit Investments continued to make capital contributions to Ohio Gathering along with receiving distributions such that it maintained its
40%
ownership interest through the 2016 Drop Down, at which point SMLP began making contributions and receiving distributions such that it maintained its
40%
ownership interest through September 30, 2016.
In June 2016, an impairment loss was recognized by OCC. Although we recognize activity for Ohio Gathering on a one-month lag, we recorded the impairment loss in our results of operations for the second quarter of 2016 because the information was available to us. We recorded our
40%
share of the impairment loss, or
$37.8 million
, in income (loss) from equity method investees in the unaudited condensed consolidated statements of operations.
A reconciliation of our
40%
ownership interest in Ohio Gathering to our investment per Ohio Gathering's books and records follows (in thousands).
|
|
|
|
|
Investment in equity method investees, September 30, 2016
|
$
|
705,845
|
|
September cash contributions
|
(2,180
|
)
|
September cash distributions
|
3,512
|
|
Basis difference
|
(146,875
|
)
|
Investment in equity method investees, net of basis difference, August 31, 2016
|
$
|
560,302
|
|
Summarized statements of operations information for OGC and OCC follows (amounts represent 100% of investee financial information).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, 2016
|
|
Three months ended
August 31, 2015
|
|
OGC
|
|
OCC
|
|
OGC
|
|
OCC
|
|
(In thousands)
|
Total revenues
|
$
|
34,018
|
|
|
$
|
3,478
|
|
|
$
|
33,271
|
|
|
$
|
4,174
|
|
Total operating expenses
|
24,189
|
|
|
5,092
|
|
|
24,669
|
|
|
4,672
|
|
Net income (loss)
|
9,825
|
|
|
(806
|
)
|
|
8,403
|
|
|
(659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
August 31, 2016
|
|
Nine months ended
August 31, 2015
|
|
OGC
|
|
OCC
|
|
OGC
|
|
OCC
|
|
(In thousands)
|
Total revenues
|
$
|
110,261
|
|
|
$
|
14,093
|
|
|
$
|
83,453
|
|
|
$
|
5,034
|
|
Total operating expenses
|
69,294
|
|
|
108,399
|
|
|
70,996
|
|
|
10,738
|
|
Net income (loss)
|
40,962
|
|
|
(94,051
|
)
|
|
12,259
|
|
|
(6,131
|
)
|
8. DEFERRED REVENUE
A rollforward of current deferred revenue follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total
current
|
|
(In thousands)
|
Current deferred revenue, January 1, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
677
|
|
|
$
|
677
|
|
Additions
|
—
|
|
|
8,707
|
|
|
—
|
|
|
8,707
|
|
Less revenue recognized
|
—
|
|
|
8,707
|
|
|
677
|
|
|
9,384
|
|
Current deferred revenue, September 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
A rollforward of noncurrent deferred revenue follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Williston Basin
|
|
Piceance/DJ
Basins
|
|
Barnett
Shale
|
|
Total noncurrent
|
|
(In thousands)
|
Noncurrent deferred revenue, January 1, 2016
|
$
|
29,002
|
|
|
$
|
16,484
|
|
|
$
|
—
|
|
|
$
|
45,486
|
|
Additions
|
235
|
|
|
3,321
|
|
|
—
|
|
|
3,556
|
|
Noncurrent deferred revenue, September 30, 2016
|
$
|
29,237
|
|
|
$
|
19,805
|
|
|
$
|
—
|
|
|
$
|
49,042
|
|
As of
September 30, 2016
, accounts receivable included
$3.8 million
of total shortfall payment billings,
none
of which related to shortfall billings associated with MVC arrangements that can be utilized to offset gathering fees in future periods.
9. DEBT
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Summit Holdings variable rate senior secured revolving credit facility (3.03% at September 30, 2016 and 2.93% at December 31, 2015) due November 2018
|
$
|
633,000
|
|
|
$
|
344,000
|
|
SMP Holdings variable rate senior secured revolving credit facility (2.43% at December 31, 2015) (1)
|
—
|
|
|
115,000
|
|
SMP Holdings variable rate senior secured term loan (2.43% at December 31, 2015) (1)
|
—
|
|
|
217,500
|
|
Summit Holdings 5.50% Senior unsecured notes due August 2022
|
300,000
|
|
|
300,000
|
|
Unamortized deferred loan costs (2)
|
(3,672
|
)
|
|
(4,139
|
)
|
Summit Holdings 7.50% Senior unsecured notes due July 2021
|
300,000
|
|
|
300,000
|
|
Unamortized deferred loan costs (2)
|
(4,409
|
)
|
|
(5,091
|
)
|
Total long-term debt
|
$
|
1,224,919
|
|
|
$
|
1,267,270
|
|
__________
(1) Debt was allocated to the 2016 Drop Down Assets prior to the closing of the 2016 Drop Down but was retained by Summit Investments after close.
(2) Issuance costs are being amortized over the life of the notes.
Revolving Credit Facility.
We have a senior secured revolving credit facility which allows for revolving loans, letters of credit and swingline loans (the "revolving credit facility"). On February 25, 2016, we executed an amendment to the revolving credit facility, which became effective concurrent with the March 3, 2016 closing of the 2016 Drop Down. In connection with this amendment, (i) the revolving credit facility's borrowing capacity increased from
$700.0 million
to
$1.25 billion
, (ii) a new investment basket allowing the Co-Issuers (as defined below) to buy back up to
$100.0 million
of our outstanding senior unsecured notes was included, (iii) the total leverage ratio was increased to
5.5
to
1.0
through December 31, 2016 and (iv) various amendments were approved to facilitate the 2016 Drop Down. The revolving credit facility matures in November 2018 and includes a
$200.0 million
accordion feature.
The revolving credit facility is secured by the membership interests of Summit Holdings and those of its subsidiaries. Substantially all of Summit Holdings' and its subsidiaries' assets are pledged as collateral under the revolving credit facility. Prior to the 2016 Drop Down, the revolving credit facility and Summit Holdings' obligations, were guaranteed by SMLP, Bison Midstream and its subsidiaries, Grand River and its subsidiary and DFW Midstream Services (the "Guarantor Subsidiaries" prior to the 2016 Drop Down).
Following the 2016 Drop Down, OpCo GP, OpCo, Summit Utica, Meadowlark Midstream and Tioga Midstream were added as subsidiary guarantors of the revolving credit facility and the Senior Notes (as defined below). On August 5, 2016, a consent and waiver agreement to the revolving credit facility was executed effective March 30, 2016 (the "Consent and Waiver Agreement"), which removed the guarantees of OpCo, Summit Utica, Meadowlark Midstream and Tioga Midstream (collectively, the "Non-Guarantor Subsidiaries") from the revolving credit facility and concurrently, from the Senior Notes.
Borrowings under the revolving credit facility bear interest at the London Interbank Offered Rate ("LIBOR") or an Alternate Base Rate ("ABR") plus an applicable margin ranging from
0.75%
to
1.75%
for ABR borrowings and
1.75%
to
2.75%
for LIBOR borrowings, with the commitment fee ranging from
0.30%
to
0.50%
in each case based on our relative leverage at the time of determination. At September 30, 2016, the applicable margin under LIBOR borrowings was
2.50%
, the interest rate was
3.03%
and the unused portion of the revolving credit facility totaled
$617.0 million
(subject to a commitment fee of
0.50%
).
