Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
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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2103 CityWest Boulevard | |
Building #4, Suite 800 | |
Houston, TX 77042 | (346) 241-3400 |
(Address of principal executive offices) (zip code) | (Registrant’s telephone number, including area code)
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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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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 | ¨ |
| | 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 52,981,070 common units, 11,009,729 Series A Units, and 9,241,642 Series C Units of American Midstream Partners, LP outstanding as of August 6, 2018. Our common units trade on the New York Stock Exchange under the ticker symbol “AMID.”
Glossary of Terms
The following is a list of terms used throughout this report:
Bbl Barrels: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bbl/d Barrels per day.
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Btu | British thermal unit; a measurement of energy. |
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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. |
FERC Federal Energy Regulatory Commission.
Fractionation Process by which natural gas liquids are separated into individual components.
GAAP Accounting principles generally accepted in the United States of America.
Gal Gallons.
Mgal/d Thousand gallons per day.
MBbl Thousand barrels.
MMBbl Million barrels.
MMBbl/d Million barrels per day.
MMBtu Million British thermal units.
Mcf Thousand cubic feet.
MMcf Million cubic feet.
MMcf/d Million cubic feet per day.
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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, becomes liquid under various levels of higher pressure and lower temperature. |
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Throughput | The volume of natural gas and NGL transported or passing through a pipeline, plant, terminal or other facility during a particular period. |
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 6. | | |
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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| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| | | |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 17,037 |
| | $ | 8,782 |
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Restricted cash | 24,541 |
| | 20,352 |
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Accounts receivable, net of allowance for doubtful accounts of $372 and $225 as of June 30, 2018 and December 31, 2017, respectively | 88,352 |
| | 98,132 |
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Inventory | 2,661 |
| | 2,966 |
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Other current assets | 30,570 |
| | 23,420 |
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Total current assets | 163,161 |
| | 153,652 |
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Property, plant and equipment, net | 992,659 |
| | 1,095,585 |
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Goodwill | 51,723 |
| | 128,866 |
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Restricted cash-long term | 5,058 |
| | 5,045 |
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Intangible assets, net | 139,083 |
| | 174,010 |
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Investments in unconsolidated affiliates | 331,530 |
| | 348,434 |
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Other assets, net | 27,984 |
| | 17,874 |
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Assets held for sale | 230,129 |
| | — |
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Total assets | $ | 1,941,327 |
| | $ | 1,923,466 |
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Liabilities, Equity and Partners’ Capital | | | |
Current liabilities | | | |
Accounts payable | $ | 53,093 |
| | $ | 41,102 |
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Accrued gas and crude oil purchases | 15,862 |
| | 19,986 |
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Accrued expenses and other current liabilities | 67,395 |
| | 68,854 |
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Current portion of long-term debt | 3,624 |
| | 7,551 |
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Total current liabilities | 139,974 |
| | 137,493 |
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Asset retirement obligations | 67,358 |
| | 66,194 |
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Other long-term liabilities | 15,426 |
| | 2,080 |
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Long-term debt | 1,278,062 |
| | 1,201,456 |
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Deferred tax liability | 8,628 |
| | 8,123 |
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Liabilities held for sale | 2,237 |
| | — |
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Total liabilities | 1,511,685 |
| | 1,415,346 |
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Commitments and contingencies (Note 18) |
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Convertible preferred units | 317,180 |
| | 317,180 |
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Equity and partners’ capital | | | |
General Partner interests (965 and 965 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively) | (76,307 | ) | | (96,552 | ) |
Limited Partner interests (52,972 and 52,711 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively) | 175,003 |
| | 273,703 |
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Accumulated other comprehensive income | 23 |
| | 28 |
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Total partners’ capital | 98,719 |
| | 177,179 |
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Noncontrolling interests | 13,743 |
| | 13,761 |
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Total equity and partners’ capital | 112,462 |
| | 190,940 |
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Total liabilities, equity and partners’ capital | $ | 1,941,327 |
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| $ | 1,923,466 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per unit amounts)
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| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Revenue: | | | | | | | | |
Commodity sales | | $ | 164,737 |
| | $ | 124,476 |
| | $ | 323,599 |
| | $ | 247,997 |
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Services | | 55,835 |
| | 37,355 |
| | 102,741 |
| | 77,547 |
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(Loss)/Gain on commodity derivatives, net | | (355 | ) | | 199 |
| | (296 | ) | | 564 |
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Total revenue | | 220,217 |
| | 162,030 |
| | 426,044 |
| | 326,108 |
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Operating expenses: | | | | | | | | |
Costs of sales | | 161,508 |
| | 115,020 |
| | 311,674 |
| | 230,488 |
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Direct operating expenses | | 21,742 |
| | 18,709 |
| | 45,189 |
| | 36,114 |
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Corporate expenses | | 23,372 |
| | 27,374 |
| | 46,064 |
| | 57,487 |
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Depreciation, amortization and accretion | | 21,236 |
| | 26,483 |
| | 43,234 |
| | 52,053 |
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Loss/(Gain) on sale of assets, net | | — |
| | 18 |
| | (95 | ) | | (3 | ) |
Total operating expenses | | 227,858 |
| | 187,604 |
| | 446,066 |
| | 376,139 |
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Operating loss | | (7,641 | ) | | (25,574 | ) | | (20,022 | ) | | (50,031 | ) |
Other income (expense), net | | | | | | | | |
Interest expense, net of capitalized interest | | (19,691 | ) | | (17,122 | ) | | (33,567 | ) | | (35,078 | ) |
Other income (expense), net | | 169 |
| | — |
| | 191 |
| | (37 | ) |
Earnings in unconsolidated affiliates | | 10,446 |
| | 17,552 |
| | 23,119 |
| | 32,954 |
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Loss from continuing operations before income taxes | | (16,717 | ) | | (25,144 | ) | | (30,279 | ) | | (52,192 | ) |
Income tax expense | | (557 | ) | | (757 | ) | | (837 | ) | | (1,880 | ) |
Loss from continuing operations | | (17,274 | ) | | (25,901 | ) | | (31,116 | ) | | (54,072 | ) |
Loss from discontinued operations | | — |
| | (1,801 | ) | | — |
| | (2,511 | ) |
Net loss | | (17,274 | ) | | (27,702 | ) | | (31,116 | ) | | (56,583 | ) |
Less: Net income attributable to noncontrolling interests | | 13 |
| | 1,462 |
| | 57 |
| | 2,765 |
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Net loss attributable to the Partnership | | $ | (17,287 | ) | | $ | (29,164 | ) | | $ | (31,173 | ) | | $ | (59,348 | ) |
| | | | | | | | |
General Partner’s interest in net loss | | $ | (225 | ) | | $ | (375 | ) | | $ | (405 | ) | | $ | (795 | ) |
Limited Partners’ interest in net loss | | $ | (17,062 | ) | | $ | (28,789 | ) | | $ | (30,768 | ) | | $ | (58,553 | ) |
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Distribution declared per common unit (Note 15) | | $ | 0.1031 |
| | $ | 0.4125 |
| | $ | 0.5156 |
| | $ | 0.8250 |
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Limited Partners’ net loss per common unit: | | |
Basic and diluted: | | | | | | | | |
