Notes to Consolidated Financial
Statements
(Unaudited)
NOTE
A
–
BASIS OF PRESENTATION
AND
SIGNIFICANT ACCOUNTING POLICIES
CSI Compressco LP, a Delaware limited partnership, is a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. We sell standard and custom-designed compressor packages and oilfield fluid pump systems, and provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide these compression services and equipment to a broad base of natural gas and oil exploration and production, midstream, and transmission companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina. We design and fabricate a majority of the compressor packages that we use to provide compression services and that we sell to customers.
Presentation
Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. In the opinion of our management, our unaudited consolidated financial statements as of
September 30, 2017
, and for the
three and nine
month periods ended
September 30, 2017
and
2016
, include all normal recurring adjustments that are necessary to provide a fair statement of our results for these interim periods. Operating results for the
three and nine
month periods ended
September 30, 2017
are not necessarily indicative of results that may be expected for the twelve months ended
December 31, 2017
.
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in connection with the financial statements for the year ended
December 31, 2016
, and notes thereto included in our Annual Report on Form 10-K, which
we filed with the SEC on
February 28, 2017
.
In April 2017, our General Partner announced a reduction of approximately 50% in the level of cash distributions on our common units beginning with the quarter ended March 31, 2017. In May 2017, we entered into an amendment of the agreement governing our bank revolving credit facility (as amended, the "Credit Agreement") that, among other things, favorably amended certain financial covenants. (See Note B - Long-Term Debt and Other Borrowings.) We have reviewed our financial forecasts as of
November 8, 2017
for the subsequent twelve month period, which consider the impact of the amended covenants and the current distribution levels to our common unitholders. Based on these financial forecasts, which are based on the current market conditions as of
November 8, 2017
, we believe that despite the current industry environment and activity levels, we will have adequate liquidity, earnings, and operating cash flows to fund our operations and debt obligations and maintain compliance with our debt covenants through November 8, 2018.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be
material.
Reclassifications
Certain previously reported financial information has been reclassified to conform to the current year period’s presentation. The impact of such reclassifications was not significant to the prior year period’s overall presentation.
Cash Equivalents
We consider all highly
liquid cash investments with
maturities
of three months or less when purchased
to be cash equivalents.
Foreign Currencies
We have designated the Canadian dollar and Argentine peso as the functional currencies for our operations in Canada and Argentina, respectively. We are exposed to fluctuations between the U.S. dollar and certain foreign currencies, including the Canadian dollar, the Mexican peso, and the Argentine peso, as a result of our international operations. Foreign currency exchange gains and (losses) are included in other (income) expense, net and totaled
$(0.1) million
and
$0.3 million
during the
three and nine
month periods ended
September 30, 2017
respectively,
and
$(0.4) million
and
$(1.2) million
during the
three and nine
month periods ended
September 30, 2016
, respectively.
Inventories
Inventories
consist primarily of compressor package parts and supplies and work in progress and are stated at the lower of cost or
market value. For parts and supplies, cost is determined using the weighted average
cost
method. The cost of work in progress is determined using the specific identification method. Work in progress inventories consist primarily of new compressor packages located at our fabrication facility in Midland, Texas. Components of inventories as of
September 30, 2017
, and
December 31, 2016
, are as follows:
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|
|
|
|
|
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|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In Thousands)
|
Parts and supplies
|
$
|
31,415
|
|
|
$
|
25,932
|
|
Work in progress
|
12,572
|
|
|
5,510
|
|
Total inventories
|
$
|
43,987
|
|
|
$
|
31,442
|
|
We write down the value of inventory by an amount equal to the difference between its cost and its estimated market value.
Compression and Related Services Revenues and Costs
Our compression and related services revenues include revenues from our U.S. corporate subsidiaries' operating lease agreements with customers. For the
three and nine
month periods ended
September 30, 2017
and
2016
, the following operating lease revenues and associated costs were included in compression and related service revenues and cost of compression and related services, respectively, in the accompanying consolidated statements of operations.
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|
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|
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|
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|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In Thousands)
|
Rental revenue
|
$
|
6,707
|
|
|
$
|
8,270
|
|
|
$
|
21,053
|
|
|
$
|
29,695
|
|
Cost of rental revenue
|
$
|
3,498
|
|
|
$
|
3,420
|
|
|
$
|
11,662
|
|
|
$
|
15,713
|
|
Earnings
Per Common Unit
Our computations of
earnings
per common unit are based on the weighted average number of common units outstanding during the applicable period. Basic
earnings
per common unit
are
determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our
General Partner
(including any distributions to our
General Partner
on its incentive distribution rights), by the weighted average number of
outstanding common units during the period.
When computing
earnings
per common unit when distributions are greater than earnings, the amount of the distribution is deducted from net income and the excess of distributions over earnings is allocated between the
General Partner and common units based on how our Partnership Agreement allocates net losses.
When earnings are greater than distributions, we determine cash distributions based on available cash and determine the actual incentive distributions allocable to our General Partner based on actual distributions. When computing earnings per common unit, the amount of the assumed incentive distribution rights, if any, is deducted from net income and allocated to our General Partner for the period to which the calculation relates. The remaining amount of net income, after deducting the assumed incentive distribution rights, is allocated between the General Partner and common units based on how our Partnership Agreement allocates net earnings.
Diluted earnings per common unit are computed using the treasury stock method, which considers the potential future issuance of limited partner common units. Unvested phantom units are not included in basic earnings per common unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per common unit. For the
three and nine
month periods ended
September 30, 2017
and
September 30, 2016
, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive. Following the August and September 2016 issuances of the Series A Convertible Preferred Units (the "Preferred Units"), diluted earnings per common unit are computed using the "if converted" method, whereby the amount of net income (loss) and the number of common units issuable are each adjusted as if the Preferred Units had been converted as of the beginning of the period presented. The number of common units that may be issued upon future conversion of the Preferred Units is excluded from the calculation of diluted common units for the three and nine month period ended
September 30, 2017
and 2016, as the impact would be anti-dilutive.
Goodwill
During the first three months of 2016, low oil and natural gas commodity prices resulted in decreased demand for certain of our products and services. Specifically, demand for low-horsepower wellhead compression services and for sales of compressor equipment decreased significantly and was expected to continue to be decreased for the foreseeable future. In addition, the price per common unit as of March 31, 2016 decreased compared to December 31, 2015. Accordingly, our fair value, as reflected by our market capitalization and other indicators, was less than our carrying value as of March 31, 2016. After making the hypothetical purchase price adjustments as part of the second step of the goodwill impairment test, there was
$0.0 million
residual purchase price to be allocated to our goodwill. Based on this analysis, we concluded that an impairment of all of our recorded goodwill was required. Accordingly, during the three month period ended March 31, 2016,
$92.4 million
was charged to Goodwill Impairment expense in the accompanying consolidated statement of operations.