The revolving credit agreement contains affirmative and negative covenants customary for credit facilities of its size and nature that, among other things, limit or restrict the ability to: (i) incur additional debt; (ii) make investments; (iii) engage in certain mergers, consolidations, acquisitions or sales of assets; (iv) enter into swap agreements and power purchase agreements; (v) enter into leases that would cumulatively obligate payments in excess of
$30.0 million
over any
12
-month period; and (vi) prohibits the payment of distributions by Summit Holdings if a default then exists or would result therefrom and otherwise limits the amount of distributions Summit Holdings can make. In addition, the revolving credit facility requires Summit Holdings to maintain a ratio of consolidated trailing
12
-month
earnings before interest, income taxes, depreciation and amortization ("EBITDA," as defined in the credit agreement) to net interest expense of not less than
2.5
to 1.0 (as defined in the credit agreement) and a ratio of total net indebtedness to consolidated trailing
12
-month EBITDA of not more than
5.0
to 1.0, or not more than
5.5
to 1.0 for up to
270
days following certain acquisitions. Additionally, the total leverage ratio upper limit can be increased from
5.0
to 1.0 to
5.5
to 1.0 at our option, subject to the inclusion of a senior secured leverage ratio (senior secured net indebtedness to consolidated trailing
12
-month EBITDA, as defined in the credit agreement) upper limit of
3.75
to 1.0.
As of
September 30, 2016
, we were in compliance with the revolving credit facility's covenants. There were
no
defaults or events of default during the
nine months ended September 30, 2016
.
Senior Notes.
In July 2014, Summit Holdings and its
100%
owned finance subsidiary, Summit Midstream Finance Corp. ("Finance Corp.," and together with Summit Holdings, the "Co-Issuers"), co-issued
$300.0 million
of
5.50%
senior unsecured notes maturing August 15, 2022 (the "5.5% Senior Notes"). In June 2013, the Co-Issuers co-issued
$300.0 million
of
7.50%
senior unsecured notes maturing July 1, 2021 (the "7.5% Senior Notes").
Following execution of the Consent and Waiver Agreement, Bison Midstream and its subsidiaries, Grand River and its subsidiary, DFW Midstream Services and OpCo GP (collectively, the "Guarantor Subsidiaries" subsequent to the 2016 Drop Down after giving effect to the Consent and Waiver Agreement) and SMLP have fully and unconditionally and jointly and severally guaranteed the 5.5% Senior Notes and the 7.5% Senior Notes (collectively, the "Senior Notes") (see Note 17). Prior to execution of the Consent and Waiver Agreement, the Senior Notes were guaranteed by SMLP and its then-subsidiaries other than the Co-Issuers. At no time have the Senior Notes been guaranteed by the Co-Issuers. There are no significant restrictions on the ability of SMLP or Summit Holdings to obtain funds from its subsidiaries by dividend or loan. Finance Corp. has had no assets or operations since inception in 2013.
As of
September 30, 2016
, we were in compliance with the covenants of the Senior Notes. There were
no
defaults or events of default during the
nine months ended September 30, 2016
.
10. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk.
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and accounts receivable. We maintain our cash in bank deposit accounts that frequently exceed federally insured limits. We have not experienced any losses in such accounts and do not believe we are exposed to any significant risk.
Accounts receivable primarily comprise amounts due for the gathering, treating and processing services we provide to our customers and also the sale of natural gas liquids ("NGLs") resulting from our processing services. This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of our counterparties and can require letters of credit for receivables from counterparties that are judged to have substandard credit, unless the credit risk can otherwise be mitigated. Our top
five
customers or counterparties accounted for
52%
of total accounts receivable at
September 30, 2016
, compared with
68%
as of December 31, 2015.
Fair Value.
The carrying amount of cash and cash equivalents, accounts receivable and trade accounts payable reported on the balance sheet approximates fair value due to their short-term maturities.
The Deferred Purchase Price Obligation's carrying value is its fair value because carrying value represents the present value of the payment expected to be made in 2020. Our calculation of the Deferred Purchase Price Obligation involves significant assumptions and judgments. Differing assumptions regarding any of these inputs could have a material effect on the ultimate cash payment and the Deferred Purchase Price Obligation. As such, its fair value measurement is classified as a non-recurring Level 3 measurement in the fair value hierarchy because our assumptions and judgments are not observable from objective sources (see Note 16).
The Deferred Purchase Price Obligation represents our only Level 3 fair value measurement. A rollforward of our Level 3 liability measured at fair value on a recurring basis follows.
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2016
|
|
(In thousands)
|
Level 3 liability, beginning of period
|
$
|
532,355
|
|
|
$
|
—
|
|
Addition
|
—
|
|
|
507,427
|
|
Change in fair value
|
6,188
|
|
|
31,116
|
|
Level 3 liability, end of period
|
$
|
538,543
|
|
|
$
|
538,543
|
|
A summary of the estimated fair value of our debt financial instruments follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Carrying
value
|
|
Estimated
fair value (1)
|
|
Carrying
value
|
|
Estimated
fair value (1)
|
|
(In thousands)
|
Summit Holdings revolving credit facility
|
$
|
633,000
|
|
|
$
|
633,000
|
|
|
$
|
344,000
|
|
|
$
|
344,000
|
|
SMP Holdings revolving credit facility (2)
|
—
|
|
|
—
|
|
|
115,000
|
|
|
115,000
|
|
SMP Holdings term loan (2)
|
—
|
|
|
—
|
|
|
217,500
|
|
|
217,500
|
|
5.5% Senior Notes ($300.0 million principal)
|
296,328
|
|
|
285,500
|
|
|
295,861
|
|
|
224,000
|
|
7.5% Senior Notes ($300.0 million principal)
|
295,591
|
|
|
307,875
|
|
|
294,909
|
|
|
257,000
|
|
__________
(1) All estimated fair value calculations are Level 2.
(2) Debt was allocated to the 2016 Drop Down Assets prior to the closing of the 2016 Drop Down but was retained by Summit Investments after close.
The outstanding balance on the revolving credit facility is its fair value due to its floating interest rate. The fair value for the senior notes is based on an average of nonbinding broker quotes as of
September 30, 2016
and December 31, 2015. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value of the senior notes.
11. PARTNERS' CAPITAL
A rollforward of the number of common limited partner, subordinated limited partner and general partner units follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Subordinated
|
|
General partner
|
|
Total
|
Units, January 1, 2016
|
42,062,644
|
|
|
24,409,850
|
|
|
1,354,700
|
|
|
67,827,194
|
|
Units issued in connection with the September 2016 Equity Offering
|
5,500,000
|
|
|
—
|
|
|
—
|
|
|
5,500,000
|
|
Contribution from general partner
|
—
|
|
|
—
|
|
|
112,245
|
|
|
112,245
|
|
Net units issued under SMLP LTIP
|
115,674
|
|
|
—
|
|
|
4,242
|
|
|
119,916
|
|
Subordinated units conversion
|
24,409,850
|
|
|
(24,409,850
|
)
|
|
—
|
|
|
—
|
|
Units, September 30, 2016
|
72,088,168
|
|
|
—
|
|
|
1,471,187
|
|
|
73,559,355
|
|
On September 9, 2016, we completed an underwritten public offering of
5,500,000
common units at a price of
$23.20
per unit pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC (the "September 2016 Equity Offering"). Following the September 2016 Equity Offering, our general partner made a capital contribution to us to maintain its approximate
2%
general partner interest. We used the net proceeds from the September 2016 Equity Offering to pay down our revolving credit facility.
Subordination.
The subordination period ended in conjunction with the February 2016 distribution payment in respect of the fourth quarter of 2015 and the then-outstanding subordinated units converted to common units on a
one
-for-one basis. Prior to the end of the subordination period, the principal difference between our common units and subordinated units was that holders of the subordinated units were not entitled to receive any distribution of available cash until the common units had received the minimum quarterly distribution ("MQD") plus any arrearages in the payment of the MQD from prior quarters.
Noncontrolling Interest.
We have recorded Summit Investments' indirect retained ownership interest in OpCo and its subsidiaries as a noncontrolling interest in the consolidated financial statements.
Summit Investments' Equity in Contributed Subsidiaries.
