Notes to Condensed Consolidated Financial Statements
(Unaudited)
Rice Midstream Partners LP (the “Partnership”) is a Delaware limited partnership formed by Rice Energy Inc. (“Rice Energy”) in August 2014. References in these unaudited condensed consolidated financial statements to Rice Energy refer collectively to “Rice Energy” and its consolidated subsidiaries, other than the Partnership and its consolidated subsidiaries.
The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared by the Partnership’s management in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments which are, in the opinion of management, necessary to present fairly the Partnership’s financial position as of
March 31, 2017
and
December 31, 2016
and its condensed consolidated statements of operations, cash flows and partners’ capital for the
three months ended March 31, 2017
and
2016
.
On September 26, 2016, the Partnership entered into a Purchase and Sale Agreement by and between the Partnership and Rice Energy (the “Midstream Purchase Agreement”). Pursuant to the terms of the Midstream Purchase Agreement, and following the close of Rice Energy’s acquisition of Vantage Energy, LLC and Vantage Energy II, LLC (collectively, “Vantage”) and their subsidiaries (the “Vantage Acquisition”), on October 19, 2016, the Partnership acquired from Rice Energy all of the outstanding membership interests of Vantage Energy II Access, LLC and Vista Gathering, LLC (the “Vantage Midstream Entities”). The Vantage Midstream Entities own midstream assets, including approximately
30
miles of dry gas gathering and compression assets and water assets. In consideration for the
acquisit
ion of the Vantage Midstream Entities (the “Vantage Midstream Asset Acquisition”), the Partnership paid Rice Energy
$600.0 million
in aggregate consideration, which the Partnership paid in cash with the net proceeds of its private placement of common units (the “2016 Private Placement”) of
$441.0 million
and borrowings under its revolving credit facility (defined in Note 3) of
$159.0 million
. The preliminary purchase price allocation ascribed approximately
$144.6 million
to property and equipment and
$455.4 million
to goodwill. The Partnership’s acquisition of the Vantage Midstream Entities from Rice Energy is accounted for as a combination of entities under common control at historical cost. As the Vantage Midstream Asset Acquisition occurred concurrently with the Vantage Acquisition, no predecessor period existed which would warrant retrospective recast of our financial statements. In connection with the Vantage Midstream Asset Acquisition, the Partnership acquired a
67.5%
interest in the Wind Ridge gathering system previously owned by Access Midstream Partners for approximately
$14.3 million
, of which
$10.9 million
was ascribed to property and equipment and
$3.4 million
to goodwill.
The preliminary purchase price allocation was performed by Rice Energy. Rice Energy expects to complete the purchase price allocation once it has received all of the necessary information, during which time the value of the assets may be revised as appropriate. The fair values of the assets acquired were determined using various valuation techniques, including the cost approach. The assumed purchase price and fair values have been prepared with the assistance of external specialists, and represent Rice Energy’s best estimate of the fair values of the assets acquired as of this date. Goodwill of
$455.4 million
related to the value attributed to additional growth opportunities, synergies and operating leverage within the Partnership’s gathering and compression segment.
Post-Acquisition Operating Results
The Vantage Midstream Entities contributed the following to the Partnership’s consolidated operating results for the three months ended
March 31, 2017
.
|
|
|
|
|
|
(in thousands)
|
|
|
Operating revenues
|
|
$
|
12,180
|
|
Net income
|
|
$
|
7,694
|
|
Unaudited Pro Forma Information
The following unaudited pro forma combined financial information presents the Partnership’s results as though the acquisition of the Vantage Midstream Entities and the 2016 Private Placement had been completed at January 1, 2016.
|
|
|
|
|
|
|
|
Pro Forma
|
(in thousands, except per share data)
|
|
Three Months Ended March 31, 2016
|
Operating revenues
|
|
$
|
73,150
|
|
Limited partner net income
|
|
$
|
45,088
|
|
Earnings per common unit (basic)
|
|
$
|
0.49
|
|
Earnings per common unit (diluted)
|
|
$
|
0.49
|
|
Earnings per subordinated units
|
|
$
|
0.49
|
|
On
December 22, 2014
,
Rice Midstream OpCo LLC, the Partnership’s wholly-owned subsidiary (“Rice Midstream OpCo”), e
ntered into a revolving credit agreement
(as amended, the “revolving credit facility”)
with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders.
