NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Emerge Energy Services LP (“Emerge”) is a Delaware limited partnership that completed its initial public offering (“IPO”) on May 14, 2013 to become a publicly traded partnership. The combined entities of Superior Silica Sands LLC (“SSS”), a Texas limited liability company and Emerge Energy Services Operating LLC (“Emerge Operating”), a Delaware limited liability company, currently represent Emerge.
References to the “Partnership,” “we,” “our” or “us” refer collectively to Emerge and all of its subsidiaries.
We are a growth-oriented energy services company engaged in the business of mining, producing, and distributing silica sand that is a key input for the hydraulic fracturing of oil and gas wells. The Sand business conducts mining and processing operations from facilities located in Wisconsin and Texas. In addition to mining and processing silica sand for the oil and gas industry, the Sand business sells its product for use in building products and foundry operations.
We previously owned a fuel business that operated transmix processing facilities located in the Dallas-Fort Worth area and in Birmingham, Alabama. The Fuel business also offered third-party bulk motor fuel storage and terminal services, biodiesel refining, sale and distribution of wholesale motor fuels, reclamation services (which consists primarily of cleaning bulk storage tanks used by other petroleum terminal and others) and blending of renewable fuels.
We completed the sale of our Fuel business pursuant to an Amended and Restated Purchase and Sale Agreement, dated August 31, 2016 (the “Restated Purchase Agreement”), with Susser Petroleum Operating Company LLC and Sunoco LP (together, “Sunoco”). Sunoco paid Emerge a purchase price of
$167.7 million
in cash (subject to certain working capital and other adjustments in accordance with the terms of the Restated Purchase Agreement), of which
$14.25 million
was placed into several escrow accounts to satisfy potential claims from Sunoco for indemnification under the Restated Purchase Agreement. See Note 3 to our Condensed Consolidated Financial Statements for further discussion.
The results of operations of the Fuel business have been classified as discontinued operations for all periods presented. We now operate our continuing business in a single sand segment. We report silica sand operations as our continuing operations and fuel operations as our discontinued operations.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2016 Annual Report on Form 10-K. These financial statements include the accounts of all of our subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications do not impact net income and do not reflect a material change in the information previously presented in our Condensed Consolidated Statements of Operations.
2.
ASSET ACQUISITION
On April 12, 2017, we closed the transaction to acquire substantially all of the assets of Materials Holding Company, Inc., Osburn Materials, Inc., Osburn Sand Co. and South Lehr, Inc. (collectively “Osburn Materials”) for
$20 million
. The transaction was funded with a new
$40 million
term loan. Osburn Materials is located approximately 25 miles south of San Antonio, Texas and produced and sold construction, foundry and sports sands, but did not serve the energy markets. We upgraded the existing operations for conversion into frac sand sales and commenced frac sand production in July 2017. San Antonio’s current sand reserves, which consists mostly of 40/70 and 100 mesh sands, meets American Petroleum Institute (“API”) specifications for all grades.
We early adopted the provisions of ASC 805, Business Combinations and Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
, in accounting for this transaction. Under this guidance, if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets, the transaction
can be accounted for as an asset purchase. Based on our analysis of the transaction, substantially all of the fair value is concentrated in the sand reserves acquired, and thus we accounted for the transaction as an asset purchase.
Significant judgment is often required in estimating the fair values of assets acquired. We engaged a third-party valuation specialist in estimating fair values of the assets acquired. We used our best estimates and assumptions to allocate the cost of the acquisition to the assets acquired on a relative fair value basis at the acquisition date. The fair value estimates are based on available historical information and on expectations and assumptions about the future production and sales volumes, market demands, the average selling price of sand, and the discount factor used in estimating future cash flows. While we believe those expectations and assumptions are reasonable, they are inherently uncertain. Transaction costs of
$434,000
incurred for the acquisition are capitalized as a component of the cost of the assets acquired.
The assets acquired have been included in our consolidated balance sheets as of
September 30, 2017
and are depreciated and depleted according to the policies described in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
3.
DISCONTINUED OPERATIONS
At March 31, 2016, the assets and liabilities of our Fuel business were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented in accordance with ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
The following corporate costs were allocated to discontinued operations for all periods presented:
|
|
•
|
Interest on the revolver was allocated to the discontinued operations based on the allocation of debt between Sand and Fuel business.
|
|
|
•
|
Equity-based compensation costs recognized for the Fuel business employees were allocated to discontinued operations.
|
|
|
•
|
The taxes paid on behalf of the Fuel business were compiled by review of prior tax filings and payments. These amounts were allocated to discontinued operations.
|
|
|
•
|
General corporate overhead costs were not allocated to discontinued operations.