Summit Investments' equity in contributed subsidiaries represents its position in the net assets of the 2016 Drop Down Assets and Polar and Divide that have been acquired by SMLP. The balance also reflects net income or loss attributable to Summit Investments for the 2016 Drop Down Assets and Polar and Divide for the periods beginning on the dates they were acquired or formed by Summit Investments and ending on the dates they were acquired by the Partnership. Net income or loss was attributed to Summit Investments for:
|
|
•
|
the 2016 Drop Down Assets during the nine months ended September 30, 2016 and the three and nine months ended September 30, 2015 and
|
|
|
•
|
Polar and Divide during the nine months ended September 30, 2015.
|
Although included in partners' capital, any net income or loss attributable to Summit Investments is excluded from the calculation of EPU.
2016 Drop Down
. On March 3, 2016, we acquired the 2016 Drop Down Assets from a subsidiary of Summit Investments. We paid cash consideration of
$360.0 million
and recognized a Deferred Purchase Price Obligation of
$507.4 million
in exchange for Summit Investments'
$1.11 billion
net investment in the 2016 Drop Down Assets (see Note 16). In June 2016, we received a working capital adjustment of
$0.6 million
from a subsidiary of Summit Investments. We recognized a capital contribution from Summit Investments for the difference between (i) the net cash consideration paid and the Deferred Purchase Price Obligation and (ii) Summit Investments' net investment in the 2016 Drop Down Assets.
The calculation of the capital contribution and its allocation to partners' capital follows (in thousands).
|
|
|
|
|
|
|
|
|
Summit Investments' net investment in the 2016 Drop Down Assets
|
$
|
771,929
|
|
|
|
SMP Holdings borrowings allocated to 2016 Drop Down Assets and retained by Summit Investments
|
342,926
|
|
|
|
Acquired carrying value of 2016 Drop Down Assets
|
|
|
$
|
1,114,855
|
|
|
|
|
|
Deferred Purchase Price Obligation
|
$
|
507,427
|
|
|
|
Borrowings under revolving credit facility
|
360,000
|
|
|
|
Working capital adjustment received from a subsidiary of Summit Investments
|
(569
|
)
|
|
|
Total consideration paid and recognized by SMLP
|
|
|
866,858
|
|
Excess of acquired carrying value over consideration paid and recognized
|
|
|
$
|
247,997
|
|
|
|
|
|
Allocation of capital contribution:
|
|
|
|
General partner interest
|
$
|
4,953
|
|
|
|
Common limited partner interest
|
243,044
|
|
|
|
Partners' capital contribution – excess of acquired carrying value over consideration paid and recognized
|
|
|
$
|
247,997
|
|
Cash Distributions Paid and Declared.
We paid the following per-unit distributions during the three and nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Per-unit distributions to unitholders
|
$
|
0.575
|
|
|
$
|
0.570
|
|
|
$
|
1.725
|
|
|
$
|
1.695
|
|
On October 27, 2016, the board of directors of our general partner declared a distribution of $
0.575
per unit for the quarterly period ended September 30, 2016. This distribution, which totaled $
44.4 million
, will be paid on November
14, 2016 to unitholders of record at the close of business on November 7, 2016. We allocated the November 2016 distribution using a
25%
marginal percentage interest in accordance with the third target distribution level.
Incentive Distribution Rights.
Our general partner also currently holds IDRs that entitle it to receive increasing percentage allocations of the cash we distribute from operating surplus (see Note 11 to the consolidated financial statements included in our 2015 Annual Report). Our payment of IDRs to the general partner as included in distributions to unitholders follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
IDR payments
|
$
|
1,938
|
|
|
$
|
1,831
|
|
|
$
|
5,811
|
|
|
$
|
4,807
|
|
For purposes of calculating net income or loss attributable to general partner, the financial impact of IDRs is recognized in respect of the quarter for which the distributions were declared. For purposes of calculating distributions to unitholders in the statements of partners' capital and cash flows, IDR payments are recognized in the quarter in which they are paid.
12. EARNINGS PER UNIT
The following table details the components of EPU.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands, except per-unit amounts)
|
Numerator for basic and diluted EPU:
|
|
|
|
|
|
|
|
Allocation of net (loss) income among limited partner interests:
|
|
|
|
|
|
|
|
Net (loss) income attributable to common units
|
$
|
(215
|
)
|
|
$
|
13,412
|
|
|
$
|
(59,702
|
)
|
|
$
|
12,729
|
|
Net income attributable to subordinated units (1)
|
|
|
7,784
|
|
|
|
|
9,661
|
|
Net (loss) income attributable to limited partners
|
$
|
(215
|
)
|
|
$
|
21,196
|
|
|
$
|
(59,702
|
)
|
|
$
|
22,390
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted EPU:
|
|
|
|
|
|
|
|
Weighted-average common units outstanding – basic
|
67,844
|
|
|
41,974
|
|
|
66,978
|
|
|
38,258
|
|
Effect of nonvested phantom units
|
—
|
|
|
173
|
|
|
—
|
|
|
129
|
|
Weighted-average common units outstanding – diluted
|
67,844
|
|
|
42,147
|
|
|
66,978
|
|
|
38,387
|
|
|
|
|
|
|
|
|
|
Weighted-average subordinated units outstanding – basic and diluted (1)
|
|
|
24,410
|
|
|
|
|
24,410
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per limited partner unit:
|
|
|
|
|
|
|
|
Common unit – basic
|
$
|
0.00
|
|
|
$
|
0.32
|
|
|
$
|
(0.89
|
)
|
|
$
|
0.33
|
|
Common unit – diluted
|
$
|
0.00
|
|
|
$
|
0.32
|
|
|
$
|
(0.89
|
)
|
|
$
|
0.33
|
|
Subordinated unit – basic and diluted (1)
|
|
|
$
|
0.32
|
|
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Nonvested anti-dilutive phantom units excluded from the calculation of diluted EPU
|
—
|
|
|
—
|
|
|
167
|
|
|
63
|
|
__________
(1) The subordinated units converted to common units on a one-for-one basis in February 2016 (see Note 11).
13. UNIT-BASED AND NONCASH COMPENSATION
SMLP Long-Term Incentive Plan.
The SMLP Long-Term Incentive Plan (the "SMLP LTIP") provides for equity awards to eligible officers, employees, consultants and directors of our general partner and its affiliates. Items to note:
|
|
•
|
In March 2016, we granted
488,482
phantom units to employees in connection with our annual incentive compensation award cycle. These awards had a grant date fair value of
$14.82
and vest ratably over a
three
-year period.
|
|
|
•
|
Also in March 2016,
120,920
phantom units vested.
|
|
|
•
|
As of
September 30, 2016
, approximately
3.9 million
common units remained available for future issuance.
|
SMP Net Profits Interests.
In connection with the formation of Summit Investments, up to
7.5%
of total membership interests were authorized for issuance (the "SMP Net Profits Interests"). These membership interests were not contributed to SMLP in connection with its IPO. The expense associated with the SMP Net Profits Interests was allocated to Summit Investments' subsidiaries other than SMLP and its subsidiaries after the IPO. In connection with our acquisitions of the 2016 Drop Down Assets and Polar and Divide, we recognized the SMP Net Profits Interests' noncash compensation expense that had been allocated to the contributed subsidiaries prior to their respective drop down date due to common control.
Noncash compensation recognized in general and administrative expense related to the SMP Net Profits Interests was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
SMP Net Profits Interests noncash compensation
|
$
|
90
|
|
|
$
|
139
|
|
|
$
|
375
|
|
|
$
|
641
|
|
14. RELATED-PARTY TRANSACTIONS
Acquisitions.
For information on the 2016 Drop Down and its funding, see Notes 1, 9, 11 and 16.
Reimbursement of Expenses from General Partner.
