AMID 2014.3.31 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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S | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014 or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35257
AMERICAN MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter)
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Delaware | 27-0855785 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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1400 16th Street, Suite 310 | |
Denver, CO | 80202 |
(Address of principal executive offices) | (Zip code) |
(720) 457-6060(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ¨ | Accelerated filer | ý |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No
There were 11,139,729 common units, 5,353,970 Series A Units and 1,168,225 Series B Units of American Midstream Partners, LP outstanding as of May 8, 2014. Our common units trade on the New York Stock Exchange under the ticker symbol “AMID.”
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 6. | | |
Glossary of Terms
As generally used in the energy industry and in this Quarterly Report on Form 10-Q (the “Quarterly Report”), the identified terms have the following meanings:
Bbl Barrels: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bcf One billion cubic feet.
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Condensate | Liquid hydrocarbons present in casinghead gas that condense within the gathering system and are removed prior to delivery to the gas plant. This product is generally sold on terms more closely tied to crude oil pricing. |
/d Per day.
FERC Federal Energy Regulatory Commission.
Fractionation Process by which natural gas liquids are separated into individual components.
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GAAP | Accounting principles generally accepted in the United States of America |
Gal Gallons.
Mcf One thousand cubic feet.
MMcf One million cubic feet.
Mgal One thousand gallons
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NGL or NGLs | Natural gas liquid(s): The combination of ethane, propane, normal butane, isobutane and natural gasoline that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature. |
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Throughput | The volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period. |
As used in this Quarterly Report, unless the context otherwise requires, “we,” “us,” “our,” the “Partnership” and similar terms refer to American Midstream Partners, LP, together with its consolidated subsidiaries.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
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| March 31, 2014 | | December 31, 2013 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 2,022 |
| | $ | 393 |
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Accounts receivable | 7,870 |
| | 6,822 |
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Unbilled revenue | 24,900 |
| | 22,005 |
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Risk management assets | 189 |
| | 473 |
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Other current assets | 9,914 |
| | 7,497 |
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Current assets held for sale | 1,582 |
| | 1,268 |
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Total current assets | 46,477 |
| | 38,458 |
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Property, plant and equipment, net | 365,252 |
| | 312,510 |
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Goodwill | 16,253 |
| | 16,447 |
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Intangible assets, net | 50,692 |
| | 3,682 |
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Other assets, net | 8,819 |
| | 9,064 |
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Noncurrent assets held for sale, net | 1,912 |
| | 1,914 |
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Total assets | $ | 489,405 |
| | $ | 382,075 |
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Liabilities, Equity and Partners’ Capital | | | |
Current liabilities | | | |
Accounts payable | $ | 1,592 |
| | $ | 3,261 |
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Accrued gas purchases | 17,534 |
| | 16,394 |
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Accrued expenses and other current liabilities | 15,969 |
| | 15,058 |
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Current portion of long-term debt | 1,427 |
| | 2,048 |
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Risk management liabilities | 488 |
| | 423 |
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Current liabilities held for sale | 1,383 |
| | 1,106 |
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Total current liabilities | 38,393 |
| | 38,290 |
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Risk management liabilities | 75 |
| | 101 |
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Asset retirement obligations | 34,827 |
| | 34,636 |
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Other liabilities | 270 |
| | 191 |
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Long-term debt | 125,650 |
| | 130,735 |
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Deferred tax liability | 4,542 |
| | 4,749 |
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Noncurrent liabilities held for sale, net | 82 |
| | 95 |
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Total liabilities | 203,839 |
| | 208,797 |
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Commitments and contingencies (see Note 13) |
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Convertible preferred units | | | |
Series A convertible preferred units (5,354 thousand and 5,279 thousand units issued and outstanding as of March 31, 2014, and December 31, 2013, respectively) | 96,654 |
| | 94,811 |
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Equity and partners’ capital | | | |
General partner interest (235 thousand and 185 thousand units issued and outstanding as of March 31, 2014, and December 31, 2013, respectively) | (3,747 | ) | | 2,696 |
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Limited partner interest (11,135 thousand and 7,414 thousand units issued and outstanding as of March 31, 2014, and December 31, 2013, respectively) | 157,910 |
| | 71,039 |
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Series B convertible units (1,168 thousand and zero units issued and outstanding as of March 31, 2014, and December 31, 2013, respectively) | 30,000 |
| | — |
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Accumulated other comprehensive income | 140 |
| | 104 |
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Total partners’ capital | 184,303 |
| | 73,839 |
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Noncontrolling interests | 4,609 |
| | 4,628 |
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Total equity and partners' capital | 188,912 |
| | 78,467 |
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Total liabilities, equity and partners' capital | $ | 489,405 |
| | $ | 382,075 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except for per unit amounts)
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| Three months ended March 31, |
| 2014 | | 2013 |
Revenue | $ | 75,979 |
| | $ | 59,707 |
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Loss on commodity derivatives, net | (130 | ) | | (305 | ) |
Total revenue | 75,849 |
| | 59,402 |
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Operating expenses: | | | |
Purchases of natural gas, NGLs and condensate | 50,924 |
| | 47,301 |
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Direct operating expenses | 8,850 |
| | 4,803 |
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Selling, general and administrative expenses | 5,593 |
| | 3,425 |
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Equity compensation expense | 360 |
| | 388 |
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Depreciation, amortization and accretion expense | 7,632 |
| | 5,646 |
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Total operating expenses | 73,359 |
| | 61,563 |
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Gain on involuntary conversion of property, plant and equipment | — |
| | 421 |
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Loss on sale of assets, net | (21 | ) | | — |
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Operating income (loss) | 2,469 |
| | (1,740 | ) |
Other expense: | | | |
Interest expense | (1,903 | ) | | (1,731 | ) |
Net income (loss) before income tax benefit | 566 |
| | (3,471 | ) |
Income tax benefit | 11 |
| | — |
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Net income (loss) from continuing operations | 577 |
| | (3,471 | ) |
Discontinued operations: | | | |
(Loss) income from operations of disposal groups, net of tax | (69 | ) | | 73 |
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Net income (loss) | 508 |
| | (3,398 | ) |
Net income attributable to noncontrolling interests | 108 |
| | 155 |
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Net income (loss) attributable to the Partnership | $ | 400 |
| | $ | (3,553 | ) |
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General partner's interest in net income (loss) | $ | 7 |
| | $ | (70 | ) |
Limited partners' interest in net income (loss) | $ | 393 |
| | $ | (3,483 | ) |
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Limited partners' net (loss) income per common unit (See Note 4 and Note 10): |
Basic and diluted: | | | |
Loss from continuing operations | $ | (0.31 | ) | | $ | (0.39 | ) |
(Loss) income from discontinued operations | (0.01 | ) | | 0.01 |
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Net loss | $ | (0.32 | ) | | $ | (0.38 | ) |
Weighted average number of common units outstanding: |
Basic and diluted | 9,846 |
| | 9,167 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
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| Three months ended March 31, |
| 2014 | | 2013 |
Net income (loss) | $ | 508 |
| | $ | (3,398 | ) |
Unrealized gain (loss) on post retirement benefit plan assets and liabilities | 36 |
| | (13 | ) |
Comprehensive income (loss) | 544 |
| | (3,411 | ) |
Less: Comprehensive income attributable to noncontrolling interests | 108 |
| | 155 |
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Comprehensive income (loss) attributable to Partnership | $ | 436 |
| | $ | (3,566 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Changes in Partners’ Capital
and Noncontrolling Interest
(Unaudited, in thousands)
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| General Partner Interest | | Limited Partner Interest | | Series B Convertible Units | | Accumulated Other Comprehensive Income | | Total Partners' Capital | | Noncontrolling Interest |