As of
March 31, 2017
, the revolving credit facility provided for lender commitments of
$850.0 million
, with an additional
$200.0 million
of commitments available under an accordion feature, subject to lender approval. As of
March 31, 2017
,
Rice Midstream OpCo
had
$190.0 million
borrowings outstanding and
no
letters of credit outstanding under this facility, resulting in availability of
$660.0 million
as of
March 31, 2017
. The average daily outstanding balance of the credit facility was approximately
$190.0 million
and interest was incurred on the facility at a weighted average annual interest rate of
2.8%
during the
three months ended March 31, 2017
. The revolving credit facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions, to repurchase units and for general partnership purposes. The Partnership and its restricted subsidiaries are the guarantors of the obligations under the revolving credit facility, which matures on
December 22, 2019
.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Rice Midstream OpCo may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. The carrying amount of the revolving credit facility is comprised of borrowings for which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximates fair value as of March 31, 2017 and represents a Level 1 measurement. Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The Partnership’s revolving credit facility also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the revolving credit facility to be immediately due and payable. The Partnership was in compliance with such covenants and ratios effective as of
March 31, 2017
.
Interest paid in cash was approximately
$1.9 million
for the
three months ended March 31, 2017
.
|
|
4.
|
Commitments and Contingencies
|
From time to time the Partnership is party to various legal and/or regulatory proceedings arising in the ordinary course of business. While the ultimate outcome and impact to the Partnership cannot be predicted with certainty, the Partnership believes that all such matters are without merit and involve amounts which, if resolved unfavorably, either individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows.
Lease Obligations
The Partnership has lease obligations for compression equipment under existing contracts with third parties. Rent expense included in operation and maintenance expense for the
three months ended March 31, 2017
and 2016 was
$0.4 million
and
$0.4 million
, respectively. Future payments for this equipment as of
March 31, 2017
totaled
$4.7 million
(remainder of 2017:
$1.1 million
; 2018:
$1.2 million
; 2019:
$1.2 million
; 2020:
$0.6 million
; 2021:
$0.3 million
and thereafter:
$0.3 million
).
Water Assets Conveyance
In consideration for the acquisition of Rice Energy’s Pennsylvania and Ohio fresh water distribution systems and related facilities (the “Water Assets”), the Partnership paid Rice Energy
$200.0 million
in cash plus an additional amount, if certain of the conveyed systems’ capacities increased by
5.0
MMgal/d on or prior to December 31, 2017, equal to
$25.0 million
less the capital expenditures expended by the Partnership to achieve such increase, in accordance with the terms of the Purchase and Sale Agreement, by and between the Partnership and Rice Energy dated November 4, 2015. The Partnership has not recorded a contingent liability associated with the additional consideration as the required capacity increases were not considered probable as of
March 31, 2017
.
The following table presents the Partnership’s common and subordinated units issued from January 1, 2016 through
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
|
Common
|
|
Subordinated
|
|
Total
|
Balance, January 1, 2016
|
42,163,749
|
|
|
28,753,623
|
|
|
70,917,372
|
|
Equity offering in June 2016
|
9,200,000
|
|
|
—
|
|
|
9,200,000
|
|
Equity offering in October 2016
|
20,930,233
|
|
|
—
|
|
|
20,930,233
|
|
Common units issued under ATM program
|
944,700
|
|
|
—
|
|
|
944,700
|
|
Vested phantom units, net
|
280,451
|
|
|
—
|
|
|
280,451
|
|
Balance, December 31, 2016
|
73,519,133
|
|
|
28,753,623
|
|
|
102,272,756
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
73,519,133
|
|
|
28,753,623
|
|
|
102,272,756
|
|
As of
March 31, 2017
, GP Holdings owned approximately
28%
of the Partnership consisting of
3,623
common units,
28,753,623
subordinated units and all of the incentive distribution rights.
