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Description of Business and Summary of Significant Accounting Policies |
Description of Business
InfraREIT, Inc. is a Maryland corporation and the surviving corporation of a merger (Merger) with InfraREIT, L.L.C., a Delaware limited liability company, completed on February 4, 2015 in connection with the initial public offering (IPO) of InfraREIT, Inc. As used in these financial statements, unless the context requires otherwise or except as otherwise noted, the words “Company” and “InfraREIT” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership.
The Merger was accounted for as a reverse acquisition, which means for accounting purposes the Company treated the assets and liabilities of InfraREIT, Inc. as assumed and incorporated with the assets and liabilities of InfraREIT, L.L.C. The main assets and liabilities assumed were marketable securities of $1.1 million and a note payable of $1.0 million. The marketable securities were sold during February 2015 for $1.1 million resulting in a realized gain of $0.1 million which was recorded in other income (expense), net in the Consolidated Statements of Operations. Additionally, the note payable and associated interest were paid in full in February 2015.
Before the IPO, substantially all of the Company’s business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. InfraREIT, L.L.C. was organized on November 23, 2010 as a Delaware limited liability company that elected and qualified under the Internal Revenue Code of 1986, as amended (the Code), to be taxed as a real estate investment trust (REIT) for federal income tax purposes. InfraREIT, L.L.C. was the general partner of the Operating Partnership prior to the Merger and held a controlling financial investment in InfraREIT LP. After the Merger, InfraREIT, Inc. became the general partner of the Operating Partnership. InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, these financial statements present the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. The operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and the balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.
InfraREIT, L.L.C. was owned by Marubeni Corporation (Marubeni), John Hancock Life Insurance Company (U.S.A.), Teachers Insurance and Annuity Association of America, OpTrust Infrastructure N.A. Inc. (OpTrust) (collectively, founding investors) as well as Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary (Westwood Trust), and other private investors. Since the IPO, InfraREIT, Inc. has been owned by external investors as well as the founding investors, affiliates of Hunt Consolidated, Inc. (HCI) and other private investors.
The Company is externally managed and advised by Hunt Utility Services, LLC (Hunt Manager), a Delaware limited liability company. Hunt Manager is responsible for overseeing the Company’s day-to-day affairs.
The Company holds 71.9% of the outstanding partnership units (OP Units) in the Operating Partnership as of December 31, 2015 and is its general partner. The Company includes the accounts of the Operating Partnership and its subsidiaries in the consolidated financial statements. MC Transmission Holdings, Inc. (MC Transmission), which is a subsidiary of Marubeni Corporation (Marubeni), seven members of the Company’s board of directors and affiliates of HCI hold the other 28.1% of the outstanding OP Units as of December 31, 2015.
Sharyland Distribution & Transmission Services, L.L.C. (SDTS) is the owner of electric transmission and distribution assets (T&D assets) located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). Previously, SDTS held some of its assets through its former wholly owned subsidiaries, SDTS FERC, L.L.C. (SDTS FERC) and Sharyland Projects, L.L.C. (SPLLC). However in June 2015, SDTS FERC were merged with and into SDTS with SDTS as the surviving entity, and in December 2015, SPLLC was merged with and into SDTS with SDTS as the surviving entity (SDTS Merger).
The T&D assets include over 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 megawatt (MW) high-voltage direct current interconnection between Texas and Mexico (Railroad DC Tie). SDTS leases the T&D assets to Sharyland Utilities, L.P. (Sharyland or tenant), a Texas based utility, under several lease agreements, which operates and maintains the T&D assets. SDTS is subject to regulation as an electric utility by the Public Utility Commission of Texas (PUCT).
Initial Public Offering and Reorganization
InfraREIT, Inc. completed its IPO on February 4, 2015, issuing 23,000,000 shares of common stock at a price of $23.00, resulting in gross proceeds of $529.0 million.
Immediately after the closing of the IPO, InfraREIT, Inc. completed the Merger, with InfraREIT, L.L.C. merging with and into InfraREIT, Inc., and InfraREIT, Inc. as the surviving entity and general partner of the Operating Partnership. InfraREIT, Inc. used $172.4 million of the net proceeds from the IPO to fund the cash portion of the consideration issued in the Merger, as described in greater detail below. InfraREIT, Inc. contributed the remaining $323.2 million to the Operating Partnership in exchange for common OP Units (Common OP Units).
The Operating Partnership used the net proceeds from the IPO that it received from InfraREIT, Inc.:
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to repay an aggregate of $1.0 million of indebtedness to HCI; |
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to repay an aggregate of $72.0 million of indebtedness outstanding under the Operating Partnership’s revolving credit facility and $150.0 million of indebtedness outstanding under SDTS’s revolving credit facility; |
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to pay offering expenses (other than the underwriting discounts and commissions and the underwriter structuring fee) of $6.3 million; and |
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for general corporate purposes. |
The following bullets describe the Merger and related transactions that were effected in the first quarter of 2015 (collectively, the Reorganization).