|
Summarized results of the discontinued operations for the three and
nine
months ended
September 30, 2017
and
2016
are as follows :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Revenues (1)
|
$
|
—
|
|
|
$
|
67,095
|
|
|
$
|
—
|
|
|
$
|
249,558
|
|
|
Cost of goods sold (excluding depreciation, depletion and amortization) (1)
|
—
|
|
|
63,481
|
|
|
—
|
|
|
233,025
|
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
2,354
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
(211
|
)
|
|
—
|
|
|
3,581
|
|
|
Interest expense, net
|
—
|
|
|
444
|
|
|
—
|
|
|
1,727
|
|
|
Other expenses
|
468
|
|
|
—
|
|
|
3,125
|
|
|
—
|
|
|
Income from discontinued operations before provision for income taxes
|
(468
|
)
|
|
3,381
|
|
|
(3,125
|
)
|
|
8,871
|
|
|
Provision for income taxes
|
—
|
|
|
8
|
|
|
—
|
|
|
19
|
|
|
Income (loss) from discontinued operations, net of taxes
|
(468
|
)
|
|
3,373
|
|
|
(3,125
|
)
|
|
8,852
|
|
|
Gain on sale of discontinued operations
|
—
|
|
|
31,699
|
|
|
—
|
|
|
31,699
|
|
|
Total income (loss) from discontinued operations, net of taxes
|
$
|
(468
|
)
|
|
$
|
35,072
|
|
|
$
|
(3,125
|
)
|
|
$
|
40,551
|
|
|
|
|
|
|
|
|
|
|
|
(1) Fuel revenues and cost of goods sold include excise taxes and similar taxes:
|
$
|
—
|
|
|
$
|
9,168
|
|
|
$
|
—
|
|
|
$
|
35,656
|
|
|
On August 31, 2016, we completed the sale of our Fuel business pursuant to the terms of the Restated Purchase Agreement. The purchase price was
$167.7 million
, subject to adjustment based on actual working capital conveyed at closing. The following escrow accounts were established at closing:
|
|
•
|
$7 million
of the sales price was withheld as a general escrow associated with certain indemnification obligations. Any unutilized escrow balance, plus any accrued interest thereon, will be paid
54 months
from the closing date.
|
|
|
•
|
$4 million
of the sales price was withheld as a hydrotreater escrow to satisfy any cost overruns of the Birmingham hydrotreater completion. During the
nine
months ended
September 30, 2017
, we wrote off the entire receivable relating to hydrotreator completion delays and cost overruns. This non-cash charge is included in Other expenses in our results of discontinued operations.
|
|
|
•
|
$2.25 million
of the sales price was withheld as the Renewable Fuel Standard escrow account. The entire amount, along with interest thereon, was collected in April 2017.
|
|
|
•
|
$1 million
of the sales price was withheld as a pipeline escrow account. Any unutilized escrow balance, along with any accrued interest thereon, will be released with the general escrow.
|
Escrow receivables are recorded at the net present values of estimated future recoveries and will be adjusted as contingencies are resolved.
The following table represents the gain on sale from the Fuel business recognized in the third quarter of 2016 (in thousands).
|
|
|
|
|
|
Purchase price
|
$
|
167,736
|
|
|
Adjustments:
|
|
|
Working capital true-up
|
3,398
|
|
|
Other adjustments
|
(2,911
|
)
|
|
General escrow
|
(7,000
|
)
|
|
Hydrotreater escrow
|
(4,000
|
)
|
|
Other escrow
|
(3,250
|
)
|
|
Net proceeds
|
153,973
|
|
|
Less:
|
|
|
Net book value of assets and liabilities sold
|
(125,317
|
)
|
|
Escrow receivable
|
10,597
|
|
|
Transaction costs including commissions
|
(7,679
|
)
|
|
Other receivables
|
125
|
|
|
Gain on sale of Fuel business
|
$
|
31,699
|
|
|
4.
OTHER FINANCIAL DATA
Private Placement
On August 8, 2016, we entered into the Purchase Agreement with the Purchaser to issue and sell to the Purchaser in a private placement an aggregate principal amount of
$20 million
of our Series A Preferred Units and a Warrant that may be exercised to purchase common units representing limited partner interests in the Partnership.
The first half of the Preferred Units converted into
993,049
common units on November 3, 2016 and the second half converted to
985,222
common units on February 15, 2017.
We also issued to the Purchaser a warrant to purchase approximately
890,000
common units at an exercise price of
$10.82
per common unit. The Warrant, which expires on August 16, 2022, was exercisable immediately upon issuance and contains a cashless exercise provision and other customary provisions and protections, including anti-dilution protections. This warrant is classified as a liability in accordance with ASC 480,
Distinguishing Liabilities from Equity,
and is included in Other long-term liabilities on our Condensed Consolidated Balance Sheets. This warrant has not been exercised as of
September 30, 2017
.
Public Offering
In November 2016, we completed a public offering of
3,400,000
of our common units at a price of
$10.00
per unit and granted the underwriters an option to purchase up to an additional
510,000
common units, which the underwriter exercised in full. The offering closed on November 23, 2016. We received proceeds (net of underwriting discounts and offering expenses) from the offering of approximately
$36.9 million
. The net proceeds from this offering were used to repay outstanding borrowings under our revolving Credit Agreement.
Allowance for Doubtful Accounts
We had
no
allowance for doubtful accounts at
September 30, 2017
. The allowance for doubtful accounts totaled
$3.1 million
at
December 31, 2016
.
Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Sand work in process
|
$
|
15,132
|
|
|
$
|
7,597
|
|
|
Sand finished goods
|
11,474
|
|
|
9,631
|
|
|
Sand raw materials and supplies
|
262
|
|
|
229
|
|
|
Total
|
$
|
26,868
|
|
|
$
|
17,457
|
|
|
During the first quarter of 2016, we wrote down
$5.4 million
of our sand inventory based on our lower of cost or market analysis. We attributed this write-down to declining market conditions and a significant decline in prices.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Prepaid lease assets, current
|
$
|
2,562
|
|
|
$
|
3,408
|
|
|
Prepaid insurance
|
684
|
|
|
826
|
|
|
Escrow receivable, current
|
—
|
|
|
5,253
|
|
|
Other
|
2,290
|
|
|
1,887
|
|
|
Total
|
$
|
5,536
|
|
|
$
|
11,374
|
|
|
Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Machinery and equipment (1)
|
$
|
95,395
|
|
|
$
|
90,035
|
|
|
Buildings and improvements (1)
|
66,190
|
|
|
66,190
|
|
|
Land and improvements (1)
|
45,567
|
|
|
45,065
|
|
|
Mineral reserves
|
49,090
|
|
|
30,181
|
|
|
Construction in progress
|
3,989
|
|
|
1,878
|
|
|
Capitalized reclamation costs
|
2,521
|
|
|
2,445
|
|
|
Total cost
|
262,752
|
|
|
235,794
|
|
|
Accumulated depreciation and depletion
|
84,344
|
|
|
70,310
|
|
|
Net property, plant and equipment
|
$
|
178,408
|
|
|
$
|
165,484
|
|
|
(1) Includes assets under capital lease
We classified
$292,000
and
$371,000
as assets held for sale as of
September 30, 2017
and
December 31, 2016
.
