Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
¨
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)
Delaware
27-0855785
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
2103 CityWest Boulevard
 
Building #4, Suite 800
 
Houston, TX
77042
(Address of principal executive offices)
(Zip code)
(346) 241-3400
(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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
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 51,759,787 common units, 10,400,213 Series A Units, 8,792,205 Series C Units and 2,333,333 Series D Units of American Midstream Partners, LP outstanding as of August 3, 2017. Our common units trade on the New York Stock Exchange under the ticker symbol “AMID.”


Table of Contents

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.

Bbl/d        Barrels per day.

Btu
British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Condensate
Liquid hydrocarbons present in casing head gas that condense within the gathering system and are removed prior to delivery to the natural 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.

GAAP        Generally Accepted Accounting Principles in the United States of America.

Gal         Gallons.

Mgal/d        Thousand gallons per day.

MBbl         Thousand barrels.

MMBbl         Million barrels.

MMBbl/day    Million barrels per day.

MMBtu         Million British thermal units.

Mcf         Thousand cubic feet.

MMcf         Million cubic feet.
    
MMcf/d        Million cubic feet per day.

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.

Throughput
The volume of natural gas and NGL 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.

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TABLE OF CONTENTS
 
 
 
Page
Item 1.
 
 
 

 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 6.

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Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except unit amounts)
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
5,903

 
$
5,666

Restricted cash
18,965

 

Accounts receivable, net of allowance for doubtful accounts of $1,872 and $1,871, respectively
22,905

 
27,769

Unbilled revenue
51,123

 
55,646

Inventory
8,105

 
6,776

Other current assets
39,655

 
27,667

Total current assets
146,656

 
123,524

Risk management assets-long term
7,704

 
10,664

Property, plant and equipment, net
1,166,421

 
1,145,003

Goodwill
217,498

 
217,498

Restricted cash-long term
5,038

 
323,564

Intangible assets, net
212,990

 
225,283

Investment in unconsolidated affiliates
286,548

 
291,988

Other assets, net
9,087

 
11,797

Total assets
$
2,051,942

 
$
2,349,321

Liabilities, Equity and Partners’ Capital
 
 
 
Current liabilities
 
 
 
Accounts payable
$
34,156

 
$
45,278

Accrued gas purchases
14,211

 
7,891

Accrued expenses and other current liabilities
87,026

 
81,284

Current portion of long-term debt
1,757

 
5,485

Total current liabilities
137,150

 
139,938

Asset retirement obligations
45,302

 
44,363

Other long-term liabilities
2,225

 
2,030

3.77% Senior secured notes (Non-recourse)
55,294

 
55,979

8.50% Senior unsecured notes
292,609

 
291,309

Revolving credit facility
678,042

 
888,250

Deferred tax liability
9,455

 
8,205

Total liabilities
1,220,077

 
1,430,074

Commitments and contingencies (Note 17)


 


Convertible preferred units (Note 13)
338,195

 
334,090

Equity and partners’ capital
 
 
 
General Partner interests (953 thousand and 680 thousand units issued and outstanding as of June 30, 2017 and December 31, 2016, respectively)
(26,664
)
 
(47,645
)
Limited Partner interests (51,760 thousand and 51,351 thousand units issued and outstanding as of June 30, 2017 and December 31, 2016, respectively)
502,311

 
616,087

Accumulated other comprehensive income (loss)
2

 
(40
)
Total partners’ capital
475,649

 
568,402

Noncontrolling interests
18,021

 
16,755

Total equity and partners’ capital
493,670

 
585,157

Total liabilities, equity and partners’ capital
$
2,051,942


$
2,349,321

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per unit amounts)
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Commodity sales
$
153,728

 
$
148,592

 
$
312,229

 
$
256,162

Services
39,698

 
38,611

 
81,086

 
74,655

     Gains (losses) on commodity derivatives, net
207

 
(1,367
)
 
(50
)
 
(1,605
)
Total revenue
193,633


185,836

 
393,265

 
329,212

Operating expenses:
 
 
 
 
 
 
 
Costs of sales
128,816

 
115,080

 
261,601

 
189,018

Direct operating expenses
31,884

 
31,967

 
61,972

 
62,542

Corporate expenses
30,084

 
22,281

 
62,928

 
43,382

Depreciation, amortization and accretion
30,170

 
26,398

 
59,521

 
51,439

(Gain) loss on sale of assets, net
52

 
478

 
(176
)
 
1,600

Total operating expenses
221,006


196,204

 
445,846

 
347,981

Operating loss
(27,373
)

(10,368
)
 
(52,581
)
 
(18,769
)
Other income (expense), net
 
 
 
 
 
 
 
     Interest expense
(17,152
)
 
(10,610
)
 
(35,118
)
 
(18,912
)
Other income
72

 
496

 
86

 
527

Earnings in unconsolidated affiliates
17,552

 
11,702

 
32,954

 
19,045

Loss from continuing operations before taxes
(26,901
)

(8,780
)
 
(54,659
)
 
(18,109
)
Income tax expense
(801
)
 
(701
)
 
(1,924
)
 
(1,436
)
Loss from continuing operations
(27,702
)

(9,481
)
 
(56,583
)
 
(19,545
)
Loss from discontinued operations, net of tax

 

 

 
(539
)
Net loss
(27,702
)

(9,481
)
 
(56,583
)
 
(20,084
)
Less: Net income attributable to noncontrolling interests
1,462

 
954

 
2,765

 
951

Net loss attributable to the Partnership
$
(29,164
)

$
(10,435
)
 
$
(59,348
)
 
$
(21,035
)
 
 
 
 
 
 
 
 
General Partner’s interest in net loss
$
(375
)
 
$
(107
)
 
$
(795
)
 
$
(204
)
Limited Partners’ interest in net loss
$
(28,789
)
 
$
(10,328
)
 
$
(58,553
)
 
$
(20,831
)
 
 
 
 
 
 
 
 
Distribution declared per common unit (1)
$
0.4125

 
$
0.4125

 
$
0.8250

 
$
0.8850

Limited Partners’ net loss per common unit (See Note 15):
 
 
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.72
)
 
$
(0.33
)
 
$
(1.46
)
 
$
(0.65
)
Loss from discontinued operations

 

 

 
(0.01
)
Net loss
$
(0.72
)

$
(0.33
)
 
$
(1.46
)
 
$
(0.66
)
Weighted average number of common units outstanding:
 
 
 
 
Basic and diluted
51,870

 
51,090

 
51,870

 
51,090

____________________________
(1) Declared and paid each quarter related to prior quarter.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(27,702
)
 
$
(9,481
)
 
$
(56,583
)
 
$
(20,084
)
Unrealized gain related to postretirement benefit plan
24

 
21

 
42

 
35

Comprehensive loss
(27,678
)

(9,460
)
 
(56,541
)
 
(20,049
)
Less: Comprehensive income attributable to noncontrolling interests
1,462

 
954

 
2,765

 
951

Comprehensive loss attributable to the Partnership
$
(29,140
)

$
(10,414
)
 
$
(59,306
)
 
$
(21,000
)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Changes in Partners’ Capital
and Noncontrolling Interests
(Unaudited, in thousands)
 
 
General
Partner
Interests
 
Limited
Partner
Interests
 
Series B Convertible Units
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Partners’ Capital
 
Non
controlling Interests
Balances at December 31, 2015
$
(47,091
)
 
$
753,388

 
$
33,593

 
$
40

 
$
739,930

 
$
12,111

Net income (loss)
(204
)
 
(20,831
)
 

 

 
(21,035
)
 
951

Issuance of common units, net of offering costs

 
2,986

 

 

 
2,986

 

Cancellation of escrow units

 
(6,817
)
 

 

 
(6,817
)
 

Conversion of Series B units

 
33,593

 
(33,593
)
 

 

 

Contributions
1,791

 
4,000

 

 

 
5,791

 

Distributions
(2,351
)
 
(62,950
)
 

 

 
(65,301
)
 

Issuance of warrant
4,481

 

 

 

 
4,481

 