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On January 29, 2015, the Operating Partnership effected a reverse unit split whereby each holder of OP Units received 0.938550 OP Units of the same class in exchange for each such unit it held immediately prior to such time, which is referred to as the unit split. Also, on January 29, 2015, InfraREIT, L.L.C. effected a reverse share split whereby each holder of shares received 0.938550 shares of the same class in exchange for each such share it held immediately prior to such time, which is referred to as the share split. All references to unit, share, per unit and per share amounts in these consolidated financial statements and related disclosures have been adjusted to reflect the reverse share split and reverse unit split for all periods presented. |
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On January 29, 2015, InfraREIT, Inc. issued 1,700,000 shares of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT) as a non-cash reorganization advisory fee in accordance with a structuring fee agreement, resulting in the recognition of a $44.9 million non-cash expense in the first quarter of 2015. |
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On February 4, 2015, the Operating Partnership issued 1,700,000 OP Units to InfraREIT, Inc. in respect of the structuring fee issuance of 1,700,000 shares of InfraREIT, Inc. common stock described immediately above. |
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On February 4, 2015, the Operating Partnership issued an aggregate of 28,000 of its profit interest OP Units (LTIP Units) to seven of InfraREIT’s directors. |
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On February 4, 2015, the Operating Partnership issued 983,418 Common OP Units to Hunt-InfraREIT in settlement of the Operating Partnership’s obligation to issue OP Units to Hunt-InfraREIT related to the CREZ Project. |
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On February 4, 2015, the Operating Partnership issued Hunt-InfraREIT 1,167,287 Common OP Units as an accelerated payment of a portion of the carried interest agreed to in 2010 in connection with the organization of InfraREIT, L.L.C. To effect the shift in ownership from the pre-IPO investors to Hunt-InfraREIT, an equal number of OP Units held by InfraREIT, L.L.C. in the Operating Partnership were canceled at the same time. |
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On February 4, 2015, as a result of the Merger, (1) holders of 8,000,000 common shares of InfraREIT, L.L.C. received $21.551 per common share, which was equal to the IPO price less the underwriting discounts and commissions and an underwriting structuring fee, (2) holders of the remaining 19,617,755 common shares of InfraREIT, L.L.C. received 19,617,755 shares of InfraREIT, Inc. Class A common stock and (3) holders of 25,145 Class C shares of InfraREIT, L.L.C. received 25,145 shares of InfraREIT, Inc. Class C common stock. |
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The founding investors each received both cash and stock consideration in the Merger, and all other pre-IPO investors received shares of InfraREIT, Inc. Class A common stock or Class C common stock in the Merger. InfraREIT, L.L.C. gave each other holder of its common shares the opportunity to receive cash consideration in the Merger, and each such holder elected (or was deemed to have elected) to receive shares of Class A common stock under the merger agreement. All holders of InfraREIT, L.L.C.’s Class C common shares, as a separate class, received shares of Class C common stock pursuant to the merger agreement. |
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On February 4, 2015, InfraREIT, Inc. contributed $323.2 million to the Operating Partnership in exchange for 15,000,000 Common OP Units. |
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On February 4, 2015, InfraREIT, Inc. issued 1,551,878 shares of common stock to Hunt-InfraREIT in exchange for 1,551,878 OP Units tendered for redemption by Hunt-InfraREIT in accordance with a redemption agreement. |
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On February 4, 2015, InfraREIT, Inc. purchased 6,242,999 common shares in consideration for the issuance of a promissory note to Westwood Trust in the principal amount of $66.5 million. |
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Westwood Trust immediately transferred the promissory note to MC Transmission, and, immediately following receipt of the promissory note, MC Transmission purchased 3,325,874 Common OP Units from the Operating Partnership in consideration for the assignment of the promissory note. The promissory note was then transferred to InfraREIT, Inc. in exchange for the redemption of 6,242,999 OP Units held by InfraREIT, Inc. and the subsequent cancellation of such promissory note, resulting in no cash consideration being paid or received pursuant to the purchase from Westwood Trust or the sale of Common OP Units to MC Transmission. |
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On March 9, 2015, the Operating Partnership issued 2,329,283 Common OP Units to Hunt-InfraREIT, and InfraREIT, Inc. canceled an equal number of shares of Class A common stock and Class C common stock. Each remaining share of Class A common stock and Class C common stock then converted to common stock on a one-for-one basis. This issuance settled InfraREIT, L.L.C.’s pre-IPO investors’ carried interest obligation agreed to by Hunt-InfraREIT under the investment documents entered into by the parties in 2010. |
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On March 9, 2015, the 11,264 long-term incentive plan units issued to two of InfraREIT, L.L.C.’s non-voting directors in May 2014 converted on a one-to-one basis to Common OP Units. |
Limited Partnership Agreement
In connection with the Reorganization, the Company adopted a Second Amended and Restated Limited Partnership Agreement which became effective with the closing of the IPO. Upon completion of the IPO, the Operating Partnership had five types of OP Units outstanding: Common OP Units, Class A OP Units, Class B OP Units, Class C OP Units and LTIP Units.
On March 9, 2015, the Operating Partnership issued Common OP Units in exchange for outstanding Class A OP Units and Class C OP Units. Such Common OP Units were allocated among the holders of Class A OP Units and Class C OP Units, and the Class A OP Units, Class B OP Units and Class C OP Units were canceled. Following such allocation, the Company adopted a Third Amended and Restated Limited Partnership Agreement that eliminated the provisions related to the Reorganization and the description of the Class A OP Units, Class B OP Units and Class C OP Units; however, it continues to allow amendments to authorize and issue additional classes of OP Units in the future.
Principles of Consolidation and Presentation
The consolidated financial statements include the Company’s accounts and the accounts of all other entities in which the Company has a controlling financial interest with noncontrolling interest of consolidated subsidiaries reported separately. All significant intercompany balances and transactions have been eliminated. SDTS maintains (and prior to their merger with and into SDTS, SDTS FERC and SPLLC also maintained) accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). In accordance with the applicable consolidation guidance, the Company’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and the PUCT which regulate its subsidiaries’ operations.
The Company and Hunt Manager are parties to a management agreement under which Hunt Manager provides certain services to the Company for a management fee. Historically, the Company’s Consolidated Statements of Operations included all costs incurred on the Company’s behalf by Hunt Manager, including compensation expenses, rent expense and other costs included in general and administrative expense on the Consolidated Statements of Operations totaling $11.6 million for the year ended December 31, 2013. On June 24, 2014, the Company’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, the Company’s general and administrative expenses for the years ended December 31, 2015 and 2014 do not include costs incurred by Hunt Manager during those periods, but do include management fees paid to Hunt Manager as well as additional costs the Company incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, the Company, through its subsidiary InfraREIT LP, incurred costs associated with management fees of $12.3 million and $10.0 million during the years ended December 31, 2015 and 2014, respectively.
The accompanying historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. The historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Regulation
For regulatory purposes, including regulatory reporting, the T&D assets owned by SDTS and the operations of Sharyland are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to SDTS (and previously applied to its former subsidiaries). The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 7, Other Assets.
SDTS capitalizes allowance for funds used during construction (AFUDC) during the construction of its T&D assets, and SDTS lease agreements with Sharyland rely on FERC definitions and accepted standards regarding capitalization of expense to define key terms in the lease such as footprint projects, which are the amounts SDTS is obligated to fund pursuant to the leases. The amounts funded for these footprint projects include allocations of Sharyland employees’ time and overhead allocations consistent with FERC policies and U.S. GAAP.
Sharyland cannot be removed as lessee without prior approval from the PUCT. SDTS transacts with its tenant through several lease arrangements covering the T&D assets. These lease agreements include provisions for annual additions and retirements of the T&D assets in the form of new construction or other capitalized projects.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses and believes that the risk is not significant.
Restricted Cash
Restricted cash represents the principal and interest payable for two consecutive periods associated with the $25.0 million senior secured notes described in Note 9, Long-Term Debt.
Inventory
Inventory consists primarily of transmission parts and materials used in the construction of electric plant. Inventory is valued at average cost when it is acquired and used.
Assets Held for Sale
The Company records assets held for sale when certain criteria have been met as specified by Accounting Standard Codification (ASC) Topic 360, Property, Plant and Equipment. These criteria include management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to be completed within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell.
Electric Plant, net
Electric plant equipment is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments, and overhead items. In accordance with the FERC uniform system of accounts guidance, SDTS recognizes as a cost to construction work in progress (CWIP) AFUDC on other funds classified as other income, net and AFUDC on borrowed funds classified as a reduction of the interest expense, net on the Consolidated Statements of Operations.