Our general partner and its affiliates do not receive a management fee or other compensation in connection with the management of our business, but will be reimbursed for expenses incurred on our behalf. Under our partnership agreement, we reimburse our general partner and its affiliates for certain expenses incurred on our behalf, including, without limitation, salary, bonus, incentive compensation and other amounts paid to our general partner's employees and executive officers who perform services necessary to run our business. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. Due to affiliate on the consolidated balance sheet represents the payables to our general partner for expenses incurred by it and paid on our behalf.
Expenses incurred by the general partner and reimbursed by us under our partnership agreement were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Operation and maintenance expense
|
$
|
6,689
|
|
|
$
|
5,981
|
|
|
$
|
20,061
|
|
|
$
|
18,927
|
|
General and administrative expense
|
7,761
|
|
|
6,658
|
|
|
23,218
|
|
|
20,880
|
|
Expenses Incurred by Summit Investments.
Prior to the 2016 Drop Down and the Polar and Divide Drop Down, Summit Investments incurred:
|
|
•
|
certain support expenses and capital expenditures on behalf of the contributed subsidiaries. These transactions were settled periodically through membership interests prior to the respective drop down;
|
|
|
•
|
interest expense that was related to capital projects for the contributed subsidiaries. As such, the associated interest expense was allocated to the respective contributed subsidiary's capital projects as a noncash contribution and capitalized into the basis of the asset; and
|
|
|
•
|
noncash compensation expense for the SMP Net Profits Interests, which were accounted for as compensatory awards. As such, the annual expense associated with the SMP Net Profits was allocated to the respective contributed subsidiary.
|
Subsequent to any drop down, these expenses are retrospectively included in the reimbursement of general partner expenses disclosed above due to common control.
15. COMMITMENTS AND CONTINGENCIES
Operating Leases.
We and Summit Investments lease certain office space to support our operations. We have determined that our leases are operating leases. We recognize total rent expense incurred or allocated to us in general and administrative expenses. Rent expense related to operating leases, including rent expense incurred on our behalf and allocated to us, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Rent expense
|
$
|
754
|
|
|
$
|
621
|
|
|
$
|
2,115
|
|
|
$
|
1,810
|
|
Legal Proceedings.
The Partnership is involved in various litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims or those arising in the normal course of business would not individually or in the aggregate have a material adverse effect on the Partnership's financial position or results of operations.
Environmental Matters.
Although we believe that we are in material compliance with applicable environmental regulations, the risk of environmental remediation costs and liabilities are inherent in pipeline ownership and operation. Furthermore, we can provide no assurances that significant environmental remediation costs and liabilities will not be incurred by the Partnership in the future. We are currently not aware of any material contingent liabilities that exist with respect to environmental matters, except as noted below.
In January 2015, Summit Investments learned of the rupture of a four-inch produced water gathering pipeline on the Meadowlark Midstream gathering system. Based on available information, Summit Investments accounted for the rupture as a 2014 event and recognized an environmental remediation accrual.
The incident, which is covered by Summit Investments' insurance policies, exhausted Summit Investments'
$25.0 million
pollution liability policy in 2015. Property and business interruption claim requests have been submitted, although no amounts have been recognized for any potential recoveries, under the property and business interruption insurance policy. Details of the accrual recognized follow.
|
|
|
|
|
|
Total
|
|
(In thousands)
|
Accrued environmental remediation, January 1, 2015
|
$
|
30,000
|
|
Payments made by affiliates
|
(13,136
|
)
|
Payments made with proceeds from insurance policies
|
(25,000
|
)
|
Additional accruals
|
21,800
|
|
Accrued environmental remediation, December 31, 2015
|
$
|
13,664
|
|
Payments
|
(2,628
|
)
|
Accrued environmental remediation, September 30, 2016
|
$
|
11,036
|
|
As of September 30, 2016, we have recognized (i) a current liability for remediation effort expenditures expected to be incurred within the next 12 months and (ii) a noncurrent liability for estimated remediation expenditures and fines expected to be incurred subsequent to September 30, 2017. Each of these amounts represent our best estimate for costs expected to be incurred. Neither of these amounts has been discounted to its present value.
The U.S. Department of Justice has issued subpoenas to Summit Investments, Meadowlark Midstream, the Partnership and our general partner requesting certain materials related to the rupture. We cannot predict the ultimate outcome of this matter with certainty for Summit Investments or Meadowlark Midstream, especially as it
relates to any material liability as a result of any governmental proceeding related to the incident. SMLP and its general partner did not have any management or operational control over, or ownership interest in, Meadowlark Midstream or the produced water disposal pipeline prior to the 2016 Drop Down. Furthermore, the Contribution Agreement executed in connection with the 2016 Drop Down contains customary representations and warranties and Summit Investments has agreed to indemnify the Partnership with respect to certain losses, including losses related to the rupture. As a result, we believe at this time that it is unlikely that SMLP or its general partner will be subject to any material liability as a result of any governmental proceeding related to the rupture.
16. ACQUISITIONS AND DROP DOWN TRANSACTIONS
2016 Drop Down.
On March 3, 2016, the Partnership acquired a controlling interest in OpCo, the entity which owns the 2016 Drop Down Assets (see Note 1). These assets include certain natural gas, crude oil and produced water gathering systems located in the Utica Shale, the Williston Basin and the DJ Basin as well as ownership interests in a natural gas gathering system and a condensate stabilization facility, both located in the Utica Shale.
The net consideration paid and recognized in connection with the 2016 Drop Down (i) consisted of a cash payment to SMP Holdings of
$360.0 million
funded with borrowings under our revolving credit facility and a
$0.6 million
working capital adjustment received in June 2016 (the “Initial Payment”) and (ii) includes a deferred payment in 2020 (the “Deferred Purchase Price Obligation”) (see Note 11).
The Deferred Purchase Price Obligation will be equal to:
|
|
•
|
six-and-one-half (
6.5
) multiplied by the average Business Adjusted EBITDA, as defined below and in the Contribution Agreement, of the 2016 Drop Down Assets for 2018 and 2019, less the G&A Adjuster, as defined in the Contribution Agreement;
|
|
|
•
|
less the Initial Payment;
|
|
|
•
|
less all capital expenditures incurred for the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019;
|
|
|
•
|
plus all Business Adjusted EBITDA from the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019, less the Cumulative G&A Adjuster, as defined in the Contribution Agreement.
|
Business Adjusted EBITDA is defined as the net income or loss of the 2016 Drop Down Assets for such period:
|
|
•
|
plus interest expense, income tax expense and depreciation and amortization of the 2016 Drop Down Assets for such period;
|
|
|
•
|
plus any adjustments related to MVC shortfall payments, impairments and other noncash expenses or losses with respect to the 2016 Drop Down Assets for such period;
|
|
|
•
|
plus any Special Liability Expenses, as defined below and in the Contribution Agreement, for such period;
|
|
|
•
|
less interest income and income tax benefit of the 2016 Drop Down Assets for such period;
|
|
|
•
|
less adjustments related to any other noncash income or gains with respect to the 2016 Drop Down Assets for such period.
|
Business Adjusted EBITDA shall exclude the effect of any Partnership expenses allocated by or to SMLP or its affiliates in respect of the 2016 Drop Down Assets, such as general and administrative expenses (including compensation-related expenses and professional services fees), transaction costs and allocated interest expense and allocated income tax expense.
Special Liability Expenses are defined as any and all expenses incurred by SMLP with respect to the Special Liabilities, as defined in the Contribution Agreement, including fines, legal fees, consulting fees and remediation costs.