|
|
6.
|
Net Income per Limited Partner Unit and Cash Distributions
|
The Partnership’s net income is allocated to the limited partners, including subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to the incentive distribution rights held by GP Holdings. The allocation of undistributed earnings, or net income in excess of distributions, to the incentive distribution rights is limited to cash available for distribution for the period. The Partnership’s net income allocable to the limited partners is allocated between common and subordinated unitholders by applying the provisions of the Partnership’s partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Any common units issued during the period are included on a weighted-average basis for the days in which they were outstanding.
Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the Rice Midstream Partners LP 2014 Long-Term Incentive Plan (the “LTIP Plan”), were exercised, settled or converted into common units. When it is determined that potential common units should be included in diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method.
The following table presents
Partnership’s
calculation of net income per limited partner unit for common and subordinated limited partner units.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands, except unit data)
|
2017
|
|
2016
|
Net income
|
$
|
37,615
|
|
|
$
|
34,426
|
|
Less: General partner interest in net income attributable to incentive distribution rights
|
1,239
|
|
|
—
|
|
Limited partner net income
|
$
|
36,376
|
|
|
$
|
34,426
|
|
|
|
|
|
Net income allocable to common units
|
$
|
26,149
|
|
|
$
|
20,468
|
|
Net income allocable to subordinated units
|
10,227
|
|
|
13,958
|
|
Limited partner net income
|
$
|
36,376
|
|
|
$
|
34,426
|
|
|
|
|
|
Weighted-average limited partner units outstanding - basic:
|
|
|
|
Common units
|
73,519,133
|
|
|
42,163,749
|
|
Subordinated units
|
28,753,623
|
|
|
28,753,623
|
|
Total
|
102,272,756
|
|
|
70,917,372
|
|
|
|
|
|
Weighted-average limited partner units outstanding - diluted:
|
|
|
|
Common units
(1)
|
73,542,881
|
|
|
42,387,313
|
|
Subordinated units
|
28,753,623
|
|
|
28,753,623
|
|
Total
|
102,296,504
|
|
|
71,140,936
|
|
|
|
|
|
Net income per limited partner unit - basic:
|
|
|
|
Common units
|
$
|
0.36
|
|
|
$
|
0.49
|
|
Subordinated units
|
0.36
|
|
|
0.49
|
|
Total
|
$
|
0.36
|
|
|
$
|
0.49
|
|
|
|
|
|
Net income per limited partner unit - diluted:
|
|
|
|
Common units
|
$
|
0.36
|
|
|
$
|
0.48
|
|
Subordinated units
(2)
|
0.36
|
|
|
0.49
|
|
Total
|
$
|
0.36
|
|
|
$
|
0.48
|
|
|
|
|
|
Cash distributions declared per limited partner unit:
(3)
|
|
|
|
Common units
|
$
|
0.2608
|
|
|
$
|
0.2100
|
|
Subordinated units
|
0.2608
|
|
|
0.2100
|
|
Total
|
$
|
0.2608
|
|
|
$
|
0.2100
|
|
|
|
(1)
|
Diluted weighted-average limited partner common units includes the effect of
23,748
units for the
three months ended March 31, 2017
, and
223,564
units for the
three months ended March 31, 2016
, in each case related to the LTIP Plan.
|
|
|
(2)
|
Basic and diluted income per limited partner unit is presented as if all earnings for the period had been distributed. While it appears that more income is allocated to the subordinated unitholders than the common unitholders for the three months ended March 31, 2016, our partnership agreement prevents us from making a distribution to the subordinated unitholders in excess of those to the common unitholders.
|
|
|
(3)
|
See below for further discussion of cash distributions declared for the period presented.
|
Within
60
days after the end of each quarter, it is the Partnership’s intent to distribute to the holders of common and subordinated units on a quarterly basis the minimum quarterly distribution of
$0.1875
per unit (or
$0.75
on an annualized basis) to the extent it has sufficient cash after the establishment of cash reserves and the payment of its expenses, including payments to its general partner and affiliates.