The AFUDC blended rate utilized was 6.6%, 4.1% and 9.1% for the years ended December 31, 2015, 2014 and 2013, respectively.
Electric plant held for future use is included in electric plant, net.
Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future. The regulatory liability will be relieved as cost of removal charges are incurred upon asset retirement.
Repairs are the responsibility of Sharyland as the lessee under the lease agreements. Betterments and improvements generally are the responsibility of SDTS and are capitalized.
Provision for depreciation of electric plant is computed using composite straight-line rates as follows:
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Years Ended December 31, |
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2015 |
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2014 |
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2013 |
Transmission plant |
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1.69% - 3.15% |
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1.69% - 3.15% |
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2.57% - 3.00% |
Distribution plant |
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1.74% - 5.96% |
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1.74% - 5.96% |
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2.50% - 3.10% |
General plant |
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0.80% - 5.12% |
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0.80% - 5.12% |
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2.50% - 33.33% |
Impairment of Long-Lived Assets
The Company evaluates impairment of its long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable through expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.
Goodwill
Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise.
Accounting Standard Update (ASU) 2011-08, Testing of Goodwill for Impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not greater than the carrying amount, a quantitative calculation would not be needed.
The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2015, did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.
Investments
An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless (1) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other than temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.
Deferred Financing Costs
Amortization of deferred financing costs associated with the issuance of the $25.0 million senior secured notes and the revolving credit facilities is computed using the straight-line method over the life of the loan which approximates the effective interest method. Amortization of deferred financing costs associated with the Company’s regulated subsidiaries is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.
Derivative Instruments
The Company uses derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). ASC Topic 815, Derivatives and Hedging, requires all derivatives be recorded on the Consolidated Balance Sheets at fair value. The Company determines the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on the Consolidated Balance Sheets at its fair value.
Unrealized gains and losses on the effective cash flow hedging instrument are recorded as components of accumulated other comprehensive income. Realized gains and losses on the cash flow hedging instrument are recorded as adjustments to interest expense. Settlements of derivatives are included within operating activities on the Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument is recorded as an adjustment to interest expense in the current period.
Income Taxes
InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2010, and InfraREIT, Inc. will elect to be treated as a REIT commencing with its taxable year ended December 31, 2015. As a result, the Company generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of other organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). The Company’s policy is to distribute at least 100% of its taxable income. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements. Even if the Company maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, including excise taxes, and federal income taxes on any undistributed income.
At December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of $1.0 million. Of this amount $0.2 million was used for the year ended December 31, 2015 to offset an equivalent amount of regular taxable earnings. The net operating loss carryforward for federal tax purposes was $0.8 million at December 31, 2015 and will expire in 2026. The net operating loss carryforwards for alternative minimum tax (AMT) are generally limited to offsetting 90% of the alternative minimum taxable income (AMTI) for a given year.
The Company recognizes the impact of tax return positions that are more-likely-than-not to be sustained upon audit. Significant judgment is required to evaluate uncertain tax positions. The evaluation of uncertain tax positions is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
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Years Ended December 31, |
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(In thousands) |
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2015 |
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2014 |
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Balance at January 1 |
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$ |
2,135 |
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$ |
1,238 |
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Additions based on tax positions related to the current year |
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789 |
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897 |
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Balance at December 31 |
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$ |
2,924 |
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$ |
2,135 |
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The balance of unrecognized tax benefits relates to state taxes, all of which would impact the effective tax rate if recognized. The Company does not expect the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.
During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalties of $0.2 million, $0.1 million and $0.1 million, respectively. The Company had accrued interest and penalties of $0.4 million and $0.2 million at December 31, 2015 and 2014, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2012.
Revenue Recognition
The Company, through its subsidiaries, is the owner of the T&D assets and recognizes lease revenue over the term of lease agreements with Sharyland. The Company’s lease revenue includes annual payments and additional rents based upon a percentage of revenue earned by Sharyland on the leased assets in excess of annual specified breakpoints. In accordance with the lease agreements, Sharyland, the lessee and operator of the T&D assets, is responsible for the maintenance and operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC or any other regulatory entity with jurisdiction over the T&D assets. Each of the lease agreements with Sharyland is a net lease that obligates the lessee to pay all property related expenses, including maintenance, repairs, taxes and insurance, and to comply with the terms of the SDTS secured credit facilities and note purchase agreements. The Company recognizes base rent under these leases on a straight-line basis over the applicable lease term.
The lease agreements provide for periodic supplemental adjustments of base rent based upon capital expenditures made by SDTS. The Company recognizes supplemental adjustments of base rent as a modification under these leases on a prospective straight-line basis over the applicable lease term. The Company recognizes percentage rent under these leases once the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints.
Asset Retirement Obligations
The Company has identified, but not recognized, asset retirement obligation liabilities related to the T&D assets, as a result of certain easements on property on which the Company has assets. Generally, such easements are perpetual and require only the retirement and removal of the assets upon cessation of the property’s use. Management has not estimated and recorded a retirement liability for such easements because the Company plans to use the facilities indefinitely.
Interest Expense, net
The Company’s interest expense, net primarily consists of interest expense from the senior notes and credit facilities, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt. AFUDC on borrowed funds of $1.8 million, $1.6 million and $12.6 million was recognized as a reduction of the Company’s interest expense during the years ended December 31, 2015, 2014 and 2013, respectively.
Other Income, net
AFUDC on other funds of $3.0 million, $1.1 million and $21.7 million was recognized in other income, net during the years ended December 31, 2015, 2014 and 2013, respectively.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income, which consists of unrealized gains and losses on derivative financial instruments. The Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedging instruments as other comprehensive income.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures, sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities in accordance with U.S. GAAP.
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Recently Issued Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. This amendment affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for periods beginning after December 15, 2015 with early adoption permitted. The adoption of the new guidance will not have an impact on the current consolidation, but may change the accounting associated with future transactions.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted, the new guidance will be applied on a retrospective basis with each balance sheet presented reflecting the new guidance along with transitional disclosures. The Company will adopt this presentation beginning with the three months ended March 31, 2016. The adoption will impact the Company’s presentation of its financial position, but will not have an impact on the Company’s results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined instead of retrospectively applying the adjustments. The change in provisional amounts will be recorded in the income statement for any effect on earnings for changes in depreciation, amortization or other income effect calculated as if the accounting had been completed at the acquisition date. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted in the first quarter of 2016, the new guidance will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption is not expected to have an impact on the Company’s financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.
Reportable Segments
U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Management has determined that the Company has one reportable segment, with activities related to ownership and leasing of rate-regulated electric T&D assets.