General Partner’s contribution for acquisition
990

 

 

 

 
990

 

Contributions from noncontrolling interest owners

 

 

 

 

 
1,980

LTIP vesting
(2,107
)
 
2,107

 

 

 

 

Tax netting repurchase

 
(309
)
 

 

 
(309
)
 

Equity compensation expense
1,538

 
942

 

 

 
2,480

 

Post-retirement benefit plan

 

 

 
35

 
35

 

Addition of Mesquite NCI
 
 

 

 

 

 
475

Balances at June 30, 2016
$
(42,953
)

$
706,109


$


$
75


$
663,231


$
15,517

 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2016
$
(47,645
)
 
$
616,087

 
$

 
$
(40
)
 
$
568,402

 
$
16,755

Net income (loss)
(795
)
 
(58,553
)
 

 

 
(59,348
)
 
2,765

Contributions
23,130

 
4,000

 

 

 
27,130

 

Distributions
(594
)
 
(63,574
)
 

 

 
(64,168
)
 

Contributions from noncontrolling interests owners

 

 

 

 

 
296

Distributions to noncontrolling interests owners

 

 

 

 

 
(1,795
)
LTIP vesting
(4,633
)
 
4,633

 

 

 

 

Tax netting repurchase

 
(1,642
)
 

 

 
(1,642
)
 

Equity compensation expense
3,873

 
1,360

 

 

 
5,233

 

Post-retirement benefit plan

 

 

 
42

 
42

 

Balances at June 30, 2017
$
(26,664
)

$
502,311


$


$
2


$
475,649


$
18,021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Six months ended June 30,

2017
 
2016
Cash flows from operating activities

 

Net loss
$
(56,583
)
 
$
(20,084
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation, amortization and accretion
59,521

 
51,650

Amortization of deferred financing costs
2,456

 
1,512

Amortization of weather derivative premium
475

 
451

Unrealized loss on derivatives contracts, net
3,020

 
4,870

Non-cash compensation expense
5,233

 
3,051

(Gain) loss on sale of assets, net
(176
)
 
1,486

Corporate overhead support
4,000

 
4,000

Other non cash items
1,906

 
(709
)
Earnings in unconsolidated affiliates
(32,954
)
 
(19,045
)
Distributions from unconsolidated affiliates
32,954

 
19,045

Deferred tax expense
1,250

 
835

Bad debt expense
515

 
(61
)
Changes in operating assets and liabilities, net of effects of assets acquired and liabilities assumed:
 
 

Accounts receivable
4,238

 
(1,223
)
Inventory
(1,738
)
 
(5,668
)
Unbilled revenue
4,523

 
6,686

Risk management assets and liabilities
(1,157
)
 
(1,030
)
Other current assets
(6,394
)
 
8,149

Other assets, net
147

 
896

Restricted cash
(3,135
)
 

Accounts payable
(12,069
)
 
(8,446
)
Accrued gas purchases
6,320

 
2,285

Accrued expenses and other current liabilities
13,216

 
1,749

Asset retirement obligations
(45
)
 
(10
)
Other liabilities
(247
)
 
(673
)
Net cash provided by operating activities
25,276


49,716

Cash flows from investing activities

 

Acquisitions, net of cash acquired and settlements (Note 3)
(32,000
)
 
(3,073
)
Investments in unconsolidated affiliates - Emerald (Note 9)

 
(100,908
)
Additions to property, plant and equipment
(44,039
)
 
(54,658
)
Proceeds from disposals of property, plant and equipment
121

 
11,434

Insurance proceeds from involuntary conversion of property, plant and equipment
150

 

Investments in unconsolidated affiliates

 
(11,444
)
Distributions from unconsolidated affiliates, return of capital
5,440

 
16,673

Restricted cash
302,643

 

Net cash provided by (used in) investing activities
232,315

 
(141,976
)
Cash flows from financing activities

 

Proceeds from issuance of common units to public, net of offering costs

 
2,986

Contributions
23,130

 
1,791

Distributions
(60,494
)
 
(53,983
)
Contribution from noncontrolling interest owners
296

 
1,980

Distributions to noncontrolling interests owners
(1,795
)
 

LTIP tax netting unit repurchase
(1,642
)
 
(309
)
Payment of financing costs
(2,116
)
 
(1,475
)
Payments on 3.77% Senior Notes
(1,078
)
 


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Six months ended June 30,

2017
 
2016
Payments on other debt
(3,447
)
 
(1,810
)
Payments on credit agreement
(383,908
)
 
(101,900
)
Borrowings on credit agreement
173,700

 
245,200

Other

 
(166
)
Net cash provided by (used in) financing activities
(257,354
)

92,314

Net increase in cash and cash equivalents
237


54

Cash and cash equivalents

 

Beginning of period
5,666

 
1,987

End of period
$
5,903

 
$
2,041

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

General

American Midstream Partners, LP (the “Partnership”, “we”, “us”, or “our”) is a growth-oriented Delaware limited partnership that was formed on August 20, 2009 to own, operate, develop and acquire a diversified portfolio of midstream energy assets. The Partnership’s general partner, American Midstream GP, LLC (the “General Partner”), is 77% owned by High Point Infrastructure Partners, LLC (“HPIP”) and 23% owned by Magnolia Infrastructure Holdings, LLC, both of which are affiliates of ArcLight Capital Partners, LLC ("ArcLight"). Our capital accounts consist of notional General Partner units and units representing limited partner interests.

JPE Acquisition

On March 8, 2017, we completed the acquisition of JP Energy Partners LP (“JPE”), an entity controlled by ArcLight affiliates, in a unit-for-unit merger (“JPE Acquisition”). In connection with the transaction, we issued approximately 20.2 million common units to holders of the JPE common and subordinated units, including 9.8 million common units to ArcLight affiliates. In connection with the completion of the JPE Acquisition, we entered into a supplemental indenture pursuant to which the JPE Entities jointly and severally, fully and unconditionally, guarantee the 8.50% Senior Notes (as defined below).

As both we and JPE were controlled by ArcLight affiliates, the acquisition represented a transaction among entities under common control. Although we are the legal acquirer, JPE was considered the acquirer for accounting purposes as ArcLight obtained control of JPE prior to obtaining control of us on April 15, 2013. As a result, we adjusted our historical financial statements to reflect ArcLight’s acquisition cost basis of their investment in us back to April 15, 2013. In addition, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results of JPE prior to the effective date of the JPE Acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of JPE at historical cost.

Nature of business

We provide critical midstream infrastructure that links producers of natural gas, crude oil, NGLs, condensate and specialty chemicals to numerous intermediate and end-use markets. Through our six reportable segments, (1) gas gathering and processing services, (2) liquid pipelines and services, (3) natural gas transportation services, (4) offshore pipelines and services, (5) terminalling services and (6) propane marketing services, we engage in the business of gathering, treating, processing, and transporting natural gas; gathering, transporting, storing, treating and fractionating NGLs; gathering, storing and transporting crude oil and condensates; storing specialty chemical products; and distributing and selling propane and refined products. See Note 21 - Subsequent Events
regarding the announced sale of substantially all of our propane marketing services segment in July 2017.

Most of our cash flow is generated from fee-based and fixed-margin arrangements for gathering, processing, transporting and treating natural gas and crude oil, firm capacity reservation charges, interruptible transportation charges, guaranteed firm storage contracts, throughput fees and other optional charges associated with ancillary services.

Our primary assets are strategically located in some of the most prolific onshore and offshore producing regions and key demand markets in the United States. Our gathering and processing assets are primarily located in (i) the Permian Basin of West Texas, (ii) the Cotton Valley/Haynesville Shale of East Texas, (iii) the Eagle Ford Shale of South Texas, (iv) the Bakken Shale of North Dakota, and (v) offshore in the Gulf of Mexico. Our natural gas transportation, offshore pipelines and terminal assets are in key demand markets in Oklahoma, Alabama, Arkansas, Louisiana, Mississippi and Tennessee and in the Port of New Orleans in Louisiana and the Port of Brunswick in Georgia. Our propane marketing services include commercial and retail operations across 46 of the lower 48 states.