Subordinated Units
GP Holdings owns all of the Partnership’s subordinated units. The principal difference between the Partnership’s common units and subordinated units is that, for any quarter during the “subordination period,” holders of the subordinated units will not be entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. When the subordination period ends, each outstanding subordinated unit will convert into
one
common unit, which will then participate pro rata with the other common units in distributions.
Incentive Distribution Rights
All of the incentive distribution rights are held by GP Holdings. Incentive distribution rights represent the right to receive increasing percentages (
15%
,
25%
and
50%
) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels (described below) have been achieved.
For any quarter in which the Partnership has distributed cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum distribution, then the Partnership will distribute any additional available cash from operating surplus for that quarter among the unitholders and the incentive distribution rights holders in the following manner:
|
|
|
|
|
|
|
|
|
|
Marginal Percentage Interest in Distributions
|
|
Total Quarterly Distribution Per Unit
|
|
Unitholders
|
|
Incentive Distribution Rights Holders
|
Minimum Quarterly Distribution
|
$0.1875
|
|
100%
|
|
—%
|
First Target Distribution
|
above $0.1875 up to $0.2156
|
|
100%
|
|
—%
|
Second Target Distribution
|
above $0.2156 up to $0.2344
|
|
85%
|
|
15%
|
Third Target Distribution
|
above $0.2344 up to $0.2813
|
|
75%
|
|
25%
|
Thereafter
|
above $0.2813
|
|
50%
|
|
50%
|
On
February 16, 2017
, a cash distribution of
$0.2505
per common and subordinated unit was paid to the Partnership’s unitholders related to the fourth quarter of 2016. On
April 20, 2017
, the Board of Directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders for the first quarter of 2017 of
$0.2608
per common and subordinated unit. The cash distribution will be paid on
May 18, 2017
to unitholders of record at the close of business on
May 9, 2017
. Also on
May 18, 2017
, a cash distribution of
$1.2 million
will be made to GP Holdings related to its incentive distribution rights in the Partnership based upon the level of distribution paid per common and subordinated unit.
|
|
7.
|
Financial Information by Business Segment
|
The Partnership operates in
two
business segments: (i) gathering and compression and (ii) water services. The gathering and compression segment provides natural gas gathering and compression services for Rice Energy and third parties in the Appalachian Basin. The water services segment is engaged in the provision of water services to support well completion activities and to collect and recycle or dispose of flowback and produced water for Rice Energy and third parties in the Appalachian Basin.
Business segments are evaluated for their contribution to the Partnership’s consolidated results based on operating income, which is defined as segment operating revenues less operating expenses. Other income and expenses, interest and income taxes are managed on a consolidated basis. The segment accounting policies are the same as those described in Note 1 to the Partnership’s 2016 Annual Report.