Impairments of Long-Lived Assets
During the first quarter of 2016, as a result of continuing decreased demand as a result of then-current market conditions, we recorded impairments of
$7.9 million
associated with certain identified intangible assets. This amount was charged to Long-Lived Asset Impairment expense in the accompanying consolidated statement of operations.
Insurance Recoveries
During the fourth quarter of 2016, we recorded
$2.4 million
of long-lived asset impairments associated with damages sustained to certain compression equipment packages in our fleet. Also during the third quarter of 2017, our insurer paid
$3.0 million
of claim proceeds associated with this equipment damage claim. This amount was credited to earnings, with
$2.4 million
classified as insurance recoveries for the damaged equipment, and
$0.6 million
classified as other income.
Accumulated Other Comprehensive Income (Loss)
Certain of
our international operations maintain their accounting records in the local currencies that are their functional currencies. For these operations, the functional currency financial statements are converted to United States dollar equivalents, with the effect of the foreign currency translation adjustment reflected as a component of accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) is included in partners’ capital in the accompanying consolidated balance sheets and consists of the cumulative currency translation adjustments associated with such international operations. Activity within accumulated other comprehensive income (loss) during the
three and nine
month periods ended
September 30, 2017
and
2016
,
is as follows:
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Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In Thousands)
|
|
|
|
|
Balance, beginning of period
|
$
|
(10,729
|
)
|
|
$
|
(9,312
|
)
|
|
$
|
(10,411
|
)
|
|
$
|
(8,393
|
)
|
Foreign currency translation adjustment
|
(326
|
)
|
|
(577
|
)
|
|
(644
|
)
|
|
(1,496
|
)
|
Balance, end of period
|
$
|
(11,055
|
)
|
|
$
|
(9,889
|
)
|
|
$
|
(11,055
|
)
|
|
$
|
(9,889
|
)
|
Activity within accumulated other comprehensive income includes no
reclassifications to net income (loss).
Allocation of Net Income (Loss)
Our net income (loss) is allocated to partners’ capital accounts in accordance with the provisions of our partnership agreement.
Distributions
On
January 20, 2017
, our General Partner declared a cash distribution attributable to the quarter ended December 31, 2016 of
$0.3775
per common unit. This distribution equates to a distribution of
$1.51
per outstanding common unit on an annualized basis. Also on
January 20, 2017
, our General Partner approved the paid in kind distribution of
193,563
Preferred Units attributable to the quarter ended December 31, 2016 in accordance with the provisions of our partnership agreement, as amended. These distributions were paid on
February 14, 2017
, to the holders of common units and Preferred Units, respectively, of record as of the close of business on
February 1, 2017
.
On
April 21, 2017
, our General Partner declared a cash distribution attributable to the quarter ended March 31, 2017 of
$0.1875
per common unit. This distribution equates to a distribution of
$0.75
per outstanding common unit on an annualized basis, and represented a reduction of approximately 50% from the previous distribution level. Also on
April 21, 2017
, our General Partner approved the paid in kind distribution of
195,559
Preferred Units attributable to the quarter ended March 31, 2017 in accordance with the provisions of our partnership agreement, as amended. These distributions were paid on
May 15, 2017
to each of the holders of common units and to the holders of the Preferred Units as a group, respectively, of record as of the close of business on
May 1, 2017
.
On
July 21, 2017
, our General Partner declared a cash distribution attributable to the quarter ended June 30, 2017 of
$0.1875
per common unit. This distribution equates to a distribution of
$0.75
per outstanding common unit on an annualized basis. Also on
July 21, 2017
, our General Partner approved the paid in kind distribution of
184,360
Preferred Units attributable to the quarter ended June 30, 2017 in accordance with the provisions of our partnership agreement, as amended. These distributions were paid on
August 14, 2017
to each of the holders of common units and to the holders of the Preferred Units as a group, respectively, of record as of the close of business on
August 1, 2017
.
On
October 19, 2017
, our General Partner declared a cash distribution attributable to the quarter ended
September 30, 2017
of
$0.1875
per common unit. This distribution equates to a distribution of
$0.75
per outstanding common unit on an annualized basis. Also on
October 19, 2017
, our General Partner approved the paid in kind distribution of
181,036
Preferred Units attributable to the quarter ended
September 30, 2017
in accordance with the provisions of our partnership agreement, as amended. These distributions will be paid on
November 14, 2017
to each of the holders of common units and to the holders of the Preferred Units as a group, respectively, of record as of the close of business on
November 1, 2017
.
Fair Value Measurements
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.
Under U.S. generally accepted accounting principles ("GAAP"), the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized in the determination of the carrying value of our Preferred Units (a Level 3 fair value measurement), which were issued in August and September 2016. We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency forward purchase and sale derivative contracts. For these fair value measurements, we utilize the quoted value as determined by our counterparty financial institution (a level 2 fair value measurement). Fair value measurements are also utilized on a nonrecurring basis, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill (a Level 3 fair value measurement), and for the impairment of long-lived assets, including goodwill (a level 3 fair value measurement). The fair value of certain of our financial instruments, which may include cash, accounts receivable, short-term borrowings, and variable-rate long-term debt pursuant to our bank credit agreement, approximate their carrying amounts. The fair values of our publicly traded long-term 7.25% Senior Notes at
September 30, 2017
and
December 31, 2016
were approximately
$273.7 million
and
$278.2 million
, respectively, based on current interest rates on
those dates which were different from the stated interest rate on the 7.25% Senior Notes (a level 2 fair value measurement). Those fair values compare to aggregate principal amounts of such notes at
September 30, 2017
and
December 31, 2016
of
$295.9 million
.
The Preferred Units are valued using a lattice modeling technique that, among a number of lattice structures, includes significant unobservable items. These unobservable items include (i) the volatility of the trading price of our common units compared to a volatility analysis of equity prices of comparable peer companies, (ii) a yield analysis that utilizes market information related to the debt yields of comparable peer companies, and (iii) a future conversion price analysis. The fair valuation of our Preferred Units liability is increased by, among other factors, projected increases in our common unit price, and by increases in the volatility and decreases in the debt yields of comparable peer companies. Increases (or decreases) in the fair value of our Preferred Units will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains).