Basis of presentation

The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016, except that the consolidated financial statements have been retrospectively adjusted to reflect the consolidation of JPE, as discussed above. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of results expected for

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the full year. In the opinion of our management, such financial information reflects all adjustments necessary for a fair statement of the financial position and the results of operations for such interim periods in accordance with GAAP. All such adjustments are of a normal recurring nature. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.

Transactions between entities under common control
 
We may enter into transactions with ArcLight affiliates whereby we receive midstream assets or other businesses in exchange for cash or Partnership equity. We account for the net assets acquired at the affiliate's historical cost basis as the transactions are between entities under common control. In certain cases, our historical financial statements will be revised to include the results attributable to the assets acquired from the later of June 2011 (the date Arclight affiliates obtained control of JPE) or the date the ArcLight affiliate obtained control of the assets acquired.

Summary of Significant Accounting Policies

Use of estimates

When preparing 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 assumptions are based on information available at the time such estimates and assumptions are made. Adjustments made with respect to the use of these estimates and assumptions often relate to information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. Estimates and assumptions are used in, among other things, i) estimating unbilled revenues, product 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.

Cash, cash equivalents and restricted cash

We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short term to maturity of these investments.

From time to time we are required to maintain cash in separate accounts the use of which is restricted by the terms of our debt agreements, asset retirement obligations, contracted arrangements and management restrictions. Such amounts are included in Restricted cash in our condensed consolidated balance sheets.

Allowance for doubtful accounts

We establish provisions for losses on accounts receivable when we determine that we will not collect all or part of an outstanding balance. Collectability is reviewed regularly and an allowance is established or adjusted, as necessary, using the specific identification method, historical collection experience and the age of accounts receivable. As of June 30, 2017 and December 31, 2016, the balance of allowance for doubtful accounts was $1.9 million.

Investment in unconsolidated affiliates

We hold membership interests in entities that own and operate natural gas pipeline systems and NGL and crude oil pipelines in and around Louisiana, Alabama, Mississippi and the Gulf of Mexico. While we have significant influence over these entities, we do not control them and therefore, they are accounted for using the equity method and are reported in Investment in unconsolidated affiliates in the condensed consolidated balance sheets. We evaluate the recoverability of these investments on a regular basis and recognize impairment write downs if we determine a loss in value represents an other-than-temporary-decline. The unconsolidated affiliates were determined to be variable interest entities due to disproportionate economic interests and decision making rights. In each case, we lack the power to direct the activities that most significantly impact the unconsolidated affiliate’s economic performance. As we do not hold a controlling financial interest in these affiliates, we account for our related investments using the equity method. Additionally, our maximum exposure to loss related to each entity is limited to our equity investment as presented on the condensed consolidated balance sheets as of the balance sheet date. In each case, we are not obligated to absorb losses

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greater than our proportional ownership percentages. Our right to receive residual returns is not limited to any amount less than the ownership percentages.

Revenue recognition

We recognize revenue from the sale of commodities (e.g., natural gas, crude oil, NGLs, refined products or condensate) as well as from the provision of gathering, processing, transportation or storage services when all of the following criteria are met: i) persuasive evidence of an exchange arrangement exists, ii) delivery has occurred or services have been rendered, iii) the price is fixed or determinable, and iv) collectability is reasonably assured. We recognize revenue from the sale of commodities and the related cost of product sold on a gross basis for those transactions where we act as the principal and take title to commodities that are purchased for resale.

Revenue-related taxes collected from customers and remitted to taxing authorities, principally sales taxes, are presented on a net basis within the condensed consolidated statements of operations.

2. New Accounting Pronouncements

Accounting Standards Issued Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which amends the existing accounting guidance for revenue recognition. The update requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2015-14 was subsequently issued and deferred the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. From March 2016 to May 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations, as further clarification on principal versus agent considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing as further clarification on identifying performance obligations and the licensing implementation guidance and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, as clarifying guidance on specific narrow scope improvements and practical expedients. We are in the process of reviewing our various customer arrangements in order to determine the impact the new accounting guidance for revenue recognition will have on our consolidated financial statements and related disclosures. We also have engaged a third-party consulting firm to assist us with all the three phases of adoption of the new guidance (Impact Assessment, Convert and Implement). We will adopt the new standard on its effective date January 1, 2018 using the modified retrospective method of adoption.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) "Leases", which supersedes the lease recognition requirements in Accounting Standards Codification Topic 840, "Leases". Under ASU No. 2016-02 lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU No. 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited and early adoption by public entities is permitted. We are still in the process of evaluating the impact of ASU 2016-02 on our consolidated financial statements as we will be required to reflect our various lease obligations and associated asset use rights on our consolidated balance sheets. The adoption may also impact our debt covenant compliance and may require us to modify or replace certain of our existing information systems. We will adopt the guidance on its effective date January 1, 2019.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 320): Classification of Cash Receipts and Cash Payments”, which addresses eight specific cash flow issues with the objective of reducing the existing diversity of presentation and classification in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal periods. The retrospective transition method of adoption is required unless it is impracticable. Early adoption is permitted, but only if all aspects are adopted in the same period. We are still evaluating the impact of this update on our consolidated statements of cash flows and the related disclosures. We will adopt the standard upon its effective date January 1, 2018.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which aims to improve the disclosure of the change during the period in total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents should be included

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with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. The update is effective beginning first quarter of 2018. Early adoption is permitted, but it must occur in the first interim period. Any adjustments required in early adoption of this update should be reflected as of the beginning of the fiscal year that includes the interim period and should be applied using a retrospective transition method to each period. We have evaluated the impact of this update and believe it will have a material impact on our consolidated statement of cash flows and related disclosures, upon our effective date of adoption January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” The guidance provides criteria for use in determining when to conclude an integrated “set of assets and activities (as defined in the original guidance) being acquired or disposed in a transaction is not a business. Where the criteria are not met, more stringent screening has been provided to define a set as a business without an output, as more narrowly defined within the guidance. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. Early adoption is permitted. We are still in the process of evaluating the guidance and can not determine the impact of this guidance on our consolidated financial statements and related disclosures. We will adopt ASU 2017-01 on its effective date of January 1, 2018.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, in which the guidance on testing for goodwill was updated by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual and/or interim assessments are still required to be completed. Further, the guidance eliminates the requirement to assess reporting units with zero or negative carrying values, however, the carrying values for all reporting units must be disclosed. ASU No. 2017-04 is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures and will adopt the guidance on its effective date January 1, 2020 using the required prospective method

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Pursuant to this ASU, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified (if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification); (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in any interim period. This update should be applied prospectively to an award modified on or after the adoption date. The Partnership is currently evaluating the impact of this update on our consolidated financial statements and related disclosures and will adopt the guidance on our effective date January 1, 2018.

3. Acquisitions

JP Energy Partners LP

On March 8, 2017, we completed the acquisition of JPE, a legal entity controlled by ArcLight affiliates, in a unit-for-unit merger. In connection with the transaction, each JPE common or subordinated unit held by investors not affiliated with ArcLight was converted into the right to receive 0.5775 of a Partnership common unit, and each JPE common or subordinated unit held by ArcLight affiliates was converted into the right to receive 0.5225 of a Partnership common unit. We issued a total of 20.2 million of common units to complete the acquisition, including 9.8 million common units to ArcLight affiliates.

As both we and JPE were controlled by ArcLight affiliates, the acquisition represented a transaction among entities under common control. Although we were the legal acquirer, JPE was considered the acquirer for accounting purposes as ArcLight obtained control of JPE prior to obtaining control of us on April 15, 2013. As a result, we adjusted our historical financial statements to reflect ArcLight’s acquisition cost basis of us back to April 15, 2013. In addition, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results of JPE prior to the effective date of the JPE acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of JPE at historical cost.


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Table of Contents

JPE owns, operates and develops a diversified portfolio of midstream energy assets with three business segments (i) crude oil pipelines and storage, (ii) refined products terminals and storage and (iii) NGL distribution and sales, which together provide midstream infrastructure solutions for the growing supply of crude oil, refined products and NGLs, in the United States.