Loss from continuing operations | | $ | (0.48 | ) | | $ | (0.69 | ) | | $ | (0.89 | ) | | $ | (1.41 | ) |
Loss from discontinued operations | | — |
| | (0.03 | ) | | — |
| | (0.05 | ) |
Net loss per common unit | | $ | (0.48 | ) | | $ | (0.72 | ) | | $ | (0.89 | ) | | $ | (1.46 | ) |
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Weighted average number of common units outstanding: |
Basic and diluted | | 52,969 |
| | 51,870 |
| | 52,869 |
| | 51,870 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
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| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net loss | $ | (17,274 | ) | | $ | (27,702 | ) | | $ | (31,116 | ) | | $ | (56,583 | ) |
Unrealized gain (loss) related to postretirement benefit plan | 11 |
| | 24 |
| | (5 | ) | | 42 |
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Comprehensive loss | (17,263 | ) | | (27,678 | ) | | (31,121 | ) | | (56,541 | ) |
Less: Comprehensive income attributable to noncontrolling interests | 13 |
| | 1,462 |
| | 57 |
| | 2,765 |
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Comprehensive loss attributable to the Partnership | $ | (17,276 | ) | | $ | (29,140 | ) | | $ | (31,178 | ) | | $ | (59,306 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Changes in Equity and Partners’ Capital
(Unaudited, in thousands)
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| | | | | | | | | | | | | | | | | | | | | | | |
| General Partner Interests | | Limited Partner Interests | | Accumulated Other Comprehensive Income (Loss) | | Total Partners’ Capital | | Non controlling Interests | | Total Equity and Partners’ Capital |
Balances at December 31, 2016 | $ | (47,645 | ) | | $ | 616,087 |
| | $ | (40 | ) | | $ | 568,402 |
| | $ | 16,755 |
| | $ | 585,157 |
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Net (loss) income | (795 | ) | | (58,553 | ) | | — |
| | (59,348 | ) | | 2,765 |
| | (56,583 | ) |
Contributions | 23,130 |
| | 4,000 |
| | — |
| | 27,130 |
| | — |
| | 27,130 |
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Distributions | (594 | ) | | (63,574 | ) | | — |
| | (64,168 | ) | | — |
| | (64,168 | ) |
Contributions from NCI owners | — |
| | — |
| | — |
| | — |
| | 296 |
| | 296 |
|
Distributions to NCI owners | — |
| | — |
| | — |
| | — |
| | (1,795 | ) | | (1,795 | ) |
LTIP vesting | (4,633 | ) | | 4,633 |
| | — |
| | — |
| | — |
| | — |
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Tax netting repurchase | — |
| | (1,642 | ) | | — |
| | (1,642 | ) | | — |
| | (1,642 | ) |
Equity compensation expense | 3,873 |
| | 1,360 |
| | — |
| | 5,233 |
| | — |
| | 5,233 |
|
Post-retirement benefit plan | — |
| | — |
| | 42 |
| | 42 |
| | — |
| | 42 |
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Balances at June 30, 2017 | $ | (26,664 | ) |
| $ | 502,311 |
|
| $ | 2 |
|
| $ | 475,649 |
|
| $ | 18,021 |
| | $ | 493,670 |
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| | | | | | | | | | | |
Balances at December 31, 2017 | $ | (96,552 | ) | | $ | 273,703 |
| | $ | 28 |
| | $ | 177,179 |
| | $ | 13,761 |
| | $ | 190,940 |
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Cumulative effect of accounting change (Note 3) | (139 | ) | | (10,552 | ) | | — |
| | (10,691 | ) | | — |
| | (10,691 | ) |
Net (loss) income | (405 | ) | | (30,768 | ) | | — |
| | (31,173 | ) | | 57 |
| | (31,116 | ) |
Contributions | 23,264 |
| | — |
| | — |
| | 23,264 |
| | — |
| | 23,264 |
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Distributions | (795 | ) | | (60,088 | ) | | — |
| | (60,883 | ) | | — |
| | (60,883 | ) |
Distributions to NCI owners | — |
| | — |
| | — |
| | — |
| | (75 | ) | | (75 | ) |
Distribution for acquisition of Trans-Union | (38 | ) | | — |
| | — |
| | (38 | ) | | — |
| | (38 | ) |
LTIP vesting | (3,836 | ) | | 3,836 |
| | — |
| | — |
| | — |
| | — |
|
Tax netting repurchase | — |
| | (1,128 | ) | | — |
| | (1,128 | ) | | — |
| | (1,128 | ) |
Equity compensation expense | 2,194 |
| | — |
| | — |
| | 2,194 |
| | — |
| | 2,194 |
|
Post-retirement benefit plan
| — |
| | — |
| | (5 | ) | | (5 | ) | | — |
| | (5 | ) |
Balances at June 30, 2018 | $ | (76,307 | ) | | $ | 175,003 |
| | $ | 23 |
| | $ | 98,719 |
| | $ | 13,743 |
| | $ | 112,462 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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| | | | | | | | |
| | Six months ended June 30, |
| | 2018 | | 2017 |
Cash flows from operating activities | |
| |
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Net loss | | $ | (31,116 | ) | | $ | (56,583 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities including discontinued operations: | |
| |
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Depreciation, amortization and accretion | | 43,234 |
| | 59,521 |
|
Amortization of debt issuance costs | | 2,649 |
| | 2,456 |
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Amortization of weather derivative premium | | 550 |
| | 475 |
|
Unrealized (gain) loss on derivatives contracts, net | | (5,851 | ) | | 3,020 |
|
Non-cash compensation expense | | 2,194 |
| | 5,233 |
|
Gain on sale of assets, net | | (95 | ) | | (176 | ) |
Corporate overhead support | | — |
| | 4,000 |
|
Other non-cash items | | (22 | ) | | 1,906 |
|
Earnings in unconsolidated affiliates | | (23,119 | ) | | (32,954 | ) |
Distributions from unconsolidated affiliates | | 21,404 |
| | 32,954 |
|
Deferred tax expense | | 505 |
| | 1,250 |
|
Bad debt expense | | 406 |
| | 515 |
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Changes in operating assets and liabilities, net of effects of acquisitions: | | | |
|
Accounts receivable | | 5,019 |
| | 8,761 |
|
Inventory | | (519 | ) | | (1,738 | ) |
Risk management assets and liabilities | | (989 | ) | | (1,157 | ) |
Other current assets | | (4,640 | ) | | (6,447 | ) |
Other assets, net | | (3,565 | ) | | 147 |
|
Accounts payable | | 13,858 |
| | (12,069 | ) |
Accrued gas and crude oil purchases | | (4,052 | ) | | 6,320 |
|
Accrued expenses and other current liabilities | | (6,903 | ) | | 13,216 |
|
Asset retirement obligations | | (7 | ) | | (45 | ) |
Other liabilities | | 19 |
| | (247 | ) |
Net cash provided by operating activities | | 8,960 |
|
| 28,358 |
|
| | | | |
Cash flows from investing activities | | | |
|
Acquisitions, net of cash acquired and settlements | | — |
| | (32,000 | ) |
Contributions to unconsolidated affiliates | | (2,946 | ) | | — |
|
Additions to property, plant and equipment and other | | (56,533 | ) | | (44,039 | ) |
Proceeds from disposals of property, plant and equipment | | 8 |
| | 121 |
|
Insurance proceeds from involuntary conversion of property, plant and equipment | | — |
| | 150 |
|
Distributions from unconsolidated affiliates, return of capital | | 23,150 |
| | 5,440 |
|
Net cash used in investing activities | | (36,321 | ) | | (70,328 | ) |
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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited, in thousands)
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| | | | | | | | |
| | Six months ended June 30, |
| | 2018 | | 2017 |
Cash flows from financing activities | | | |
|
Contributions | | 23,264 |
| | 23,130 |
|
Distributions | | (52,529 | ) | | (60,494 | ) |
Contribution from noncontrolling interest owners | | — |
| | 296 |
|
Distributions to noncontrolling interests owners | | (75 | ) | | (1,795 | ) |
LTIP tax netting unit repurchase | | (1,128 | ) | | (1,642 | ) |
Payment of debt issuance costs | | (2,742 | ) | | (2,116 | ) |
Payment of long-term debt | | (644 | ) | | (1,078 | ) |
Payment of 3.97% Senior Notes | | (878 | ) | | — |
|
Payments of other debt | | (4,316 | ) | | (3,447 | ) |
Payments of credit agreement | | (187,200 | ) | | (383,908 | ) |
Borrowings on credit agreement | | 265,600 |
| | 173,700 |
|
Other | | 830 |
| | — |
|
Net cash provided by (used in) financing activities | | 40,182 |
| | (257,354 | ) |
| | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | 12,821 |
|
| (299,324 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | | 34,179 |
| | 329,230 |
|
Cash, cash equivalents, and restricted cash, end of period | | $ | 47,000 |
| | $ | 29,906 |
|
| | | | |
Cash, cash equivalents, and restricted cash, beginning of period | | | | |
Cash and cash equivalents | | $ | 8,782 |
| | $ | 5,666 |
|
Restricted cash - current | | 20,352 |
| | — |
|
Restricted cash - non-current | | 5,045 |
| | 323,564 |
|
Total cash, cash equivalents, and restricted cash, beginning of period | | $ | 34,179 |
| | $ | 329,230 |
|
| | | | |
Cash, cash equivalents and restricted cash, end of period | | | | |
Cash and cash equivalents | | $ | 17,037 |
| | $ | 5,903 |
|
Cash included in assets held for sale | | 364 |
| | — |
|
Restricted cash - current | | 24,541 |
| | 18,965 |
|
Restricted cash - non-current | | 5,058 |
| | 5,038 |
|
Total cash, cash equivalents and restricted cash, end of period | | $ | 47,000 |
| | $ | 29,906 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(1) Organization and Basis of Presentation
Organization
American Midstream Partners, LP (together with its consolidated subsidiaries, the “Partnership”, “we”, “us”, or “our”) is a growth-oriented Delaware limited partnership that was formed in August 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 77.0% directly owned by High Point Infrastructure Partners, LLC (“HPIP”) and 23.0% indirectly owned by Magnolia Infrastructure Holdings, LLC (“Magnolia”), 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.