We recognized
$14.1 million
and
$13.1 million
of depreciation and depletion expense for the
nine
months ended
September 30, 2017
and
2016
, respectively. Depreciation and depletion expense for continuing operations totaled
$12.2 million
for the nine months ended
September 30, 2016
.
Intangible Assets
Our intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
September 30, 2017:
|
|
|
|
|
|
|
Patents
|
$
|
7,443
|
|
|
$
|
5,439
|
|
|
$
|
2,004
|
|
|
Supply and transportation agreements
|
569
|
|
|
198
|
|
|
371
|
|
|
Non-compete agreement
|
100
|
|
|
32
|
|
|
68
|
|
|
Total
|
$
|
8,112
|
|
|
$
|
5,669
|
|
|
$
|
2,443
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
Patents
|
$
|
7,443
|
|
|
$
|
3,195
|
|
|
$
|
4,248
|
|
|
Supply and transportation agreements
|
569
|
|
|
112
|
|
|
457
|
|
|
Non-compete agreement
|
100
|
|
|
24
|
|
|
76
|
|
|
Total
|
$
|
8,112
|
|
|
$
|
3,331
|
|
|
$
|
4,781
|
|
|
We recognized
$2.3 million
and
$3.8 million
of amortization expense for the
nine
months ended
September 30, 2017
and
2016
, respectively.
Amortization expense for continuing operations totaled
$2.3 million
for the
nine
months ended
September 30, 2016
.
Other Assets, Net
Other assets, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Deferred lease asset (1)
|
$
|
8,788
|
|
|
$
|
8,826
|
|
|
Prepaid lease assets, net of current portion (2)
|
7,827
|
|
|
8,616
|
|
|
Escrow receivable, non-current (3)
|
5,596
|
|
|
5,459
|
|
|
Other
|
2,888
|
|
|
2,429
|
|
|
Total
|
$
|
25,099
|
|
|
$
|
25,330
|
|
|
|
|
(1)
|
During 2016, we completed negotiations with various railcar lessors pursuant to which we terminated future orders of railcars, deferred future railcar deliveries and reduced and deferred payments on existing leases. The cost of deferring future railcar deliveries was recorded as a deferred lease asset. This asset will be amortized over the terms of the associated leases as those railcars enter service.
|
|
|
(2)
|
The cost to transport leased railcars from the manufacturer to our site for initial placement in service is capitalized and amortized over the term of the lease (typically
five
to
seven
years). This balance reflects the non-current portion of these capitalized costs.
|
|
|
(3)
|
Non-current receivables are recorded at net present value of estimated recoveries and will be adjusted as contingencies are resolved. See Note 3 - Discontinued Operations.
|
Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Sand purchases and royalties
|
$
|
4,214
|
|
|
$
|
517
|
|
|
Salaries and other employee-related
|
3,296
|
|
|
710
|
|
|
Fuel sale related liabilities
|
2,474
|
|
|
2,784
|
|
|
Current portion of business acquisition obligations
|
1,646
|
|
|
1,703
|
|
|
Mining
|
1,614
|
|
|
227
|
|
|
Sales, excise, property and income taxes
|
1,207
|
|
|
136
|
|
|
Deferred compensation
|
848
|
|
|
848
|
|
|
Accrued interest
|
660
|
|
|
641
|
|
|
Current portion of contract termination
|
210
|
|
|
160
|
|
|
Logistics
|
175
|
|
|
1,814
|
|
|
Other
|
1,506
|
|
|
2,089
|
|
|
Total
|
$
|
17,850
|
|
|
$
|
11,629
|
|
|
Other Long-term Liabilities
Other long-term liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Long-term promissory note
|
$
|
9,139
|
|
|
$
|
8,480
|
|
|
Deferred lease obligation (1)
|
8,383
|
|
|
5,858
|
|
|
Contract and project terminations
|
5,314
|
|
|
5,319
|
|
|
Warrants
|
3,807
|
|
|
7,019
|
|
|
Asset retirement obligation
|
2,779
|
|
|
2,647
|
|
|
Other
|
—
|
|
|
1,000
|
|
|
Total
|
$
|
29,422
|
|
|
$
|
30,323
|
|
|
|
|
(1)
|
We recognize lease expense for operating leases on a straight-line basis over the term of the lease, beginning on the date we take possession of the property. The difference between the cash paid to the lessor and the amount recognized as lease expense on a straight-line basis is included in deferred lease obligation.
|
Long-term Promissory Note
During the second quarter of 2016, we negotiated significant concessions on the majority of our railcar leases pursuant to which we cancelled or deferred deliveries on rail cars and reduced cash payments on a substantial portion of the existing rail cars in our fleets. In exchange for these concessions, we issued at par an unsecured promissory note in the aggregate principal amount of
$8 million
(the “PIK Note”) for delivery deferrals. The PIK Note bears interest at a rate of
10%
per annum payable in cash or, in certain situations, in-kind, when certain financial metrics have been met. The PIK Note will mature on June 2, 2020. We also issued warrants to purchase
370,000
common units representing limited partnership interests in the Partnership in exchange for these concessions during the second quarter of 2016.