The present value of the Deferred Purchase Price Obligation will be reflected as a liability on our balance sheet until paid. As of the acquisition date, the estimated future payment obligation (based on management’s estimate of the Partnership’s share of forecasted Business Adjusted EBITDA and capital expenditures for the 2016 Drop Down Assets) was
$860.3 million
, which had a net present value of
$507.4 million
, using a discount rate of
13%
. As of September 30, 2016, Remaining Consideration was estimated to be
$846.8 million
and the net present value, as recognized on the consolidated balance sheet, was
$538.5 million
, using a discount rate of
13%
. Any subsequent changes to the estimated future payment obligation will be calculated using a discounted cash flow model with a commensurate risk-adjusted discount rate. Such changes and the impact on the liability due to the passage of time
will be recorded as Deferred Purchase Price Obligation income or expense on the consolidated statements of operations in the period of the change.
At the discretion of the board of directors of our general partner, the Deferred Purchase Price Obligation can be paid in cash, SMLP common units or a combination thereof. We currently expect that the Deferred Purchase Price Obligation will be financed with a combination of (i) net proceeds from the sale of common units by us, (ii) the net proceeds from the issuance of senior unsecured debt by us, (iii) borrowings under our revolving credit facility and/or (iv) other internally generated sources of cash.
Because of the common control aspects in a drop down transaction, the 2016 Drop Down was deemed a transaction between entities under common control and, as such, has been accounted for on an “as-if pooled” basis for all periods in which common control existed. Subsequent to closing the 2016 Drop Down, SMLP’s financial results retrospectively include the combined financial results of the 2016 Drop Down Assets for all common-control periods.
Summit Utica
. Summit Investments completed the acquisition of certain natural gas gathering assets located in the Utica Shale Play for
$25.2 million
on December 15, 2014. These assets, which were contributed to Summit Investments' then-newly formed subsidiary, Summit Utica, gather natural gas under a long-term, fee-based contract. Summit Investments accounted for the purchase under the acquisition method of accounting. We assigned the full purchase price to property, plant and equipment at December 31, 2014.
Ohio Gathering
. For information on the acquisition and initial recognition of Ohio Gathering, see Note 7.
Meadowlark Midstream
. At the time of the 2016 Drop Down, Meadowlark Midstream owned Niobrara G&P and certain crude oil and produced water gathering pipelines located in Williams County, North Dakota. Summit Investments accounted for its purchase of Meadowlark Midstream under the acquisition method of accounting, whereby the various gathering systems' identifiable tangible and intangible assets acquired and liabilities assumed were recorded based on their fair values as of initial acquisition on February 15, 2013. Both Bison Midstream and Polar Midstream have previously been carved out of Meadowlark Midstream. Their fair values were determined based upon assumptions related to future cash flows, discount rates, asset lives and projected capital expenditures to complete the system. We recognized the 2016 acquisition of Meadowlark Midstream at Summit Investments' historical cost of construction and fair value of assets and liabilities at acquisition, which reflected its fair value accounting for the initial acquisition of Meadowlark Midstream in 2013, due to common control.
The fair values of the assets acquired and liabilities assumed as of February 15, 2013, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Purchase price assigned to Meadowlark Midstream
|
|
|
$
|
25,376
|
|
Current assets
|
$
|
2,227
|
|
|
|
Property, plant and equipment
|
18,795
|
|
|
|
Other noncurrent assets
|
4,354
|
|
|
|
Total assets acquired
|
25,376
|
|
|
|
Total liabilities assumed
|
$
|
—
|
|
|
|
|
Net identifiable assets acquired
|
|
|
$
|
25,376
|
|
From a financial position and operational standpoint, the crude oil and produced water gathering pipelines held by Meadowlark Midstream and acquired in connection with the 2016 Drop Down are recognized as part of the Polar and Divide gathering system.
Supplemental Disclosures – As-If Pooled Basis.
As a result of accounting for our drop down transactions similar to a pooling of interests, our historical financial statements and those of the 2016 Drop Down Assets and Polar and Divide have been combined to reflect the historical operations, financial position and cash flows from the date common control began. Revenues and net income or loss for the previously separate entities and the combined amounts, as presented in these unaudited condensed consolidated financial statements follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015
|
|
Nine months ended
September 30,
|
|
|
2016
|
|
2015
|
|
(In thousands)
|
SMLP revenues
|
$
|
106,557
|
|
|
$
|
266,412
|
|
|
$
|
255,445
|
|
2016 Drop Down Assets revenues (1)
|
8,644
|
|
|
8,867
|
|
|
19,424
|
|
Polar and Divide revenues (1)
|
|
|
|
|
|
13,273
|
|
Combined revenues
|
$
|
115,201
|
|
|
$
|
275,279
|
|
|
$
|
288,142
|
|
|
|
|
|
|
|
SMLP net income (loss)
|
$
|
23,604
|
|
|
$
|
(54,927
|
)
|
|
$
|
28,256
|
|
2016 Drop Down Assets net (loss) income (1)
|
(20,063
|
)
|
|
2,745
|
|
|
(34,997
|
)
|
Polar and Divide net income (1)
|
|
|
|
|
|
5,403
|
|
Combined net income (loss)
|
$
|
3,541
|
|
|
$
|
(52,182
|
)
|
|
$
|
(1,338
|
)
|
__________
(1) Results are fully reflected in SMLP's results of operations subsequent to closing the respective drop down.
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In July 2014 and June 2013, the Co-Issuers issued the Senior Notes. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by SMLP and the Guarantor Subsidiaries (see Note 9).
The following supplemental condensed consolidating financial information reflects SMLP's separate accounts, the combined accounts of the Co-Issuers, the combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries and the consolidating adjustments for the dates and periods indicated. For purposes of the following consolidating information:
|
|
•
|
each of SMLP and the Co-Issuers account for their subsidiary investments, if any, under the equity method of accounting and
|
|
|
•
|
the balances and results of operations associated with the assets, liabilities and expenses that were carved out of Summit Investments and allocated to SMLP in connection with the 2016 Drop Down have been attributed to SMLP during the common control period.
|
Condensed Consolidating Balance Sheets.