A summary of these recurring fair value measurements as of
September 30, 2017
and
December 31, 2016
is as follows:
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Fair Value Measurements Using
|
Description
|
|
Total as of
September 30, 2017
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In Thousands)
|
Series A Preferred Units
|
|
$
|
(78,120
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(78,120
|
)
|
Asset for foreign currency derivative contracts
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
|
$
|
(78,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
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|
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|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Description
|
|
Total as of
December 31, 2016
|
|
|
|
|
|
(In Thousands)
|
Series A Preferred Units
|
|
$
|
(88,130
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(88,130
|
)
|
Asset for foreign currency derivative contracts
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
|
$
|
(88,073
|
)
|
|
|
|
|
|
|
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years, under either full or modified retrospective adoption. During 2016, in preparation for the adoption of ASU 2014-09, we began a review of the various types of customer contract arrangements for our compression services, aftermarket services, and equipment sales operations. These reviews include 1) accumulating all customer contractual arrangements; 2) identifying individual performance obligations pursuant to each arrangement; 3) quantifying consideration under each arrangement; 4) allocating consideration among the identified performance obligations; and 5) determining the timing of revenue recognition pursuant to each arrangement. We have substantially completed these contract reviews and are reviewing revised accounting system processes designed to capture information required to be disclosed under ASU 2014-09. While the timing and amount of revenue recognized for a large portion of our customer contractual arrangements under ASU 2014-09 will not change, in other cases the adoption of ASU 2014-09 may have an impact. Adoption of ASU 2014-09 will have a significant impact on disclosures. We plan to adopt ASU 2014-09 on January 1, 2018 using the modified retrospective adoption method.
In March 2016, the FASB issued ASU 2016-08,"Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" to clarify the guidance on principal versus agent considerations. This ASU does not change the effective date or adoption method under ASU 2014-09 which is noted above.
In April 2016, the FASB issued ASU 2016-10,"Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" to clarify the guidance on identifying performance obligations and the licensing implementation guidance. This ASU does not change the effective date or adoption method under ASU 2014-09, which is noted above.
Additionally, in May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients." This ASU addresses and amends several aspects of ASU 2014-09, but does not change the core principle of the guidance. This ASU does not change the effective date or adoption method under ASU 2014-09 which is noted above.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”, which simplifies the subsequent measurement of inventory by requiring entities to measure inventory at the lower of cost or net realizable value, except for inventory measured using the last-in, first-out (LIFO) or the retail inventory methods. The ASU requires entities to compare the cost of inventory to one measure - net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and is to be applied prospectively with early adoption
permitted. As a result of the adoption of this standard during the first quarter of 2017, there was no material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize lease assets and lease liabilities in the balance sheet and disclose key information about the leasing arrangements and cash flows. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted, under a modified retrospective adoption. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" as part of a simplification initiative. The update addresses and simplifies several aspects of accounting for share-based payment transactions. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted, and is to be applied using either modified retrospective, retrospective, or prospective transition method based on which amendment is being applied. Upon adoption of ASU 2016-09, we elected to change our accounting policy to account for forfeitures as they occur, using a modified retrospective method and determined that a cumulative-effect adjustment to retained earnings would be immaterial at transition during the first quarter of 2017. As a result of the adoption of this ASU, there was no impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13, which has an effective date of the first quarter of fiscal 2022, also applies to employee benefit plan accounting. We are currently assessing the potential effects of these changes to our consolidated financial statements and employee benefit plan accounting.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" to reduce diversity in practice in classification of certain transactions in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a retrospective transition adoption. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a modified retrospective transition adoption. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception" to consider “down round” features when determining whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Entities that present earnings per share ("EPS") under ASC 260 will recognize the effect of a down round feature in a freestanding equity-classified financial instrument only when it is triggered. The effect of triggering such a feature will be recognized as a dividend and a reduction to income available to common shareholders in basic EPS. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" to change how companies account for and disclose hedges.
The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are currently assessing the potential effects of these changes to our consolidated financial statements.
NOTE B
–
LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt consists of the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Scheduled Maturity
|
|
(In Thousands)
|
Credit Agreement (presented net of the unamortized deferred financing costs of $4.4 million as of September 30, 2017 and $4.5 million as of December 31, 2016)
|
|
August 4, 2019
|
|
$
|
218,977
|
|
|
$
|
217,467
|
|
7.25% Senior Notes (presented net of the unamortized discount of $2.9 million as of September 30, 2017 and $3.3 million as of December 31, 2016 and unamortized deferred financing costs of $5.2 million as of September 30, 2017 and $6.0 million as of December 31, 2016)
|
|
August 15, 2022
|
|
287,794
|
|
|
286,623
|
|
|
|
|
|
506,771
|
|
|
504,090
|
|
Less current portion
|
|
|
|
—
|
|
|
—
|
|
Total long-term debt
|
|
|
|
$
|
506,771
|
|
|
$
|
504,090
|
|
Bank Credit Facilities.
On May 5, 2017, we entered into an amendment (the "Fifth Amendment") to our Credit Agreement that modified certain financial covenants in the Credit Agreement, providing that (i) the consolidated total leverage ratio may not exceed (a) 5.95 to 1 as of March 31, 2017; (b) 6.75 to 1 as of June 30, 2017 and September 30, 2017; (c) 6.50 to 1 as of December 31, 2017 and March 31, 2018; (d) 6.25 to 1 as of June 30, 2018 and September 30, 2018; (e) 6.00 to 1 as of December 31, 2018; and (e) 5.75 to 1 as of March 31, 2019 and thereafter; and (ii) the consolidated secured leverage ratio may not exceed 3.25 to 1 as of the end of any fiscal quarter. The consolidated interest coverage ratio was not amended by the Fifth Amendment. In addition, the Fifth Amendment (i) increased the applicable margin by 0.25% in the event the consolidated total leverage ratio exceeds 6.00 to 1, resulting in a range for the applicable margin between 2.00% and 3.50% per annum for LIBOR-based loans and 1.00 to 2.50% per annum for base-rate loans, according to the consolidated total leverage ratio, and (ii) modified the appraisal delivery requirement from an annual requirement to a semi-annual requirement. In connection with the Fifth Amendment, the board of directors of our General Partner adopted resolutions limiting the cash distributions payable on our common units to no more than $0.1875 per common unit for the quarterly period ended June 30, 2017. The Fifth Amendment also included additional revisions that provide flexibility for the issuance of preferred securities.
At
September 30, 2017
, our consolidated total leverage ratio was
6.33
to 1 (compared to a 6.75 to 1 maximum allowed under the Credit Agreement), our consolidated secured leverage ratio was
2.75
to 1 (compared to a 3.25 to 1 maximum allowed under the Credit Agreement) and our consolidated interest coverage ratio was
2.63
to 1 (compared to a 2.25 to 1 minimum required under the Credit Agreement).
The consolidated total leverage ratio and the consolidated secured leverage ratio, as both are calculated under the Credit Agreement, exclude the long-term liability for the Preferred Units in the determination of total indebtedness.