Acquisition of Viosca Knoll

On June 2, 2017 (“acquisition date”), we acquired 100% of the Viosca Knoll System (“Viosca Knoll”) from Genesis Energy, L.P. for total consideration of approximately $32 million in cash. The Viosca Knoll System serves producing fields located in the Main Pass, Mississippi Canyon and Viosca Knoll areas of the Gulf of Mexico and connects to several major delivery pipelines including the Partnership’s High Point and Destin pipelines. Viosca Knoll will provide greater East-West Gulf connectivity, through the connection of the High Point Gas Transmission system and the Destin Pipeline, both controlled by us. The Viosca Knoll acquisition was funded with the Partnership’s revolving credit facility and Viosca Knoll was added to our Offshore pipeline and services segment.

In accordance with ASC Topic 805 - Business Combinations, we accounted for Viosca Knoll acquisition as an acquisition of a business, with the Partnership as the acquirer. ASC 805 requires, among other things, that the consideration transferred be measured at the current market price as of the acquisition date and the asset acquired and liabilities assumed be measured at their fair value as of the acquisition date. The total consideration transferred of $32 million cash was allocated 100% to Viosca Knoll’s assets as shown below.

The following table presents our aggregated preliminary allocation of the purchase price based on estimated fair values of assets acquired as of June 30, 2017 (in thousands):

 
Purchase Price Allocation
Property, plant and equipment:
 
Pipelines
$
12,266

Equipment
16,484

Total property, plant and equipment
28,750

Intangible assets
3,250

Total cash consideration
$
32,000


The purchase price allocation is subject to the measurement period that ends at the earlier of twelve months from the acquisition date or when information becomes available.

Pro Forma Financial Information

The following table presents selected unaudited pro forma information for the Partnership assuming the acquisition of Viosca Knoll had occurred as of January 1, 2016. This pro forma information does not purport to represent what the Partnership’s actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.


The unaudited pro forma financial information consists of the following (in thousands):

 
 
 
 
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
Revenue
$
396,254

 
$
333,837

Income (loss) from continuing operations
$
(56,407
)
 
$
(17,962
)

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4. Inventory

Inventory consists of the following (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Crude oil
 
$
2,741

 
$
1,216

NGLs
 
3,207

 
3,482

Refined products
 
413

 
291

Materials, supplies and equipment
 
1,744

 
1,787

   Total inventory
 
$
8,105

 
$
6,776


5. Other Current Assets

Other current assets consist of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Prepaid insurance
$
5,109

 
$
9,702

Insurance receivables
6,162

 
2,895

Due from related parties
20,853

 
4,805

Other receivables
2,363

 
2,998

Risk management assets
1,772

 
964

Other assets
3,396

 
6,303

   Total other current assets
$
39,655


$
27,667


6.  Risk Management Activities

We are exposed to certain market risks related to the volatility of commodity prices and changes in interest rates. To monitor and manage these market risks, we have established comprehensive risk management policies and procedures. We do not enter into derivative instruments for any purpose other than hedging commodity price risk, interest rate risk, and weather risk. We do not speculate using derivative instruments.

Commodity Derivatives

Our normal business activities expose us to risks associated with changes in the market price of crude oil and natural gas, among other commodities. Management believes it is prudent to limit our exposure to these risks, which include our (i) propane purchases, (ii) pre-existing or anticipated physical crude oil and refined product sales, and (iii) certain crude oil held in inventory. To meet this objective, we use a combination of fixed price swap and forward contracts. Our forward contracts that qualify for the Normal Purchase Normal Sale (“NPNS”) exception under GAAP are recognized when the underlying physical transaction is delivered. While these contracts are considered derivative financial instruments under ASC 815, Derivatives and Hedging, they are not recorded at fair value, but on an accrual basis of accounting. If it is determined that a transaction designated as NPNS no longer meets the scope exception, the fair value of the related contract is recorded on the balance sheet (as an asset or liability) and the difference between the fair value and the contract amount is immediately recognized through earnings.We measure our commodity derivatives at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations utilize indirectly observable (“Level 2”) inputs, including contractual terms and commodity prices observable at commonly quoted intervals.

The following table summarizes the net notional volumes of our outstanding commodity-related derivatives, excluding those contracts that qualified for the NPNS exception as of June 30, 2017 and December 31, 2016, none of which were designated as hedges for accounting purposes.


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Table of Contents

 
 
June 30, 2017
 
December 31, 2016
Commodity Swaps
 
Volume
 
Maturity
 
Volume
 
Maturity
Propane Fixed Price (gallons)
 
10,892,201

 
July 1, 2017 - December 31, 2019
 
4,364,880

 
January 31, 2017 - November 30, 2018
Crude Oil Fixed Price (barrels)
 
68,000

 
July 1, 2017 -
July 31, 2017
 
 
Crude Oil Basis (barrels)
 
 
 
180,000

 
January 25, 2017-
March 25, 2017

Interest Rate Swaps

To manage the impact of the interest rate risk associated with our Credit Agreement, as defined in Note 12 - Debt Obligations, we enter into interest rate swaps from time to time, effectively converting a portion of the cash flows related to our long-term variable rate debt into fixed rate cash flows.


Our outstanding interest rate swap contracts’ fair value consist of the following (in thousands):
Notional Amount
Term
As of June 30, 2017
 
As of December 31, 2016
$100,000
July 1, 2017 through December 29, 2017
$
119

 
$

$100,000
December 29, 2017 through January 29, 2019
208

 

$200,000
July 1, 2017 through September 3, 2019
1,711

 
1,912

$100,000
January 1, 2018 through December 31, 2021
2,385

 
3,090

$150,000
January 1, 2018 through December 31, 2022
3,944

 
5,219

 
 
$
8,367

 
$
10,221


The fair value of our interest rate swaps was estimated using a valuation methodology based upon forward interest rates and 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, which represent Level 2 inputs in the valuation hierarchy, are obtained from independent pricing services and we have made no adjustments to those prices.

Weather Derivative

In the second quarter of 2017, we entered into a yearly weather derivative to mitigate the impact of potential unfavorable weather on our operations under which we could receive payments totaling up to $30.0 million in the event that a hurricane of certain strength passes through the areas identified in the derivative agreement. The weather derivatives, which are accounted for using the intrinsic value method, were entered into with a single counterparty, and we were not required to post collateral.

We paid $1.1 million and $1.0 million in premiums during the six months ended June 30, 2017 and 2016, respectively. Premiums are amortized to Direct operating expenses on a straight-line basis over the 1 year term of the contract. Unamortized amounts associated with the weather derivatives were approximately $1.1 million and $0.4 million as of June 30, 2017 and December 31, 2016, respectively, and are included in Other current assets on the condensed consolidated balance sheets.