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 five reportable segments, (1) Gas Gathering and Processing Services, (2) Liquid Pipelines and Services, (3) Natural Gas Transportation Services, (4) Offshore Pipelines and Services, and (5) Terminalling 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; and storing specialty chemical products and refined products. Most of our cash flow is generated from fee-based and fixed-margin compensation 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.
Basis of presentation
The accompanying Condensed Consolidated Financial Statements are unaudited and have been prepared in accordance with Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of our management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement have been included. The results of operations for interim periods are not necessarily indicative of results of operations for a full year. These Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 9, 2018 (the “2017 Form 10-K”).
On April 15, 2013, ArcLight affiliates obtained control of our General Partner. We account for transactions between entities under common control at the affiliate's historical costs. For those transactions, our historical financial statements will be revised to include the results attributable to the assets acquired as if they were acquired on April 15, 2013 or the date the ArcLight affiliates obtained control of the assets or business acquired.
(2) Recent Accounting Pronouncements and Critical Accounting Policies
Standards Adopted in 2018
Revenue from Contracts with Customers (Topic 606) - In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard related to revenue recognition which supersedes most of the existing revenue recognition requirements in GAAP and requires entities to recognize revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations, reporting gross versus net revenue and narrow-scope revisions and practical expedients.
We adopted the new standard on January 1, 2018 (the “initial application” date):
| |
• | using the modified retrospective application, with no restatement of the comparative periods presented and a cumulative effect adjustment to retained earnings as of the date of adoption; and |
| |
• | disclosing the impact of the new standard in our Condensed Consolidated Financial Statements included in this report. |
Our revenue is derived from the provision of gathering, processing, transportation, terminalling and storage services and the sale of commodities primarily to marketers and brokers, refiners and chemical manufacturers, utilities and power generation customers,
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
industrial users, and local distribution companies. Beginning on January 1, 2018, we account for revenue from contracts with customers in accordance with Topic 606. The unit of account in Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided at a point in time or over a period of time. Topic 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.
Commodity Sales - For the majority of our commodity sales contracts: (i) each unit of product is a separate performance obligation, since our promise is to sell multiple distinct units of product at a point in time; (ii) the transaction price principally consists of variable consideration, which is determinable on commodity index prices for the volume of the product sold to the customer that month; and (iii) the transaction price is allocated to each performance obligation based on the product’s standalone selling price. Revenues from sales of commodities are recognized at the point in time when control of the commodity transfers to the customer, which generally occurs upon delivery of the product to the customer or its designee. Payment is generally received from the customer in the month following delivery. Contracts with customers have varying terms, including spot sales, month-to-month contracts and multi-year agreements.
In our Liquid Pipelines and Services segment, we enter into purchase and sales contracts as well as buy/sell contracts with counterparties, under which we gather and transport different types of crude oil and eventually sell the crude oil to either the same counterparty or different counterparties. For each of these arrangements, the Partnership assesses if control of the underlying commodity volumes transfer to the Partnership. Generally, the Partnership is unable to direct the use of the commodity volumes it purchases from the supplier because the Partnership is contractually required to redeliver an equivalent volume of the commodity back to the supplier or to a specified customer therefore, these arrangements are recorded on a net basis.
Occasionally, we enter into crude oil inventory exchange arrangements with the same counterparty where the purchase and sale of inventory are considered in contemplation of each other. These types of arrangements are accounted for as inventory exchanges and are recorded on a net basis.
Services - The Partnership provides gathering, processing, transportation, terminalling and storage services pursuant to a variety of contracts. Generally, for the majority of these contracts: (i) our promise is to transfer (or stand ready to transfer) a series of distinct integrated services over a period of time, which is a single performance obligation and (ii) the transaction price includes fixed or variable consideration, or both fixed and variable consideration. The amount of consideration is determinable at contract inception or at each month’s end based on our right to invoice at month end for the value of services provided to the customer in that month.
Revenue is recognized over the service period specified in the contract as the services are rendered using a time-based (passage of time) or units-based (units of service transferred) method for measuring provision of the services. Progress towards satisfying our performance obligation is based on the firm or interruptible nature of the promised service and the terms and conditions of the contract (such as contracts with or without makeup rights). Payment is generally received from the customer in the month of service or the month following the service. Contracts with customers generally are a combination of month-to-month and multi-year agreements.
Firm Services - Firm services are services that are promised to be available to the customer at all times during the term of the contract, with limited exceptions. These agreements require customers to deliver, transport or throughput a minimum volume over an agreed upon period. Substantially all of such agreements are entered into with customers to economically support the return on our capital expenditure necessary to construct the related asset. Our firm service contracts are typically structured with take-or-pay or minimum volume provisions, which specify minimum service quantities a customer will pay for even if it chooses not to receive or use them in the specified service period (referred to as “deficiency quantities”).
Under firm service contracts, we record a receivable from the customer in the period that services are provided or when the transaction occurs, including amounts for deficiency quantities from customers associated with minimum volume commitments. If a customer has a make-up right associated with a deficiency, we defer the revenue attributable to the counterparty’s make-up right and subsequently recognize the revenue at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the customer’s ability to utilize the make-up right is remote.
Interruptible Services - Interruptible services are services provided to the extent that we have available capacity. Generally, we do not have an obligation to perform these services until we accept a customer’s periodic request for service. For the majority of these
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
contracts, the customer will pay only for the actual quantities of services it chooses to receive or use, and we typically recognize the transaction price as revenue as those units of service are transferred to the customer in the specified service period.