Balances at December 31, 2012 | $ | 548 |
| | $ | 79,266 |
| | $ | — |
| | $ | 351 |
| | $ | 80,165 |
| | $ | 7,438 |
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Net income (loss) | (70 | ) | | (3,483 | ) | | — |
| | — |
| | (3,553 | ) | | 155 |
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Unitholder distributions | (80 | ) | | (3,964 | ) | | — |
| | — |
| | (4,044 | ) | | — |
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Net distributions to noncontrolling interest holders | — |
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| | — |
| | — |
| | — |
| | (210 | ) |
LTIP vesting | (183 | ) | | 183 |
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| | — |
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Tax netting repurchase | — |
| | (74 | ) | | — |
| | — |
| | (74 | ) | | — |
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Unit based compensation | 388 |
| | — |
| | — |
| | — |
| | 388 |
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Other comprehensive loss | — |
| | — |
| | — |
| | (13 | ) | | (13 | ) | | — |
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Balances at March 31, 2013 | $ | 603 |
| | $ | 71,928 |
| | $ | — |
| | $ | 338 |
| | $ | 72,869 |
| | $ | 7,383 |
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Balances at December 31, 2013 | $ | 2,696 |
| | $ | 71,039 |
| | $ | — |
| | $ | 104 |
| | $ | 73,839 |
| | $ | 4,628 |
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Net income | 7 |
| | 393 |
| | — |
| | — |
| | 400 |
| | 108 |
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Issuance of common units to public, net of offering costs | — |
| | 86,926 |
| | — |
| | — |
| | 86,926 |
| | — |
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Issuance of Series B convertible units | — |
| | — |
| | 30,000 |
| | — |
| | 30,000 |
| | — |
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Unitholder contributions | 1,276 |
| | — |
| | — |
| | — |
| | 1,276 |
| | — |
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Unitholder distributions | (524 | ) | | (8,037 | ) | | — |
| | — |
| | (8,561 | ) | | — |
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Issuance and exercise of warrant | (7,164 | ) | | 7,164 |
| | — |
| | — |
| | — |
| | — |
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Net distributions to noncontrolling interest owners | — |
| | — |
| | — |
| | — |
| | — |
| | (98 | ) |
Acquisition of noncontrolling interest | — |
| | 21 |
| | — |
| | — |
| | 21 |
| | (29 | ) |
LTIP vesting | (366 | ) | | 494 |
| | — |
| | — |
| | 128 |
| | — |
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Tax netting repurchase | — |
| | (90 | ) | | — |
| | — |
| | (90 | ) | | — |
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Unit based compensation | 328 |
| | — |
| | — |
| | — |
| | 328 |
| | — |
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Other comprehensive income | — |
| | — |
| | — |
| | 36 |
| | 36 |
| | — |
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Balances at March 31, 2014 | $ | (3,747 | ) | | $ | 157,910 |
| | $ | 30,000 |
| | $ | 140 |
| | $ | 184,303 |
| | $ | 4,609 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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| Three months ended March 31, |
| 2014 | | 2013 |
Cash flows from operating activities | | | |
Net income (loss) | $ | 508 |
| | $ | (3,398 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion expense | 7,632 |
| | 5,678 |
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Amortization of deferred financing costs | 428 |
| | 283 |
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Amortization of weather derivative premium | 284 |
| | — |
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Unrealized loss on commodity derivatives | 39 |
| | 481 |
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Equity based compensation | 360 |
| | 388 |
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OPEB plan net periodic cost | 12 |
| | 18 |
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Gain on involuntary conversion of property, plant and equipment | — |
| | (421 | ) |
Deferred tax benefit | (26 | ) | | — |
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Changes in operating assets and liabilities, net: | | |
Accounts receivable | (1,041 | ) | | 715 |
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Unbilled revenue | (3,222 | ) | | (1,516 | ) |
Other current assets | (2,374 | ) | | (1,020 | ) |
Other assets, net | (15 | ) | | (59 | ) |
Accounts payable | (789 | ) | | (787 | ) |
Accrued gas purchases | 1,416 |
| | 1,325 |
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Accrued expenses and other current liabilities | 263 |
| | (525 | ) |
Other liabilities | 79 |
| | (59 | ) |
Net cash provided by operating activities | 3,554 |
| | 1,103 |
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Cash flows from investing activities | | | |
Cost of acquisitions | (110,909 | ) | | — |
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Additions to property, plant and equipment | (3,928 | ) | | (8,052 | ) |
Proceeds from disposals of property, plant and equipment | 6,135 |
| | — |
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Insurance proceeds from involuntary conversion of property, plant and equipment | — |
| | 560 |
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Net cash used in investing activities | (108,702 | ) | | (7,492 | ) |
Cash flows from financing activities | | | |
Proceeds from issuance of common units to public, net of offering costs | 86,926 |
| | — |
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Unitholder contributions | 1,276 |
| | — |
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Unitholder distributions | (5,379 | ) | | (4,044 | ) |
Issuance of Series B Units | 30,000 |
| | — |
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Acquisition of noncontrolling interest | (8 | ) | | — |
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Net distributions to noncontrolling interest owners | (98 | ) | | (210 | ) |
LTIP tax netting unit repurchase | (90 | ) | | (74 | ) |
Payments of deferred debt issuance costs | (144 | ) | | (912 | ) |
Payments on other debt | (791 | ) | | (358 | ) |
Borrowings on other debt | 170 |
| | 1,476 |
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Payments on long-term debt | (49,771 | ) | | (17,585 | ) |
Borrowings on long-term debt | 44,686 |
| | 27,565 |
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Net cash provided by financing activities | 106,777 |
| | 5,858 |
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Net increase (decrease) in cash and cash equivalents | 1,629 |
| | (531 | ) |
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Cash and cash equivalents | | | |
Beginning of period | 393 |
| | 576 |
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End of period | $ | 2,022 |
| | $ | 45 |
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Supplemental cash flow information | | | |
Interest payments, net | $ | 1,781 |
| | $ | 1,487 |
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Supplemental non-cash information | | | |
Decrease in accrued property, plant and equipment | $ | (1,474 | ) | | $ | (3,977 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Nature of Business
American Midstream Partners, LP (the “Partnership”), was formed on August 20, 2009 as a Delaware limited partnership for the purpose of operating, developing and acquiring a diversified portfolio of midstream energy assets. We provide natural gas gathering, treating, processing, fractionating, marketing and transportation services primarily in the Gulf Coast and Southeast regions of the United States through our ownership and operation of eleven gathering systems, two processing facilities, one fractionation facility, four terminal sites, three interstate pipelines and five intrastate pipelines. In addition, we own a 50% undivided, non-operating interest in a processing plant located in southern Louisiana. Through our four marine terminal sites, we provide petroleum, agricultural, and chemical liquid storage services.
We hold our assets in a series of wholly owned limited liability companies, a limited partnership and a corporation. Our capital accounts consist of general partner interests and limited partner interests.
Our interstate natural gas pipeline assets transport natural gas through the FERC regulated interstate natural gas pipelines in Louisiana, Mississippi, Alabama and Tennessee. Our interstate pipelines include:
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• | High Point Gas Transmission, LLC, which owns and operates approximately 400 miles of intrastate pipeline and is connected to 40 meters with 32 active producers and offers processing options at the Toca processing plant with delivery to Southern Natural Gas available downstream of the processing plant in Louisiana; |
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• | American Midstream (Midla), LLC, which owns and operates approximately 370 miles of interstate pipeline that runs from the Monroe gas field in northern Louisiana south through Mississippi to Baton Rouge, Louisiana; |
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• | American Midstream (AlaTenn), LLC, which owns and operates approximately 295 miles of interstate pipeline that runs through the Tennessee River Valley from Selmer, Tennessee, to Huntsville, Alabama and serves an eight-county area in Alabama, Mississippi and Tennessee. |
Equity Offering and Series B Convertible Units Issuance
In January 2014, in connection with the Lavaca Acquisition as discussed in Note 3, the Partnership completed a public equity offering resulting in net proceeds of $86.9 million and the issuance to our General Partner of 1,168,225 Series B convertible units ("Series B Units") representing Series B limited partnership interests in the Partnership. The Series B Units have the right to share in distributions from the Partnership on a pro-rata basis with holders of the Partnership’s common units and will convert into common units on a one-for-one basis on January 31, 2016.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end balance sheet data was derived from consolidated audited financial statements but does not include disclosures required by GAAP for annual periods. We have made reclassifications to amounts reported in prior period condensed consolidated financial statements to conform to our current year presentation. These reclassifications did not have an impact on net income for the period previously reported. The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the respective interim periods.