The following table summarizes the fair values of our derivative contracts (before netting adjustments) included in the condensed consolidated balance sheets (in thousands):

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Table of Contents

 
 
 
Asset Derivatives
 
Liability Derivatives
Type
Balance Sheet Classification
 
June 30,
2017
 
December 31, 2016
 
June 30,
2017
 
December 31, 2016
Commodity swaps
Other current assets
 
$
234

 
$
607

 
$

 
$

Commodity swaps
Accrued expenses and other current liabilities
 

 

 
(404
)
 
(1
)
Commodity swaps
Risk management assets - long term
 

 
37

 

 

Commodity swaps
Other liabilities
 

 

 
(196
)
 
(1
)
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other current assets
 
663

 

 

 

Interest rate swaps
Accrued expenses and other current liabilities
 

 

 

 
(252
)
Interest rate swaps
Risk management assets- long term
 
7,704

 
10,628

 

 

 
 
 
 
 
 
 
 
 
 
Weather derivatives
Other current assets
 
$
1,110

 
$
429

 
$

 
$






The following tables present the fair value of our recognized derivative assets and liabilities on a gross basis and amounts offset in the condensed consolidated balance sheets that are subject to enforceable master netting arrangements (in thousands):
 
 
Gross Risk Management Position
 
Netting Adjustments
 
Net Risk Management Position
Balance Sheet Classification
 
June 30,
2017
 
December 31, 2016
 
June 30,
2017
 
December 31, 2016
 
June 30,
2017
 
December 31, 2016
Other current assets
 
$
2,006

 
$
1,036

 
$
(234
)
 
$
(72
)
 
$
1,772

 
$
964

Risk management assets- long term
 
7,704

 
10,665

 

 
(1
)
 
7,704

 
10,664

Total assets
 
$
9,710

 
$
11,701

 
$
(234
)
 
$
(73
)
 
$
9,476

 
$
11,628

 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities
 
$
(404
)
 
$
(253
)
 
$
234

 
$
72

 
$
(170
)
 
$
(181
)
Other liabilities
 
(196
)
 
(1
)
 

 
1

 
(196
)
 

Total liabilities
 
$
(600
)
 
$
(254
)
 
$
234

 
$
73

 
$
(366
)
 
$
(181
)

For each of the three and six months ended June 30, 2017 and 2016 the realized and unrealized gains (losses) associated with our commodity, interest rate and weather derivative instruments were recorded in our unaudited condensed consolidated statements of operations as follows (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
Statement of Operations Classification
Realized
 
Unrealized
 
Realized
 
Unrealized
2017
 
 
 
 
 
 
 
Gains (losses) on commodity derivatives, net
$
260

 
$
(53
)
 
$
960

 
$
(1,010
)
Interest expense

 
(1,693
)
 
(70
)
 
(2,010
)
Direct operating expenses
(218
)
 

 
(475
)
 

Total
$
42

 
$
(1,746
)
 
$
415

 
$
(3,020
)
2016
 
 
 
 
 
 
 
Losses on commodity derivatives, net
$
(388
)
 
$
(979
)
 
$
(776
)
 
$
(829
)
Interest expense
(32
)
 
(2,510
)
 
(32
)
 
(4,041
)
Direct operating expenses
(231
)
 

 
(451
)
 

Total
$
(651
)
 
$
(3,489
)
 
$
(1,259
)
 
$
(4,870
)


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7. Property, Plant and Equipment, Net

Property, plant and equipment, net, consists of the following (in thousands):
 
Useful Life
(in years)
 
June 30,
2017
 
December 31,
2016
Land
Infinite
 
$
23,098

 
$
23,520

Construction in progress
N/A
 
46,657

 
131,448

Buildings and improvements
4 to 40
 
24,280

 
24,225

Transportation equipment
5 to 15
 
45,090

 
44,060

Processing and treating plants (1)
8 to 40
 
141,109

 
120,977

Pipelines, compressors and right-of-way (1)
3 to 40
 
909,963

 
804,815

Storage
3 to 40
 
210,291

 
210,579

Equipment
3 to 31
 
124,607

 
102,409

Total property, plant and equipment
 
 
1,525,095

 
1,462,033

Accumulated depreciation (1)
 
 
(358,674
)
 
(317,030
)
Property, plant and equipment, net
 
 
$
1,166,421

 
$
1,145,003

_____________________________________(1) The Partnership has revised the December 31, 2016 amounts above from those amounts previously reported in its Form 10-Q for the quarter ended March 31, 2017 to primarily decrease the amount for Processing and treating plants by approximately $16 million and to increase the amount for Pipelines, compressors and rights-of-way by approximately $49.9 million, with the offsetting change to Accumulated depreciation of approximately $33.9 million.  

At June 30, 2017 and December 31, 2016, gross property, plant and equipment included $253.5 million and $291.1 million, respectively, related to our FERC regulated interstate and intrastate assets.

Depreciation expense totaled $21.3 million and $20.8 million for the three months ended June 30, 2017 and 2016, respectively, and $42.9 million and $40.5 million for the six months ended June 30, 2017 and 2016, respectively.

Capitalized interest was $0.5 million for each of the three months ended June 30, 2017 and 2016, and $1.5 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

8. Goodwill and Intangible Assets, Net

Goodwill as of June 30, 2017 and December 31, 2016 consisted of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Liquid Pipelines and Services (1)
$
113,669

 
$
113,669

Terminalling Services (1)
88,466

 
88,466

Propane Marketing Services
15,363

 
15,363

Total
$
217,498

 
$
217,498

_____________________________________
(1) The Partnership has revised the December 31, 2016 amounts by segment above from those amounts previously reported in its Form 10-Q for the quarter ended March 31, 2017 to increase the Terminalling Services segment by approximately $11 million with the offset being to decrease the Liquid Pipelines and Services segment by the same amount.  
 
Intangible assets, net, consists of customer relationships, dedicated acreage agreements, collaborative arrangements, noncompete agreements and trade names. These intangible assets have definite lives and are subject to amortization on a straight-line basis over their economic lives, currently ranging from approximately 5 years to 44 years. Intangible assets, net, consist of the following (in thousands):

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Table of Contents

 
June 30, 2017
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Customer relationships
$
133,503

 
$
(35,834
)
 
$
97,669

Customer contracts
98,844

 
(43,142
)
 
55,702

Dedicated acreage
53,350

 
(5,328
)
 
48,022

Collaborative arrangements
11,884

 
(990
)
 
10,894

Noncompete agreements
3,423

 
(3,250
)
 
173

Other
751

 
(221
)
 
530

Total
$
301,755

 
$
(88,765
)
 
$
212,990

 
 
 
 
 
 
 
December 31, 2016
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Customer relationships
$
133,503

 
$
(31,471
)
 
$
102,032

Customer contracts
95,594

 
(33,414
)
 
62,180

Dedicated acreage
53,350

 
(4,439
)
 
48,911

Collaborative arrangements
11,884

 
(601
)
 
11,283

Noncompete agreements
3,423

 
(3,086
)
 
337

Other
751

 
(211
)
 
540

Total
$
298,505

 
$
(73,222
)
 
$
225,283


Amortization expense related to our intangible assets totaled $8.3 million and $5.2 million for the three months ended June 30, 2017 and 2016, respectively, and $15.5 million and $10.3 million for the six months ended June 30, 2017 and 2016, respectively.

                  
9. Investment in unconsolidated affiliates

The following table presents the activity in our equity method investments in unconsolidated affiliates (in thousands):
 
Delta House (1)
 
Emerald Transactions (2)
 
 
 
 
 
FPS
 
OGL
 
Destin
 
Tri-States
 
Okeanos
 
Wilprise
 
MPOG (3)
 
Total
Ownership % at December 31, 2016 and June 30, 2017
20.1
%
 
20.1
%
 
49.7
%
 
16.7
%
 
66.7
%
 
25.3
%
 
66.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2016
$
64,483

 
$
25,450

 
$
110,882

 
$
55,022

 
$
27,059

 
$
4,944

 
$
4,148

 
$
291,988

  Earnings in unconsolidated affiliates
15,529

 
6,571

 
5,116

 
2,161

 
3,692

 
408

 
(523
)
 
32,954

  Distributions
(8,753
)
 
(7,137
)
 
(12,119
)
 
(2,626
)
 
(6,667
)
 
(392
)
 
(700
)
 
(38,394
)
Balances at June 30, 2017
$
71,259

 
$
24,884

 
$
103,879

 
$
54,557


$
24,084


$
4,960


$
2,925


$
286,548

 
___________________________________________________ 
(1) Represents direct and indirect ownership interests in Class A Units.
(2) Represents our Emerald equity method investments which were acquired in the second quarter of 2016.
(3) Main Pass Oil Gathering.