Gathering and Processing - Our Gas Gathering and Processing Services segment provides “wellhead-to-market” services to producers of natural gas and natural gas liquids, which include transporting raw natural gas from various receipt points through gathering systems, treating the raw natural gas, processing raw natural gas to separate the NGLs from the natural gas, fractionating NGLs, and selling or delivering pipeline-quality natural gas and NGLs to various markets and pipeline systems. Services can be firm if subject to a minimum volume commitment or acreage dedication or interruptible when offered on an as requested, non-guaranteed basis. Revenue for fee-based gathering and processing services are valued based on the rate in effect for the month of service and is recognized in the month of service based on the volumes of natural gas we gather, process and fractionate. Under these arrangements, we may take control of: (i) none of the commodities we sell (i.e., residue gas or NGLs), (ii) a portion of the commodities we sell, or (iii) all of the commodities we sell.
In those instances where we purchase and obtain control of the entire natural gas stream in our producer arrangements, we have determined these are contracts with suppliers rather than contracts with customers and therefore, these arrangements are not included in the scope of Topic 606. These supplier arrangements are subject to updated guidance in Accounting Standards Codification (“ASC”) 705, “Cost of Sales and Services,” whereby any embedded fees within such contracts, which historically have been reported as services revenue, are now reported as a reduction to cost of sales upon adoption of Topic 606.
In those instances where we remit all of the cash proceeds received from third parties for selling the extracted commodities to the producer, less the fees attributable to these arrangements, we have determined that the producer has control over these commodities. Upon adoption of Topic 606, we eliminated recording both sales revenue (natural gas and products) and cost of sales amounts and now only record fees attributable to these arrangements as service revenues.
In other instances where we do not obtain control of the extracted commodities we sell, we are acting as an agent for the producer and, upon adoption of Topic 606, we have continued to recognize services revenue for the net amount of consideration we retain in exchange for our service.
The Partnership may charge additional service fees to customers for a portion of the contract term (i.e., for the first year of a contract or until reaching a volume threshold) due to the significant upfront capital investment, and these fees are initially deferred and recognized to revenue over the expected period of customer benefit, generally the lesser of the expected contract term or the life of the related properties.
Transportation - Our transportation operations generally consist of fee-based activities associated with transporting crude oil, natural gas, and NGL on pipelines, gathering systems and trucks. Revenues from pipeline tariffs and fees are associated with the transportation at a published tariff, as well as revenues associated with agreements for committed capacity on various assets. We primarily recognize pipeline tariff and fee revenues over time based on the volumes delivered and invoiced. The majority of our pipeline tariff and fee revenues are based on actual volumes and rates.
As is common in the pipeline transportation industry, our tariffs incorporate a loss allowance factor. The intent of the allowance in arrangements for the transportation of natural gas is to approximate the natural shrink that occurs when transporting the gas. For crude oil transportation arrangements, loss allowance provisions are immaterial to the Partnership. In the event the Partnership retains excess natural gas and crude oil and subsequently sells the commodity to a third party, the sale is recorded at that point in time as a commodity sale.
Terminalling and Storage - In our Terminalling Services segment, we generally receive fee-based compensation on guaranteed firm storage contracts, throughput fees charged to our customers when their products are either received or disbursed, and other operational charges associated with ancillary services provided to our customers, such as excess throughput, steam heating and truck weighing at our marine terminals. Storage fees resulting from short-term and long-term contracts are typically recognized in revenue ratably over the term of the contract regardless of the actual storage capacity utilized.
Adoption of the new revenue standard resulted in changes to the timing of revenue recognition and in the reclassification between financial statement line items. See Note 3 - Revenue Recognition, for further discussion.
Statement of Cash Flows - In August 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides specific guidance on cash flow classification issues to reduce diversity in practice. There was no impact of the retrospective adoption of this ASU on the Partnership’s Condensed Consolidated Statements of Cash Flows.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”(“ASU 2016-18”), which requires amounts described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation between the balance sheet and the statement of cash flows must be disclosed when the balance sheet includes more than one-line item for cash, cash equivalents, restricted cash and restricted cash equivalents.
We retrospectively adopted ASU 2016-15 and ASU 2016-18 as of January 1, 2018. Previously reported financial statements have been adjusted to reflect the above changes, as follows (in thousands):
|
| | | | | | | | | | | | | |
| Six months ended June 30, 2017
|
Condensed Consolidated Statements of Cash Flows | As Previously Reported | | Effect of Adoption | | As Adjusted |
Cash flows from operating activities | | | | | |
Net loss | $ | (56,583 | ) | | $ | — |
| | $ | (56,583 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities including discontinued operations | 78,200 |
| | — |
| | 78,200 |
|
Restricted cash, short-term | (3,135 | ) | (1 | ) | 3,135 |
| (1 | ) | — |
|
Changes in operating assets and liabilities, net of effects of assets acquired and liabilities assumed (excluding restricted cash) | 6,794 |
| (1 | ) | (53 | ) | (1 | ) | 6,741 |
|
Net cash provided by (used in) operating activities | 25,276 |
| | 3,082 |
| | 28,358 |
|
Cash flows from investing activities | | | | | |
Restricted cash | 302,643 |
| (1 | ) | (302,643 | ) | (1 | ) | — |
|
Other investing activities (excluding restricted cash) | (70,328 | ) | | — |
| | (70,328 | ) |
Net cash provided by (used in) investing activities | 232,315 |
| | (302,643 | ) | | (70,328 | ) |
Cash flows from financing activities | | | | | |
Other financing activities | (257,354 | ) | | — |
| | (257,354 | ) |
Net cash used in financing activities (excluding restricted cash) | (257,354 | ) | | — |
| | (257,354 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 237 |
| | (299,561 | ) | | (299,324 | ) |
Cash, cash equivalents and Restricted Cash | | | | | |
Beginning of period | 5,666 |
| | 323,564 |
| | 329,230 |
|
End of period | $ | 5,903 |
| | $ | 24,003 |
| | $ | 29,906 |
|
_____________________________________________ (1) ASU 2016-18 adjustment to move restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statement of cash flows.
Stock Compensation - In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 was issued with the intent to clarify the scope of modification accounting and when it should be applied to a change to the terms or conditions of a share-based payment award. Under the new guidance, modification accounting is required for all changes to share based payment awards, unless all the following conditions are met: (i) there is no change to the fair value of the award, (ii) the vesting conditions have not changed, and (iii) the classification of the award as an equity instrument or a debt instrument has not changed. We adopted ASU 2017-09 on its effective date of January 1, 2018, and the adoption did not have a material impact on our Condensed Consolidated Financial Statements.
Income Taxes - In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update)”(“ASU 2018-05”), to provide guidance for companies that have not completed their accounting for the income tax effects of the Tax Cuts and Jobs Act (the “Act”) in the period of enactment. The measurement period begins in the reporting period that includes the Act’s enactment date of December 22, 2017, and ends when a company has obtained, prepared and analyzed the information needed to complete the accounting requirements under ASU 2018-05 and should not extend beyond one year from the enactment date. The impact of adopting the new guidance on our consolidated financial position, cash flows or results of operations, as well as on related disclosures was not material.