The operating results and assets of the Partnership’s reportable segments were as follows for the
three months ended March 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
(in thousands)
|
Gathering and Compression
|
|
Water Services
|
|
Consolidated Total
|
Total operating revenues
|
$
|
42,002
|
|
|
$
|
20,748
|
|
|
$
|
62,750
|
|
Total operating expenses
|
11,465
|
|
|
10,689
|
|
|
22,154
|
|
Operating income
|
$
|
30,537
|
|
|
$
|
10,059
|
|
|
$
|
40,596
|
|
|
|
|
|
|
|
Depreciation expense
|
$
|
3,270
|
|
|
$
|
4,351
|
|
|
$
|
7,621
|
|
Capital expenditures for segment assets
|
$
|
26,621
|
|
|
$
|
1,885
|
|
|
$
|
28,506
|
|
Segment assets
|
$
|
1,281,567
|
|
|
$
|
133,984
|
|
|
$
|
1,415,551
|
|
Goodwill
|
$
|
494,580
|
|
|
$
|
—
|
|
|
$
|
494,580
|
|
The operating results of the Partnership’s reportable segments were as follows for the
three months ended March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
(in thousands)
|
Gathering and Compression
|
|
Water Services
|
|
Consolidated Total
|
Total operating revenues
|
$
|
26,800
|
|
|
$
|
27,743
|
|
|
$
|
54,543
|
|
Total operating expenses
|
7,691
|
|
|
11,235
|
|
|
18,926
|
|
Operating income
|
$
|
19,109
|
|
|
$
|
16,508
|
|
|
$
|
35,617
|
|
|
|
|
|
|
|
Depreciation expense
|
$
|
1,935
|
|
|
$
|
3,435
|
|
|
$
|
5,370
|
|
Capital expenditures for segment assets
|
$
|
34,861
|
|
|
$
|
1,382
|
|
|
$
|
36,243
|
|
The assets of the Partnership’s reportable segments were as follows as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
(in thousands)
|
Gathering and Compression
|
|
Water Services
|
|
Consolidated Total
|
Segment assets
|
$
|
1,260,681
|
|
|
$
|
138,536
|
|
|
$
|
1,399,217
|
|
Goodwill
|
$
|
494,580
|
|
|
$
|
—
|
|
|
$
|
494,580
|
|
The Partnership is not subject to federal and state income taxes as a result of its limited partner structure. For federal and state income tax purposes, all income, expenses, gains, losses and tax credits generated by the Partnership flow through to its unitholders. As such, the Partnership does not record a provision for income taxes in the current period. Prior to the Partnership’s initial public offering in December 2014 (the “IPO”), the Partnership’s income was included as part of Rice Energy’s consolidated federal tax return.
|
|
9.
|
Related Party Transactions
|
In the ordinary course of business, the Partnership has transactions with affiliated companies. During the
three months ended March 31, 2017
and
2016
, related parties included Rice Energy and certain of its subsidiaries. Prior to the IPO, the push-down impact of the transactions was recorded in the consolidated statements of operations, and, as no cash settlement occurred, all transactions with Rice Energy and its subsidiaries were recorded in parent net equity. On December 22, 2014, upon completion of the IPO, the Partnership entered into an omnibus agreement (the “Omnibus Agreement”) with its general partner, Rice Energy, Rice Poseidon Midstream LLC and Rice Midstream Holdings LLC. Pursuant to the Omnibus Agreement, Rice Energy performs centralized corporate and general and administrative services for the Partnership, such as financial and
administrative, information technology, legal, health, safety and environmental, human resources, procurement, engineering, business development, investor relations, insurance and tax. In exchange, the Partnership reimburses Rice Energy for the expenses incurred in providing these services, except for any expenses associated with Rice Energy’s long-term incentive programs.
The expenses for which the Partnership reimburses Rice Energy and its subsidiaries related to corporate and general and administrative services may not necessarily reflect the actual expenses that the Partnership would incur on a stand-alone basis. The Partnership is unable to estimate what the costs would have been with an unrelated third party.
Also upon completion of the IPO, the Partnership entered into a fixed-fee gas gathering and compression agreement that runs until December 22, 2029 (the “Gas Gathering and Compression Agreement”) with Rice Drilling B LLC, a subsidiary of Rice Energy, and Alpha Shale Resources LP, pursuant to which the Partnership gathers Rice Energy’s natural gas and provides compression services on the Partnership’s gathering systems located in Washington and Greene Counties, Pennsylvania. As of
March 31, 2017
, the Partnership charges Rice Energy a gathering fee of
$0.30
per Dth and a compression fee of
$0.07
per Dth per stage of compression, each subject to annual adjustment for inflation based on the Consumer Price Index. The Gas Gathering and Compression Agreement covers substantially all of Rice Energy’s acreage position in the dry gas core of the Marcellus Shale in southwestern Pennsylvania as of
March 31, 2017
and any future acreage it acquires within Washington and Greene Counties, Pennsylvania, excluding certain production subject to a pre-existing third-party dedication.