19

Table of Contents

The following tables present the summarized combined financial information for our equity investments (amounts represent 100% of investee financial information) (in thousands):
Balance Sheets:
June 30, 2017
 
December 31, 2016
Current assets
$
105,211

 
$
120,167

Non-current assets
1,337,201

 
1,369,492

Current liabilities
121,966

 
133,085

Non-current liabilities
$
489,080

 
$
541,312


 
Three months ended June 30,
 
Six months ended June 30,
Statements of Operations:
2017
 
2016
 
2017
 
2016
Revenue
$
105,373

 
$
89,541

 
$
203,366

 
$
184,757

Gross profit
96,442

 
83,045

 
185,075

 
169,668

Net income
$
76,414

 
$
67,937

 
$
145,532

 
$
136,387


 
10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consists of the following (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Due to related parties
 
$
15,694

 
$
4,072

Accrued interest
 
8,470

 
5,743

Legal accrual
 
8,192

 

Capital expenditures
 
7,240

 
14,499

Convertible preferred unit distributions
 
6,735

 
7,103

Current portion of asset retirement obligation
 
6,495

 
6,499

Additional Blackwater acquisition consideration
 
5,000

 
5,000

Employee compensation
 
4,967

 
10,804

Taxes payable
 
3,902

 
1,688

Royalties payable
 
3,536

 
3,926

Customer deposits
 
3,092

 
3,080

Gas imbalances payable
 
1,580

 
1,098

Transaction costs
 
1,179

 
3,000

Deferred financing costs
 

 
2,743

Recoverable gas costs
 
238

 
1,126

Other
 
10,706

 
10,903

   Total accrued expenses and other current liabilities
 
$
87,026


$
81,284

 
11. Asset Retirement Obligations

We record a liability for the fair value of asset retirement obligations and conditional asset retirement obligations (collectively, referred to as “AROs”) that we can reasonably estimate, on a discounted basis, in the period in which the liability is incurred. Generally, the fair value of the liability is calculated using discounted cash flow techniques and based on internal estimates and assumptions related to (i) future retirement costs, (ii) future inflation rates, and (iii) credit-adjusted risk-free interest rates. Significant increases or decreases in the assumptions would result in a significant change to the fair value measurement.

Certain assets related to our Offshore Pipelines and Services segment have regulatory obligations to perform remediation, and in some instances, dismantlement and removal activities when the assets are abandoned. These AROs include varying levels of activity including disconnecting inactive assets from active assets, cleaning and purging assets, and in some cases, completely removing the assets and returning the land to its original state. These assets have been in existence for many years and with regular maintenance will continue to be in service for many years to come. It is not possible to predict when demand for these transmission

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services will cease, however, we do not believe that such demand will cease for the foreseeable future. The majority of the current portion of our AROs is related to the retirement of the Midla pipeline discussed in Note 17 - Commitments and Contingencies.

The following table presents activity in our asset retirement obligations for the six months ended June 30, 2017 (in thousands):
Non-current balance
$
44,363

Current balance
6,499

Balances at December 31, 2016
$
50,862

Expenditures
(49
)
Accretion expense
984

Balances at June 30, 2017
$
51,797

Less: current portion
6,495

Noncurrent asset retirement obligation
$
45,302


We are required to establish security against potential obligations relating to the abandonment of certain transmission assets that may be imposed on the previous owner by applicable regulatory authorities. We have deposited $5.0 million with a third party to secure our performance on these potential obligations. These deposits are included in Restricted cash-long term in our condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016.


12. Debt Obligations

Our outstanding debt consists of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Revolving credit facility
$
678,042

 
$
888,250

8.5% Senior unsecured notes, due 2021
300,000

 
300,000

3.77% Senior secured notes, due 2031 (non-recourse)
58,922

 
60,000

Other debt (2)
685

 
3,809

Total debt obligations
1,037,649

 
1,252,059

Unamortized debt issuance costs (1)
(9,776
)
 
(11,036
)
Total debt
1,027,873

 
1,241,023

Less: Current portion, including unamortized debt issuance costs
(1,556
)
 
(5,485
)
Long term debt
$
1,026,317

 
$
1,235,538

___________________________
(1) Unamortized debt issuance costs related to the revolving credit facility are included in our condensed consolidated balance sheets in Other assets, net.

(2) Other debt includes capital lease and miscellaneous long-term obligations, which are reported in Current portion of debt and Other liabilities line items on our condensed consolidated balance sheets.

Revolving Credit Facility

On March 8, 2017, we entered into the Second Amended and Restated Credit Agreement with Bank of America N.A., as Administrative Agent, Collateral Agent and L/C Issuer, Wells Fargo Bank, National Association, as Syndication Agent, and other lenders (the “Credit Agreement”) which increased our borrowing capacity from $750.0 million to $900.0 million and provided for an accordion feature that will permit, subject to customary conditions, the borrowing capacity under the facility to be increased to a maximum of $1.1 billion. We can elect to have loans under our Credit Agreement bear interest either at a Eurodollar-based rate, plus a margin ranging from 2.00% to 3.25% 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 (i) the Federal Funds Rate, plus 0.50%, (ii) 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 (iii) the Eurodollar Rate plus 1.00%, plus a margin ranging from 1.00% to 2.25% depending on the total leverage ratio then in effect. We also pay a commitment fee of 0.50% per annum on the undrawn portion of the revolving loan under the Credit Agreement. The Credit Agreement matures on September 5, 2019.


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The Credit Agreement contains certain financial covenants that are applicable as of the end of any fiscal quarter, including a consolidated total leverage ratio which requires our indebtedness not to exceed 5.00 times adjusted consolidated EBITDA (except for the fiscal quarters ended March 31, 2017, and the subsequent two quarters, at which time the covenant is increased to 5.50 times adjusted consolidated EBITDA), a consolidated secured leverage ratio which requires our secured indebtedness not to exceed 3.50 times adjusted consolidated EBITDA, and a minimum interest coverage ratio that requires our adjusted consolidated EBITDA to exceed consolidated interest charges by not less than 2.50 times. In addition to the financial covenants described above, the agreement 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).

As of June 30, 2017, we had approximately $678.0 million of borrowings and $32.3 million of letters of credit outstanding under the Credit Agreement resulting in $189.6 million of available borrowing capacity.

As of June 30, 2017, our consolidated total leverage ratio was 4.79 and our interest coverage ratio was 5.04, which were both in compliance with the related requirements of our Credit Agreement. Our ability to maintain compliance with the leverage and interest coverage ratios included in the Credit Agreement may be subject to, among other things, the timing and success of initiatives we are pursuing, which may include expansion capital projects, acquisitions or drop down transactions, as well as the associated financing for such initiatives.

The carrying value of amounts outstanding under our Credit Agreement approximates the related fair value, as interest charges vary with market rates conditions.

JPE Revolver

JPE had a $275.0 million revolving loan, which included a sub-limit of up to $100.0 million for letters of credit with Bank of America, N.A. (the “JPE Revolver”). The JPE Revolver was scheduled to mature on February 12, 2019, but on March 8, 2017, in connection with the closing of the JPE acquisition, the $199.5 million outstanding balance of the JPE Revolver was paid off in full and terminated.

For the six months ended June 30, 2017 and 2016, the weighted average interest rate on borrowings under our Credit Agreement and the JPE Revolver was approximately 4.67% and 4.15%, respectively.

8.50% Senior Unsecured Notes

On December 28, 2016, we and American Midstream Finance Corporation, our wholly-owned subsidiary (the “Issuers”), completed the issuance and sale of $300 million in aggregate principal amount of senior notes due 2021 (the “8.50% Senior Notes”). The 8.50% Senior Notes are jointly and severally guaranteed by certain of our existing direct and indirect wholly owned subsidiaries that guarantee our Credit Agreement. The 8.50% Senior Notes rank equal in right of payment with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. The 8.50% Senior Notes were issued at par and provided approximately $294.0 million in proceeds, after deducting the initial purchasers' discount of $6.0 million. This amount was deposited into escrow pending completion of the JPE Acquisition and was included in Restricted cash-long term on our consolidated balance sheet as of December 31, 2016. We also incurred $2.7 million of direct issuance costs resulting in net proceeds related to the 8.50% Senior Notes of $291.3 million.

Upon the closing of the JPE Acquisition and the satisfaction of other related conditions the restricted cash was released from escrow on March 8, 2017 and used to repay and terminate the JPE Revolver and reduce borrowings under the Credit Agreement.