Standards Not Yet Adopted
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Leases (Topic 842) - In February 2016, the FASB issued ASU No. 2016-02 (“Topic 842”) “Leases”, which supersedes the lease recognition requirements in ASC Topic 840, “Leases”. Under the new guidance, for leases with a term longer than 12 months a lessee should recognize a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term. Topic 842 retains a classification distinction between finance leases and operating leases, with the classification affecting the pattern of expense recognition in the income statement. This ASU also requires enhanced disclosures. Early adoption is permitted. We are currently assessing the impact of this new guidance via review of existing contracts that may have a lease impact and other purchase obligations that contain embedded lease features, which are generally classified as operating leases under the existing guidance. We selected a third-party consulting firm to assist us with the adoption of the new guidance. We intend to complete any required changes to our systems, software applications and processes, including updating our internal controls during 2018. In 2018, the FASB also issued ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” and ASU No. 2018-11, “Targeted Improvements”. Under these updates, optional transition practical expedients are available i) whereby existing or expired land easements that were not previously accounted for as leases under Topic 840 are not required to be evaluated under Topic 842, and ii) lease and associated non-lease components are not required to be separated within a contract if certain criteria are met. In addition, under ASU No. 2018-11, companies may initially apply the new lease requirements at the effective date. We intend apply the new lease requirements as of January 1, 2019, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to apply the practical expedients.
Financial Instruments - In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This guidance will become effective for interim and annual periods beginning after December 15, 2019. We expect to adopt ASU 2016-13 on January 1, 2020, and we are currently evaluating the effect that adopting this guidance will have on our consolidated financial position, results of operations and cash flows.
Critical Accounting Policies and Estimates
See Item 7 Section Critical Accounting Policies and Estimates and Item 1A. Risk Factors of the 2017 Form 10-K for additional information relating to our critical accounting policies and risk factors.
Goodwill - We record goodwill for the excess of the cost of an acquisition over the fair value of the net assets of the acquired business. Goodwill is reviewed for impairment at least annually or more frequently if an event or change in circumstance indicates that an impairment may have occurred. We first assess qualitative factors to evaluate whether it is more likely than not that an impairment has occurred, and it is therefore necessary to perform the one-step quantitative goodwill impairment test. If the one-step quantitative goodwill impairment test indicates that the goodwill is impaired, an impairment loss is recorded, which is the difference between carrying value of the reporting unit and its fair value, with the impairment loss not to exceed the amount of goodwill recorded.
When performing a quantitative impairment test, the Partnership generally determines the fair value of its reporting units using a discounted cash flow method. In the event the Partnership enters into an agreement to sell all or substantially all of a reporting unit, the Partnership will utilize such information. While using the discounted cash flow method, we must make estimates of projected cash flows related to assets, which include, but are not limited to, assumptions about revenue growth rates, operating margins, weighted average costs of capital and future market conditions, the use or disposition of assets, estimated remaining life of assets, and future expenditures necessary to maintain current operations. We also must make certain estimates and assumptions, including, among other things, changes in general economic conditions in regions in which our markets are located, the availability and prices of energy commodities (such as natural gas, crude oil and refined products), our ability to negotiate favorable sales agreements, the risks that natural gas exploration and production activities will not occur or be successful, our dependence on certain significant customers and producers of natural gas, and competition from other companies.
Under the discounted cash flow method, the Partnership determines fair value based on estimated future cash flows and earnings before income tax, depreciation and amortization (“EBITDA”) of each reporting unit including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflects the overall level of inherent risk of the reporting unit. Cash flow projections are derived from one-year budgeted amounts and five-year operating forecasts plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. The annual budget process is typically completed near the annual goodwill impairment testing date, and management uses the most recent information for the annual impairment tests. The forecast is also subjected to a comprehensive update annually in conjunction with the annual budget process and is revised periodically to reflect new information and revised expectations.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The estimates of future cash flows and EBITDA are subjective in nature and are subject to impacts from the business risks described in “Item 1A. Risk Factors” of the 2017 Form 10-K. While we believe we have made reasonable estimates and assumptions based on available information to calculate the fair value, if future results are not consistent with our estimates, changes in fair value estimates could result in additional impairments in future periods that could be material to our results of operations.
As of December 31, 2017, the Partnership had approximately $128.9 million of goodwill on its consolidated balance sheet within seven reporting units. Of this amount, approximately $46.8 million of goodwill in two reporting units was at risk of failing the one-step quantitative test.
Specifically, the Silver Dollar reporting unit in the Liquids Pipelines and Services segment had $35.7 million in goodwill. As described in Note 10 in our 2017 Form 10-K, we recorded an impairment on the Silver Dollar Reporting unit during the fourth quarter of 2017; hence, fair value approximates the adjusted net book value subsequent to impairment. The 2017 impairment related primarily to cash flow assumptions included in our discounted cash flow analysis that were adversely impacted by delays in drilling and completions experienced by producers.
The Cushing reporting unit in the Terminalling Services segment had $11.1 million in goodwill as of December 31, 2017, and fair value exceeded book value by 7%. In our discounted cash flow analysis for 2017, we assumed lower utilization rates and cash flows due to required tank inspections through early 2019. The lower utilization was not previously expected in our assumptions. If the expected completion date of the inspections or future contracting rates should differ from the assumptions made in our 2017 analysis, the amount by which fair value exceeds book value could be negatively impacted.
As of June 30, 2018, the Partnership had approximately $51.7 million of goodwill on its consolidated balance sheet within five reporting units as two of the seven reporting units, as of December 31, 2017, are now classified as held for sale. There were no triggering events during the six months ended June 30, 2018 and, therefore, we have not quantitatively updated our assessments.
(3) Revenue Recognition
Effect of ASC Topic 606 Adoption - The effect of adopting Topic 606 due to the change in method to measure project progress, as discussed in Note 2 - Recent Accounting Pronouncements, is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2018 | | Six months ended June 30, 2018 |
Condensed Consolidated Statements of Operations | | As Reported | | Adjustments | | Amounts without Adoption of Topic 606 | | As Reported | | Adjustments | | Amounts without Adoption of Topic 606 |
Revenue | | | | | | | | | | | | |
Commodity sales | | $ | 164,737 |
| | $ | 12,535 |
| | $ | 177,272 |
| | $ | 323,599 |
| | $ | 17,777 |
| | $ | 341,376 |
|
Services | | 55,835 |
| | (12,304 | ) | | 43,531 |
| | 102,741 |
| | (14,985 | ) | | 87,756 |
|
Operating expenses | | | | | | | | | | | | |
Costs of sales | | 161,508 |
| | 5,409 |
| | 166,917 |
| | 311,674 |
| | 8,574 |
| | 320,248 |
|
Direct operating expenses | | 21,742 |
| | (4,550 | ) | | 17,192 |
| | 45,189 |
| | (5,006 | ) | | 40,183 |
|
Operating loss | | (7,641 | ) | | (628 | ) | | (8,269 | ) | | (20,022 | ) | | (776 | ) | | (20,798 | ) |
Net loss attributable to the Partnership | | (17,287 | ) | | (628 | ) | | (17,915 | ) | | (31,173 | ) | | (776 | ) | | (31,949 | ) |
| | | | | | | | | | | | |
General Partner’s interest in net loss | | (225 | ) | | (8 | ) | | (233 | ) | | (405 | ) | | (10 | ) | | (415 | ) |
Limited Partners’ interest in net loss | | (17,062 | ) | | (620 | ) | | (17,682 | ) | | (30,768 | ) | | (766 | ) | | (31,534 | ) |
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| | | | | | | | | | | | |
| | As of June 30, 2018 |
Condensed Consolidated Balance Sheets | | As Reported | | Adjustments | | Amounts without Adoption of Topic 606 |
Assets | | | | | | |
Accounts receivable, net | | $ | 88,352 |
| | $ | (76,684 | ) | | $ | 11,668 |
|
Unbilled revenue | | — |
| | 76,684 |
| | 76,684 |
|
Other current assets | | 30,570 |
| | (252 | ) | | 30,318 |
|
Other assets, net | | 27,984 |
| | (6,984 | ) | | 21,000 |
|
Liabilities | | | | | | |
Other long-term liabilities | | 15,426 |
| | (13,865 | ) | | 1,561 |
|
Liabilities held for sale | | 2,237 |
| | (690 | ) | | 1,547 |
|
The majority of the adjustments in the table above were associated with our natural gas gathering and processing, transportation pipeline and our terminalling revenues. The magnitude of the future effect of implementing Topic 606 is dependent on future customer volumes subject to the impacted contracts and commodity prices for those volumes.