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Related Party Transactions |
SDTS is party to several lease agreements with Sharyland, through which the Company leases its T&D assets to Sharyland. Under the leases the Company has agreed to fund capital expenditures for footprint projects. The leases define “footprint projects” to be transmission or distribution projects primarily situated within the Company’s distribution service territory, or that physically hang from the Company’s existing transmission assets.
The Company earned lease revenues under these agreements of $151.2 million, $134.4 million and $73.2 million from Sharyland during the years ended December 31, 2015, 2014 and 2013, respectively. In connection with the Company’s leases with Sharyland, the Company recorded a deferred rent liability of $11.5 million and $5.0 million as of December 31, 2015 and 2014, respectively, which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets.
In addition to rent payments that Sharyland makes to the Company, the Company and Sharyland also make payments to each other under the leases that primarily consist of payments to reimburse Sharyland for the costs of gross plant and equipment added to the Company’s T&D assets. For the years ended December 31, 2015 and 2014, the net amount of the payments the Company made to Sharyland was $245.1 million and $189.3 million, respectively.
As of December 31, 2015 and 2014, accounts payable and accrued liabilities on the Consolidated Balance Sheets included $9.2 million and $16.1 million, respectively, related to amounts owed to Sharyland. As of December 31, 2015 and 2014, amounts due from affiliates on the Consolidated Balance Sheets included $31.2 million and $27.8 million, respectively, related to amounts owed by Sharyland associated with the Company’s leases.
The Company’s management fee paid to Hunt Manager for the years ended December 31, 2015 and 2014 was $12.3 million and $10.0 million, respectively. As of December 31, 2015 and 2014, there were no prepaid or accrued amounts associated with management fees on the Consolidated Balance Sheets. Additionally, during the years ended December 31, 2015 and 2014, the Company paid Hunt Manager $0.5 million and $0.2 million, respectively, for reimbursement of annual software license and maintenance fees and other expenses in accordance with the Company’s management agreement.
The Company’s current management agreement with Hunt Manager, which was effective February 4, 2015, provided for an annual base fee, or management fee, of $10.0 million through April 1, 2015. Effective as of April 1, 2015, the annual base fee was adjusted to $13.1 million annually through March 31, 2016. Effective as of April 1, 2016, the annual base fee will be adjusted to $14.0 million annually through March 31, 2017. The base fee for each twelve month period beginning April 1 thereafter will equal 1.50% of the Company’s total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap. The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of the Company’s independent directors decides to terminate the agreement.
In connection with the organization of InfraREIT, L.L.C. in November 2010, the Operating Partnership agreed to issue deemed capital credits and Class A OP Units to Hunt-InfraREIT with respect to certain development projects. The amount of the capital account credits the Operating Partnership was required to issue equaled 5% of the Company’s capital expenditures on these projects, including AFUDC. The number of Class A OP Units the Operating Partnership was required to issue equaled the amount of the capital account credit divided by $10.65. During the year ended December 31, 2014, the Operating Partnership issued approximately 104,763 Class A OP Units, and on January 1, 2015, the Operating Partnership issued an additional 17,600 Class A OP Units to Hunt-InfraREIT. Following the consummation of the IPO, the Operating Partnership no longer has the obligation to issue deemed capital credits and related equity to Hunt-InfraREIT. The Company recorded these capital account credits as asset acquisition costs included as part of the capital project in the CWIP balance.
InfraREIT LP also issued deemed capital and equity in connection with its CREZ Project. For further information, see Note 11, Contingent Consideration.
Prior to the IPO, the Company and one of its stockholders were parties to a secondee agreement under which employees of the stockholder provided services to the Company for a secondment fee. The Company incurred costs associated with secondment fees of less than $0.1 million and $0.2 million during the years ended December 31, 2014 and 2013, respectively. These fees are included in general and administrative expense in the Consolidated Statements of Operations. The Company did not incur any fees associated with this agreement in 2015. As of December 31, 2015 and 2014, there were no amounts owed to the member included in accounts payable and accrued liabilities on the Consolidated Balance Sheets related to the secondee agreement. As a result of the IPO, the secondee agreement terminated.
In connection with the IPO, Reorganization and related transactions, the Company incurred an aggregate of $5.0 million of legal fees, a portion of which was paid to reimburse HCI and its subsidiaries (collectively, Hunt), the founding investors and independent directors for legal expenses they incurred in connection with such transactions. This legal expense reimbursement relates to the fees and expenses of outside counsel incurred by those parties and was negotiated separately from the reorganization advisory fee that the Company paid to Hunt-InfraREIT in connection with the reorganization advisory services provided in connection with the IPO. For further information on additional related party transactions the Company entered into as a result of the Reorganization, see the caption Initial Public Offering and Reorganization included in Note 1, Description of Business and Summary of Significant Accounting Policies.
On November 20, 2014, InfraREIT, Inc. borrowed $1.0 million from HCI pursuant to a promissory note. The note accrued interest at 2.5% per year and was due on November 1, 2015. This note and accrued interest were repaid in February 2015 with proceeds from the IPO for a total of $1.0 million.
Effective January 15, 2015, the Company sold all the assets related to the Cross Valley transmission line (Cross Valley Project) to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million. Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Electric Coop (GSEC) interconnection (Golden Spread Project) to Hunt for cash of $7.0 million. For further information, see Note 3, Assets Held for Sale. These projects constitute identified projects being developed by Hunt and its affiliates under the Company’s development agreement with Hunt Transmission Services, L.L.C., also known as Hunt Developer.
In November 2015, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Golden Spread Project. Negotiations are in progress regarding such purchase.
|
3. |
Assets Held for Sale |
In October 2014, InfraREIT, L.L.C.’s board of directors approved a plan to sell the assets related to the Cross Valley Project and Golden Spread Project. As of December 31, 2014, these assets were classified as assets held for sale at the lower of historical carrying amount or fair value on the Consolidated Balance Sheets as they met the criteria for “held for sale” accounting as of December 31, 2014. These assets represent labor, materials, AFUDC and various other costs associated with the construction of the Cross Valley Project and Golden Spread Project.
The assets of the Cross Valley Project and Golden Spread Project were classified as assets held for sale on the Consolidated Balance Sheets were $41.2 million as of December 31, 2014. Since these assets were not placed in service as of December 31, 2014, no depreciation was taken.
Effective January 15, 2015, the Company sold all the assets related to the Cross Valley Project to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million, which equaled the CWIP of the project on the date of the sale, plus reimbursement of out of pocket expenses associated with the project financing.
Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Project to Hunt for cash of $7.0 million, which equaled the CWIP of the project on the date of the sale.
|
4. |
Prepaids and Other Current Assets |
Prepaids and other current assets are as follows:
|
|
December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Offering costs |
|
$ |
— |
|
|
$ |
4,397 |
|
Prepaid insurance |
|
|
267 |
|
|
|
249 |
|
Other |
|
|
293 |
|
|
|
251 |
|
Total prepaids and other current assets |
|
$ |
560 |
|
|
$ |
4,897 |
|
Offering costs consisted of costs directly attributable to the registration of the Company’s common stock in connection with the IPO. These offering costs, which were netted against the IPO proceeds, equaled $6.3 million in the aggregate, of which $4.4 million were on the Consolidated Balance Sheet at December 31, 2014.
|
5. |
Electric Plant and Depreciation |
The major classes of electric plant are as follows:
|
|
December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Electric plant: |
|
|
|
|
|
|
|
|
Transmission plant |
|
$ |
1,080,050 |
|
|
$ |
966,560 |
|
Distribution plant |
|
|
457,988 |
|
|
|
387,329 |
|
General plant |
|
|
15,655 |
|
|
|
15,018 |
|
Total plant in service |
|
|
1,553,693 |
|
|
|
1,368,907 |
|
CWIP |
|
|
121,602 |
|
|
|
41,222 |
|
Total electric plant |
|
|
1,675,295 |
|
|
|
1,410,129 |
|
Accumulated depreciation |
|
|
(240,764 |
) |
|
|
(220,101 |
) |
Electric plant held for future use |
|
|
— |
|
|
|
37,118 |
|
Electric plant, net |
|
$ |
1,434,531 |
|
|
$ |
1,227,146 |
|
General plant consists primarily of a warehouse, buildings and associated assets. CWIP relates to various transmission and distribution projects underway. The capitalized amounts of CWIP consist primarily of route development expenditures, labor and materials expenditures, right of way acquisitions, engineering services and legal fees. Electric plant, net includes plant acquisition adjustments of $28.6 million and $28.7 million at December 31, 2015 and 2014, respectively.
On December 30, 2013, SDTS purchased from Southwestern Public Service Company approximately 66 miles of existing transmission lines and two substations located near Stanton, Texas for $37.1 million. The application for sale, transfer or merger was approved by the PUCT under the Docket No. 41430. SDTS holds legal title to the assets and they are subject to lease with Sharyland. Sharyland has the responsibility for operating these T&D assets and complying with all applicable regulatory requirements. As of December 31, 2014, these transmission lines and substations were classified as electric plant held for future use within electric plant, net on the Consolidated Balance Sheets. During August 2015, electric plant held for future use was placed in service and reclassified to transmission plant within electric plant, net on the Consolidated Balance Sheets and began depreciating.
|
6. |
Goodwill |
Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. The Company conducts an impairment test of goodwill at least annually. The Company’s 2015 impairment test did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.
|
7. |
Other Assets |
Other assets are as follows:
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
||||||||||||||||||
(In thousands) |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||||
Deferred financing costs |
|
$ |
1,292 |
|
|
$ |
(368 |
) |
|
$ |
924 |
|
|
$ |
1,290 |
|
|
$ |
(143 |
) |
|
$ |
1,147 |
|
Other regulatory assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
27,112 |
|
|
|
(13,208 |
) |
|
|
13,904 |
|
|
|
25,701 |
|
|
|
(12,693 |
) |
|
|
13,008 |
|
Deferred costs recoverable in future years |
|
|
23,793 |
|
|
|
— |
|
|
|
23,793 |
|
|
|
23,793 |
|
|
|
— |
|
|
|
23,793 |
|
Other regulatory assets, net |
|
|
50,905 |
|
|
|
(13,208 |
) |
|
|
37,697 |
|
|
|
49,494 |
|
|
|
(12,693 |
) |
|
|
36,801 |
|
Investments |
|
|
2,519 |
|
|
|
— |
|
|
|
2,519 |
|
|
|
2,519 |
|
|
|
— |
|
|
|
2,519 |
|
Other assets |
|
$ |
54,716 |
|
|
$ |
(13,576 |
) |
|
$ |
41,140 |
|
|
$ |
53,303 |
|
|
$ |
(12,836 |
) |
|
$ |
40,467 |
|
Deferred financing costs primarily consist of costs incurred in connection with the establishment of the InfraREIT LP revolving credit facility and issuance of $25.0 million aggregate principal amount of 8.50% per annum senior notes. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.
Other regulatory assets consist of deferred financing costs within the Company’s regulated entities. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs will be included in the costs to be recovered in connection with a future rate case. Deferred financing costs included in other regulatory assets primarily consist of debt issuance costs incurred in connection with the construction credit agreement entered into by SPLLC in June 2011, refinancing costs incurred in connection with the amended and restated revolving credit facility entered into by SDTS in June 2013, refinancing costs incurred to amend and restate the SDTS credit facility in order to increase the revolving credit facility to a total of $250.0 million revolving credit facility in December 2014 and financing costs incurred in connection with SDTS’s senior secured notes, Series A and Series B in December 2015. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.
Deferred costs recoverable in future years of $23.8 million at December 31, 2015 and 2014 represent operating costs incurred from inception of Sharyland through December 31, 2007. The Company has determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent.
In connection with the acquisition of Cap Rock Holding Corporation (Cap Rock), the Company received a participation in the National Rural Utilities Cooperative Finance Corporation (NRUCFC). The Company accounts for this investment under the cost method of accounting. The Company believes that the investment is not impaired at December 31, 2015 and 2014.
|
8. |
Borrowings Under Credit Facilities |
InfraREIT LP Revolving Credit Facilities
On January 3, 2014, InfraREIT LP entered into a credit facility, led by Bank of America, N.A., as administrative agent, which established a revolving credit facility of $130.0 million that included a letter of credit facility. On November 13, 2014, the credit facility was amended to extend the maturity date to March 31, 2015. On December 10, 2014, the credit facility was repaid and terminated using proceeds from InfraREIT LP’s new $75.0 million credit facility and SDTS’s amended credit agreement entered into on December 10, 2014, as discussed below.
On December 10, 2014, InfraREIT LP entered into a $75.0 million revolving credit facility, led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by substantially all of the assets of InfraREIT LP. In addition, Transmission and Distribution Company, LLC (TDC) guarantees the revolving credit facility and this guarantee is secured by the assets of, and InfraREIT LP’s equity interests in, TDC on materially the same basis as with TDC’s senior secured notes described below. Upon consummation of the IPO and Merger, InfraREIT, Inc. became a guarantor under this revolving credit facility.
The credit agreement requires InfraREIT LP to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The credit agreement also contains restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland.
Borrowings and other extensions of credit under the revolving credit facility bear interest, at InfraREIT LP’s election, at a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%. InfraREIT LP is also required to pay a commitment fee and other customary fees under the new revolving credit facility. InfraREIT LP may prepay amounts outstanding under the revolving credit facility in whole or in part without premium or penalty.