As of
September 30, 2017
, we had a balance outstanding under our Credit Agreement of
$223.4 million
, and we had
$1.9 million
letters of credit outstanding thereunder, leaving a net availability under the Credit Agreement of
$89.7 million
, subject to a borrowing base limitation. Covenants and other provisions in the Credit Agreement also limit our borrowings of amounts available under the Credit Agreement. We are in compliance with all covenants of our Credit Agreement as of
September 30, 2017
.
NOTE C – SERIES A CONVERTIBLE PREFERRED UNITS
On
August 8, 2016
and
September 20, 2016
, we entered into Series A Preferred Unit Purchase Agreements (the “Unit Purchase Agreements”) with certain purchasers with regard to our issuances and sales in private placements (the "Initial Private Placement" and "Subsequent Private Placement," respectively) of an aggregate of
6,999,126
Preferred Units for a cash purchase price of
$11.43
per Preferred Unit (the “Issue Price”), resulting in total 2016 net proceeds, after deducting certain offering expenses, of approximately
$77.3 million
. One of the purchasers in the Initial Private Placement was TETRA, which purchased
874,891
of the Preferred Units at the aggregate Issue Price of
$10.0 million
.
In connection with the closing of the Initial Private Placement, our General Partner executed a Second Amended and Restated Agreement of Limited Partnership of the Partnership (the “Amended and Restated Partnership Agreement”) to, among other things, authorize and establish the rights and preferences of the Preferred Units. The Preferred Units are a new class of equity security that rank senior to all classes or series of equity securities of the Partnership with respect to distribution rights and rights upon liquidation. The holders of Preferred Units (each, a “Preferred Unitholder”) receive quarterly distributions, which are paid in kind in additional Preferred Units, equal to an annual rate of
11.00%
of the Issue Price (or
$1.2573
per Preferred Unit annualized), subject to certain adjustments. The rights of the Preferred Units include certain anti-dilution adjustments, including adjustments for economic dilution resulting from the issuance of common units in the future below a set price.
A ratable portion of the Preferred Units have been, and will continue to be, converted into common units on the eighth day of each month over a period of thirty months that began in March 2017 (each, a “Conversion Date”), subject to certain provisions of the Amended and Restated Partnership Agreement that may delay or accelerate all or a portion of such monthly conversions. On each Conversion Date, a portion of the Preferred Units will convert into common units representing limited partner interests in the Partnership in an amount equal to, with respect to each Preferred Unitholder, the number of Preferred Units held by such Preferred Unitholder divided by the number of Conversion Dates remaining, subject to adjustment described in the Amended and Restated Partnership Agreement, with the conversion price (the "Conversion Price") determined by the trading prices of the common units over the prior month, among other factors, and as otherwise impacted by the existence of certain conditions related to the common units. On June, 7, 2017, as permitted under the Amended and Restated Partnership Agreement, we elected to defer the monthly conversion of Preferred Units for each of the Conversion Dates during the three month period beginning July 2017. As a result,
no
Preferred Units were converted into common units during the three month period ended September 30, 2017, and future monthly conversions will be increased beginning in October 2017. Based on the number of Preferred Units outstanding as of
September 30, 2017
, the maximum aggregate number of common units that could be required to be issued pursuant to the conversion provisions of the Preferred Units is approximately
38.1 million
common units; however, the Partnership may, at its option, pay cash, or a combination of cash and common units, to the Preferred Unitholders instead of issuing common units on any Conversion Date, subject to certain restrictions as described in the Amended and Restated Partnership Agreement and the Credit Agreement. The total number of Preferred Units outstanding as of
September 30, 2017
was
6,673,202
.
Because the Preferred Units may be settled using a variable number of common units, the fair value of the Preferred Units is classified as a long-term liability on our consolidated balance sheet in accordance with Accounting Standards Codification 480 "Distinguishing Liabilities and Equity." The fair value of the Preferred Units as of
September 30, 2017
was
$78.1 million
. Changes in the fair value during each quarterly period, including the
$(5.0) million
and
$7.2 million
net (decrease) increase in fair value during the
nine
month periods ended
September 30, 2017
and
September 30, 2016
, respectively, are charged or credited to earnings in the accompanying consolidated statements of operations. Based on the conversion provisions of the Preferred Units, and using the Conversion Price calculated as of
September 30, 2017
, the theoretical number of common units that would be issued if all of the outstanding Preferred Units were converted on
September 30, 2017
on the same basis as the monthly conversions would be approximately
17.3 million
common units, with an aggregate market value of
$90.2 million
. A $1 decrease in the Conversion Price would result in the issuance of approximately
4.9 million
additional common units pursuant to these conversion provisions.
NOTE D – MARKET RISKS AND DERIVATIVE CONTRACTS
We are exposed to financial and market risks that affect our businesses. We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. As a result of our variable rate bank credit facility, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. Our financial risk management activities may at times involve, among other measures, the use of derivative financial instruments, such as swap and collar
agreements, to hedge the impact of market price risk exposures.
Foreign Currency Derivative Contracts
As of
September 30, 2017
, we had the following foreign currency derivative contracts outstanding relating to a portion of our foreign operations:
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
US Dollar Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
(In Thousands)
|
|
|
|
|
Forward sale Mexican peso
|
|
$
|
5,088
|
|
|
17.93
|
|
10/18/2017
|
Under a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries, we may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as economic hedges of the cash flow of our currency exchange risk exposure, they will not be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.
The fair values of our foreign currency derivative instruments are based on quoted market values as reported to us by our counterparty (a Level 2 fair value measurement). The fair values of our foreign currency derivative instruments as of
September 30, 2017
and
December 31, 2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative instruments
|
|
Balance Sheet
|
|
Fair Value at
|
|
Location
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
(In Thousands)
|
Forward sale contracts
|
|
Current assets
|
|
$
|
92
|
|
|
$
|
57
|
|
Forward sale contracts
|
|
Current liabilities
|
|
—
|
|
|
—
|
|
Net asset
|
|
|
|
$
|
92
|
|
|
$
|
57
|
|
None of the foreign currency derivative contracts contains credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the
three and nine
month periods ended
September 30, 2017
, we recognized
$0.0 million
and
$(0.4) million
, respectively, of net gains (losses) associated with our foreign currency derivative program, and such amounts are included in other (income) expense, net, in the accompanying consolidated statement of operations. During the
three and nine
month periods ended
September 30, 2016
, we recognized
$0.1 million
and
$0.2 million
, respectively, of net gains in other expense, net, associated with our foreign currency derivative program.