Disaggregated Revenue
The following table presents our segment revenues from contracts with customers disaggregated by type of activity (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 |
| Gas Gathering and Processing Services | | Liquid Pipelines and Services | | Natural Gas Transportation Services | | Offshore Pipelines and Services | | Terminalling Services | | Total |
Commodity sales: | | | | | | | | | | | |
Natural gas | $ | 3,521 |
| | $ | — |
| | $ | 5,473 |
| | $ | 2,587 |
| | $ | — |
| | $ | 11,581 |
|
NGLs | 18,059 |
| | — |
| | — |
| | 33 |
| | — |
| | 18,092 |
|
Condensate | 14,154 |
| | — |
| | — |
| | 63 |
| | — |
| | 14,217 |
|
Crude oil | — |
| | 116,516 |
| | — |
| | — |
| | — |
| | 116,516 |
|
Other sales (1) | 635 |
| | — |
| | 2 |
| | 24 |
| | 3,670 |
| | 4,331 |
|
| | | | | | | | | | | |
Services: | | | | | | | | | | | |
Gathering and processing | 12,463 |
| | — |
| | — |
| | 1,408 |
| | — |
| | 13,871 |
|
Transportation | 143 |
| | 3,626 |
| | 9,857 |
| | 10,229 |
| | — |
| | 23,855 |
|
Terminalling and storage | — |
| | — |
| | — |
| | — |
| | 12,150 |
| | 12,150 |
|
Other services (2) | 534 |
| | 475 |
| | 235 |
| | 4,175 |
| | 540 |
| | 5,959 |
|
Revenues from contracts with customers | $ | 49,509 |
| | $ | 120,617 |
| | $ | 15,567 |
| | $ | 18,519 |
| | $ | 16,360 |
| | $ | 220,572 |
|
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 |
| Gas Gathering and Processing Services | | Liquid Pipelines and Services | | Natural Gas Transportation Services | | Offshore Pipelines and Services | | Terminalling Services | | Total |
Commodity sales: | | | | | | | | | | | |
Natural gas | $ | 5,427 |
| | $ | — |
| | $ | 12,110 |
| | $ | 5,024 |
| | $ | — |
| | $ | 22,561 |
|
NGLs | 39,209 |
| | — |
| | — |
| | 71 |
| | — |
| | 39,280 |
|
Condensate | 19,802 |
| | — |
| | — |
| | 97 |
| | — |
| | 19,899 |
|
Crude oil | — |
| | 232,297 |
| | — |
| | — |
| | — |
| | 232,297 |
|
Other sales (1) | 818 |
| | — |
| | 6 |
| | 64 |
| | 8,674 |
| | 9,562 |
|
| | | | | | | | | | | |
Services: | | | | | | | | | | | |
Gathering and processing | 18,713 |
| | — |
| | — |
| | 2,274 |
| | — |
| | 20,987 |
|
Transportation | 248 |
| | 7,214 |
| | 19,269 |
| | 18,890 |
| | — |
| | 45,621 |
|
Terminalling and storage | — |
| | — |
| | — |
| | — |
| | 23,983 |
| | 23,983 |
|
Other services (2) | 968 |
| | 877 |
| | 244 |
| | 8,960 |
| | 1,101 |
| | 12,150 |
|
Revenues from contracts with customers | $ | 85,185 |
| | $ | 240,388 |
| | $ | 31,629 |
| | $ | 35,380 |
| | $ | 33,758 |
| | $ | 426,340 |
|
_________________________
(1) Other commodity sales for our Terminalling Services segment include sales of Refined Products and Marine Products terminals. See Note 4 - Acquisitions and Dispositions.
(2) Other services in our Offshore Pipelines and Services segment include asset management services.
Other Items in Revenue
The following table presents the reconciliation of our revenues from contracts with customers to segment revenues and total revenues as disclosed in our Condensed Consolidated Statements of Operations (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 |
| Gas Gathering and Processing Services | | Liquid Pipelines and Services | | Natural Gas Transportation Services | | Offshore Pipelines and Services | | Terminalling Services | | Total |
Revenues from contracts with customers | $ | 49,509 |
| | $ | 120,617 |
| | $ | 15,567 |
| | $ | 18,519 |
| | $ | 16,360 |
| | $ | 220,572 |
|
Loss on commodity derivatives, net | (294 | ) | | (61 | ) | | — |
| | — |
| | — |
| | (355 | ) |
Total revenues of reportable segments | $ | 49,215 |
| | $ | 120,556 |
| | $ | 15,567 |
| | $ | 18,519 |
| | $ | 16,360 |
| | $ | 220,217 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 |
| Gas Gathering and Processing Services | | Liquid Pipelines and Services | | Natural Gas Transportation Services | | Offshore Pipelines and Services | | Terminalling Services | | Total |
Revenues from contracts with customers | $ | 85,185 |
| | $ | 240,388 |
| | $ | 31,629 |
| | $ | 35,380 |
| | $ | 33,758 |
| | $ | 426,340 |
|
Loss on commodity derivatives, net | (292 | ) | | (4 | ) | | — |
| | — |
| | — |
| | (296 | ) |
Total revenues of reportable segments | $ | 84,893 |
| | $ | 240,384 |
| | $ | 31,629 |
| | $ | 35,380 |
| | $ | 33,758 |
| | $ | 426,044 |
|
We may utilize derivatives instruments in connection with contracts with customers. We purchase and take title to a portion of the NGLs and crude oil that we sell, which may expose us to changes in the price of these products in our sales markets. We do not take title to the natural gas we transport and therefore have no direct commodity price exposure to natural gas. Derivative gains or losses are not included as a component of revenue from contracts with customers, but it is included in other items in revenue.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Contract Balances
Our contract assets and liabilities primarily relate to contracts where allocations of the transaction prices result in differences to the pattern and timing of revenue recognition as compared to contractual billings. Where payments are received in advance of recognition as revenue, contract liabilities are created. Where we have earned revenue and our right to invoice the customer is conditioned on something other than the passage of time, contract assets are created.
The following table presents the change in the contract assets and liability balances during the six months ended June 30, 2018 (in thousands):
|
| | | | | | | |
| Contract Assets | | Contract Liabilities |
Balance at December 31, 2017 | $ | — |
| | $ | 2,136 |
|
Topic 606 implementation | 2,555 |
| | 13,246 |
|
Amounts recognized as revenue | — |
| | (1,463 | ) |
Additions | 4,681 |
| | 2,661 |
|
Contract balances included in assets/liabilities held for sale | — |
| | (690 | ) |
Balance at June 30, 2018 | $ | 7,236 |
| | $ | 15,890 |
|
| | | |
Current | $ | 252 |
| | $ | 1,194 |
|
Noncurrent | 6,984 |
| | 14,696 |
|
Balance at June 30, 2018 | $ | 7,236 |
| | $ | 15,890 |
|
As of June 30, 2018, in our Condensed Consolidated Balance Sheets, the current portion of contract assets is included as a component of Accounts Receivable, net of allowance for doubtful accounts, the noncurrent portion is included in Other assets, net; the current portion of contract liabilities is included in Accrued expenses and other current liabilities and the noncurrent portion is included in Other long-term liabilities.