The 8.50% Senior Notes will mature on December 15, 2021 with interest payable in cash semi-annually in arrears on June 15 and December 15, commencing June 15, 2017.

As of June 30, 2017, the fair value of the 8.50% Senior Notes was $303.3 million. This estimate was based on similar private placement transactions along with changes in market interest rates which represent a Level 2 measurement.

3.77% Senior Secured Notes

On September 30, 2016, Midla Financing, LLC (“Midla Financing”), American Midstream (Midla) LLC (“Midla”), and Mid Louisiana Gas Transmission LLC (“MLGT and together with Midla, the “Note Guarantors”) entered into a Note Purchase and Guaranty Agreement (the “Note Purchase Agreement”) with certain institutional investors (the “Purchasers”) whereby Midla Financing issued $60.0 million in aggregate principal amount of 3.77% Senior Notes (non-recourse) due June 30, 2031.

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The Note Purchase Agreement includes customary representations and warranties, affirmative and negative covenants (including financial covenants), and events of default that are customary for a transaction of this type. Many of these provisions apply not only to Midla Financing and the Note Guarantors, but also to American Midstream Midla Financing Holdings, LLC (“Midla Holdings”), a wholly owned subsidiary of the Partnership and the sole member of Midla Financing. Among other things, Midla Financing must maintain a debt service reserve account containing six months of principal and interest payments, and Midla Financing and the Note Guarantors (including any entities that become guarantors under the terms of the Note Purchase Agreement) are restricted from making distributions (a) until June 30, 2017, (b) unless the debt service coverage ratio is not less than, and is not projected for the following 12 calendar months to be less than, 1.20:1.00, and (c) unless certain other requirements are met.

In connection with the Note Purchase Agreement, the Note Guarantors guaranteed the payment in full of all Midla Financing’s obligations under the Note Purchase Agreement. Also, Midla Financing and the Note Guarantors granted a security interest in substantially all of their tangible and intangible personal property, including the membership interests in each Note Guarantor held by Midla Financing, and Financing Holdings pledged the membership interests in Midla Financing to the Collateral Agent.

Net proceeds from the 3.77% Senior Notes are restricted and are to be used (1) to fund project costs incurred in connection with (a) the construction of the Midla-Natchez Line (b) the retirement of Midla’s existing 1920’s vintage pipeline (c) the move of our Baton Rouge operations to the MLGT system (d) the reconfiguration of the DeSiard compression system and all related ancillary facilities, (2) to pay transaction fees and expenses in connection with the issuance of the 3.77% Senior Notes, and (3) for other general corporate purposes of Midla Financing.

As of June 30, 2017, the fair value of the 3.77% Senior Notes was $55.5 million. This estimate was based on similar private placement transactions along with changes in market interest rates which represent a Level 2 measurement.


13. Convertible Preferred Units

Our convertible preferred units consist of the following (in thousands):
 
Series A
 
Series C
 
Series D
 
Total
 
Units
$
 
Units
$
 
Units
$
 
$
December 31, 2016
10,107

$
181,386

 
8,792

$
118,229

 
2,333

$
34,475

 
$
334,090

Paid in kind unit distributions
293

4,105

 


 


 
4,105

June 30, 2017
10,400

$
185,491

 
8,792

$
118,229

 
2,333

$
34,475

 
$
338,195


Affiliates of our General Partner hold and participate in quarterly distributions on our convertible preferred units, with such distributions being made in cash, paid-in-kind units or a combination thereof, at the election of the Board of Directors of our General Partner, although quarterly distribution on our Series D Units will only be paid in cash. The convertible preferred unitholders have the right to receive cumulative distributions in the same priority and prior to any other distributions made in respect of any other partnership interests.

To the extent that any portion of a quarterly distribution on our convertible preferred units to be paid in cash exceeds the amount of cash available for such distribution, the amount of cash available will be paid to our convertible preferred unitholders on a pro rata basis while the difference between the distribution and the available cash will become arrearages and accrue interest until paid.

Series A-1 Convertible Preferred Units

On April 15, 2013, we, our General Partner and AIM Midstream Holdings entered into agreements with HPIP, pursuant to which HPIP acquired 90% of our General Partner and all of our subordinated units from AIM Midstream Holdings and contributed the High Point System and $15.0 million in cash to us in exchange for 5,142,857 of our Series A-1 Units.
The Series A-1 Units receive distributions prior to distributions to our common unitholders. The distributions on the Series A-1 Units are equal to the greater of $0.4125 per unit or the declared distribution to common unitholders. The Series A-1 Units may be converted into common units, subject to customary anti-dilutive adjustments, at the option of the unitholders on or any time after January 1, 2014. As of June 30, 2017, the conversion price is $15.69 and the conversion ratio is 1 to 1.1054.

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Series A-2 Convertible Preferred Units

On March 30, 2015 and June 30, 2015, we entered into two Series A-2 Convertible Preferred Unit Purchase Agreements with Magnolia Infrastructure Partners ("Magnolia") an affiliate of HPIP pursuant to which we issued, in separate private placements, newly-designated Series A-2 Units (the “Series A-2 Units”) representing limited partnership interests in the Partnership. As a result, the Partnership issued a total of 2,571,430 Series A-2 Units for approximately $45.0 million in aggregate proceeds during the year ended December 31, 2015. The Series A-2 Units will participate in distributions of the Partnership along with common units in a manner identical to the existing Series A-1 Units (together with the Series A-2 Units, the "Series A Units"), with such distributions being made in cash or with paid-in-kind Series A Units at the election of the Board of Directors of our General Partner.

On July 27, 2015, we amended our Partnership Agreement to grant us the right (the “Call Right”) to require the holders of the Series A-2 Units to sell, assign and transfer all or a portion of the then outstanding Series A-2 Units to us for a purchase price of $17.50 per Series A-2 Unit (subject to appropriate adjustment for any equity distribution, subdivision or combination of equity interests in the Partnership). We may exercise the Call Right at any time, in connection with our or our affiliate’s acquisition of assets or equity from ArcLight Energy Partners Fund V, L.P., or one of its affiliates, for a purchase price in excess of $100 million. We may not exercise the Call Right with respect to any Series A-2 Units that a holder has elected to convert into common units on or prior to the date we have provided notice of our intent to exercise the Call Right, and we may also not exercise the Call Right if doing so would result in a default under any of our or our affiliates’ financing agreements or obligations. As of June 30, 2017, the conversion price is $15.69 and the conversion ratio is 1 to 1.1054.

As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series A-1 and A-2 Units have been classified as mezzanine equity in the condensed consolidated balance sheets.

Third Amendment to Partnership Agreement

On March 8, 2017, the Partnership executed Amendment No. 3 to our Fifth Amended and Restated Partnership Agreement (as amended, the “Partnership Agreement”), which amends the distribution payment terms of the Partnership’s outstanding Series A Preferred Units to provide for the payment of a number of Series A payment-in-kind (“PIK”) preferred units for the quarter (the “Series A Preferred Quarterly Distribution”) in which the JPE Acquisition is consummated (which is the quarter ended March 31, 2017) and each quarter thereafter equal to the quotient of (i) the greater of (a) $0.4125 and (b) the "Series A Distribution Amount," as such term is defined in the Partnership Agreement, divided by (ii) the Series A Adjusted Issue Price, as such term is defined in the Partnership Agreement. However, in our General Partner’s discretion, which determination shall be made prior to the record date for the relevant quarter, the Series A Preferred Quarterly Distribution may be paid as a combination (x) an amount in cash up to the greater of (1) $0.4125 and (2) the Series A Distribution Amount, and (y) a number of Series A Preferred Units equal to the quotient of (a) the remainder of (i) the greater of (I) $0.4125 and (II) the Series A Distribution Amount less (ii) the amount of cash paid pursuant to clause (x), divided by (b) the Series A Adjusted Issue Price. This calculation results in a reduced Series A Preferred Quarterly Distribution, which was previously calculated under the Partnership Agreement using $0.50 in place of $0.4125 in the preceding calculations.