NOTE E – RELATED
PARTY TRANSACTIONS
Omnibus Agreement
Under the terms of the Omnibus Agreement entered into on June 20, 2011, and later amended June 20, 2014 (the "Omnibus Agreement"),
our
General
Partner
provides
all personnel and services reasonably necessary to manage
our
operations and conduct
our
business
(other than in Mexico, Canada, and Argentina),
and
certain of
TETRA’s
Latin American-based subsidiaries provide personnel and services necessary
for the
conduct
of certain of
our
Latin American-based businesses. In addition, under the Omnibus Agreement,
TETRA
provides
certain corporate and general and administrative services
as requested by our
General
Partner,
including, without limitation, legal, accounting and financial reporting, treasury, insurance administration, claims processing and risk
management, health, safety and environmental,
information technology, human resources, credit, payroll, internal audit,
and tax services. Pursuant to the Omnibus Agreement,
we
reimburse
our
General
Partner
and
TETRA
for services they provide to
us. The Omnibus Agreement will terminate on the earlier of (i) a change of control of the General Partner or TETRA, or (ii) upon any party providing at least 180 days prior written notice of termination.
In January 2017, our General Partner and TETRA agreed that
$1.6 million
of Amounts Payable to Affiliates as of December 31, 2016 that were owed by us to TETRA under the Omnibus Agreement would be satisfied by newly issued common units instead of cash, with the number of common units calculated based on the average trading price of our common units over a defined period. This amount owed by us represented certain corporate and general and administrative services provided in the fourth quarter of 2016. Pursuant to this agreement,
159,192
units were issued to TETRA in January 2017.
In May 2017, our General Partner and TETRA entered into an agreement (the "First Quarter 2017 Omnibus Reimbursement Agreement") pursuant to which
$1.7 million
of Amounts Payable to Affiliates as of March 31, 2017 that were owed by us to TETRA under the Omnibus Agreement would be satisfied by newly issued common units instead of cash, with the number of common units calculated based on the average trading price of our common units, subject to limitations, over a defined period that began on May 12, 2017. This amount owed by us represented certain corporate and general and administrative services provided in the first quarter of 2017. Pursuant to the First Quarter 2017 Omnibus Reimbursement Agreement,
280,257
common units were issued to TETRA in June 2017.
Under
the terms of the Omnibus Agreement,
we
or
TETRA
may, but neither of us
are under any
obligation to, perform for the other such production enhancement or other oilfield services on a subcontract basis as are needed or desired by the
other, for such periods of time and in such amounts as may be mutually agreed upon by
TETRA
and
our
General Partner. Any such services are required to be performed on terms that are (i) approved by the conflicts committee of
our
General Partner’s board of directors, (ii) no less favorable to
us
than those generally being provided to or available from non-affiliated third parties, as determined by
our
General Partner, or (iii) fair and reasonable to
us, taking into account the totality of the relationships between
TETRA
and
us
(including other transactions that may be particularly favorable or advantageous to
us), as determined by
our
General Partner.
Under the terms of the Omnibus Agreement,
we
or
TETRA
may, but neither of us
are under any obligation
to, sell, lease or exchange on a like-kind basis to
the other such production enhancement or other oilfield services equipment as is needed or desired
to meet either of our
production enhancement or other oilfield services obligations, in such amounts, upon
such conditions and for such periods of time, if
applicable, as may be mutually agreed upon by
TETRA
and
our
General Partner. Any such sales, leases,
or like-kind exchanges are required to be on terms that are (i) approved by the conflicts committee of
our
General Partner’s board of directors, (ii) no less favorable to
us
than those generally being provided to or available from non-affiliated third parties, as determined by
our
General Partner, or (iii) fair and reasonable to
us, taking into account the totality of the relationships between
TETRA
and
us
(including other transactions that may be particularly favorable or advantageous to
us), as determined by
our
General Partner. In addition, unless otherwise approved by the conflicts committee of
our
General Partner’s
board of directors,
TETRA
may purchase
newly fabricated equipment from
us at a negotiated price, provided that such price may not be
less than the sum of the total costs (other than any allocations of general and administrative expenses) incurred by
us
in fabricating such equipment plus a fixed
margin percentage thereof, and
TETRA
may purchase from
us
previously fabricated equipment for a price that is not less than the sum of the net book value of such equipment plus a fixed margin percentage thereof.
This description is not a complete discussion of this agreement and is qualified in its entirety by reference to the full text of the complete agreement, which is filed, along with other agreements, as exhibits to our filings with the SEC.
Amendment to Partnership Agreement
On August 8, 2016, in connection with the closing of the Initial Private Placement of the Preferred Units, our General Partner executed the Amended and Restated Partnership Agreement which, among other things, authorized and established the rights and preferences of the Preferred Units. For discussion of the issuance of the Preferred Units, see Note C - Series A Convertible Preferred Units.
TETRA and General Partner Ownership
As of
September 30, 2017
, TETRA's ownership interest in us was approximately
42%
of the outstanding common units,
12.6%
of the outstanding Preferred Units, and an approximately
2%
general partner interest, through which it holds incentive distribution rights. For discussion of the purchase by TETRA of a portion of the Preferred Units, see Note C - Series A Convertible Preferred Units. As Preferred Units are converted to common units, it is expected that TETRA's percentage ownership of the common units will decrease.
NOTE F – INCOME TAXES
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S., and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.
Despite the pre-tax loss for the
three and nine
month periods ended
September 30, 2017
, we recorded a provision for income tax, primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our effective tax rates for the
three and nine
month periods ended
September 30, 2017
were negative
11.0%
and negative
7.9%
, respectively, primarily due to losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against their net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions. Further, the effective tax rate during 2016 was negatively impacted by the nondeductible portion of our goodwill impairments during the three month period ended March 31, 2016.
NOTE G – COMMITMENTS
AND CONTINGENCIES
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of any lawsuits
or other proceedings
against us cannot be predicted with certainty, management does not
consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is
expected
to
have a material adverse effect on our financial
condition, results of operations,
or cash flows.
NOTE H – SEGMENTS
ASC 280-10-50, “Operating Segments”, defines the characteristics of an operating segment as (i) being engaged in business activity from which it may earn revenues and incur expenses, (ii) being reviewed by the company's chief operating decision maker ("CODM") to make decisions about resources to be allocated and to assess its performance, and (iii) having discrete financial information. Although management of our General Partner reviews our products and services to analyze the nature of our revenue, other financial information, such as certain costs and expenses, and net income are not captured or analyzed by these items. Therefore, discrete financial information is not available by product line and our CODM does not make resource allocation decisions or assess the performance of the business based on these items, but rather in the aggregate. Based on this, our General Partner believes that we operate in one business segment.