There were no outstanding borrowings or letters of credit under the revolving credit facility at December 31, 2015, and there was $75.0 million of borrowing capacity available. At December 31, 2014, $57.0 million of borrowings were outstanding at a 2.66% interest rate and no letters of credit were outstanding, with $18.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, InfraREIT LP was in compliance with all debt covenants under the credit agreement.
SDTS Revolving Credit Facilities
On June 28, 2013, SDTS entered into a second amended and restated credit agreement led by Royal Bank of Canada, as administrative agent, which established a revolving credit facility of $75.0 million that originally matured on June 28, 2018 and included a letter of credit facility.
On December 10, 2014, SDTS’s second amended and restated credit agreement was amended and restated in order to, among other things, increase the amount of the revolving credit facility to a total of $250.0 million and extend the maturity date to December 10, 2019. Up to $25.0 million of the revolving credit facility is available for issuance of letters of credit, and up to $5.0 million of the revolving facility is available for swingline loans.
On September 28, 2015, SDTS amended its credit agreement and related collateral agreements in order to, among other things, modify the collateral requirements. The revolving credit agreement was previously secured by substantially all of the assets of, and TDC’s equity interests in, SDTS. After the amendment, the revolving credit facility is secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below in Note 9, Long-Term Debt.
The interest rate for the revolving credit facility is based, at SDTS’s option, at a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) LIBOR plus a margin of either 1.75% or 2.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis. SDTS is also required to pay a commitment fee and other customary fees under its revolving credit facility. SDTS is entitled to prepay amounts outstanding under the revolving credit facility with no prepayment penalty.
At December 31, 2015, SDTS had $54.0 million of borrowings outstanding at a weighted average interest rate of 2.05%, no letters of credit outstanding and $196.0 million of borrowing capacity available. At December 31, 2014, SDTS had $162.0 million of borrowings outstanding at a 1.91% interest rate with no letters of credit outstanding and $88.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, SDTS was in compliance with all debt covenants under the credit agreement.
The revolving credit facilities of InfraREIT LP and SDTS are subject to customary events of default. If an event of default occurs under either facility and is continuing, the lenders may accelerate amounts due under such revolving credit facility (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).
|
9. |
Long-Term Debt |
Long-term debt consisted of the following:
|
|
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|
||||||||||
(In thousands) |
|
Maturity Date |
|
Amount Outstanding |
|
|
Interest Rate |
|
|
Amount Outstanding |
|
|
Interest Rate |
|
|
||||
Senior secured notes - $53.5 million |
|
December 30, 2029 |
|
$ |
44,512 |
|
|
|
7.25 |
% |
|
$ |
46,291 |
|
|
|
7.25 |
% |
|
Senior secured notes - $110.0 million |
|
September 30, 2030 |
|
|
101,627 |
|
|
|
6.47 |
% |
|
|
105,622 |
|
|
|
6.47 |
% |
|
Senior secured notes - $25.0 million |
|
December 30, 2020 |
|
|
18,750 |
|
|
|
8.50 |
% |
|
|
20,000 |
|
|
|
8.50 |
% |
|
Senior secured notes - $60.0 million |
|
June 20, 2018 |
|
|
60,000 |
|
|
|
5.04 |
% |
|
|
60,000 |
|
|
|
5.04 |
% |
|
Senior secured notes - $400.0 million |
|
December 3, 2025 |
|
|
400,000 |
|
|
|
3.86 |
% |
|
|
— |
|
|
N/A |
|
|
|
Senior secured credit facilities - $407.0 million |
|
June 20, 2018 |
|
|
— |
|
|
N/A |
|
|
|
397,843 |
|
|
|
2.42 |
% |
* |
|
Total long-term debt |
|
|
|
|
624,889 |
|
|
|
|
|
|
|
629,756 |
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
|
|
(7,423 |
) |
|
|
|
|
|
|
(19,234 |
) |
|
|
|
|
|
Debt classified as long-term debt |
|
|
|
$ |
617,466 |
|
|
|
|
|
|
$ |
610,522 |
|
|
|
|
|
|
* |
Interest based on LIBOR at December 31, 2014 plus an applicable margin. |
Senior Secured Notes — On December 31, 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes). Principal and interest on these senior secured notes are payable quarterly.
On July 13, 2010, in connection with the acquisition of Cap Rock, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes). Principal and interest on these senior secured notes is payable quarterly.
On July 13, 2010, in connection with the acquisition of Cap Rock, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates. Principal and interest on these senior secured notes are payable quarterly and these senior secured notes are collateralized by the equity interest of TDC and substantially all of the assets of TDC on materially the same basis as with lenders under InfraREIT LP’s credit facility.
On September 28, 2015, SDTS amended its 2009 Notes and 2010 Notes and related collateral agreements related in order to, among other things, modify the collateral requirements. The 2009 Notes and 2010 Notes were previously collateralized by substantially all of the assets of, and TDC’s equity interests in SDTS. After the amendment, the 2009 Notes and 2010 Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s Series A Notes, Series B Notes and Fixed Rate Notes described below.
On December 3, 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), due December 3, 2025, and on January 14, 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes), due January 14, 2026. These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act) and will bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes will be due in full at maturity with outstanding accrued interest payable each June and December. The Series B Notes will be due in full at maturity with outstanding accrued interest payable each January and July. See Note 23, Subsequent Events for additional information related to the Series B Notes. The Series A Notes and Series B Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes and Fixed Rate Notes.
SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.
The agreements governing the senior secured notes contain certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. As of December 31, 2015 and 2014, SDTS and TDC were in compliance with all debt covenants under the applicable agreements.
Senior Secured Credit Facilities — On June 20, 2011, SPLLC entered into a construction term loan agreement consisting of a $667.0 million construction term loan, reduced to $447.0 million on March 8, 2013, syndicated broadly to a group of 14 international banks, and $60.0 million in fixed rate notes issued to The Prudential Insurance Company of America and affiliates (Fixed Rate Notes). The senior secured credit facility was collateralized by SPLLC’s assets and SDTS’s equity interest in SPLLC.
The $447.0 million construction term loan accrued interest at LIBOR plus 2.00%. LIBOR reset at each selected interest period (one, two, three or six months), at SPLLC’s discretion, at the current market rate. The outstanding borrowings under the construction term loan at December 31, 2013 were $396.0 million at an interest rate of 2.17%. On May 16, 2014, the construction term loan outstanding was converted into a term loan with a balance of $407.0 million. After this conversion, interest accrued at LIBOR plus 2.25% for a period of three years, at which point the interest rate would have increased to LIBOR plus 2.50%. Interest under the term loan was payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan were payable quarterly after the conversion.