Our financial results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in i) our Annual Report on Form 10-K for the year ended December 31, 2013 (“Annual Report”) filed on March 11, 2014 and ii) our Annual Report on Form 10-K/A that was filed with the Securities and Exchange Commission ("SEC") on May 12, 2014 which updated portions of our annual report.
Consolidation Policy
Our condensed consolidated financial statements include our accounts and those of our subsidiaries in which we have a controlling interest. We hold a 50% undivided interest in the Burns Point gas processing facility in which we are responsible for our proportionate share of the costs and expenses of the facility. Our condensed consolidated financial statements reflect our proportionate share of the revenues, expenses, assets and liabilities of this undivided interest. As of March 31, 2014, we also hold a 92.2% undivided
interest in the Chatom Processing and Fractionation facility (the "Chatom System"). Our condensed consolidated financial statements reflect the accounts of the Chatom System and the interests in the Chatom System held by non-affiliated working interest owners are reflected as noncontrolling interests in the Partnership's condensed consolidated financial statements.
Use of Estimates
When preparing condensed consolidated financial statements in conformity with GAAP, management must make estimates and assumptions based on information available at the time. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities as of the date of the financial statements. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things i) estimating unbilled revenues, accrued gas purchases and operating and general and administrative costs, ii) developing fair value assumptions, including estimates of future cash flows and discount rates, iii) analyzing long-lived assets, goodwill and intangible assets for possible impairment, iv) estimating the useful lives of assets and v) determining amounts to accrue for contingencies, guarantees and indemnifications. Actual results, therefore, could differ materially from estimated amounts.
2. Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Codification ("ASC ") No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). This guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carryforward, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update was effective for the Partnership effective January 1, 2014 and did not have a material impact on its condensed consolidated financial statements.
In April 2014, the FASB issued ASC No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This guidance amends the definition of discontinued operations to include components of an entity that have been disposed of, meet the criteria to be classified as held-for-sale, or has been abandoned/spun-off; and represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The update applies to disposals and classifications as held-for-sale that occur after the effective date. The update is effective for all periods beginning after December 15, 2014 and is not expected to have a material impact on the Partnership.
3. Acquisitions and Divestitures
Lavaca Acquisition
On January 31, 2014, the Partnership acquired approximately 120 miles of high- and low-pressure pipelines ranging from 4 to 8 inches in diameter with over 9,000 horsepower of leased compression, and associated facilities located in the Eagle Ford shale in Gonzales and Lavaca Counties, Texas, the (“Lavaca Acquisition”). The consideration for the Lavaca Acquisition was financed with a portion of the net proceeds from the Partnership’s January 2014 equity offering of $86.9 million and proceeds of $30.0 million from the issuance to our General Partner of 1,168,225 Series B Units.
The Lavaca Acquisition qualified as a business combination according to ASC 805, Business Combinations, and, as such, the Partnership engaged a third party to estimate the fair value of the assets as of the effective date of the acquisition. A combination of the income and cost approaches were utilized to estimate the fair value of the assets. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined by ASC 820, Fair Value Measurement.
Primarily using the cost approach to value the physical assets, the fair value estimates are based on i) replacement cost estimates using third party data based on installations of similar assets including an economic obsolescence factor and ii) estimated depreciation on the assets based on third party sources and analysis of the life and use of the assets.
It was determined as part of the fair value analysis of the acquisition, that the Partnership acquired separately identifiable intangible assets. The Lavaca Acquisition includes a 25-year gas gathering agreement which states that Penn Virginia Corporation (NYSE:
PVA) ("PVA") will dedicate certain acreage and all related future production to the gathering infrastructure included in the acquisition. In accordance with ASC 805, contract based intangible assets include the value of rights derived from contractual agreements. The Partnership will receive incremental value from PVA’s development of the reserves within the dedicated acreage and, therefore, it was determined that the dedicated acreage represents intangible assets acquired with the Lavaca Acquisition. The Partnership will amortize the Lavaca Acquisition intangibles using the straight-line method over the 25-year life of the related gas gathering agreement. The Partnership will amortize the Lavaca Acquisition intangibles using the straight-line method over the life of the related gas gathering agreement and recognize $1.9 million of amortization expense annually over the gas gathering agreement.
Primarily using the income approach to value the intangible assets, the fair value estimates are based on: i) an assumed discount rate of 10.5%; ii) present value of estimated EBITDA; iii) estimated timing and amounts of future operating and development costs; iv) forward market prices as of December 2013 for natural gas and crude oil; and v) an increase in throughput volumes through 2019, declining thereafter.
The Partnership completed a preliminary purchase price allocation to determine the estimated fair value of the acquired assets. The preliminary allocation is subject to various purchase price adjustments, which could impact the allocation presented below. The following table summarizes the preliminary purchase price allocation for the Lavaca Acquisition (in thousands):
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| | | |
Property, plant and equipment: | |
Land | $ | 2 |
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Pipelines | 55,654 |
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Equipment | 753 |
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Total property, plant and equipment | 56,409 |
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Intangible assets | 48,000 |
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Total cash consideration | $ | 104,409 |
|
For the three months ended March 31, 2014, Lavaca contributed $2.3 million of revenue and $1.6 million of net income attributable to the Partnership's Gathering and Processing segment, which are included in the condensed consolidated statement of operations.
Pro forma financial results are not presented as it is impractical to obtain the necessary information. The seller did not operate the acquired assets as a standalone business and, therefore, historical financial information that is consistent with the operations under the current agreement is not available.
Other Acquisition
In the fourth quarter of 2013, High Point Gas Gathering LLC, a subsidiary of the Partnership, entered into a purchase and sale agreement to acquire natural gas pipeline facilities and interests thereto for approximately $6.5 million that are contiguous to, and connect with, our High Point System in offshore Louisiana; the (“Williams Pipeline Acquisition”). The closing of the purchase and sale agreement was subject to FERC approval of the seller's application to abandon by sale to us the pipeline facilities and to permit the facilities to serve a gathering function, exempt from FERC's jurisdiction. The FERC granted approval of the application during the first quarter of 2014, and the purchase and sale agreement closed on March 14, 2014. Total consideration was allocated to pipeline fixed assets using the income approach based on Level 3 inputs.
Blackwater Terminals Acquisition
Effective December 17, 2013, we acquired Blackwater Midstream Holdings, LLC ("Blackwater"), which operates 1.3 million barrels of storage capacity across four marine terminal sites located in Westwego, Louisiana; Brunswick, Georgia; Harvey, Louisiana; and Salisbury, Maryland.
For the three months ended March 31, 2014, Blackwater contributed $3.6 million of revenue and $0.9 million of net income attributable to the Partnership's Terminals segment, which are included in the condensed consolidated statement of operations.
High Point System Acquisition
Effective April 15, 2013, our General Partner contributed to us the High Point System, consisting of 100% of the limited liability company interests in High Point Gas Transmission, LLC and High Point Gas Gathering, LLC. The High Point System entities own midstream assets consisting of approximately 700 miles of natural gas and liquids pipeline assets located in southeast Louisiana, in the Plaquemines and St. Bernard's Parishes, and the shallow water and deep shelf Gulf of Mexico, including the Mississippi
Canyon, Viosca Knoll, West Delta, Main Pass, South Pass and Breton Sound zones. Natural gas is collected at more than 75 receipt points that connect hundreds of wells with an emphasis on oil and liquids-rich reservoirs.
For the three months ended March 31, 2014, the High Point System contributed $7.0 million of revenue and $4.7 million of net income attributable to the Partnership's Transmission segment, which are included in the condensed consolidated statement of operations.
Madison Divestiture
On March 31, 2014, the Partnership completed the sale of certain gathering and processing assets in Madison County, Texas. We received $6.1 million in cash proceeds related to the sale. The Partnership recognized a $3.0 million impairment charge related to these assets for the year ended December 31, 2013, which wrote down the assets to a carrying value of $6.1 million as of December 31, 2013.
4. Discontinued Operations
We classify long-lived assets to be disposed of through sales that meet specific criteria as held for sale. We cease depreciating those assets effective on the date the asset is classified as held for sale. We record those assets at the lower of their carrying value or the estimated fair value less the cost to sell. Until the assets are disposed of, an estimate of the fair value is re-determined when related events or circumstances change.