NOTE I — SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The
$295.9 million
in aggregate principal amount of the 7.25% Senior Notes as of
September 30, 2017
is fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several senior unsecured basis, by the following domestic restricted subsidiaries (each a "Guarantor Subsidiary" and collectively the "Guarantor Subsidiaries"):
CSI Compressco Field Services International LLC
CSI Compressco Holdings LLC
CSI Compressco International LLC
CSI Compressco Leasing LLC
CSI Compressco Operating LLC
CSI Compressco Sub, Inc.
CSI Compression Holdings, LLC
Pump Systems International, Inc.
Rotary Compressor Systems, Inc.
As a result of these guarantees, we are presenting the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions. The Other Subsidiaries column includes financial information for those subsidiaries that do not guarantee the 7.25% Senior Notes. In addition to the financial information of the Partnership, financial information of the Issuers includes CSI Compressco Finance Inc., which had no assets or operations for any of the periods presented.
Condensed Consolidating Balance Sheet
September 30, 2017
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
—
|
|
|
$
|
77,524
|
|
|
$
|
22,047
|
|
|
$
|
—
|
|
|
$
|
99,571
|
|
Property, plant, and equipment, net
|
|
—
|
|
|
586,236
|
|
|
25,430
|
|
|
—
|
|
|
611,666
|
|
Investments in subsidiaries
|
|
179,080
|
|
|
16,472
|
|
|
—
|
|
|
(195,552
|
)
|
|
—
|
|
Intangible and other assets, net
|
|
—
|
|
|
34,389
|
|
|
316
|
|
|
—
|
|
|
34,705
|
|
Intercompany receivables
|
|
293,156
|
|
|
—
|
|
|
—
|
|
|
(293,156
|
)
|
|
—
|
|
Total non-current assets
|
|
472,236
|
|
|
637,097
|
|
|
25,746
|
|
|
(488,708
|
)
|
|
646,371
|
|
Total assets
|
|
$
|
472,236
|
|
|
$
|
714,621
|
|
|
$
|
47,793
|
|
|
$
|
(488,708
|
)
|
|
$
|
745,942
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS' CAPITAL
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
3,327
|
|
|
$
|
38,554
|
|
|
$
|
2,907
|
|
|
$
|
—
|
|
|
$
|
44,788
|
|
Amounts payable to affiliates
|
|
—
|
|
|
10,219
|
|
|
1,789
|
|
|
—
|
|
|
12,008
|
|
Long-term debt, net
|
|
287,795
|
|
|
218,976
|
|
|
—
|
|
|
—
|
|
|
506,771
|
|
Series A Preferred Units
|
|
78,120
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,120
|
|
Intercompany payables
|
|
—
|
|
|
267,792
|
|
|
25,364
|
|
|
(293,156
|
)
|
|
—
|
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
1,261
|
|
|
—
|
|
|
1,261
|
|
Total liabilities
|
|
369,242
|
|
|
535,541
|
|
|
31,321
|
|
|
(293,156
|
)
|
|
642,948
|
|
Total partners' capital
|
|
102,994
|
|
|
179,080
|
|
|
16,472
|
|
|
(195,552
|
)
|
|
102,994
|
|
Total liabilities and partners' capital
|
|
$
|
472,236
|
|
|
$
|
714,621
|
|
|
$
|
47,793
|
|
|
$
|
(488,708
|
)
|
|
$
|
745,942
|
|
Condensed Consolidating Balance Sheet
December 31, 2016
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
35
|
|
|
$
|
74,574
|
|
|
$
|
27,395
|
|
|
$
|
—
|
|
|
$
|
102,004
|
|
Property, plant, and equipment, net
|
|
—
|
|
|
624,051
|
|
|
22,955
|
|
|
—
|
|
|
647,006
|
|
Investments in subsidiaries
|
|
214,703
|
|
|
15,112
|
|
|
—
|
|
|
(229,815
|
)
|
|
—
|
|
Intangible and other assets, net
|
|
—
|
|
|
36,794
|
|
|
336
|
|
|
—
|
|
|
37,130
|
|
Intercompany receivables
|
|
312,227
|
|
|
—
|
|
|
—
|
|
|
(312,227
|
)
|
|
—
|
|
Total non-current assets
|
|
526,930
|
|
|
675,957
|
|
|
23,291
|
|
|
(542,042
|
)
|
|
684,136
|
|
Total assets
|
|
$
|
526,965
|
|
|
$
|
750,531
|
|
|
$
|
50,686
|
|
|
$
|
(542,042
|
)
|
|
$
|
786,140
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS' CAPITAL
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
8,089
|
|
|
$
|
31,789
|
|
|
$
|
3,856
|
|
|
$
|
—
|
|
|
$
|
43,734
|
|
Amounts payable to affiliates
|
|
874
|
|
|
3,780
|
|
|
1,526
|
|
|
—
|
|
|
6,180
|
|
Long-term debt, net
|
|
286,623
|
|
|
217,467
|
|
|
—
|
|
|
—
|
|
|
504,090
|
|
Series A Preferred Units
|
|
88,130
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,130
|
|
Intercompany payables
|
|
—
|
|
|
282,753
|
|
|
29,474
|
|
|
(312,227
|
)
|
|
—
|
|
Other long-term liabilities
|
|
—
|
|
|
39
|
|
|
718
|
|
|
—
|
|
|
757
|
|
Total liabilities
|
|
383,716
|
|
|
535,828
|
|
|
35,574
|
|
|
(312,227
|
)
|
|
642,891
|
|
Total partners' capital
|
|
143,249
|
|
|
214,703
|
|
|
15,112
|
|
|
(229,815
|
)
|
|
143,249
|
|
Total liabilities and partners' capital
|
|
$
|
526,965
|
|
|
$
|
750,531
|
|
|
$
|
50,686
|
|
|
$
|
(542,042
|
)
|
|
$
|
786,140
|
|
Condensed Consolidating Statement of Operations
and Comprehensive Income
Three Months Ended September 30, 2017
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
$
|
—
|
|
|
$
|
65,278
|
|
|
$
|
7,574
|
|
|
$
|
(1,254
|
)
|
|
$
|
71,598
|
|
Cost of revenues (excluding depreciation and amortization expense)
|
|
—
|
|
|
42,031
|
|
|
4,727
|
|
|
(1,254
|
)
|
|
45,504
|
|
Selling, general and administrative expense
|
|
263
|
|
|
7,961
|
|
|
458
|
|
|
—
|
|
|
8,682
|
|
Depreciation and amortization