Remaining Performance Obligations
The Partnership applies the practical expedients in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. The following table as of June 30, 2018, represents only revenue expected to be recognized from contracts where the price and quantity of the product or service are fixed:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Gathering and processing based on minimum volume commitments | $ | 6,165 |
| | $ | 12,738 |
| | $ | 12,738 |
| | $ | 12,715 |
| | $ | 12,461 |
| | $ | 19,116 |
| | $ | 75,933 |
|
Transportation agreements | 11,232 |
| | 20,163 |
| | 19,225 |
| | 19,029 |
| | 18,943 |
| | 193,731 |
| | 282,323 |
|
Terminalling and storage throughput agreements | 7,070 |
| | 12,896 |
| | 6,204 |
| | 2,694 |
| | 1,582 |
| | — |
| | 30,446 |
|
Other | 846 |
| | 1,648 |
| | 1,560 |
| | — |
| | — |
| | — |
| | 4,054 |
|
Total(1) | $ | 25,313 |
| | $ | 47,445 |
| | $ | 39,727 |
| | $ | 34,438 |
| | $ | 32,986 |
| | $ | 212,847 |
| | $ | 392,756 |
|
_________________________
(1) Includes consideration for remaining performance obligations associated with assets held-for-sale.
Due to the application of the practical expedients, the table above represents only a portion of the Partnership’s expected future consolidated revenues and it is not necessarily indicative of the expected trend in total revenues for the Partnership. Certain contracts do not meet the requirements for presentation in the table above due to the term being one year or less and due to variability in the amount of performance obligation remaining, variability in the timing of recognition or variability in consideration. Acreage dedications do require us to perform future services but do not contain a minimum level of services and are therefore excluded from this presentation. Long-term supply and logistics arrangements contain variable timing, volumes and/or consideration and are excluded from this presentation.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(4) Acquisitions and Dispositions
Acquisitions
The 2017 acquisitions are as follows:
| |
• | 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 exchange. As both we and JPE were controlled by ArcLight affiliates, the acquisition represented a transaction among entities under common control. The accompanying condensed consolidated financial statements and related notes present the combined financial position, results of operations, cash flows and equity of JPE at historical cost. |
| |
• | On June 2, 2017, we acquired 100% of Viosca Knoll Gathering System (“VKGS”) from Genesis Energy, L.P. for total consideration of approximately $32.0 million in cash. This was accounted for as a business combination. |
| |
• | On August 8, 2017, we acquired 100% of the interest in Panther Offshore Gathering Systems, LLC (“POGS”), Panther Pipeline, LLC (“PPL”) and Panther Operating Company, LLC (“POC” and, together with POGS and PPL, “Panther”) from Panther Asset Management LLC for approximately $60.9 million in cash, issuance of common units and other considerations. This was accounted for as a business combination. |
| |
• | On November 3, 2017, we completed the acquisition of 100% of the equity interests in Trans-Union Interstate Pipeline, LP (“Trans-Union”) from affiliates of ArcLight, for a total consideration of approximately $49.4 million. The consideration consisted of approximately $16.9 million cash funded from borrowings under our revolving credit facility and the assumption of $32.5 million of non-recourse debt. This was accounted for as an acquisition between entities under common control. |
Additionally, we acquired the following interests in 2017 that are accounted for as investments in unconsolidated affiliates:
| |
• | On August 8, 2017, we entered into a new joint venture agreement with Targa Midstream Services, LLC (“Targa”) by which our previously wholly owned subsidiary Cayenne Pipeline, LLC became the Cayenne joint venture between Targa and us. |
| |
• | On September 29, 2017, we acquired an additional 15.5% equity interest in Class A units of the Delta House platform (“Delta House”) from affiliates of ArcLight for total cash consideration of approximately $125.4 million. |
| |
• | On October 27, 2017, American Midstream Emerald, LLC, a wholly-owned subsidiary of the Partnership, entered into a purchase and sale agreement with Emerald Midstream, LLC, an ArcLight affiliate, to purchase an additional 17.0% equity interest in Destin for total cash consideration of $30.0 million. |
For further discussion, see the Note 3 - Acquisitions in our 2017 Form 10-K. The proforma effects of 2017 acquisitions were not material to our Condensed Consolidated Statements of Operations and therefore have not been presented separately.
Planned Dispositions
Assets Held for Sale
In the second quarter of 2017, we began executing a capital optimization strategy to simplify our business and redeploy capital from non-core assets toward higher return and growth opportunities. In addition to the sale of our propane business (“Propane Business”) discussed below under Discontinued Operations, we determined that the terminalling assets were not integral to our core strategies; therefore, we began contemplating their disposition. We actively began marketing our Terminalling Services segment assets to use the proceeds to fund future acquisitions and growth projects.
In the first half of 2018, we entered into definitive agreements for the sale of the following businesses:
| |
• | On February 16, 2018, we entered into a definitive agreement for the sale of our refined products terminals (the “Refined Products”) to DKGP Energy Terminals LLC (“DKGP”), for approximately $138.5 million in cash, subject to working capital adjustments. During June 2018, we were notified that the Federal Trade Commission was requesting additional information and documentary materials with respect to the planned sale. We are continuing to market the Refined Products terminals. We continue to present the assets and liabilities of the Refined Products as held for sale. See Note 22 - Subsequent Events for additional information regarding the sale of Refined Products. |
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
| |
• | On June 16, 2018, we entered into a definitive agreement for the sale of our marine liquids terminals (the “Marine Products”) to institutional investors for approximately $210.0 million in cash, subject to working capital adjustments. The divestiture of the Marine Products, including the Harvey and Westwego terminals located in the Port of New Orleans and the Brunswick terminal located in the Port of Brunswick in Georgia, is a continuation of the Partnership's previously announced non-core asset divestiture program. Accordingly, we have presented the Marine Products assets and liabilities as held for sale as of June 30, 2018. See Note 22 - Subsequent Events for additional information regarding the sale of Marine Products. |
The planned dispositions of the Refined Products and Marine Products terminals do not meet the criteria for discontinued operations, as we believe the sale of Refined Products and Marine Products will not significantly impact our results of operations or financial condition. As of June 30, 2018, certain remaining assets in the Terminalling Services segment do not meet the criteria to be classified as held for sale.
Included in the disposal groups are the following assets and liabilities at June 30, 2018 (in thousands):
|
| | | | | | | | | | | |
| Refined Products | | Marine Products | | |
| Business(1) | | Business(2) | | Total |
| | | | | |
Cash and cash equivalents | $ | — |
| | $ | 364 |
| | $ | 364 |
|
Accounts receivable, net | 1,834 |
| | 2,521 |
| | 4,355 |
|
Inventory | 506 |
| | 31 |
| | 537 |
|
Other current assets | 213 |
| | 144 |
| | 357 |
|
Property, plant and equipment, net | 32,332 |
| | 84,661 |
| | 116,993 |
|
Goodwill | 61,163 |
| | 16,262 |
| | 77,425 |
|
Intangible assets | 29,403 |
| | — |
| | 29,403 |
|
Other non-current assets | 692 |
| | 3 |
| | 695 |
|
Total assets held for sale | $ | 126,143 |
| | $ | 103,986 |
| | $ | 230,129 |
|
| | | | |
|
|
Accounts payable | $ | 44 |
| | $ | 152 |
| | $ | 196 |
|
Accrued gas purchases | 72 |
| | — |
| | 72 |
|
Accrued expenses and other current liabilities | 991 |
| | 406 |
| | 1,397 |
|
Other long-term liabilities | 572 |
| | — |
| | 572 |
|
Total liabilities held for sale | $ | 1,679 |
| | $ | 558 |
| | $ | 2,237 |
|
_________________________
(1)Net income from continuing operations before income taxes for the Refined Products Business were as follows:
| |
• | $4.3 million and $1.6 million for the three months ended June 30, 2018 and 2017, respectively; and |
| |
• | $6.7 million and $3.4 million for the six months ended June 30, 2018 and 2017, respectively. |
(2)Net income from continuing operations before income taxes for the Marine Products Business were as follows:
| |
• | $3.5 million and $2.5 million for the three months ended June 30, 2018 and 2017, respectively; and |
| |
• | $5.1 million and $5.2 million for the six months ended June 30, 2018 and 2017, respectively. |
Discontinued Operations
On September 1, 2017, we completed the disposition of our Propane Business pursuant to the Membership Interest Purchase Agreement dated July 21, 2017, between AMID Merger LP, a wholly owned subsidiary of the Partnership, and SHV Energy N.V. Through the transaction, we divested Pinnacle Propane’s 40 service locations; Pinnacle Propane Express’ cylinder exchange business and related logistics assets; and the Alliant Gas utility system. Prior to the sale, we moved the trucking business from the Propane Marketing Services segment to the Liquid Pipelines and Services segment. With the disposition of the Propane Business, we eliminated the Propane Marketing Services segment.