Series C Convertible Preferred Units

On April 25, 2016, we issued 8,571,429 Series C Units to an ArcLight affiliate in connection with the purchase of membership interests in certain midstream entities.

The Series C Units have voting rights that are identical to the voting rights of the common units and will vote with the common units as a single class on an as converted basis, with each Series C Unit initially entitled to one vote for each common unit into which such Series C Unit is convertible. The Series C Units also have separate class voting rights on any matter, including a merger, consolidation or business combination, that adversely affects, amends or modifies any of the rights, preferences, privileges or terms of the Series C Units. The Series C Units are convertible in whole or in part into common units at any time. The number of common units into which a Series C Unit is convertible will be an amount equal to the sum of $14.00 plus all accrued and accumulated but unpaid distributions, divided by the conversion price. The sale of the Series C Units was exempt from registration under Securities Act pursuant to Rule 4(a)(2) under the Securities Act.

In the event that we issue, sell or grant any common units or convertible securities at an indicative per common unit price that is less than $14.00 per common unit (subject to customary anti-dilution adjustments), then the conversion price will be adjusted according to a formula to provide for an increase in the number of common units into which Series C Units are convertible. As of June 30, 2017, the conversion price is $13.79 and the conversion ratio is 1 to 1.0035.

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In connection with the issuance of the Series C Units, we issued the holders a warrant to purchase up to 800,000 common units at an exercise price of $7.25 per common unit (the "Series C Warrant"). The Series C Warrant is subject to standard anti-dilution adjustments and is exercisable for a period of seven years.

The fair value of the Series C Warrant was determined using a market approach that utilized significant inputs which are not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. The estimated fair value of $4.41 per warrant unit was determined using a Black-Scholes model and the following significant assumptions: i) a dividend yield of 18%, ii) common unit volatility of 42% and iii) the seven-year term of the warrant to arrive at an aggregate fair value of $4.5 million.

As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series C Units have been classified as mezzanine equity in the condensed consolidated balance sheets.

Series D Convertible Preferred Units

On October 31, 2016, we issued 2,333,333 shares of our newly-designated Series D Units to an ArcLight affiliate at a price of $15.00 per unit, less a 1.5% closing fee, in connection with the Delta House transaction during the third quarter 2016. The related agreement provides that if any of the Series D Units remain outstanding on June 30, 2017 (the “ Series D Determination Date”), we will issue the holder of the Series D Units a warrant (the “Series D Warrant”) to purchase 700,000 common units representing limited partnership interests with an exercise price of $22.00 per common unit. The fair value of the conditional Series D Warrant at the time of issuance was immaterial. On July 14, 2017, the Partnership entered into an amendment to the related agreement and Amendment No. 5 to the Partnership Agreement, pursuant to which the Series D Warrant Determination Date was extended to August 31, 2017.

The Series D Units are entitled to quarterly distributions payable in arrears equal to the greater of $0.4125 and the cash distribution that the Series D Units would have received if they had been converted to common units immediately prior to the beginning of the quarter. The Series D Units also have separate class voting rights on any matter, including a merger, consolidation or business combination, that adversely affects, amends or modifies any of the rights, preferences, privileges or terms of the Series D Units. The Series D Units are convertible in whole or in part into common units at the election of the holder of the Series D Unit at any time after June 30, 2017. As of the date of issuance, the conversion rate for each Series D Unit was one-to-one (the “Conversion Rate”). As of June 30, 2017, the conversion price is $14.83 and the conversion ratio is 1 to 1.0035.

As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series D Units have been classified as mezzanine equity in the condensed consolidated balance sheets.

14. Partners’ Capital

Our capital accounts are comprised of approximately 1.3% notional General Partner interests and 98.7% limited partner interests as of June 30, 2017. 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 incentive distribution rights that are non-voting limited partner interests held by our General Partner. Pursuant to our Partnership Agreement, our General Partner participates in losses and distributions based on its interest. The General Partner’s participation in the allocation of losses and distributions is not limited and therefore, such participation can result in a deficit to its capital account. As such, allocation of losses and distributions, including distributions for previous transactions between entities under common control, has resulted in a deficit to the General Partner’s capital account included in our condensed consolidated balance sheets.

Outstanding Units

The following table presents unit activity (in thousands):
 
 
General
Partner Interest
 
Limited Partner Interest
Balances at December 31, 2016
 
680

 
51,351

LTIP vesting
 

 
373

Issuance of GP units
 
273

 

Issuance of common units
 

 
21

Balances at June 30, 2017
 
953

 
51,745


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General Partner Units

In order to maintain the ownership percentage, we received proceeds of $3.9 million from our General Partner as consideration for the issuance of 272,811 additional notional General Partner units for the six months ended June 30, 2017. For the six months ended June 30, 2016, we received proceeds of $1.8 million for the issuance of 128,272 additional notional General Partner units.
Distributions

We made the following distributions (in thousands):

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Series A Units
 
 
 
 
 
 
 
 
Cash Paid
 
$
2,117

 
$

 
$
4,644

 
$

Accrued
 
4,069

 
4,602

 
4,069

 
4,602

Paid-in-kind units
 
2,181

 
4,471

 
4,914

 
8,851

 
 
 
 
 
 
 
 
 
Series C Units
 
 
 
 
 
 
 
 
Cash Paid
 
3,627

 

 
7,254

 

Accrued
 
3,627

 
2,249

 
3,627

 
2,249

Paid-in-kind units
 

 

 

 

 
 
 
 
 
 
 
 
 
Series D Units
 
 
 
 
 
 
 
 
Cash Paid
 
963

 

 
1,925

 

Accrued
 
963

 

 
963

 

 
 
 
 
 
 
 
 
 
Limited Partner Units
 
 
 
 
 
 
 
 
Cash Paid
 
21,390

 
24,782

 
46,303

 
51,782

 
 
 
 
 
 
 
 
 
General Partner Units
 
 
 
 
 
 
 
 
Cash Paid
 
201

 
173

 
368

 
2,201

 
 
 
 
 
 
 
 
 
Summary
 
 
 
 
 
 
 
 
Cash Paid
 
28,298

 
24,955

 
60,494

 
53,983

Accrued
 
8,659

 
6,851

 
8,659

 
6,851

Paid-in-kind units
 
2,181

 
4,471

 
4,914

 
8,851


The fair value of the paid-in-kind distributions was determined using the market and income approaches, requiring significant inputs which are not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. Under the income approach, the fair value estimates for all periods presented were based on i) present value of estimated future contracted distributions, ii) option values ranging from $0.02 per unit to $3.39 per unit using a Black-Scholes model, iii) assumed discount rates ranging from 5.98% to 10.0% and iv) assumed growth rates of 1.0%.


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15. Net Loss per Limited Partner Unit

Net loss is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages, after giving effect to distributions on our convertible preferred units and General Partner units, including incentive distribution rights. Unvested unit-based compensation awards that contain non-forfeitable rights to distributions (whether paid or unpaid) are classified as participating securities and are included in our computation of basic and diluted net limited partners' net loss per common unit. Basic and diluted limited partners' net loss per common unit is calculated by dividing limited partners' interest in net loss by the weighted average number of outstanding limited partner units during the period.


As discussed in Note 1, the JPE Acquisition was a combination between entities under common control. As a result, prior periods were retrospectively adjusted to furnish comparative information. Accordingly, the prior period earnings combining both entities were allocated among our General Partners and common unitholders assuming JPE units were converted into our common units in the comparative historical periods.

The calculation of basic and diluted limited partners' net loss per common unit is summarized below (in thousands, except per unit amounts):

 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Net loss from continuing operations
$
(27,702
)
 
$
(9,481
)
 
$
(56,583
)
 
$
(19,545
)
Less: Net income attributable to noncontrolling interests
1,462

 
954

 
2,765

 
951

Net loss from continuing operations attributable to the Partnership
(29,164
)
 
(10,435
)
 
(59,348
)
 
(20,496
)
Less:
 
 
 
 
 
 
 
Distributions on Series A Units
4,069