During the second quarter of 2013, the board of directors of our General Partner approved a plan to sell certain non-strategic gathering and processing assets which meet specific criteria, qualifying them as held for sale. Subsequently, as part of the Blackwater Acquisition described in Note 3, we acquired long-lived terminal assets classified as held for sale.
As a result of the planned divestiture of these non-strategic midstream assets, we have accounted for these disposal groups as discontinued operations within our Gathering and Processing and Terminal segments. Accordingly, we reclassified and excluded the disposal groups' results of operations from our results of continuing operations and reported the disposal groups' results of operations as (Loss) income from operations of disposal groups, net of tax in our accompanying condensed consolidated statement of operations for all periods presented. We did not, however, elect to present separately the operating, investing and financing cash flows related to the disposal groups in our accompanying condensed consolidated statement of cash flows as this activity was immaterial for all periods presented. The following table presents the revenue and expenses and (Loss) income from operations of disposal groups, net of tax associated with the assets classified as held for sale for the three months ended March 31, 2014 and 2013 (in thousands, except per unit amounts):
|
| | | | | | | |
| Three months ended March 31, |
| 2014 | | 2013 |
Revenue | $ | 4,626 |
| | $ | 3,638 |
|
Expense | (4,685 | ) | | (3,565 | ) |
Loss on sale of assets | (22 | ) | | — |
|
Income tax benefit | 12 |
| | — |
|
(Loss) income from operations of disposal groups, net of tax | $ | (69 | ) | | $ | 73 |
|
Limited partners' net (loss) income per unit from discontinued operations (basic and diluted) | $ | (0.01 | ) | | $ | 0.01 |
|
5. Concentration of Credit Risk and Trade Accounts Receivable
Our primary market areas are located in the United States along the Gulf Coast and in the Southeast. We have a concentration of trade receivable balances due from companies engaged in the production, trading, distribution and marketing of natural gas, NGL and condensate products. This concentration of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Generally, our customers’ historical financial and operating information is analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees. We maintain allowances for potentially uncollectible accounts receivable; however, for the three months ended March 31, 2014 and 2013, no allowances on or write-offs of accounts receivable were recorded.
The following table summarizes the percentage of revenue earned from those customers that accounted for 10% or more of the Partnership's consolidated revenue in the condensed consolidated statement of operations for the each of the periods presented below:
|
| | | | | |
| Three months ended March 31, |
| 2014 | | 2013 |
Customer A | 30 | % | | 30 | % |
Customer B | — | % | | 15 | % |
Customer C | 15 | % | | 12 | % |
Customer D | 12 | % | | 12 | % |
Other | 43 | % | | 31 | % |
Total | 100 | % | | 100 | % |
6. Derivatives
Commodity Derivatives
To minimize the effect of commodity prices and maintain our cash flow and the economics of our development plans, we enter into commodity hedge contracts from time to time. Those commodity hedge contracts may be in the form of swaps, puts and/or collars. The terms of the contracts depend on various factors, including management’s view of future commodity prices, acquisition economics on purchased assets and future financial commitments. This hedging program is designed to mitigate the effect of commodity price downturns while allowing us to participate in some commodity price upside. Management regularly monitors the commodity markets and financial commitments to determine if, when, and at what level commodity hedging is appropriate in accordance with policies that are established by the board of directors of our General Partner. As of March 31, 2014, the aggregate notional volume of our commodity derivatives was 3.1 million gallons.
We enter into commodity contracts with multiple counterparties. We may be required to post collateral with our counterparties in connection with our derivative positions. As of March 31, 2014, we have not posted collateral with any counterparty. Our counterparties are not required to post collateral with us in connection with their derivative positions. Netting agreements are in place with our counterparties that permit us to offset our commodity derivative asset and liability positions.
For accounting purposes, no derivative instruments were designated as hedging instruments and were instead accounted for under the mark-to-market method of accounting, with any changes in the fair value of the derivatives recorded in the condensed consolidated balance sheets and through earnings, rather than being deferred until the anticipated transactions affect earnings. The use of mark-to-market accounting for financial instruments can cause non-cash earnings volatility due to changes in the underlying commodity price indices or interest rates.
Interest Rate Swap
We entered into an interest rate swap to manage the impact of the interest rate risk associated with our credit facility, effectively converting a portion of our long-term variable rate debt into fixed rate debt. As of March 31, 2014, the notional amount of our interest rate swap was $100.0 million. The interest rate swap was entered into with a single counterparty and we were not required to post collateral.
Weather Derivative
In the second quarter of 2013, we entered into a weather derivative to mitigate the impact of potential unfavorable weather to our operations under which we could receive payments totaling up to $10.0 million in the event that a hurricane or hurricanes of certain strength pass through the area as identified in the derivative agreement. The weather derivative is being accounted for using the intrinsic value method, under which the fair value of the contract is zero and any amounts received are recognized as gains during the period received. The weather derivative was entered into with a single counterparty and we were not required to post collateral. We paid a premium of approximately $1.1 million which is recorded in Risk management assets on the condensed consolidated balance sheet and is being amortized to Direct operating expenses on a straight-line basis over the 1 year term of the contract. As of March 31, 2014, the unamortized amount of the risk management asset was approximately $0.2 million.
As of March 31, 2014 and December 31, 2013, the value associated with our commodity derivatives, interest rate swap instrument and weather derivative were recorded in our condensed consolidated balance sheets, under the captions as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Risk Management Assets | | Gross Risk Management Liabilities | | Net Risk Management Assets (Liabilities) |
Balance Sheet Classification | | March 31, 2014 | | December 31, 2013 | | March 31, 2014 | | December 31, 2013 | | March 31, 2014 | | December 31, 2013 |
Current | | $ | 189 |
| | $ | 473 |
| | $ | — |
| | $ | — |
| | $ | 189 |
| | $ | 473 |
|
Noncurrent | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total assets | | $ | 189 |
| | $ | 473 |
| | $ | — |
| | $ | — |
| | $ | 189 |
| | $ | 473 |
|
| | | | | | | | | | | | |
Current | | $ | 55 |
| | $ | 27 |
| | $ | (543 | ) | | $ | (450 | ) | | $ | (488 | ) | | $ | (423 | ) |
Noncurrent | | — |
| | — |
| | (75 | ) | | (101 | ) | | (75 | ) | | (101 | ) |
Total liabilities | | $ | 55 |
| | $ | 27 |
| | $ | (618 | ) | | $ | (551 | ) | | $ | (563 | ) | | $ | (524 | ) |
For the three months ended March 31, 2014 and 2013, respectively, the realized and unrealized gains (losses) associated with our commodity derivatives, interest rate swap instrument and weather derivative were recorded in our condensed consolidated statements of operations, under the captions as follows (in thousands):
|
| | | | | | | |
| Three months ended March 31, |
| Gain (loss) on derivatives |
Statement of Operations Classification | Realized | | Unrealized |
2014 | | | |
Loss on commodity derivatives, net | $ | (102 | ) | | $ | (28 | ) |
Interest expense | (104 | ) | | (11 | ) |
Direct operating expenses | (284 | ) | | — |
|
Total | $ | (490 | ) | | $ | (39 | ) |
2013 | | | |
Gain (loss) on commodity derivatives, net | $ | 176 |
| | $ | (481 | ) |
7. Fair Value Measurement
The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:
| |
• | Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities; |
| |
• | Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and |
| |
• | Level 3 – Inputs are unobservable and considered significant to fair value measurement. |
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy.
We believe the carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. Our cash and cash equivalents would be classified as Level 1 under the fair value hierarchy.
The recorded value of the amounts outstanding under the credit facility approximates its fair value, as interest rates are variable, based on prevailing market rates and the short-term nature of borrowings and repayments under the credit facility. Our existing revolving credit facility would be classified as Level 1 under the fair value hierarchy.
The fair value of all derivatives instruments is estimated using a market valuation methodology based upon forward commodity price curves, volatility curves as well as other relevant economic measures, if necessary. Discount factors may be utilized to extrapolate a forecast of future cash flows associated with long dated transactions or illiquid market points. The inputs are obtained from independent pricing services, and we have made no adjustments to the obtained prices.
We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivatives contracts held. We recognize transfers between levels at the end of the reporting period for which the transfer has occurred. There were no transfers out of Level 3 into Level 2 for the three months ended March 31, 2014 and 2013.