In connection with the transaction, we received approximately $170.0 million in cash, net of customary closing adjustments. We recorded a gain of $47.4 million, net of $2.5 million of transaction costs, which was included in (Gains) losses on sale of assets
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
and business in our Condensed Consolidated Statement of Operations in the period ended September 30, 2017. We have reported the accounts and the results of our Propane Business as discontinued operations in our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017.
Summarized financial information related to the Propane Business is set forth in the tables below (in thousands):
|
| | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2017 | | 2017 |
Total revenue | $ | 31,603 |
| | $ | 67,157 |
|
Total operating expenses | 33,402 |
| | 69,707 |
|
Operating loss | (1,799 | ) | | (2,550 | ) |
Other income | 42 |
| | 83 |
|
Income tax expense | (44 | ) | | (44 | ) |
Loss from discontinued operations | $ | (1,801 | ) | | $ | (2,511 | ) |
|
|
| | |
Depreciation and amortization | $ | 3,687 |
| | $ | 7,468 |
|
Capital expenditures | $ | 1,302 |
| | $ | 2,421 |
|
| | | |
Operating non-cash items | | | |
Unrealized loss on derivative contracts, net | $ | (60 | ) | | $ | (961 | ) |
(5) Inventory
Inventory consists of the following (in thousands):
|
| | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
Crude oil | | $ | 2,184 |
| | $ | 1,553 |
|
NGLs | | 357 |
| | 347 |
|
Refined products | | — |
| | 934 |
|
Materials, supplies and equipment | | 120 |
| | 132 |
|
Total inventory | | $ | 2,661 |
| | $ | 2,966 |
|
(6) Other Current Assets
Other current assets consist of the following (in thousands):
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Prepaid expenses | $ | 7,196 |
| | $ | 8,944 |
|
Insurance receivables | 881 |
| | 1,741 |
|
Due from related parties | 6,773 |
| | 4,362 |
|
Other receivables | 8,801 |
| | 5,187 |
|
Risk management assets | 6,919 |
| | 3,186 |
|
Total other current assets | $ | 30,570 |
| | $ | 23,420 |
|
(7) 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.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Commodity Derivatives
To manage the impact of the risks associated with changes in the market price of NGL, crude oil and refined products in our day-to-day business, 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 commodity is delivered. In accordance with ASC 815, Derivatives and Hedging, if it is determined that a transaction designated as NPNS no longer meets the scope of the 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 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, 2018 and December 31, 2017, none of which were designated as hedges for accounting purposes.
|
| | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
Commodity Swaps | | Volume | | Maturity | | Volume | | Maturity |
NGLs Fixed Price (gallons) | | 2,188,200 | | January 2019 | | — | | — |
Interest Rate Swaps
To manage the impact of the interest rate risk associated with our Credit Agreement, as defined in Note 13 - 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.
As of June 30, 2018, and December 31, 2017, we had a combined notional principal amount of $550.0 million respectively of variable-to-fixed interest rate swap agreements. As of June 30, 2018, the maximum length of time over which we have hedged a portion of our exposure due to interest rate risk is through December 31, 2022.
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 service providers, and we have made no adjustments to those prices.
Weather Derivative
In the second quarters of 2018 and 2017, we entered into a yearly weather derivative arrangement to mitigate the impact of potential unfavorable weather on our operations under which we could receive payments totaling up to $20.0 million and $30.0 million, respectively, in the event that a hurricane of certain strength passes through the areas identified in the derivative agreement. The weather derivative, which is accounted for using the intrinsic value method, was entered into with a single counterparty, and we were not required to post collateral.
We paid $1.0 million and $1.1 million in premiums during the three and six months ended June 30, 2018 and 2017, respectively. Premiums are amortized to Direct operating expenses on a straight-line basis over the one-year term of the contract. Unamortized amounts associated with the weather derivatives were approximately $0.9 million and $0.5 million as of June 30, 2018 and December 31, 2017, respectively, and are included in Other current assets on the Condensed Consolidated Balance
Sheets.
American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Financial Instruments Measured at Fair Value on a Recurring Basis - The following table summarizes the fair values of our derivative contracts (before netting adjustments) included in the Condensed Consolidated Balance Sheets (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | Asset Derivatives | | Liability Derivatives |
Type | Balance Sheet Classification | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 |
Commodity derivatives | Accrued expenses and other current liabilities | | $ | — |
| | $ | — |
| | $ | (240 | ) | | $ | — |
|
| | | | | | | | | |
Interest rate swaps | Other current assets | | 5,970 |
| | 2,677 |
| | — |
| | — |
|
Interest rate swaps | Other assets net | | 11,605 |
| | 8,807 |
| | — |
| | — |
|
| | | | | | | | | |
Weather derivatives | Other current assets | | 949 |
| | 509 |
| | — |
| | — |
|
| Total | | $ | 18,524 |
| | $ | 11,993 |
| | $ | (240 | ) | | $ | — |
|
As of June 30, 2018, and December 31, 2017, there were no offsets to the fair value of our derivative assets and liabilities on a gross basis in the Condensed Consolidated Balance Sheets, subject to enforceable master netting arrangements.
For each of the three and six months ended June 30, 2018 and 2017, the realized and unrealized gains (losses) associated with our commodity, interest rate and weather derivative instruments were recorded in our 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 |
2018 | | | | | | | |
Loss on commodity derivatives, net | $ | (174 | ) | | $ | (181 | ) | | $ | (56 | ) | | $ | (240 | ) |
Interest expense | 1,285 |
| | 920 |
| | 2,635 |
| | 6,091 |
|
Direct operating expenses | (272 | ) | | — |
| | (550 | ) | | — |
|
Total gain on derivatives recognized in net loss | $ | 839 |
| | $ | 739 |
| | $ | 2,029 |
| | $ | 5,851 |
|
2017 | | | | | | | |
Gains (losses) on commodity derivatives, net | $ | 192 |
| | $ | 7 |
| | $ | 613 |
| | $ | (49 | ) |
Interest expense | — |
| | (1,693 | ) | | (70 | ) | | (2,010 | ) |
Direct operating expenses | (218 | ) | | — |
| | (475 | ) | | — |
|
Total (loss) gain on derivatives recognized in net loss | $ | (26 | ) | | $ | (1,686 | ) | | $ | 68 |
| | $ | (2,059 | ) |
Fair Value
Financial Instruments Not Measured at Fair Value on a Recurring Basis - The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017. Short-term and long-term debt are recorded at amortized cost in the Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | | | | | | | |
| | | | June 30, 2018 | | December 31, 2017 |
| | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Non-Derivatives | | | | | | | | |
| Liabilities | | | | | |