In connection with the closing of the acquisition of the Water Assets, the Partnership entered into amended and restated water services agreements with Rice Energy (the “Water Services Agreements”), whereby the Partnership has agreed to provide certain fluid handling services to Rice Energy, including the exclusive right to provide fresh water for well completions operations in the Marcellus and Utica Shales and to collect and recycle or dispose of flowback and produced water for Rice Energy within areas of dedication in defined service areas in Pennsylvania and Ohio. The initial terms of the Water Services Agreements are until December 22, 2029 and from month to month thereafter. Under the agreements, Rice Energy will pay the Partnership (i) a variable fee, based on volumes of water supplied, for freshwater deliveries by pipeline directly to the well site, subject to annual Consumer Price Index (“CPI”) adjustments and (ii) a produced water hauling fee of actual out-of-pocket cost incurred by the Partnership, plus a
2%
margin.
|
|
10.
|
New Accounting Pronouncements
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In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. The FASB created Topic 606 which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the Codification. The FASB and International Accounting Standards Board initiated this joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for both U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 will enhance comparability of revenue recognition practices across entities, industries and capital markets compared to existing guidance. Additionally, ASU 2014-09 will reduce the number of requirements which an entity must consider in recognizing revenue, as this update will replace multiple locations for guidance. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-11, “Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) – Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients.” These updates do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather provide further guidance with respect to the implementation of ASU 2014-09. The effective date for ASU 2016-10, 2016-11, 2016-12 and ASU 2014-09, as amended by ASU 2015-14, is for annual reporting periods beginning after December 15, 2017, including interim periods within those years. In preparation for the adoption of the new standard in the fiscal year beginning January 2018, the Partnership continues to evaluate contract terms and potential impacts of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract between two or more parties that creates legally enforceable rights and obligations exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company anticipates adopting the standard using the modified retrospective approach. The Partnership will be evaluating individual customer contracts within each of its business segments and documenting changes to its accounting policies and controls as it continues to evaluate the impact of adoption of this standard.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the
lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Partnership is currently evaluating a representative sample of agreements, including existing leases, to assess the impact of the new guidance on its financial statements.
In March 2016, FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 affects entities that issue share-based payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award transactions, including: (a) income tax consequences, (b) classification of awards as either equity or liabilities, (c) classification on the statement of cash flows and (d) forfeiture rate calculations. The Partnership adopted ASU 2016-09 on January 1, 2017 and determined that the standard did not have a material impact on the condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Partnership adopted this ASU on January 1, 2017, and has determined that the new ASU could potentially have a material impact on future consolidated financial statements for acquisitions that are not considered to be businesses.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test of Goodwill Impairment.” ASU 2017-04 simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill (Step 2 of the current goodwill impairment test). Instead, a company would record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value (measured in Step 1 of the current goodwill impairment test). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Entities will apply the standard’s provisions prospectively. The Partnership adopted ASU 2017-04 on January 1, 2017 and determined that this standard will not have a material quantitative effect on the financial statements in the future, unless an impairment charge is necessary.
On
April 20, 2017
, the Board of Directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders for the first quarter of 2017 of
$0.2608
per common and subordinated unit. The cash distribution will be paid on
May 18, 2017
to unitholders of record at the close of business on
May 9, 2017
. Also on
May 18, 2017
, a cash distribution of
$1.2 million
will be made to GP Holdings related to its incentive distribution rights in the Partnership based upon the level of distribution paid per common and subordinated unit.