Fair Value of Financial Instruments
The following table sets forth by level within the fair value hierarchy, our commodity derivative instruments and interest rate swap, included as part of Risk management assets and Risk management liabilities within the condensed consolidated balance sheet, that were measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Carrying Amount | | Estimated Fair Value |
| Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivative instruments, net | | | | | | | | | |
March 31, 2014 | $ | (98 | ) | | $ | — |
| | $ | (98 | ) | | $ | — |
| | $ | (98 | ) |
December 31, 2013 | (70 | ) | | — |
| | (70 | ) | | — |
| | (70 | ) |
Interest rate swap | | | | | | | | | |
March 31, 2014 | $ | (465 | ) | | $ | — |
| | $ | (465 | ) | | $ | — |
| | $ | (465 | ) |
December 31, 2013 | (454 | ) | | — |
| | (454 | ) | | — |
| | (454 | ) |
The premium paid to enter the weather derivative described in Note 6 "Derivatives" is included within Risk management assets on the balance sheet but is not included as part of the above table as it is recorded at amortized carrying cost, not fair value.
8. Property, Plant and Equipment
Property, plant and equipment, net, as of March 31, 2014 and December 31, 2013 were as follows (in thousands):
|
| | | | | | | | | |
| Useful Life (in years) | | March 31, 2014 | | December 31, 2013 |
Land | N/A | | $ | 6,017 |
| | $ | 6,015 |
|
Construction in progress | N/A | | 6,978 |
| | 6,443 |
|
Base gas | N/A | | 1,108 |
| | 1,108 |
|
Buildings and improvements | 4 to 40 | | 5,358 |
| | 5,109 |
|
Processing and treating plants | 8 to 40 | | 97,799 |
| | 97,106 |
|
Pipelines | 5 to 40 | | 292,498 |
| | 239,826 |
|
Compressors | 4 to 20 | | 11,822 |
| | 11,793 |
|
Dock | 20 to 40 | | 7,954 |
| | 7,942 |
|
Tanks, truck rack and piping | 20 to 40 | | 22,432 |
| | 22,432 |
|
Equipment | 8 to 20 | | 8,076 |
| | 6,293 |
|
Computer software | 5 | | 3,598 |
| | 3,531 |
|
Total property, plant and equipment | | | 463,640 |
| | 407,598 |
|
Accumulated depreciation | | | (98,388 | ) | | (95,088 | ) |
Property, plant and equipment, net | | | $ | 365,252 |
| | $ | 312,510 |
|
Of the gross property, plant and equipment balances at March 31, 2014 and December 31, 2013, $100.5 million and $100.5 million, respectively, were related to AlaTenn, Midla and HPGT, our FERC regulated interstate and intrastate assets.
Capitalized interest was $0.1 million and less than $0.1 million for the three months ended March 31, 2014 and 2013, respectively.
Depreciation expense was $6.5 million and $5.7 million for the three months ended March 31, 2014 and 2013, respectively.
9. Debt Obligations
As of March 31, 2014, the Partnership's Credit Agreement (the "Credit Agreement") provides for a maximum borrowing equal to $200.0 million subject to, among other restrictions, the requirement that our indebtedness not exceed 5.75 times adjusted consolidated EBITDA. We can elect to have loans under our credit facility bear interest either at a Eurodollar-based rate plus a margin ranging from 1.50% to 3.75% depending on our total leverage ratio then in effect, or a base rate which is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate”, or (c) the Eurodollar Rate plus 1.00% plus a margin ranging from 2.50% to 4.75% depending on the total leverage ratio then in effect. We also paid a commitment fee of 0.50% per annum on the undrawn portion of the revolving loan.
Our obligations under the credit facility are secured by a first mortgage in favor of the lenders in our real property. Advances made under the credit facility are guaranteed on a senior unsecured basis by certain of our subsidiaries (“Guarantors”). These guarantees are full and unconditional and joint and several among the Guarantors. The terms of the new credit facility include covenants that restrict our ability to make cash distributions and acquisitions in some circumstances. The remaining principal balance of loans and any accrued and unpaid interest will be due and payable in full on the maturity date, August 1, 2016.
The credit facility also contains customary representations and warranties (including those relating to organization and authorization, compliance with laws, absence of defaults, material agreements and litigation) and customary events of default (including those relating to monetary defaults, covenant defaults, cross defaults and bankruptcy events). The primary financial covenants contained in the credit facility are i) a total consolidated leverage ratio test (not to exceed 5.75 times) and ii) a minimum interest coverage ratio test (not less than 2.50).
For the three months ended March 31, 2014 and 2013, the weighted average interest rate on borrowings under our credit facility was approximately 4.40% and 4.34%, respectively.
As of March 31, 2014, our consolidated total leverage was 3.13 times, which was in compliance with the consolidated total leverage ratio test in our credit facility, and we had approximately $125.7 million of outstanding borrowings under our credit facility and approximately $69.0 million of available borrowing capacity.
Other debt
Other debt represents insurance premium financing in the original amount of $2.5 million bearing interest at 3.95% per annum, which is repayable in equal monthly installments of approximately $0.3 million through the third quarter of 2014.
Our outstanding borrowings at March 31, 2014 and December 31, 2013, respectively, were (in thousands):
|
| | | | | | | |
| March 31, 2014 | | December 31, 2013 |
Revolving credit facility | $ | 125,650 |
| | $ | 130,735 |
|
Other debt | 1,427 |
| | 2,048 |
|
Total debt | 127,077 |
| | 132,783 |
|
Less: current portion | 1,427 |
| | 2,048 |
|
Long-term debt | $ | 125,650 |
| | $ | 130,735 |
|
At March 31, 2014 and December 31, 2013, letters of credit outstanding under the credit facility totaled $5.4 million and $4.8 million, respectively.
In connection with our credit facility and amendments thereto, we incurred $6.6 million in debt issuance costs that are being amortized on a straight-line basis over the term of the credit facility.
10. Partners’ Capital and Convertible Preferred Units
Our capital accounts are comprised of approximately 1.3% general partner interest and 98.7% limited partner interests. Our limited partners have limited rights of ownership as provided for under our partnership agreement and the right to participate in our distributions. Our General Partner manages our operations and participates in our distributions, including certain incentive distributions pursuant to the IDRs that are non-voting limited partner rights held by our General Partner.
Series B Units
Effective January 31, 2014, the Partnership created and issued to its General Partner 1,168,225 Series B Units. The Series B Units participate in distributions of the Partnership along with common units, with such distributions being made in cash or as in-kind distributions at the election of the Partnership. The Series B Units are entitled to vote along with common unitholders and such units will automatically convert to common units two years after the issuance date. Proceeds from the issuance of the Series B Units were used to partially fund the Lavaca Acquisition.
Equity Offering
On January 29, 2014, the Partnership and certain of its affiliates entered into an underwriting agreement (the “Underwriting Agreement”) with Barclays Capital Inc. and UBS Securities LLC (the “Underwriters”), providing for the issuance and sale by the Partnership, and the purchase by the Underwriter, of 3,400,000 common units representing limited partner interests in the
Partnership at a price to the public of $26.75 per common unit. The Partnership used the net proceeds of $86.9 million to fund a portion of the Lavaca Acquisition.
General Partner Units
In connection with our equity offering, we received proceeds of $1.3 million from our General Partner as consideration for 49,678 additional partner general units.
Issuance and Exercise of Warrant
Effective February 5, 2014, we issued to our General Partner a warrant to purchase up to 300,000 common units of the Partnership at an exercise price of $0.01 per common unit (the “Warrant”). The Warrant was exercised on February 21, 2014, resulting in the issuance of approximately 300,000 common units. The value of the Warrant of $7.2 million was determined based on the close price of $23.89 of the common units on the exercise date.
The numbers of units outstanding as of March 31, 2014 and December 31, 2013, respectively, were as follows (in thousands):
|
| | | | | |
| March 31, 2014 | | December 31, 2013 |
Series A convertible preferred units | 5,354 |
| | 5,279 |
|
Series B convertible units | 1,168 |
| | — |
|
Limited partner common units | 11,135 |
| | 7,414 |
|
General partners units | 235 |
| | 185 |
|
Net Income (Loss) attributable to Limited Partner Units
Net income (loss) is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages, after giving effect to contractual distributions on Series A preferred convertible units, declared distributions on the Series B Units, limited partner and to the general partner units, including incentive distribution rights. Basic and diluted net income (loss) per limited partner unit is calculated by dividing limited partners’ interest in net income (loss) by the weighted average number of outstanding limited partner units during the period.