Contract and Project Terminations
During 2016, we negotiated concessions on the majority of our railcar leases pursuant to which we cancelled or deferred deliveries on rail cars and reduced cash payments on a substantial portion of the existing rail cars in our fleets. In exchange for these concessions, we incurred a contract termination charge of
$4 million
. We issued at par an unsecured promissory note in the aggregate principal amount of
$4 million
with interest payable in cash or, in certain situations, in-kind, when certain financial metrics have been met. This note bears interest at a rate of
five percent
per annum and is due and payable within
30 days
following the date on which financial statements are publicly available covering the first date on which these financial metrics have been met.
The following table illustrates the various contract termination liabilities and exit and disposal reserves included in Accrued liabilities and Other long-term liabilities in our Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
($ in thousands)
|
|
Balance at December 31, 2016
|
$
|
5,479
|
|
|
Accretion
|
130
|
|
|
Payments
|
(85
|
)
|
|
Balance at September 30, 2017
|
$
|
5,524
|
|
|
Mining and Wet Sand Processing Agreement
In April 2014, a
five
-year contract with a sand processor (“Processor”) became effective to support our Sand business in Wisconsin. In January 2015, the agreement was amended and extended to expire on December 31, 2021. Under this contract, the Processor financed and built a wet wash processing plant near our Wisconsin operations. As part of the agreement, the Processor wet washes our sand, creates stockpiles of washed sand and maintains the plant and equipment. During the term of the agreement the Processor will own the wet plant along with the equipment and other temporary structures used to support this activity. At the end of the agreement, or following a default under the contract by the Processor, we have the right to take ownership of the wet plant and other equipment without charge. Subject to certain conditions, ownership of the plant and equipment will transfer to us at the expiration of the term. We accounted for the wet plant as a capital lease obligation. The original capitalized lease asset and corresponding capital lease obligation totaled
$3.3 million
. As of
September 30, 2017
, we do not have any liability for capital lease obligation.
Fair Value Measurements
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt instruments. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are representative of their fair values due to their short maturities. The carrying amounts of our revolving credit facility approximates fair value because the underlying instrument includes provisions that adjust our interest rates based on current market rates.
The fair values of our other long-term liabilities are not materially different from their carrying values.
On June 2, 2016, we issued warrants to lessors to purchase
370,000
common units representing limited partnership interests in the partnership for concessions on various long-term leases. These warrants may be exercised at any time and from time to time during next
five years
, at an exercise price per common unit equal to
$4.77
. The fair value of these warrants was calculated at
$2.45
per unit based on a Black Scholes valuation model, utilizing Level 2 inputs based on the hierarchy established in ASC 820,
Fair Value Measurement.
These warrants are included in Partners' Equity on our Condensed Consolidated Balance Sheets.
On August 8, 2016, we, as part of the private placement described above, also issued a warrant to the Purchaser to purchase approximately
890,000
common units at an exercise price of
$10.82
per common unit. This Warrant shall be exercisable for a period of
six years
from the closing date and include customary provisions and protections, including anti-dilution protections. The fair value of this warrant at issuance date was calculated at
$5.56
per unit based on a Black Scholes valuation model, utilizing Level 2 inputs based on the hierarchy established in ASC 820,
Fair Value Measurement.
This liability is marked to market each quarter with fair value gains and losses recognized immediately in earnings and included in Other income (expense) on our Consolidated Statements of Operations. The warrant liability was
$3.8 million
and
$7.0 million
at
September 30, 2017
and
December 31, 2016
, respectively, and we recorded a gain of
$0.9 million
and
$3.2 million
during the three and nine months ended
September 30, 2017
, respectively.
Retirement Plan
We sponsor a 401(k) plan for substantially all employees that provides for us to match
100%
of participant contributions up to
5%
of the participant’s pay. Additionally, we can make discretionary contributions as deemed appropriate by management.
As of May 1, 2017, we reestablished the employer 401(k) contributions, which was previously suspended on July 1, 2016. Employer contributions to these plans for continuing operations totaled
$253,481
and
$177,000
for the
nine
months ended
September 30, 2017
and
2016
, respectively. Employer contributions for discontinued operations were
$118,000
for the
nine
months ended
September 30, 2016
.
Seasonality
Winter weather affects the months during which we can wash and wet-process sand in Wisconsin. Seasonality is not a significant factor in determining our ability to supply sand to our customers because we accumulate a stockpile of wet sand feedstock during non-winter months. During the winter, we process the stockpiled sand to meet customer requirements. However, we sell sand for use in oil and natural gas production basins where severe weather conditions may curtail drilling activities. This is particularly true in drilling areas located in the northern U.S. and western Canada. If severe winter weather precludes drilling activities, our
frac sand sales volume may be adversely affected. Generally, severe weather episodes affect production in the first quarter with effects possibly continuing into the second quarter.
Concentration of Credit Risk
We provide credit, in the normal course of business, to customers located throughout the United States and Canada. We encounter a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. We perform ongoing credit evaluations of our customers and generally do not require collateral. The trade receivables (as a percentage of total trade receivables) as of
September 30, 2017
and
December 31, 2016
from such significant customers are set forth below:
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Customer A
|
17
|
%
|
|
15
|
%
|
|
Customer B
|
13
|
%
|
|
22
|
%
|
|
Customer C
|
12
|
%
|
|
13
|
%
|
|
Customer D
|
12
|
%
|
|
*
|
|
|
An asterisk indicates trade receivables are less than ten percent.