Balance sheets as of September 30, 2016 and December 31, 2015 follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,022
|
|
|
$
|
385
|
|
|
$
|
2,107
|
|
|
$
|
1,083
|
|
|
$
|
—
|
|
|
$
|
7,597
|
|
Accounts receivable
|
50
|
|
|
—
|
|
|
42,841
|
|
|
9,557
|
|
|
—
|
|
|
52,448
|
|
Other current assets
|
1,160
|
|
|
—
|
|
|
2,979
|
|
|
627
|
|
|
—
|
|
|
4,766
|
|
Due from affiliate
|
16,336
|
|
|
28,050
|
|
|
344,180
|
|
|
—
|
|
|
(388,566
|
)
|
|
—
|
|
Total current assets
|
21,568
|
|
|
28,435
|
|
|
392,107
|
|
|
11,267
|
|
|
(388,566
|
)
|
|
64,811
|
|
Property, plant and equipment, net
|
2,100
|
|
|
—
|
|
|
1,444,558
|
|
|
406,400
|
|
|
—
|
|
|
1,853,058
|
|
Intangible assets, net
|
—
|
|
|
—
|
|
|
407,392
|
|
|
24,321
|
|
|
—
|
|
|
431,713
|
|
Investment in equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
705,845
|
|
|
—
|
|
|
705,845
|
|
Goodwill
|
—
|
|
|
—
|
|
|
16,211
|
|
|
—
|
|
|
—
|
|
|
16,211
|
|
Other noncurrent assets
|
2,546
|
|
|
5,732
|
|
|
161
|
|
|
—
|
|
|
—
|
|
|
8,439
|
|
Investment in subsidiaries
|
2,093,929
|
|
|
3,292,414
|
|
|
—
|
|
|
—
|
|
|
(5,386,343
|
)
|
|
—
|
|
Total assets
|
$
|
2,120,143
|
|
|
$
|
3,326,581
|
|
|
$
|
2,260,429
|
|
|
$
|
1,147,833
|
|
|
$
|
(5,774,909
|
)
|
|
$
|
3,080,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners' Capital
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
741
|
|
|
$
|
—
|
|
|
$
|
6,018
|
|
|
$
|
6,351
|
|
|
$
|
—
|
|
|
$
|
13,110
|
|
Due to affiliate
|
372,344
|
|
|
—
|
|
|
—
|
|
|
16,336
|
|
|
(388,566
|
)
|
|
114
|
|
Ad valorem taxes payable
|
12
|
|
|
—
|
|
|
8,760
|
|
|
641
|
|
|
—
|
|
|
9,413
|
|
Accrued interest
|
—
|
|
|
7,733
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,733
|
|
Accrued environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
7,954
|
|
|
—
|
|
|
7,954
|
|
Other current liabilities
|
6,203
|
|
|
—
|
|
|
9,437
|
|
|
3,435
|
|
|
—
|
|
|
19,075
|
|
Total current liabilities
|
379,300
|
|
|
7,733
|
|
|
24,215
|
|
|
34,717
|
|
|
(388,566
|
)
|
|
57,399
|
|
Long-term debt
|
—
|
|
|
1,224,919
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,224,919
|
|
Deferred Purchase Price Obligation
|
538,543
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
538,543
|
|
Deferred revenue
|
—
|
|
|
—
|
|
|
49,042
|
|
|
—
|
|
|
—
|
|
|
49,042
|
|
Noncurrent accrued environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
3,082
|
|
|
—
|
|
|
3,082
|
|
Other noncurrent liabilities
|
2,900
|
|
|
—
|
|
|
4,775
|
|
|
17
|
|
|
—
|
|
|
7,692
|
|
Total liabilities
|
920,743
|
|
|
1,232,652
|
|
|
78,032
|
|
|
37,816
|
|
|
(388,566
|
)
|
|
1,880,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners' capital
|
1,199,400
|
|
|
2,093,929
|
|
|
2,182,397
|
|
|
1,110,017
|
|
|
(5,386,343
|
)
|
|
1,199,400
|
|
Total liabilities and partners' capital
|
$
|
2,120,143
|
|
|
$
|
3,326,581
|
|
|
$
|
2,260,429
|
|
|
$
|
1,147,833
|
|
|
$
|
(5,774,909
|
)
|
|
$
|
3,080,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
73
|
|
|
$
|
12,407
|
|
|
$
|
6,930
|
|
|
$
|
2,383
|
|
|
$
|
—
|
|
|
$
|
21,793
|
|
Accounts receivable
|
—
|
|
|
—
|
|
|
84,021
|
|
|
5,560
|
|
|
—
|
|
|
89,581
|
|
Other current assets
|
540
|
|
|
—
|
|
|
2,672
|
|
|
361
|
|
|
—
|
|
|
3,573
|
|
Due from affiliate
|
3,168
|
|
|
151,443
|
|
|
207,651
|
|
|
—
|
|
|
(362,262
|
)
|
|
—
|
|
Total current assets
|
3,781
|
|
|
163,850
|
|
|
301,274
|
|
|
8,304
|
|
|
(362,262
|
)
|
|
114,947
|
|
Property, plant and equipment, net
|
1,178
|
|
|
—
|
|
|
1,462,623
|
|
|
348,982
|
|
|
—
|
|
|
1,812,783
|
|
Intangible assets, net
|
—
|
|
|
—
|
|
|
438,093
|
|
|
23,217
|
|
|
—
|
|
|
461,310
|
|
Investment in equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
751,168
|
|
|
—
|
|
|
751,168
|
|
Goodwill
|
—
|
|
|
—
|
|
|
16,211
|
|
|
—
|
|
|
—
|
|
|
16,211
|
|
Other noncurrent assets
|
3,480
|
|
|
4,611
|
|
|
162
|
|
|
—
|
|
|
—
|
|
|
8,253
|
|
Investment in subsidiaries
|
2,438,395
|
|
|
3,222,187
|
|
|
—
|
|
|
—
|
|
|
(5,660,582
|
)
|
|
—
|
|
Total assets
|
$
|
2,446,834
|
|
|
$
|
3,390,648
|
|
|
$
|
2,218,363
|
|
|
$
|
1,131,671
|
|
|
$
|
(6,022,844
|
)
|
|
$
|
3,164,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners' Capital
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
482
|
|
|
$
|
—
|
|
|
$
|
18,489
|
|
|
$
|
21,837
|
|
|
$
|
—
|
|
|
$
|
40,808
|
|
Due to affiliate
|
360,243
|
|
|
—
|
|
|
—
|
|
|
3,168
|
|
|
(362,262
|
)
|
|
1,149
|
|
Deferred revenue
|
—
|
|
|
—
|
|
|
677
|
|
|
—
|
|
|
—
|
|
|
677
|
|
Ad valorem taxes payable
|
9
|
|
|
—
|
|
|
9,881
|
|
|
381
|
|
|
—
|
|
|
10,271
|
|
Accrued interest
|
—
|
|
|
17,483
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,483
|
|
Accrued environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
7,900
|
|
|
—
|
|
|
7,900
|
|
Other current liabilities
|
4,558
|
|
|
—
|
|
|
7,405
|
|
|
1,334
|
|
|
—
|
|
|
13,297
|
|
Total current liabilities
|
365,292
|
|
|
17,483
|
|
|
36,452
|
|
|
34,620
|
|
|
(362,262
|
)
|
|
91,585
|
|
Long-term debt
|
332,500
|
|
|
934,770
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,267,270
|
|
Deferred revenue
|
—
|
|
|
—
|
|
|
45,486
|
|
|
—
|
|
|
—
|
|
|
45,486
|
|
Noncurrent accrued environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
5,764
|
|
|
—
|
|
|
5,764
|
|
Other noncurrent liabilities
|
1,743
|
|
|
—
|
|
|
5,503
|
|
|
22
|
|
|
—
|
|
|
7,268
|
|
Total liabilities
|
699,535
|
|
|
952,253
|
|
|
87,441
|
|
|
40,406
|
|
|
(362,262
|
)
|
|
1,417,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners' capital
|
1,747,299
|
|
|
2,438,395
|
|
|
2,130,922
|
|
|
1,091,265
|
|
|
(5,660,582
|
)
|
|
1,747,299
|
|
Total liabilities and partners' capital
|
$
|
2,446,834
|
|
|
$
|
3,390,648
|
|
|
$
|
2,218,363
|
|
|
$
|
1,131,671
|
|
|
$
|
(6,022,844
|
)
|
|
$
|
3,164,672
|
|
Condensed Consolidating Statements of Operations.