We compute earnings per unit using the two-class method. The two-class method requires that securities that meet the definition of a participating security be considered for inclusion in the computation of basic earnings per unit. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the General Partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the General Partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.
The two-class method does not impact our overall net income (loss) or other financial results; however, in periods in which aggregate net income exceeds our aggregate distributions for such period, it will have the impact of reducing net income (loss) per limited partner unit. This result occurs as a larger portion of our aggregate earnings, as if distributed, is allocated to the incentive distribution rights of the General Partner, even though we make distributions on the basis of available cash and not earnings. In periods in which our aggregate net income does not exceed our aggregate distributions for such period, the two-class method does not have any impact on our calculation of earnings per limited partner unit. We have no dilutive securities, therefore basic and diluted net income per unit are the same.
We determined basic and diluted net income (loss) per limited partner unit as follows, (in thousands, except per unit amounts):
|
| | | | | | | |
| Three months ended March 31, |
| 2014 | | 2013 |
Net income (loss) from continuing operations | $ | 577 |
| | $ | (3,471 | ) |
Less: Net income attributable to noncontrolling interests | 108 |
| | 155 |
|
Net income (loss) from continuing operations attributable to the Partnership | 469 |
| | (3,626 | ) |
Less: | | | |
Contractual distributions on Series A Units | 3,182 |
| | — |
|
General partner's distribution | 482 |
| | 80 |
|
General partner's share in undistributed loss | (106 | ) | | (152 | ) |
Net loss from continuing operations available to limited partners | (3,089 | ) | | (3,554 | ) |
Net (loss) income from operations of disposal groups, net of tax, available to limited partners | (68 | ) | | 72 |
|
Net loss available to limited partners | $ | (3,157 | ) | | $ | (3,482 | ) |
| | | |
Weighted average number of units used in computation of limited partners’ net (loss) income per unit (basic and diluted) | 9,846 |
| | 9,167 |
|
| | | |
Limited partners' net (loss) income per common unit | | | |
Basic and diluted: | | | |
Loss from continuing operations | $ | (0.31 | ) | | $ | (0.39 | ) |
(Loss) income from discontinued operations | (0.01 | ) | | 0.01 |
|
Net loss | $ | (0.32 | ) | | $ | (0.38 | ) |
Distributions
We made distributions of $6.7 million and $4.0 million, inclusive of distributions of $0.4 million and zero in respect of our General Partner’s incentive distribution rights, in the three months ended March 31, 2014 and 2013, respectively. We depend on our credit facility for future capital needs and may use it to fund a portion of cash distributions to unitholders, as necessary, depending on the level of our operating cashflow.
For the Series A Unit distributions for the quarter ended as of March 31, 2014, we have accrued $1.3 million for the cash portion of the distribution and $1.8 million for the paid-in-kind Series A Units. The distributions will be made in the second quarter of 2014.
11. Long-Term Incentive Plan
Our General Partner manages our operations and activities and employs the personnel who provide support to our operations. The board of directors of our General Partner provides a long-term incentive plan (“LTIP”) for its employees, consultants and directors who perform services for it or its affiliates. At March 31, 2014 and December 31, 2013, 684,217 and 855,089 units, respectively, were available for future grant under the LTIP.
Ownership in the awards is subject to forfeiture until the vesting date. The LTIP is administered by the board of directors of our General Partner which, at its discretion, may elect to settle such vested phantom units with a number of units equivalent to the fair market value at the date of vesting in lieu of cash. Although our General Partner has the option to settle in cash upon the vesting of phantom units, it does not currently intend to settle these awards in cash. Although other types of awards are contemplated under the LTIP, all currently outstanding awards are phantom units without distribution equivalent rights.
Generally, grants issued under the LTIP vest in increments of 25% on each of the first four anniversary dates of the date of the grant and do not contain any other restrictive conditions related to vesting other than continued employment.
The following table summarizes our unit-based awards for each of the periods indicated, in units:
|
| | | | | |
| Three months ended March 31, |
| 2014 | | 2013 |
Outstanding at beginning of period | 75,529 |
| | 90,938 |
|
Granted | 174,691 |
| | 23,921 |
|
Forfeited | — |
| | (2,427 | ) |
Vested | (24,933 | ) | | (10,483 | ) |
Outstanding at end of period | 225,287 |
| | 101,949 |
|
Fair value per unit | $24.05 to $26.71 |
| | $13.36 to $21.40 |
|
The fair value of our phantom units, which are subject to equity classification, is based on the fair value of our units at the grant date. Compensation costs related to these awards, including amortization, for the three months ended March 31, 2014 and 2013 were $0.4 million and $0.4 million, respectively, which are classified as equity compensation expense in the condensed consolidated statements of operations and the non-cash portion in partners’ capital on the condensed consolidated balance sheets.
The total fair value of vested units at the time of vesting was $0.6 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively.
The total compensation cost related to unvested awards not yet recognized at March 31, 2014 and 2013 was $4.1 million and $1.3 million, respectively, and the weighted average period over which this cost is expected to be recognized as of March 31, 2014 is approximately 3.4 years.
12. Income Taxes
The Partnership is not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our unitholders through the allocation of taxable income. However, one of our subsidiaries, Blackwater, is a taxable entity. Partnership income tax for the three months ended March 31, 2014 was a benefit of less than $0.1 million, resulting in an effective tax rate of 1.9%.
The effective tax rate for the three months ended March 31, 2014, differs from the statutory rate primarily due to transactions between the Partnership and its taxable subsidiary that generate tax deductions for the the taxable subsidiary and are eliminated in the consolidation of Net income (loss) before income tax benefit.
13. Commitments and Contingencies
Legal proceedings
On September 5, 2013, HPIP, our General Partner and the Partnership were named as defendants in an action filed by AIM challenging the Equity Restructuring. AIM Midstream Holdings, LLC v. High Point Infrastructure Partners, LLC, American Midstream GP, LLC and American Midstream Partners, LP (Civil Action No. 8803-VCP) was filed in the Court of Chancery of the State of Delaware. Among claims against the other parties to the litigation, the action asserts a claim of tortious interference with contract against the Partnership and sought either rescission of the Partnership's equity restructuring agreement executed on August 9, 2013 or, in the alternative, monetary damages.
On February 5, 2014, we, HPIP and our General Partner entered into a settlement (the “Settlement”) with AIM Midstream Holdings regarding the action filed in Delaware Chancery Court by AIM Midstream Holdings. Under the Settlement, among other things:
· HPIP and AIM Midstream Holdings amended the LLC Amendment to, among other things, amend the Sharing Percentages (as defined therein) such that HPIP’s sharing percentage thereafter is 95% and AIM Midstream Holdings’s Sharing Percentage is 5%;
· HPIP transferred all of the 85.02% of our outstanding new IDRs held by HPIP to our General Partner such that our General Partner owns 100% of the outstanding new IDRs; and
· we issued to AIM Midstream Holdings a warrant to purchase up to 300,000 common units of the Partnership at an exercise price of $0.01 per common unit, which Warrant, among other terms, i) was exercisable at any time on or after February 8, 2014 until the tenth anniversary of February 5, 2014, ii) contained cashless exercise provisions and iii) contains customary anti-dilution and other protections. The Warrant was exercised on February 21, 2014.
Environmental matters
We are subject to federal and state laws and regulations relating to the protection of the environment. Environmental risk is inherent to natural gas pipeline and processing operations, and we could, at times, be subject to environmental cleanup and enforcement actions. We attempt to manage this environmental risk through appropriate environmental policies and practices to minimize any impact our operations may have on the environment.