On December 3, 2015, the outstanding principal and interest on the term loan were paid in full with proceeds from the SDTS Series A Notes. Also on December 3, 2015, the Fixed Rate Notes were assumed by SDTS in connection with the SDTS Merger. The Fixed Rate Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes, Series A Notes and Series B Notes.
Interest is payable quarterly on the $60.0 million Fixed Rate Notes with the full principal balance due on June 20, 2018.
The credit agreement governing the Fixed Rate Notes contains certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. SDTS was in compliance with all debt covenants for the Fixed Rate Notes as of December 31, 2015. SPLLC was in compliance with all debt covenants for the term loan and Fixed Rates Notes as of December 31, 2014.
Future maturities of long-term debt are as follows for the years ended December 31:
(In thousands) |
|
Total |
|
|
2016 |
|
$ |
7,423 |
|
2017 |
|
|
7,849 |
|
2018 |
|
|
68,305 |
|
2019 |
|
|
8,792 |
|
2020 |
|
|
21,813 |
|
Thereafter |
|
|
510,707 |
|
Total |
|
$ |
624,889 |
|
|
10. |
Derivative Instruments |
Interest — During 2011, SPLLC entered into an interest rate swap agreement designated as a cash flow hedge against variable interest rate exposure on a portion of the construction term loan which established a fixed rate on the LIBOR interest rates specified in the SPLLC construction term loan at 0.832% per annum until June 30, 2014. Notional amounts reset on a monthly basis and did not exceed $261.0 million at any given time. There were no notional amounts as of December 31, 2014 as this swap agreement terminated on June 30, 2014. The Company has not entered into any new derivative instruments since the termination of this swap agreement.
This cash flow hedging instrument was recorded as a liability on the Consolidated Balance Sheets at fair value, with an offset to accumulated other comprehensive income to the extent the cash flow hedging instrument was effective. The cash flow hedging instrument gains and losses included in other comprehensive income were reclassified into earnings as the underlying transaction occurred. There was no cash flow hedging instrument ineffectiveness recorded for this swap agreement.
The Company reclassified $0.9 million and $1.6 million, included in other comprehensive income, during the years ended December 31, 2014 and 2013, respectively, to interest expense, net on the Consolidated Statements of Operations. The Company did not reclassify any amounts related to the swap agreement to interest expense, net during the year ended December 31, 2015.
|
11. |
Contingent Consideration |
In connection with the Company’s acquisition of InfraREIT LP in 2010, the Company agreed to contingent consideration in the form of future deemed capital credits in an amount up to $82.5 million to Hunt-InfraREIT. The capital account credits, which were generated pro rata with the cash expenditures on the CREZ Project up to $737.0 million, were issued to Hunt-InfraREIT in the form of Class A OP Units at the agreed upon deemed issue price of $10.65 per unit on the first day of each quarter following the actual expenditures. The future deemed capital credits were determined to be contingent consideration and were assessed a fair value of $78.6 million at the date of acquisition and included as a component of long-term liabilities on the Consolidated Balance Sheets.
As of December 31, 2014, InfraREIT LP had issued, as described above, approximately 6.7 million of Class A OP Units to Hunt-InfraREIT. During the first quarter of 2015, the following transactions occurred:
|
· |
On January 1, 2015, InfraREIT LP issued 53,246 Class A OP Units to Hunt-InfraREIT. |
|
· |
On February 4, 2015, in connection with the Reorganization, InfraREIT LP issued Hunt-InfraREIT 983,418 Common OP Units in full settlement of InfraREIT LP’s contingent consideration obligation. |
The Company recognized $18.4 million and $0.8 million as expense due to changes in fair value of the contingent consideration in accordance with the acquisition agreement during the years ended December 31, 2014 and 2013, respectively. This expense was recorded as part of other (expense) income, net on the Consolidated Statements of Operations. There was no expense recorded during the year ended December 31, 2015 related to the contingent consideration. As of December 31, 2014, $27.4 million was recorded as a current liability in the form of contingent consideration on the Consolidated Balance Sheets. As of December 31, 2015, no such liability was recorded as the contingent consideration was fully settled.
|
12. |
Fair Value of Financial Instruments |
The carrying amounts of the Company’s cash and cash equivalents, restricted cash, due from affiliates and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.
The Company had borrowings totaling $624.9 million and $231.9 million under senior secured notes with a weighted average interest rate of 4.78% and 6.43% per annum as of December 31, 2015 and 2014, respectively. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.
The Company’s derivative contracts consisted of cash flow hedging instruments which are not traded on a public exchange. The fair values of the cash flow hedging instrument contracts were determined using discounted cash flow techniques. The techniques incorporated Level 2 inputs and quotes from the counterparty to the interest rate swap contract. These market inputs were utilized in a discounted cash flow calculation considering the cash flow hedging instrument term, credit risk, notional amount and discount rate and were classified as Level 2 in the fair value hierarchy.
As of December 31, 2014, the Company had $397.8 million of borrowings under the construction term loan which accrued interest under floating interest rate structures. Accordingly, the carrying value of such indebtedness approximated fair value for the amounts outstanding. These borrowings were paid in full during 2015.
For the year ended December 31, 2014, the Company assessed the fair market value of its contingent consideration associated with the acquisition of InfraREIT LP using observable Level 2 inputs associated with the closing price of InfraREIT, Inc.’s stock on the closing date of the IPO.
Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:
|
|
Carrying |
|
|
Fair Value |
|
||||||||||
(In thousands) |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
624,889 |
|
|
$ |
— |
|
|
$ |
657,270 |
|
|
$ |
— |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
629,756 |
|
|
$ |
— |
|
|
$ |
658,306 |
|
|
$ |
— |
|
Contingent consideration - long-term |
|
|
27,378 |
|
|
|
— |
|
|
|
27,378 |
|
|
|
— |
|
At December 31, 2014, the Company transferred the contingent consideration from Level 3 to Level 2.
ASC Topic 820 requires a company to disclose changes during the year for financial instruments that are classified as Level 3 financial instruments in the fair value hierarchy. Changes in Level 3 financial instruments were as follows:
(In thousands) |
|
Year Ended December 31, 2014 |
|
|
Contingent Consideration |
|
|
|
|
Beginning Balance |
|
$ |
12,554 |
|
Non-cash noncontrolling interest equity issuance |
|
|
(3,533 |
) |
Change in fair value of contingent consideration |
|
|
18,357 |
|
Gross transfers out of Level 3 |
|
|
(27,378 |
) |
Ending Balance |
|
$ |
— |
|
|
13. |
Regulatory Liability |
The Company’s regulatory liability is established through depreciation rates related to cost of removal and represents amounts that the Company expects to incur in the future. As of December 31, 2015 and 2014, the Company recorded on the Consolidated Balance Sheets as a long-term liability $10.6 million and $1.2 million, respectively, net of actual removal costs incurred.
|
14. |
Commitments and Contingencies |
The amounts reported as regulatory assets as of December 31, 2015 and 2014 are subject to the review by the PUCT and as with all utility assets may change at a later date based on that review, see Note 7, Other Assets.