Significant customers
The table shows the percent of revenue of our significant customers for our continuing operations represented for the
nine
months ended
September 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Customer B
|
21
|
%
|
|
43
|
%
|
|
Customer C
|
17
|
%
|
|
*
|
|
|
Customer D
|
10
|
%
|
|
*
|
|
|
Customer E
|
*
|
|
|
13
|
%
|
|
An asterisk indicates revenue is less than ten percent.
Geographical Data
Although we own
no
long-term assets outside the United States, our Sand business began selling product in Canada during 2013. We recognized
$15.9 million
and
$11.2 million
of revenues in Canada for the
nine
months ended
September 30, 2017
and
2016
, respectively. All other sales have occurred in the United States.
Recent Accounting Pronouncements
In May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, ASU 2015-14,
Revenue from Contracts with Customers, Deferral of the Effective Date
, and ASU 2016-12,
Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients
, respectively, as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual periods beginning after December 15, 2017 with early adoption permitted on January 1, 2017 and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We have certain contractual arrangements that include "take-or-pay" provisions. The fixed fees to which we have an unconditional right under these contracts could be subject to certain recognition changes and additional disclosure under ASU 2014-09. We hired an independent consultant to assist us in our assessment of our contracts. This assessment is substantially complete and we are in a position to state that this ASU will not have a significant impact on our financial position and results of operations. We are still assessing the impact on financial disclosures related to the new standard. During the remainder of 2017, we will continue our implementation process and develop any necessary policies. We will adopt this guidance in the first quarter of 2018.
In February 2016, the FASB issued ASU 2016-02,
Leases.
This ASU requires lessees to recognize lease assets and lease liabilities generated by contracts longer than a year on their balance sheets. The ASU also requires companies to disclose in the footnotes to their financial statements information about the amount, timing, and uncertainty for the payments they make for the lease agreements. ASU 2016-02 is effective for public companies for annual periods and interim periods within those annual periods beginning after December 31, 2018. Early adoption is permitted for all entities. We currently have significant long-term operating leases for rail cars and transload facilities. Pursuant to the adoption, we will record substantial liabilities and corresponding assets for these leases. While we are not yet in a position to assess the full impact of the application of this ASU, we expect that the impact of recording the lease liabilities and the corresponding additional assets will have a significant impact on our financial position and results of operations and related disclosures in the notes to our consolidated financial statements.
5.
LONG-TERM DEBT
Following is a summary of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Revolving credit facility - principal
|
$
|
146,503
|
|
|
$
|
140,701
|
|
|
Second lien term loan - principal
|
40,000
|
|
|
—
|
|
|
Less: Deferred financing costs, net
|
(7,365
|
)
|
|
(6,689
|
)
|
|
Total debt
|
179,138
|
|
|
134,012
|
|
|
Less current portion net of unamortized deferred financing costs
|
(22,048
|
)
|
|
—
|
|
|
Long-term debt
|
$
|
157,090
|
|
|
$
|
134,012
|
|
|
Revolving Credit Facility
On June 27, 2014, we entered into an amended and restated revolving credit and security agreement (as amended, the “Credit Agreement”) among Emerge Energy Services LP, as parent guarantor, each of its subsidiaries, as borrowers (the “Borrowers”), and PNC Bank, National Association, as administrative agent and collateral agent (the “agent”), and the lenders thereto. The Credit Agreement matures on June 27, 2019 and, after giving effect to the amendments described below, consists of a
$190 million
revolving credit facility, which included a sub-limit of up to
$20 million
for letters of credit, and incurs interest at a rate equal to either, at our option, LIBOR plus
5.00%
or the base rate plus
4.00%
. We also incur a commitment fee of
0.375%
on committed amounts that are neither used for borrowings nor under letters of credit. Substantially all of the assets of the Borrowers are pledged as collateral under the Credit Agreement.
On August 31, 2016, we closed the sale of the Fuel business, used the net proceeds therefrom to repay outstanding borrowings under the Credit Agreement and entered into Amendment No. 11 to the Credit Agreement with the Borrowers, the lenders and the agent. Amendment No. 11, among other things, restated the Credit Agreement and provided a full waiver for all defaults or events of default arising out of our failure to comply with the financial covenant to generate minimum amounts of adjusted EBITDA during the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016 and the covenant to maintain the minimum amount of excess availability for any date prior to September 1, 2016.
Pursuant to Amendment No. 11, the Credit Agreement now requires the Partnership to maintain the following financial covenants:
|
|
•
|
a covenant to maintain
$15 million
of excess availability (as defined in the Credit Agreement);
|
|
|
•
|
a covenant to limit capital expenditures (as defined in the Credit Agreement) to certain maximum amounts for each quarter through March 31, 2019;
|
|
|
•
|
beginning with the quarter ending June 30, 2017, a covenant to generate consolidated EBITDA (as defined in the Credit Agreement) in certain minimum amounts;
|
|
|
•
|
beginning with the quarter ending March 31, 2018, a covenant to maintain an interest coverage ratio (as defined in the Credit Agreement) of not less than
2.00
to 1.00, which is scheduled to increase to
3.00
to 1.00 for the fiscal quarter ending March 31, 2019; and
|
|
|
•
|
a covenant to raise at least
$31.2 million
of net proceeds from the issuance and sale of common equity by November 30, 2016, which was satisfied by our underwritten sale of common units which closed on November 23, 2016.
|
In addition, the Credit Agreement also prohibits us from making cash distributions to our unitholders and requires all cash receipts by us and our subsidiaries to be swept on a daily basis and used to reduce outstanding borrowings under the Credit Agreement.