For the purposes of the following condensed consolidating statements of operations, we allocate general and administrative expenses recognized at the SMLP parent to the Guarantor Subsidiaries and Non-Guarantor Subsidiaries to reflect what those entities results would have been had they operated on a stand-alone basis. Statements of operations for the three and nine months ended September 30, 2016 and 2015 follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services and related fees
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
64,065
|
|
|
$
|
16,231
|
|
|
$
|
—
|
|
|
$
|
80,296
|
|
Natural gas, NGLs and condensate sales
|
—
|
|
|
—
|
|
|
9,578
|
|
|
—
|
|
|
—
|
|
|
9,578
|
|
Other revenues
|
—
|
|
|
—
|
|
|
4,612
|
|
|
587
|
|
|
—
|
|
|
5,199
|
|
Total revenues
|
—
|
|
|
—
|
|
|
78,255
|
|
|
16,818
|
|
|
—
|
|
|
95,073
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of natural gas and NGLs
|
—
|
|
|
—
|
|
|
6,986
|
|
|
—
|
|
|
—
|
|
|
6,986
|
|
Operation and maintenance
|
—
|
|
|
—
|
|
|
20,800
|
|
|
2,259
|
|
|
—
|
|
|
23,059
|
|
General and administrative
|
—
|
|
|
—
|
|
|
10,183
|
|
|
2,185
|
|
|
—
|
|
|
12,368
|
|
Depreciation and amortization
|
154
|
|
|
—
|
|
|
24,765
|
|
|
3,060
|
|
|
—
|
|
|
27,979
|
|
Loss on asset sales, net
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Long-lived asset impairment
|
—
|
|
|
—
|
|
|
1,172
|
|
|
—
|
|
|
—
|
|
|
1,172
|
|
Total costs and expenses
|
154
|
|
|
—
|
|
|
63,919
|
|
|
7,504
|
|
|
—
|
|
|
71,577
|
|
Other income
|
51
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51
|
|
Interest expense
|
—
|
|
|
(15,733
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,733
|
)
|
Deferred Purchase Price Obligation expense
|
(6,188
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,188
|
)
|
(Loss) income before income taxes and income from equity method investees
|
(6,291
|
)
|
|
(15,733
|
)
|
|
14,336
|
|
|
9,314
|
|
|
—
|
|
|
1,626
|
|
Income tax benefit
|
142
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
Income from equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
270
|
|
|
—
|
|
|
270
|
|
Equity in earnings of consolidated subsidiaries
|
8,187
|
|
|
23,920
|
|
|
—
|
|
|
—
|
|
|
(32,107
|
)
|
|
—
|
|
Net income
|
$
|
2,038
|
|
|
$
|
8,187
|
|
|
$
|
14,336
|
|
|
$
|
9,584
|
|
|
$
|
(32,107
|
)
|
|
$
|
2,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services and related fees
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
93,480
|
|
|
$
|
8,094
|
|
|
$
|
—
|
|
|
$
|
101,574
|
|
Natural gas, NGLs and condensate sales
|
—
|
|
|
—
|
|
|
8,710
|
|
|
—
|
|
|
—
|
|
|
8,710
|
|
Other revenues
|
—
|
|
|
—
|
|
|
4,367
|
|
|
550
|
|
|
—
|
|
|
4,917
|
|
Total revenues
|
—
|
|
|
—
|
|
|
106,557
|
|
|
8,644
|
|
|
—
|
|
|
115,201
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of natural gas and NGLs
|
—
|
|
|
—
|
|
|
6,959
|
|
|
—
|
|
|
—
|
|
|
6,959
|
|
Operation and maintenance
|
—
|
|
|
—
|
|
|
23,046
|
|
|
1,614
|
|
|
—
|
|
|
24,660
|
|
General and administrative
|
—
|
|
|
—
|
|
|
9,226
|
|
|
1,603
|
|
|
—
|
|
|
10,829
|
|
Transaction costs
|
322
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
322
|
|
Depreciation and amortization
|
138
|
|
|
—
|
|
|
23,974
|
|
|
2,284
|
|
|
—
|
|
|
26,396
|
|
Environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
Long-lived asset impairment
|
—
|
|
|
—
|
|
|
7,696
|
|
|
—
|
|
|
—
|
|
|
7,696
|
|
Total costs and expenses
|
460
|
|
|
—
|
|
|
70,901
|
|
|
25,501
|
|
|
—
|
|
|
96,862
|
|
Other income
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Interest expense
|
(2,228
|
)
|
|
(12,119
|
)
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(14,360
|
)
|
(Loss) income before income taxes and loss from equity method investees
|
(2,687
|
)
|
|
(12,119
|
)
|
|
35,643
|
|
|
(16,857
|
)
|
|
—
|
|
|
3,980
|
|
Income tax expense
|
(199
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(199
|
)
|
Loss from equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
(240
|
)
|
|
—
|
|
|
(240
|
)
|
Equity in earnings of consolidated subsidiaries
|
6,427
|
|
|
18,546
|
|
|
—
|
|
|
—
|
|
|
(24,973
|
)
|
|
—
|
|
Net income (loss)
|
$
|
3,541
|
|
|
$
|
6,427
|
|
|
$
|
35,643
|
|
|
$
|
(17,097
|
)
|
|
$
|
(24,973
|
)
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services and related fees
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
191,510
|
|
|
$
|
43,073
|
|
|
$
|
—
|
|
|
$
|
234,583
|
|
Natural gas, NGLs and condensate sales
|
—
|
|
|
—
|
|
|
25,747
|
|
|
—
|
|
|
—
|
|
|
25,747
|
|
Other revenues
|
—
|
|
|
—
|
|
|
13,286
|
|
|
1,663
|
|
|
—
|
|
|
14,949
|
|
Total revenues
|
—
|
|
|
—
|
|
|
230,543
|
|
|
44,736
|
|
|
—
|
|
|
275,279
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of natural gas and NGLs
|
—
|
|
|
—
|
|
|
20,140
|
|
|
—
|
|
|
—
|
|
|
20,140
|
|
Operation and maintenance
|
—
|
|
|
—
|
|
|
64,413
|
|
|
7,898
|
|
|
—
|
|
|
72,311
|
|
General and administrative
|
—
|
|
|
—
|
|
|
31,072
|
|
|
7,051
|
|
|
—
|
|
|
38,123
|
|
Transaction costs
|
1,296
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,296
|
|
Depreciation and amortization
|
424
|
|
|
—
|
|
|
74,194
|
|
|
9,052
|
|
|
—
|
|
|
83,670
|
|
Loss on asset sales, net
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
24
|
|
Long-lived asset impairment
|
—
|
|
|
—
|
|
|
1,212
|
|
|
529
|
|
|
—
|
|
|
1,741
|
|
Total costs and expenses
|
1,720
|
|
|
—
|
|
|
191,055
|
|
|
24,530
|
|
|
—
|
|
|
217,305
|
|
Other income
|
92
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92
|
|
Interest expense
|
(1,441
|
)
|
|
(46,209
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,650
|
)
|
Deferred Purchase Price Obligation expense
|
(31,116
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,116
|
)
|
(Loss) income before income taxes and loss from equity method investees
|
(34,185
|
)
|
|
(46,209
|
)
|
|
39,488
|
|
|
20,206
|
|
|
—
|
|
|
(20,700
|
)
|
Income tax expense
|
(141
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(141
|
)
|
Loss from equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,341
|
)
|
|
—
|
|
|
(31,341
|
)
|
Equity in (loss) earnings of consolidated subsidiaries
|
(17,856
|
)
|
|
28,353
|
|
|
—
|
|
|
—
|
|
|
(10,497
|
)
|
|
—
|
|
Net (loss) income
|
$
|
(52,182
|
)
|
|
$
|
(17,856
|
)
|
|
$
|
39,488
|
|
|
$
|
(11,135
|
)
|
|
$
|
(10,497
|
)
|
|
$
|
(52,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services and related fees
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
222,085
|
|
|
$
|
17,683
|
|
|
$
|
—
|
|
|
$
|
239,768
|
|
Natural gas, NGLs and condensate sales
|
—
|
|
|
—
|
|
|
33,290
|
|
|
—
|
|
|
—
|
|
|
33,290
|
|
Other revenues
|
—
|
|
|
—
|
|
|
13,342
|
|
|
1,742
|
|
|
—
|
|
|
15,084
|
|
Total revenues
|
—
|
|
|
—
|
|
|
268,717
|
|
|
19,425
|
|
|
—
|
|
|
288,142
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of natural gas and NGLs
|
—
|
|
|
—
|
|
|
24,974
|
|
|
—
|
|
|
—
|
|
|
24,974
|
|
Operation and maintenance
|
—
|
|
|
—
|
|
|
65,718
|
|
|
5,326
|
|
|
—
|
|
|
71,044
|
|
General and administrative
|
—
|
|
|
—
|
|
|
28,974
|
|
|
5,086
|
|
|
—
|
|
|
34,060
|
|
Transaction costs
|
1,254
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,254
|
|
Depreciation and amortization
|
488
|
|
|
—
|
|
|
71,357
|
|
|
6,100
|
|
|
—
|
|
|
77,945
|
|
Environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
Gain on asset sales, net
|
—
|
|
|
—
|
|
|
(214
|
)
|
|
—
|
|
|
—
|
|
|
(214
|
)
|
Long-lived asset impairment
|
—
|
|
|
—
|
|
|
7,696
|
|
|
—
|
|
|
—
|
|
|
7,696
|
|
Total costs and expenses
|
1,742
|
|
|
—
|
|
|
198,505
|
|
|
36,512
|
|
|
—
|
|
|
236,759
|
|
Other income
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Interest expense
|
(8,529
|
)
|
|
(36,320
|
)
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(44,863
|
)
|
(Loss) income before income taxes and loss from equity method investees
|
(10,269
|
)
|
|
(36,320
|
)
|
|
70,198
|
|
|
(17,087
|
)
|
|
—
|
|
|
6,522
|
|
Income tax expense
|
(366
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(366
|
)
|
Loss from equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,494
|
)
|
|
—
|
|
|
(7,494
|
)
|
Equity in earnings of consolidated subsidiaries
|
9,297
|
|
|
45,617
|
|
|
—
|
|
|
—
|
|
|
(54,914
|
)
|
|
—
|
|
Net (loss) income
|
$
|
(1,338
|
)
|
|
$
|
9,297
|
|
|
$
|
70,198
|
|
|
$
|
(24,581
|
)
|
|
$
|
(54,914
|
)
|
|
$
|
(1,338
|
)
|
Condensed Consolidating Statements of Cash Flows.