|
|
—
|
|
|
16,522
|
|
|
839
|
|
|
—
|
|
|
17,361
|
|
Insurance recoveries
|
|
—
|
|
|
(2,352
|
)
|
|
—
|
|
|
—
|
|
|
(2,352
|
)
|
Interest expense, net
|
|
7,826
|
|
|
3,245
|
|
|
—
|
|
|
—
|
|
|
11,071
|
|
Series A Preferred FV Adjustment
|
|
(1,300
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,300
|
)
|
Other expense, net
|
|
—
|
|
|
(446
|
)
|
|
127
|
|
|
—
|
|
|
(319
|
)
|
Equity in net (income) loss of subsidiaries
|
|
1,032
|
|
|
(976
|
)
|
|
—
|
|
|
(56
|
)
|
|
—
|
|
Income before income tax provision
|
|
(7,821
|
)
|
|
(707
|
)
|
|
1,423
|
|
|
56
|
|
|
(7,049
|
)
|
Provision (benefit) for income taxes
|
|
—
|
|
|
325
|
|
|
447
|
|
|
—
|
|
|
772
|
|
Net income (loss)
|
|
(7,821
|
)
|
|
(1,032
|
)
|
|
976
|
|
|
56
|
|
|
(7,821
|
)
|
Other comprehensive income (loss)
|
|
(326
|
)
|
|
(326
|
)
|
|
(326
|
)
|
|
652
|
|
|
(326
|
)
|
Comprehensive income (loss)
|
|
$
|
(8,147
|
)
|
|
$
|
(1,358
|
)
|
|
$
|
650
|
|
|
$
|
708
|
|
|
$
|
(8,147
|
)
|
Condensed Consolidating Statement of Operations
and Comprehensive Income
Three Months Ended September 30, 2016
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
$
|
—
|
|
|
$
|
64,496
|
|
|
$
|
8,404
|
|
|
$
|
(2,186
|
)
|
|
$
|
70,714
|
|
Cost of revenues (excluding depreciation and amortization expense)
|
|
—
|
|
|
36,814
|
|
|
5,898
|
|
|
(2,186
|
)
|
|
40,526
|
|
Selling, general and administrative expense
|
|
1,736
|
|
|
7,206
|
|
|
337
|
|
|
—
|
|
|
9,279
|
|
Depreciation and amortization
|
|
—
|
|
|
17,123
|
|
|
699
|
|
|
—
|
|
|
17,822
|
|
Interest expense, net
|
|
6,485
|
|
|
3,277
|
|
|
—
|
|
|
—
|
|
|
9,762
|
|
Series A Preferred FV Adjustment
|
|
7,198
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,198
|
|
Other expense, net
|
|
1,583
|
|
|
62
|
|
|
253
|
|
|
—
|
|
|
1,898
|
|
Equity in net income of subsidiaries
|
|
(1,031
|
)
|
|
(1,108
|
)
|
|
—
|
|
|
2,139
|
|
|
—
|
|
Income (loss) before income tax provision
|
|
(15,971
|
)
|
|
1,122
|
|
|
1,217
|
|
|
(2,139
|
)
|
|
(15,771
|
)
|
Provision (benefit) for income taxes
|
|
—
|
|
|
91
|
|
|
109
|
|
|
—
|
|
|
200
|
|
Net income (loss)
|
|
(15,971
|
)
|
|
1,031
|
|
|
1,108
|
|
|
(2,139
|
)
|
|
(15,971
|
)
|
Other comprehensive income (loss)
|
|
(577
|
)
|
|
(577
|
)
|
|
(577
|
)
|
|
1,154
|
|
|
(577
|
)
|
Comprehensive income (loss)
|
|
$
|
(16,548
|
)
|
|
$
|
454
|
|
|
$
|
531
|
|
|
$
|
(985
|
)
|
|
$
|
(16,548
|
)
|
Condensed Consolidating Statement of Operations
and Comprehensive Income
Nine Months Ended September 30, 2017
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
$
|
—
|
|
|
$
|
196,376
|
|
|
$
|
20,276
|
|
|
$
|
(4,187
|
)
|
|
$
|
212,465
|
|
Cost of revenues (excluding depreciation and amortization expense)
|
|
—
|
|
|
128,936
|
|
|
13,401
|
|
|
(4,187
|
)
|
|
138,150
|
|
Selling, general and administrative expense
|
|
2,247
|
|
|
22,264
|
|
|
1,167
|
|
|
—
|
|
|
25,678
|
|
Depreciation and amortization
|
|
—
|
|
|
49,439
|
|
|
2,421
|
|
|
—
|
|
|
51,860
|
|
Insurance recoveries
|
|
—
|
|
|
(2,352
|
)
|
|
—
|
|
|
—
|
|
|
(2,352
|
)
|
Interest expense, net
|
|
23,675
|
|
|
8,228
|
|
|
—
|
|
|
—
|
|
|
31,903
|
|
Series A Preferred FV Adjustment
|
|
(4,963
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,963
|
)
|
Other expense, net
|
|
—
|
|
|
156
|
|
|
(372
|
)
|
|
—
|
|
|
(216
|
)
|
Equity in net income of subsidiaries
|
|
8,827
|
|
|
(2,004
|
)
|
|
—
|
|
|
(6,823
|
)
|
|
—
|
|
Income before income tax provision
|
|
(29,786
|
)
|
|
(8,291
|
)
|
|
3,659
|
|
|
6,823
|
|
|
(27,595
|
)
|
Provision for income taxes
|
|
—
|
|
|
536
|
|
|
1,655
|
|
|
—
|
|
|
2,191
|
|
Net income
|
|
(29,786
|
)
|
|
(8,827
|
)
|
|
2,004
|
|
|
6,823
|
|
|
(29,786
|
)
|
Other comprehensive income (loss)
|
|
(644
|
)
|
|
(644
|
)
|
|
(644
|
)
|
|
1,288
|
|
|
(644
|
)
|
Comprehensive income (loss)
|
|
$
|
(30,430
|
)
|
|
$
|
(9,471
|
)
|
|
$
|
1,360
|
|
|
$
|
8,111
|
|
|
$
|
(30,430
|
)
|
Condensed Consolidating Statement of Operations
and Comprehensive Income
Nine Months Ended September 30, 2016
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
$
|
—
|
|
|
$
|
205,989
|
|
|
$
|
31,698
|
|
|
$
|
(9,192
|
)
|
|
$
|
228,495
|
|
Cost of revenues (excluding depreciation and amortization expense)
|
|
—
|
|
|
119,705
|
|
|
22,052
|
|
|
(9,192
|
)
|
|
132,565
|
|
Selling, general and administrative expense
|
|
3,047
|
|
|
23,380
|
|
|
1,265
|
|
|
—
|
|
|
27,692
|
|
Depreciation and amortization
|
|
—
|
|
|
52,878
|
|
|
2,138
|
|
|
—
|
|
|
55,016
|
|
Long-live asset impairment
|
|
—
|
|
|
7,797
|
|
|
69
|
|
|
—
|
|
|
7,866
|
|
Goodwill impairment
|
|
—
|
|
|
91,574
|
|
|
760
|
|
|
—
|
|
|
92,334
|
|
Interest expense, net
|
|
19,447
|
|
|
7,987
|
|
|
—
|
|
|
—
|
|
|
27,434
|
|
Series A Preferred FV Adjustment
|
|
7,198
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,198
|
|
Other expense, net
|
|
1,583
|
|
|
167
|
|
|
1,143
|
|
|
—
|
|
|
2,893
|
|
Equity in net income of subsidiaries
|
|
94,725
|
|
|
(3,869
|
)
|
|
—
|
|
|
(90,856
|
)
|
|
—
|
|