On April 12, 2017, the Partnership entered into Amendment No. 12 to the Credit Agreement. The amendment permits the Partnership and the Borrowers to enter into the Second Lien Term Loan Agreement and to reduce commitments under the revolving credit facility to
$190 million
, and further reducing on a quarterly basis to
$125 million
for the quarter beginning January 1, 2019. Accordingly, we classified
$22.0 million
of our total debt as current liability at
September 30, 2017
.
Second Lien Term Loan Agreement
On April 12, 2017, we entered into a new
$40 million
second lien senior secured term loan facility with our wholly-owned subsidiaries Emerge Energy Services Operating LLC and Superior Silica Sands LLC, as borrowers (the “Borrowers”) and U.S. Bank National Association as disbursing agent and collateral agent (the “Second Lien Term Loan Agreement”). The Second Lien Term Loan Agreement matures on April 12, 2022. Proceeds of the new term credit facility were used to (i) pay down a portion of our existing revolving credit facility, (ii) fund the asset acquisition described in Note 2, (iii) pay fees and expenses incurred in connection with the new term credit facility and (iv) for general business purposes. Substantially all of our assets are pledged as collateral on a second lien basis under the Second Lien Term Loan Agreement.
The Second Lien Term Loan Agreement contains various covenants and restrictive provisions and also requires the maintenance of certain financial covenants as follows:
|
|
•
|
beginning with the fiscal quarter ending March 31, 2018, an interest coverage ratio of not less than
1.70
:1.00 increasing quarterly thereafter to
2.55
:1.00 for the fiscal quarter ending March 31, 2019 and thereafter;
|
|
|
•
|
beginning with the fiscal quarter ending June 30, 2017, a minimum EBITDA of not less than
$637,500
for such fiscal quarter, increasing quarterly to
$50 million
for the four fiscal quarter period ending June 30, 2019 and thereafter; and
|
|
|
•
|
minimum excess availability of at least
$12.75 million
so long as the Revolving Credit Agreement remains in effect.
|
Loans under the Second Lien Term Loan Agreement will bear interest at the Partnership’s option at either the base rate plus
9.00%
, or LIBOR plus
10.00%
.
Covenants Compliance
At
September 30, 2017
, we were in compliance with our loan covenants and had undrawn availability under the Credit Agreement totaling
$27.8 million
, well above the minimum availability required under our current covenants. At
September 30, 2017
, our outstanding borrowings under the Credit Agreement bore interest at a weighted-average rate of
8.21%
and the borrowings under the Second Lien Term Loan Agreement bore interest at a rate of
11.3%
.
6.
RELATED PARTY TRANSACTIONS
Related party transactions included in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations for continuing operations are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Wages and employee-related costs (1)
|
$
|
13,338
|
|
|
$
|
7,467
|
|
|
Wages and employee-related costs for discontinued operations for
September 30, 2016
were
$5.9 million
.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Accounts receivable
|
$
|
334
|
|
|
$
|
371
|
|
|
Accounts payable and accrued liabilities
|
$
|
402
|
|
|
$
|
436
|
|
|
|
|
(1)
|
We do not have any employees. Our general partner manages our human resource assets, including fringe benefits and other employee-related charges. We routinely and regularly reimburse our general partner for any employee-related costs paid on our behalf, and report such costs as operating expenses.
|
7.
EQUITY-BASED COMPENSATION
Effective May 14, 2013, we adopted our 2013 Long-Term Incentive Plan (the “LTIP”) for providing long-term incentives for employees, directors, and consultants who provide services to us. The LTIP provides for the issuance of an aggregate of up to
2,321,968
common units to be granted either as options, restricted units, phantom units, distribution equivalent rights, unit appreciation rights, unit award, profits interest units, or other unit-based award granted under the plan. All of our outstanding grants will be settled through issuance of limited partner common units.
For remaining phantom units granted to employees in 2013, we currently assume a
55
-month vesting period, which represents management’s estimate of the amount of time until all vesting conditions have been met. For other phantom units granted to employees, we assume a
24
to
36
-month vesting period. Restricted units are awarded to our independent directors on each anniversary of our IPO, each with a vesting period of
one
year. Regarding distributions for independent directors and other employees, distributions are credited to a distribution equivalent rights account for the benefit of each participant and become payable generally within
45
days following the date of vesting. As of
September 30, 2017
, the unpaid liability for distribution equivalent rights totaled
$0.8 million
.
In 2017, we granted
31,750
time-based phantom units to certain officers and employees to vest in equal installments on each anniversary date of the grant over a period of
two
to
three years
.
The following table summarizes awards granted during the
nine
months ended
September 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Units
|
|
Phantom
Units
|
|
Restricted
Units
|
|
Fair Value per Unit
at Award Date
|
|
Outstanding at December 31, 2016
|
289,607
|
|
|
213,851
|
|
|
75,756
|
|
|
$
|
13.09
|
|
|
Granted
|
54,791
|
|
|
31,750
|
|
|
23,041
|
|
|
$
|
12.76
|
|
|
Vested
|
(95,896
|
)
|
|
(20,140
|
)
|
|
(75,756
|
)
|
|
$
|
12.95
|
|
|
Forfeitures
|
(12,000
|
)
|
|
(12,000
|
)
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding at September 30, 2017
|
236,502
|
|
|
213,461
|
|
|
23,041
|
|
|
$
|
15.84
|
|
|
For the
nine
months ended
September 30, 2017
and
2016
, we recorded non-cash equity-based compensation expense of
$1.0 million
and
$0.5 million
, respectively, in selling, general and administrative expenses. Non-cash equity-based compensation expense for continuing operations was
$0.1
million for the
nine
months ended
September 30, 2016
.