Statements of cash flows for the nine months ended September 30, 2016 and 2015 follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
3,740
|
|
|
$
|
(52,916
|
)
|
|
$
|
159,650
|
|
|
$
|
58,231
|
|
|
$
|
—
|
|
|
$
|
168,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(904
|
)
|
|
—
|
|
|
(39,630
|
)
|
|
(82,201
|
)
|
|
—
|
|
|
(122,735
|
)
|
Contributions to equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,157
|
)
|
|
—
|
|
|
(20,157
|
)
|
Acquisitions of gathering systems from affiliate, net of acquired cash
|
(359,431
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(359,431
|
)
|
Other, net
|
(373
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(373
|
)
|
Advances to affiliates
|
(16,822
|
)
|
|
(245,093
|
)
|
|
(124,843
|
)
|
|
—
|
|
|
386,758
|
|
|
—
|
|
Net cash used in investing activities
|
(377,530
|
)
|
|
(245,093
|
)
|
|
(164,473
|
)
|
|
(102,358
|
)
|
|
386,758
|
|
|
(502,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to unitholders
|
(123,064
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(123,064
|
)
|
Borrowings under revolving credit facility
|
12,000
|
|
|
478,300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
490,300
|
|
Repayments under revolving credit facility
|
—
|
|
|
(189,300
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(189,300
|
)
|
Deferred loan costs
|
—
|
|
|
(3,013
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,013
|
)
|
Proceeds from issuance of common units, net
|
126,115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
126,115
|
|
Contribution from general partner
|
2,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,702
|
|
Cash advance (to) from Summit Investments (from) to contributed subsidiaries, net
|
(12,000
|
)
|
|
—
|
|
|
—
|
|
|
24,214
|
|
|
—
|
|
|
12,214
|
|
Expenses paid by Summit Investments on behalf of contributed subsidiaries
|
3,030
|
|
|
—
|
|
|
—
|
|
|
1,791
|
|
|
—
|
|
|
4,821
|
|
Other, net
|
(980
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(980
|
)
|
Advances from affiliates
|
369,936
|
|
|
—
|
|
|
—
|
|
|
16,822
|
|
|
(386,758
|
)
|
|
—
|
|
Net cash provided by financing activities
|
377,739
|
|
|
285,987
|
|
|
—
|
|
|
42,827
|
|
|
(386,758
|
)
|
|
319,795
|
|
Net change in cash and cash equivalents
|
3,949
|
|
|
(12,022
|
)
|
|
(4,823
|
)
|
|
(1,300
|
)
|
|
—
|
|
|
(14,196
|
)
|
Cash and cash equivalents, beginning of period
|
73
|
|
|
12,407
|
|
|
6,930
|
|
|
2,383
|
|
|
—
|
|
|
21,793
|
|
Cash and cash equivalents, end of period
|
$
|
4,022
|
|
|
$
|
385
|
|
|
$
|
2,107
|
|
|
$
|
1,083
|
|
|
$
|
—
|
|
|
$
|
7,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015
|
|
SMLP
|
|
Co-Issuers
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating adjustments
|
|
Total
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
1,026
|
|
|
$
|
(45,034
|
)
|
|
$
|
157,931
|
|
|
$
|
24,174
|
|
|
$
|
—
|
|
|
$
|
138,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(427
|
)
|
|
—
|
|
|
(89,643
|
)
|
|
(115,359
|
)
|
|
—
|
|
|
(205,429
|
)
|
Contributions to equity method investees
|
—
|
|
|
—
|
|
|
—
|
|
|
(74,375
|
)
|
|
—
|
|
|
(74,375
|
)
|
Acquisitions of gathering systems from affiliate, net of acquired cash
|
(288,618
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(288,618
|
)
|
Other, net
|
—
|
|
|
—
|
|
|
238
|
|
|
—
|
|
|
—
|
|
|
238
|
|
Advances to affiliates
|
(1,811
|
)
|
|
(62,363
|
)
|
|
(96,100
|
)
|
|
—
|
|
|
160,274
|
|
|
—
|
|
Net cash used in investing activities
|
(290,856
|
)
|
|
(62,363
|
)
|
|
(185,505
|
)
|
|
(189,734
|
)
|
|
160,274
|
|
|
(568,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to unitholders
|
(111,099
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(111,099
|
)
|
Borrowings under revolving credit facility
|
170,000
|
|
|
147,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
317,000
|
|
Repayments under revolving credit facility
|
(100,000
|
)
|
|
(51,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(151,000
|
)
|
Repayments under term loan
|
(180,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(180,000
|
)
|
Deferred loan costs
|
(50
|
)
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(204
|
)
|
Proceeds from issuance of common units, net
|
222,014
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
222,014
|
|
Contribution from general partner
|
4,737
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,737
|
|
Cash advance from Summit Investments to contributed subsidiaries, net
|
110,000
|
|
|
—
|
|
|
21,719
|
|
|
160,687
|
|
|
—
|
|
|
292,406
|
|
Expenses paid by Summit Investments on behalf of contributed subsidiaries
|
9,825
|
|
|
—
|
|
|
3,864
|
|
|
2,950
|
|
|
—
|
|
|
16,639
|
|
Other, net
|
(1,435
|
)
|
|
—
|
|
|
(130
|
)
|
|
(1
|
)
|
|
—
|
|
|
(1,566
|
)
|
Advances from affiliates
|
158,463
|
|
|
—
|
|
|
—
|
|
|
1,811
|
|
|
(160,274
|
)
|
|
—
|
|
Net cash provided by financing activities
|
282,455
|
|
|
95,846
|
|
|
25,453
|
|
|
165,447
|
|
|
(160,274
|
)
|
|
408,927
|
|
Net change in cash and cash equivalents
|
(7,375
|
)
|
|
(11,551
|
)
|
|
(2,121
|
)
|
|
(113
|
)
|
|
—
|
|
|
(21,160
|
)
|
Cash and cash equivalents, beginning of period
|
7,531
|
|
|
11,621
|
|
|
7,353
|
|
|
1,306
|
|
|
—
|
|
|
27,811
|
|
Cash and cash equivalents, end of period
|
$
|
156
|
|
|
$
|
70
|
|
|
$
|
5,232
|
|
|
$
|
1,193
|
|
|
$
|
—
|
|
|
$
|
6,651
|
|