Commitments and contractual obligations
Future non-cancelable commitments related to certain contractual obligations as of March 31, 2014 are presented below (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| Total | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter |
Operating leases and service contracts (a) | $ | 5,737 |
| | $ | 732 |
| | $ | 951 |
| | $ | 776 |
| | $ | 782 |
| | $ | 724 |
| | $ | 1,772 |
|
Asset retirement obligations | 34,827 |
| | — |
| | — |
| | 7,867 |
| | — |
| | — |
| | 26,960 |
|
Total | $ | 40,564 |
| | $ | 732 |
| | $ | 951 |
| | $ | 8,643 |
| | $ | 782 |
| | $ | 724 |
| | $ | 28,732 |
|
(a) Operating leases and service contracts have been reduced by total minimum sublease rentals of $0.5 million due in the future under non-cancelable subleases.
Total expenses related to operating leases, asset retirement obligations, land site leases and right-of-way agreements were (in thousands):
|
| | | | | | | |
| Three months ended March 31, |
| 2014 | | 2013 |
Operating leases and service contracts | $ | 862 |
| | $ | 219 |
|
Asset retirement obligations | 190 |
| | 10 |
|
| $ | 1,052 |
| | $ | 229 |
|
14. Related-Party Transactions
Employees of our General Partner are assigned to work for us. Where directly attributable, the costs of all compensation, benefits expenses and employer expenses for these employees are charged directly by our General Partner to American Midstream, LLC, which, in turn, charges the appropriate subsidiary. Our General Partner does not record any profit or margin for the administrative and operational services charged to us. During the three months ended March 31, 2014 and 2013, administrative and operational services expenses of $5.0 million and $2.7 million, respectively, were charged to us by our General Partner. For the three months ended March 31, 2014 and 2013, we incurred approximately $0.5 million and $0.3 million, respectively, of costs primarily associated with certain business development activities led by an affiliate of our General Partner. We expect to be reimbursed by this affiliate of our General Partner for the business development costs related to those projects.
15. Reporting Segments
Our operations are located in the United States and are organized into three reporting segments: (1) Gathering and Processing, (2) Transmission and (3) Terminals.
Gathering and Processing
Our Gathering and Processing segment provides “wellhead-to-market” services, which include transporting raw natural gas from the wellhead through gathering systems, treating the raw natural gas, processing raw natural gas to separate the NGLs from the natural gas, performing fractionation and selling or delivering pipeline-quality natural gas and NGLs to various markets and pipeline systems, to producers of natural gas and oil.
Transmission
Our Transmission segment transports and delivers natural gas from producing wells, receipt points or pipeline interconnects for shippers and other customers, including local distribution companies, or LDCs, utilities, and industrial and commercial and power generation customers.
Terminals
Our Terminals segment provides above-ground storage services at our marine terminals that support various commercial customers, including commodity brokers, refiners and chemical manufacturers to store a range of products, including crude oil, bunker fuel, distillates, chemicals and agricultural products.
These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Gross margin is a performance measure utilized by management to monitor the business of each segment.
The following tables set forth our segment information for the three months ended March 31, 2014 and 2013 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended March 31, 2014 |
| Gathering and Processing | | Transmission | | Terminals | | Total |
Revenue | $ | 47,236 |
| | $ | 25,129 |
| | $ | 3,614 |
| | $ | 75,979 |
|
Loss on commodity derivatives, net | (130 | ) | | — |
| | — |
| | (130 | ) |
Total revenue | 47,106 |
| | 25,129 |
| | 3,614 |
| | 75,849 |
|
Operating expenses: | | | | | | | |
Purchases of natural gas, NGL's and condensate | 36,824 |
| | 14,100 |
| | — |
| | 50,924 |
|
Direct operating expenses | 4,057 |
| | 3,118 |
| | 1,675 |
| | 8,850 |
|
Selling, general and administrative expenses | | | | | | | 5,593 |
|
Equity compensation expense | | | | | | | 360 |
|
Depreciation, amortization and accretion expense | | | | | | | 7,632 |
|
Total operating expenses | | | | | | | 73,359 |
|
Loss on sale of assets, net | | | | | | | (21 | ) |
Interest expense | | | | | | | (1,903 | ) |
Income tax benefit | | | | | | | 11 |
|
Loss from operations of disposal groups, net of tax | | | | | | | (69 | ) |
Net income | | | | | | | 508 |
|
Less: Net income attributable to non-controlling interests | | | | | | | 108 |
|
Net income attributable to the Partnership | | | | | | | $ | 400 |
|
| | | | | | | |
Segment gross margin (a) | $ | 10,036 |
| | $ | 11,014 |
| | $ | 1,939 |
| | $ | 22,989 |
|
|
| | | | | | | | | | | |
| Three months ended March 31, 2013 |
| Gathering and Processing | | Transmission | | Total |
Revenue | $ | 45,068 |
| | $ | 14,639 |
| | $ | 59,707 |
|
Loss on commodity derivatives, net | (305 | ) | | — |
| | (305 | ) |
Total revenue | 44,763 |
| | 14,639 |
| | 59,402 |
|
Operating expenses: | | | | | |
Purchases of natural gas, NGL's and condensate | 36,700 |
| | 10,601 |
| | 47,301 |
|
Direct operating expenses | 3,404 |
| | 1,399 |
| | 4,803 |
|
Selling, general and administrative expenses | | | | | 3,425 |
|
Equity compensation expense | | | | | 388 |
|
Depreciation, amortization and accretion expense | | | | | 5,646 |
|
Total operating expenses | | | | | 61,563 |
|
Gain on involuntary conversion of property, plant and equipment | | | | | 421 |
|
Interest expense | | | | | (1,731 | ) |
Income from operations of disposal groups, net of tax | | | | | 73 |
|
Net loss | | | | | (3,398 | ) |
Less: Net income attributable to non-controlling interests | | | | | 155 |
|
Net loss attributable to the Partnership | | | | | $ | (3,553 | ) |
| | | | | |
Segment gross margin (a) | $ | 8,481 |
| | $ | 3,995 |
| | $ | 12,476 |
|
| |
(a) | Segment gross margin for our Gathering and Processing segment consists of revenue less purchases of natural gas, NGLs and condensate and COMA. Segment gross margin for our Transmission segment consists of revenue, less purchases of natural gas and COMA. Segment gross margin for our Terminals segment consists of revenue, less direct operating expenses. Gross margin consists of the sum of the segment gross margin amounts for each of these segments. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income or cash flow from operations as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner. |
Asset information, including capital expenditures, by segment is not included in reports used by our management in their monitoring of performance and therefore is not disclosed.