As of
September 30, 2017
, the unrecognized compensation expense related to the grants discussed above amounted to
$1.3 million
to be recognized over a weighted average of
0.65 years
.
8.
INCOME TAXES
Continuing operations
Our provision for income taxes for continuing operations relates to: (i) Texas margin taxes for the Partnership, and (ii) an insignificant amount of Canadian income taxes on SSS earnings in Canada (most of our earnings are exempted under a U.S/Canada tax treaty). For federal income tax purposes, we report our income, expenses, gains, and losses as a partnership not subject to income taxes. As such, each partner is responsible for his or her share of federal and state income tax. Net earnings for financial statement purposes may differ significantly from taxable income reportable to each partner because of differences between the tax basis and financial reporting basis of assets and liabilities.
The composition of our provision for income taxes for continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Texas margin tax
|
$
|
(58
|
)
|
|
$
|
28
|
|
|
Canadian income tax
|
—
|
|
|
1
|
|
|
Total provision for income taxes
|
$
|
(58
|
)
|
|
$
|
29
|
|
|
We are responsible for our portion of the Texas margin tax that is included in our subsidiaries’ consolidated Texas franchise tax returns. For our operations in Texas, the effective margin tax rate is approximately
0.375%
as defined by applicable state law. The margin tax qualifies as an income tax under Generally Accepted Accounting Principles (GAAP), which requires us to recognize
the impact of this tax on the temporary differences between the financial statement assets and liabilities and their tax basis attributable to such tax.
9.
EARNINGS PER COMMON UNIT
We compute basic earnings (loss) per unit by dividing net income (loss) by the weighted-average number of common units outstanding including certain participating securities. Participating securities include unvested equity-based payment awards that contain rights to distributions, as well as convertible preferred units and warrants that contain contractual rights to participate in any distributions that are declared. It is our policy to exclude convertible preferred units and warrants from the calculation of basic earnings (loss) per unit in periods of net losses from continuing operations since these securities are not contractually obligated to share in losses.
Diluted earnings per unit is computed by dividing net income by the weighted-average number of common units outstanding, including participating securities, and increased further to include the number of common units that would have been outstanding had potential dilutive units been exercised. The dilutive effect of restricted units is reflected in diluted net income per unit by applying the treasury stock method. For periods in which warrants are dilutive, we reverse the income effects of the warrants and include incremental units in our computation of diluted earnings per unit. Under FASB ASC 260-10-45,
Contingently Issuable Shares
,
93,806
of our outstanding phantom units are not included in basic or diluted earnings per common unit calculations as of
September 30, 2017
and
2016
.
Basic and diluted earnings per unit for the three months ended
September 30, 2017
is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
Discontinued
|
|
Consolidated
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except per unit data)
|
|
Net income (loss) used to compute earnings (loss) per common unit, basic and diluted
|
$
|
5,482
|
|
|
$
|
(29,955
|
)
|
|
$
|
(468
|
)
|
|
$
|
35,072
|
|
|
$
|
5,014
|
|
|
$
|
5,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding
|
30,150,915
|
|
|
24,159,038
|
|
|
30,150,915
|
|
|
24,159,038
|
|
|
30,150,915
|
|
|
24,159,038
|
|
|
Weighted average units deemed participating securities
|
119,657
|
|
|
—
|
|
|
119,657
|
|
|
—
|
|
|
119,657
|
|
|
—
|
|
|
Weighted average number of common units outstanding - basic
|
30,270,572
|
|
|
24,159,038
|
|
|
30,270,572
|
|
|
24,159,038
|
|
|
30,270,572
|
|
|
24,159,038
|
|
|
Add incremental units from assumed exercise of warrants
|
130,012
|
|
|
—
|
|
|
130,012
|
|
|
—
|
|
|
130,012
|
|
|
—
|
|
|
Weighted average number of common units outstanding - diluted
|
30,400,584
|
|
|
24,159,038
|
|
|
30,400,584
|
|
|
24,159,038
|
|
|
30,400,584
|
|
|
24,159,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per unit, basic
|
$
|
0.19
|
|
|
$
|
(1.24
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.45
|
|
|
$
|
0.17
|
|
|
$
|
0.21
|
|
|
Earnings (loss) per unit, diluted
|
$
|
0.18
|
|
|
$
|
(1.24
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.45
|
|
|
$
|
0.16
|
|
|
$
|
0.21
|
|
|
Basic and diluted earnings per unit for the nine months ended
September 30, 2017
is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
Discontinued
|
|
Consolidated
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except per unit data)
|
|
Net income (loss) used to compute earnings (loss) per common unit, basic
|
$
|
(9,333
|
)
|
|
$
|
(92,546
|
)
|
|
$
|
(3,125
|
)
|
|
$
|
40,551
|
|
|
$
|
(12,458
|
)
|
|
$
|
(51,995
|
)
|
|
Unrealized (gain) loss on fair value of warrant
|
(3,212
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,212
|
)
|
|
—
|
|
|
Net income (loss) used to compute earnings (loss) per common unit, diluted
|
$
|
(12,545
|
)
|
|
$
|
(92,546
|
)
|
|
$
|
(3,125
|
)
|
|
$
|
40,551
|
|
|
$
|
(15,670
|
)
|
|
$
|
(51,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding, basic
|
30,120,216
|
|
|
24,136,642
|
|
|
30,120,216
|
|
|
24,136,642
|
|
|
30,120,216
|
|
|
24,136,642
|
|
|
Add incremental units from assumed exercise of warrants
|
62,875
|
|
|
—
|
|
|
62,875
|
|
|
—
|
|
|
62,875
|
|
|
—
|
|
|
Weighted average number of common units outstanding - diluted
|
30,183,091
|
|
|
24,136,642
|
|
|
30,183,091
|
|
|
24,136,642
|
|
|
30,183,091
|
|
|
24,136,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per unit, basic
|
$
|
(0.31
|
)
|
|
$
|
(3.82
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
1.67
|
|
|
$
|
(0.41
|
)
|
|
$
|
(2.15
|
)
|
|
Earnings (loss) per unit, diluted
|
$
|
(0.42
|
)
|
|
$
|
(3.82
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
1.67
|
|
|
$
|
(0.52
|
)
|
|
$
|
(2.15
|
)
|
|
10.