Income before income tax provision
|
|
(126,000
|
)
|
|
(93,630
|
)
|
|
4,271
|
|
|
90,856
|
|
|
(124,503
|
)
|
Provision (benefit) for income taxes
|
|
—
|
|
|
1,095
|
|
|
402
|
|
|
—
|
|
|
1,497
|
|
Net income
|
|
(126,000
|
)
|
|
(94,725
|
)
|
|
3,869
|
|
|
90,856
|
|
|
(126,000
|
)
|
Other comprehensive income (loss)
|
|
(1,496
|
)
|
|
(1,496
|
)
|
|
(1,496
|
)
|
|
2,992
|
|
|
(1,496
|
)
|
Comprehensive income (loss)
|
|
$
|
(127,496
|
)
|
|
$
|
(96,221
|
)
|
|
$
|
2,373
|
|
|
$
|
93,848
|
|
|
$
|
(127,496
|
)
|
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by (used in) operating activities
|
|
$
|
—
|
|
|
$
|
29,445
|
|
|
$
|
(4,873
|
)
|
|
$
|
—
|
|
|
$
|
24,572
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment, net
|
|
—
|
|
|
(14,086
|
)
|
|
373
|
|
|
—
|
|
|
(13,713
|
)
|
Insurance recoveries
|
|
—
|
|
|
2,352
|
|
|
—
|
|
|
—
|
|
|
2,352
|
|
Intercompany investment activity
|
|
26,271
|
|
|
—
|
|
|
—
|
|
|
(26,271
|
)
|
|
—
|
|
Advances and other investing activities
|
|
—
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
25
|
|
Net cash provided by (used in) investing activities
|
|
26,271
|
|
|
(11,709
|
)
|
|
373
|
|
|
(26,271
|
)
|
|
(11,336
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
—
|
|
|
66,300
|
|
|
—
|
|
|
—
|
|
|
66,300
|
|
Payments of long-term debt
|
|
—
|
|
|
(64,900
|
)
|
|
—
|
|
|
—
|
|
|
(64,900
|
)
|
Proceeds from Series A Preferred Units, net of offering costs
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
Distributions
|
|
(26,152
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,152
|
)
|
Other Financing Activities
|
|
(82
|
)
|
|
(1,608
|
)
|
|
—
|
|
|
—
|
|
|
(1,690
|
)
|
Intercompany contribution (distribution)
|
|
—
|
|
|
(26,271
|
)
|
|
—
|
|
|
26,271
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
(26,271
|
)
|
|
(26,479
|
)
|
|
—
|
|
|
26,271
|
|
|
(26,479
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
(176
|
)
|
|
—
|
|
|
(176
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
—
|
|
|
(8,743
|
)
|
|
(4,676
|
)
|
|
—
|
|
|
(13,419
|
)
|
Cash and cash equivalents at beginning of period
|
|
—
|
|
|
12,201
|
|
|
8,596
|
|
|
—
|
|
|
20,797
|
|
Cash and cash equivalents at end of period
|
|
$
|
—
|
|
|
$
|
3,458
|
|
|
$
|
3,920
|
|
|
$
|
—
|
|
|
$
|
7,378
|
|
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
Guarantor
Subsidiaries
|
|
Other
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by (used in) operating activities
|
|
$
|
(58,521
|
)
|
|
$
|
101,259
|
|
|
$
|
2,784
|
|
|
$
|
—
|
|
|
$
|
45,522
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment, net
|
|
—
|
|
|
(6,158
|
)
|
|
(1,444
|
)
|
|
—
|
|
|
(7,602
|
)
|
Intercompany investment activity
|
|
38,366
|
|
|
—
|
|
|
—
|
|
|
(38,366
|
)
|
|
—
|
|
Advances and other investing activities
|
|
—
|
|
|
20
|
|
|
|
|
—
|
|
|
20
|
|
Net cash provided by (used in) investing activities
|
|
38,366
|
|
|
(6,138
|
)
|
|
(1,444
|
)
|
|
(38,366
|
)
|
|
(7,582
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
—
|
|
|
53,000
|
|
|
—
|
|
|
—
|
|
|
53,000
|
|
Payments of long-term debt
|
|
(18,800
|
)
|
|
(107,000
|
)
|
|
—
|
|
|
—
|
|
|
(125,800
|
)
|
Proceeds from issuance of Series A Preferred
|
|
77,321
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,321
|
|
Distributions
|
|
(38,366
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,366
|
)
|
Other Financing Activities
|
|
—
|
|
|
(840
|
)
|
|
—
|
|
|
—
|
|
|
(840
|
)
|
Intercompany contribution (distribution)
|
|
—
|
|
|
(38,366
|
)
|
|
—
|
|
|
38,366
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
20,155
|
|
|
(93,206
|
)
|
|
—
|
|
|
38,366
|
|
|
(34,685
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
(522
|
)
|
|
—
|
|
|
(522
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
—
|
|
|
1,915
|
|
|
818
|
|
|
—
|
|
|
2,733
|
|
Cash and cash equivalents at beginning of period
|
|
—
|
|
|
2,711
|
|
|
7,909
|
|
|
—
|
|
|
10,620
|
|
Cash and cash equivalents at end of period
|
|
$
|
—
|
|
|
$
|
4,626
|
|
|
$
|
8,727
|
|
|
$
|
—
|
|
|
$
|
13,353
|
|
NOTE J – SUBSEQUENT EVENTS
On
October 19, 2017
, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended
September 30, 2017
of
$0.1875
per common unit. This distribution equates to a distribution of
$0.75
per outstanding common unit, on an annualized basis. Also on
October 19, 2017
, the board of directors of our General Partner approved the paid-in-kind distribution of
181,036
Preferred Units attributable to the quarter ended
September 30, 2017
, in accordance with the provisions of our partnership agreement, as amended. These distributions will be paid on
November 14, 2017
to each of the holders of common units, and to the holders of the Preferred Units as a group, respectively, of record as of the close of business on
November 1, 2017
.
On October 8, 2017,
290,139
Preferred Units were converted into
713,183
common units. On November 8, 2017,
290,139
Preferred Units were converted into
710,129
common units.