16. Subsidiary Guarantors
The subsidiaries of the Partnership (the "Subsidiaries") are co-registrants with the Partnership, and the registration statement registers guarantees of debt securities by one or more of the Subsidiaries (other than American Midstream Finance Corporation, a 100% owned subsidiary of the Partnership whose sole purpose is to act as co-issuer of such debt securities). The financial position and operations of the co-issuer are minor and therefore have been included with the Parent's financial information. As of June 30, 2012, the Subsidiaries were 100% owned by the Partnership and any guarantees by the Subsidiaries will be full and unconditional. As of March 31, 2014, the Subsidiaries have an investment in the non-guarantor subsidiaries equal to a 92.2% undivided interest in its Chatom system. The Partnership has no assets or operations independent of the Subsidiaries, and there are no significant restrictions upon the ability of the Subsidiaries to distribute funds to the Partnership. In the event that more than one of the Subsidiaries provide guarantees of any debt securities issued by the Partnership, such guarantees will constitute joint and several obligations. None of the assets of the Partnership or the Subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended. For purposes of the following condensed consolidating financial information, the Partnership's investments in its Subsidiaries and the guarantor subsidiaries' investment in its 92.2% undivided interest in the Chatom system are presented in accordance with the equity method of accounting. The financial information may not necessarily be indicative of the financial position, results of operations, or cash flows had the subsidiary guarantors operated as independent entities. Condensed consolidating financial information for the Partnership, its combined guarantor subsidiaries and non-guarantor subsidiary as of March 31, 2014 and 2013, and for those three months ended is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet |
| March 31, 2014 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiary | | Consolidating Adjustments | | Consolidated |
Assets | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 2,021 |
| | $ | — |
| | $ | — |
| | $ | 2,022 |
|
Accounts receivable | — |
| | 4,385 |
| | 3,485 |
| | — |
| | 7,870 |
|
Unbilled revenue | — |
| | 20,707 |
| | 4,193 |
| | — |
| | 24,900 |
|
Risk management assets | — |
| | 189 |
| | — |
| | — |
| | 189 |
|
Other current assets | — |
| | 9,514 |
| | 400 |
| | — |
| | 9,914 |
|
Current assets held for sale | — |
| | 1,582 |
| | — |
| | — |
| | 1,582 |
|
Total current assets | 1 |
| | 38,398 |
| | 8,078 |
| | — |
| | 46,477 |
|
Risk management assets, long-term | — |
| | — |
| | — |
| | — |
| | — |
|
Property, plant and equipment, net | — |
| | 307,996 |
| | 57,256 |
| | — |
| | 365,252 |
|
Note receivable | 27,315 |
| | — |
| | — |
| | (27,315 | ) | | — |
|
Goodwill | — |
| | 16,253 |
| | — |
| | — |
| | 16,253 |
|
Intangible assets, net | — |
| | 50,692 |
| | — |
| | — |
| | 50,692 |
|
Deferred tax asset | — |
| | — |
| | — |
| | — |
| | — |
|
Other assets, net | — |
| | 8,093 |
| | 726 |
| | — |
| | 8,819 |
|
Noncurrent assets held for sale, net | — |
| | 1,912 |
| | — |
| | — |
| | 1,912 |
|
Investment in subsidiaries | 255,005 |
| | 58,310 |
| | — |
| | (313,315 | ) | | — |
|
Total assets | $ | 282,321 |
| | $ | 481,654 |
| | $ | 66,060 |
| | $ | (340,630 | ) | | $ | 489,405 |
|
| | | | | | | | | |
Liabilities, Equity and Partners’ Capital | | | | | | | | | |
Current liabilities | | | | | | | | | |
Accounts payable | $ | 25 |
| | $ | 1,519 |
| | $ | 48 |
| | $ | — |
| | $ | 1,592 |
|
Accrued gas purchases | — |
| | 14,933 |
| | 2,601 |
| | — |
| | 17,534 |
|
Accrued expenses and other current liabilities | 1,339 |
| | 14,613 |
| | 17 |
| | — |
| | 15,969 |
|
Current portion of long-term debt | — |
| | 1,427 |
| | — |
| | — |
| | 1,427 |
|
Risk management liabilities | — |
| | 488 |
| | — |
| | — |
| | 488 |
|
Current liabilities held for sale | — |
| | 1,383 |
| | — |
| | — |
| | 1,383 |
|
Total current liabilities | 1,364 |
| | 34,363 |
| | 2,666 |
| | — |
| | 38,393 |
|
Risk management liabilities - long-term | — |
| | 75 |
| | — |
| | — |
| | 75 |
|
Asset retirement obligations | — |
| | 34,352 |
| | 475 |
| | — |
| | 34,827 |
|
Other liabilities | — |
| | 270 |
| | — |
| | — |
| | 270 |
|
Long-term debt | — |
| | 152,965 |
| | — |
| | (27,315 | ) | | 125,650 |
|
Deferred tax liability | — |
| | 4,542 |
| | — |
| | — |
| | 4,542 |
|
Noncurrent liabilities held for sale, net | — |
| | 82 |
| | — |
| | — |
| | 82 |
|
Total liabilities | 1,364 |
| | 226,649 |
| | 3,141 |
| | (27,315 | ) | | 203,839 |
|
Convertible preferred units | | | | | | | | | |
Series A convertible preferred units | 96,654 |
| | — |
| | — |
| | — |
| | 96,654 |
|
Total partners’ capital | 184,303 |
| | 255,005 |
| | 58,310 |
| | (313,315 | ) | | 184,303 |
|
Noncontrolling interests | — |
| | — |
| | 4,609 |
| | — |
| | 4,609 |
|
Total equity and partners' capital | 184,303 |
| | 255,005 |
| | 62,919 |
| | (313,315 | ) | | 188,912 |
|
Total liabilities, equity and partners' capital | $ | 282,321 |
| | $ | 481,654 |
| | $ | 66,060 |
| | $ | (340,630 | ) | | $ | 489,405 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet |
| December 31, 2013 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiary | | Consolidating Adjustments | | Consolidated |
Assets | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 392 |
| | $ | — |
| | $ | — |
| | $ | 393 |
|
Accounts receivable | — |
| | 4,461 |
| | 2,361 |
| | — |
| | 6,822 |
|
Unbilled revenue | — |
| | 17,325 |
| | 4,680 |
| | — |
| | 22,005 |
|
Risk management assets | — |
| | 473 |
| | — |
| | — |
| | 473 |
|
Other current assets | 84 |
| | 6,942 |
| | 555 |
| | (84 | ) | | 7,497 |
|
Current assets held for sale | — |
| | 1,268 |
| | — |
| | — |
| | 1,268 |
|
Total current assets | 85 |
| | 30,861 |
| | 7,596 |
| | (84 | ) | | 38,458 |
|
Property, plant and equipment, net | — |
| | 254,465 |
| | 58,045 |
| | — |
| | 312,510 |
|
Note receivable | 27,315 |
| | — |
| | — |
| | (27,315 | ) | | — |
|
Goodwill | — |
| | 16,447 |
| | — |
| | — |
| | 16,447 |
|
Intangible assets, net | — |
| | 3,682 |
| | — |
| | — |
| | 3,682 |
|
Other assets, net | — |
| | 8,321 |
| | 743 |
| | — |
| | 9,064 |
|
Noncurrent assets held for sale, net | — |
| | 1,914 |
| | — |
| | — |
| | 1,914 |
|
Investment in subsidiaries | 142,758 |
| | 57,750 |
| | — |
| | (200,508 | ) | | — |
|
Total assets | $ | 170,158 |
| | $ | 373,440 |
| | $ | 66,384 |
| | $ | (227,907 | ) | | $ | 382,075 |
|
| | | | | | | | | |
Liabilities, Equity and Partners’ Capital | | | | | | | | | |
Current liabilities | | | | | | | | | |
Accounts payable | $ | 30 |
| | $ | 2,902 |
| | $ | 329 |
| | $ | — |
| | $ | 3,261 |
|
Accrued gas purchases | — |
| | 13,290 |
| | 3,104 |
| | — |
| | 16,394 |
|
Accrued expenses and other current liabilities | 1,478 |
| | 13,563 |
| | 101 |
| | (84 | ) | | 15,058 |
|
Current portion of long-term debt | — |
| | 2,048 |
| | — |
| | — |
| | 2,048 |
|
Risk management liabilities | — |
| | 423 |
| | — |
| | — |
| | 423 |
|
Current liabilities held for sale | — |
| | 1,106 |
| | — |
| | — |
| | 1,106 |
|
Total current liabilities | 1,508 |
| | 33,332 |
| | 3,534 |
| | (84 | ) | | 38,290 |
|
Risk management liabilities - long-term | — |
| | 101 |
| | — |
| | — |
| | 101 |
|
Asset retirement obligations | — |
| | 34,164 |
| | 472 |
| | — |
| | 34,636 |
|
Other liabilities | — |
| | 191 |
| | — |
| | — |
| | 191 |
|
Long-term debt | — |
| | 158,050 |
| | — |
| | (27,315 | ) | | 130,735 |
|
Deferred tax liability | — |
| | 4,749 |
| | — |
| | — |
| | 4,749 |
|
Noncurrent liabilities held for sale, net | — |
| | 95 |
| | — |
| | — |
| | 95 |
|
Total liabilities | 1,508 |
| | 230,682 |
| | 4,006 |
| | (27,399 | ) | | 208,797 |
|
Convertible preferred units | | | | | | | | | |
Series A convertible preferred units | 94,811 |
| | — |
| | — |
| | — |
| | 94,811 |
|
Total partners’ capital | 73,839 |
| | 142,758 |
| | 57,750 |
| | (200,508 | ) | | 73,839 |
|
Noncontrolling interests | — |
| | — |
| | 4,628 |
| | — |
| | 4,628 |
|
Total equity and partners' capital | 73,839 |
| | 142,758 |
| | 62,378 |
| | (200,508 | ) | | 78,467 |
|
Total liabilities, equity and partners' capital | $ | 170,158 |
| | $ | 373,440 |
| | $ | 66,384 |
| | $ | (227,907 | ) | | $ | 382,075 |
|