RECURRING FAIR VALUE MEASUREMENTS
We follow FASB ASC 820,
Fair Value Measurement
, which defines fair value, establishes a framework for measuring fair value, and specifies disclosures about fair value measurements. This guidance establishes a hierarchy for disclosure of the inputs to valuations used to measure fair value. The hierarchy prioritizes the inputs into three broad levels as follows.
|
|
•
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 inputs are measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources.
|
Our valuation models consider various inputs including (a) mark to market valuations, (b) time value and, (c) credit worthiness of valuation of the underlying measurement.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The following table shows the
three
interest rate swap agreements we entered into during 2013 to manage interest rate risk associated with our variable rate borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement Date
|
|
Effective Date
|
|
Maturity Date
|
|
Notional Amount
|
|
Fixed Rate
|
|
Variable Rate
|
|
Nov. 1, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$25,000,000
|
|
1.33200%
|
|
1 Month LIBOR
|
|
Nov. 7, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$25,000,000
|
|
1.25500%
|
|
1 Month LIBOR
|
|
Nov. 21, 2013
|
|
Oct. 14, 2014
|
|
Oct. 16, 2017
|
|
$20,000,000
|
|
1.21875%
|
|
1 Month LIBOR
|
|
The Fuel business utilized financial hedging arrangements whereby we hedged a portion of our gasoline and diesel inventory, which reduced our commodity price exposure on some of our activities. The derivative commodity instruments we utilized consisted mainly of futures traded on the New York Mercantile Exchange. Following the sale of the Fuel business, we have
no
open commodity derivative contracts.
We do not designate our derivative instruments as hedges under GAAP. As a result, we recognize derivatives at fair value on the consolidated balance sheet with resulting gains and losses reflected in interest expense (for interest rate swap agreements). The resulting gains and losses for the Fuel business were recorded to cost of goods sold for discontinued operations (for derivative commodity instruments), as reported in the condensed consolidated statements of operations. Our derivative instruments serve the same risk management purpose whether designated as a hedge or not. We derive fair values principally from published market interest rates and fuel price quotes (Level 2 inputs). The precise level of open position commodity derivatives is dependent on inventory levels, expected inventory purchase patterns, and market price trends. We do not use derivative financial instruments for trading or speculative purposes.
On August 8, 2016, we, as part of the private placement described above, issued a warrant to the Purchaser to purchase approximately
890,000
common units at an exercise price of
$10.82
per common unit. The warrant shall be exercisable for a period of
six
years from the closing date and include customary provisions and protections, including anti-dilution protections. The fair value of this warrant at issuance date was calculated at
$5.56
per unit based on a Black Scholes valuation model, utilizing Level 2 inputs based on the hierarchy established in ASC 820, Fair Value Measurement. This liability is marked to market each quarter with fair value gains and losses recognized immediately in earnings and included in Other expense (income) on our Consolidated Statements of Operations. We recorded non-cash mark-to-market gains of $
0.9 million
and
$3.2 million
during the
three and nine
months ended
September 30, 2017
.
The fair values of outstanding derivative instruments and warrant and their classifications within our Condensed Consolidated Balance Sheets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Classification
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
Interest rate swaps
|
$
|
2
|
|
|
$
|
227
|
|
|
Accrued liabilities
|
|
Warrant liability
|
$
|
3,807
|
|
|
$
|
7,019
|
|
|
Other long-term liabilities
|
|
The effect of derivative instruments, none of which has been designated for hedge accounting, on our Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Classification
|
|
|
|
|
|
|
|
|
|
|
((income) expense $ in thousands)
|
|
Interest rate swaps
|
$
|
2
|
|
|
$
|
(129
|
)
|
|
$
|
(62
|
)
|
|
434
|
|
Interest expense, net
|
Commodity derivative contracts
|
—
|
|
|
(144
|
)
|
|
—
|
|
|
557
|
|
Income from discontinued operations
|
Warrant
|
(900
|
)
|
|
2,975
|
|
|
(3,212
|
)
|
|
2,975
|
|
Other expense (income)
|
|
$
|
(898
|
)
|
|
$
|
2,702
|
|
|
$
|
(3,274
|
)
|
|
$
|
3,966
|
|
|
11.
SUPPLEMENTAL CASH FLOW DISCLOSURES
The following supplemental disclosures may assist in the understanding of our Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Cash paid for interest
|
$
|
10,934
|
|
|
$
|
14,550
|
|
|
Cash paid for income taxes, net of refunds
|
$
|
(22
|
)
|
|
$
|
228
|
|
|
Purchases of PP&E accrued but not paid at period-end
|
$
|
1,432
|
|
|
$
|
2,705
|
|
|
Purchases of PP&E accrued in a prior period and paid in the current period
|
$
|
170
|
|
|
$
|
3,364
|
|
|