The Company is not a party to any legal proceedings other than legal proceedings arising in the ordinary course of business. The Company does not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on the Company’s business, financial condition or results of operations, liquidity and cash flows.
|
15. |
Equity |
On January 12, 2015, InfraREIT, Inc. amended its charter to increase the number of authorized shares of common stock from 3,000 to 450,000,000. In addition, the par value of the Company’s common stock was reduced from $1 per share to $0.01 per share. Both the authorized number of shares of common stock and the par value were unaffected by the Merger or Reorganization.
On December 4, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on December 31, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on December 4, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on December 31, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on January 21, 2016.
On September 3, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on September 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on September 3, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on September 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on October 22, 2015.
On June 5, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on June 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on June 5, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on June 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on July 23, 2015.
On March 6, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on March 31, 2015 of $0.14 per unit for a total distribution of $8.5 million ($6.1 million to InfraREIT, Inc.). Also, on March 6, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on March 31, 2015 of $0.14 per share for a total of $6.1 million. The cash distribution and cash dividend were paid on April 23, 2015.
On January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on January 20, 2015 of $0.26 per unit for a total distribution of $11.7 million ($9.0 million to InfraREIT, L.L.C.). Also, on January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on January 20, 2015 of $0.26 per share for a total of $9.0 million. The cash distribution and cash dividend were paid on January 29, 2015.
For federal income tax purposes, the dividends declared in 2015 were classified as ordinary income.
On December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on December 18, 2014 of $0.31 per unit for a total distribution of $14.1 million ($10.8 million to InfraREIT, L.L.C.). Also on December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on December 18, 2014 of $0.31 per share for a total of $10.8 million. The cash distribution and cash dividend were paid on January 16, 2015. For federal income tax purposes, this dividend was classified as ordinary income.
The Company is required to distribute at least 90% of its taxable income (excluding net capital gains) to maintain its status as a REIT. Management believes that the Company has distributed at least 100% of its taxable income.
|
16. |
Accumulated Other Comprehensive Loss |
There were no changes in accumulated other comprehensive loss for the year ended December 31, 2015. Changes in accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 associated with the interest rate swap designated as a cash flow hedge were as follows:
(In thousands) |
|
Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc. |
|
|
Accumulated Other Comprehensive Loss Attributable to Noncontrolling Interest |
|
|
Total Accumulated Other Comprehensive Loss |
|
|||
Year Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
$ |
(77 |
) |
|
$ |
28 |
|
|
$ |
(49 |
) |
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
687 |
|
|
|
206 |
|
|
|
893 |
|
Net period other comprehensive income |
|
$ |
610 |
|
|
$ |
234 |
|
|
$ |
844 |
|
Year Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
$ |
(180 |
) |
|
$ |
(56 |
) |
|
$ |
(236 |
) |
Amounts reclassified from accumulated other comprehensive loss |
|
|
1,180 |
|
|
|
379 |
|
|
|
1,559 |
|
Net period other comprehensive income |
|
$ |
1,000 |
|
|
$ |
323 |
|
|
$ |
1,323 |
|
|
17. |
Noncontrolling Interest |
The Company presents as a noncontrolling interest the portion of any equity in entities that it controls and consolidates but does not own. Generally, Common OP Units participate in net income allocations and distributions and entitle their holder the right, subject to the terms set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the Common OP Units held by such limited partner. At the Company’s option, it may satisfy this redemption with cash or by exchanging shares of InfraREIT, Inc. common stock on a one-for-one basis. Prior to the cancellation of all outstanding Class A OP Units, these units also participated in net income allocations and distributions and had the same redemption rights. As of December 31, 2015 and 2014, there were a total of 17.0 million and 10.7 million OP Units, respectively, held by the limited partners of the Operating Partnership.
On May 1, 2014, the limited partnership agreement of InfraREIT LP was amended in order to incorporate a long-term incentive plan and InfraREIT LP issued 11,264 related OP Units (pre-IPO LTIP Units) to independent non-voting members of the InfraREIT, L.L.C. board of directors as part of their compensation, which were fully vested upon grant. These pre-IPO LTIP Units had an aggregate intrinsic value of $0.1 million with $0.1 million of compensation expense recognized in general and administrative expense during the year ended December 31, 2014. During the first quarter of 2015, an aggregate of 28,000 LTIP Units were issued by the Operating Partnership to seven of the Company’s directors which included a one year vesting period. The Company recognized $0.7 million of compensation expense in general and administrative expense in the Consolidated Statements of Operations during the year ended December 31, 2015. There was no compensation expense recognized during the year ended December 31, 2013.
The Company follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, The Company has determined that the Common OP Units meet the requirements to be classified as permanent equity. During the year ended December 31, 2015, the Company did not redeem any OP Units other than, in connection with the Reorganization: (1) 1,551,878 Class A OP Units held by Hunt-InfraREIT, which were exchanged with InfraREIT, Inc. for 1,551,878 shares of common stock of InfraREIT, Inc. and (2) 6,242,999 Class A OP Units in exchange for the assignment of a promissory note in the principal amount of $66.5 million. The Operating Partnership did not redeem any OP Units during the years ended December 31, 2014 and 2013.
|
19. |
Leases |
The following table shows the composition of the Company’s lease revenue:
|
|
Years Ended December 31, |
|
|||||||||
(In thousands) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|||
Base rent (straight-line) |
|
$ |
125,669 |
|
|
$ |
106,746 |
|
|
$ |
57,979 |
|
Percentage rent |
|
|
25,534 |
|
|
|
27,669 |
|
|
|
15,214 |
|
Total lease revenue |
|
$ |
151,203 |
|
|
$ |
134,415 |
|
|
$ |
73,193 |
|
SDTS has entered into various leases with Sharyland for all of the Company’s placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base rent while all but one agreement includes additional percentage rent (based on an agreed upon percentage of the gross revenue of Sharyland, as defined in the lease agreements, in excess of annual specified breakpoints). The rate used for percentage rent for the reported time periods varies by lease and ranges from a high of 37% to a low of 23%. The percentage rent rate for 2016 through the expiration of the leases ranges from a 23% to 32%. Because an annual specified breakpoint must be met under the leases before the Company can recognize any percentage rent, the Company anticipates that revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.
Future minimum rent revenue expected in accordance with these lease agreements is as follows for the years ended December 31:
(In thousands) |
|
Total |
|
|
2016 |
|
$ |
148,751 |
|
2017 |
|
|
155,855 |
|
2018 |
|
|
81,673 |
|
2019 |
|
|
78,923 |
|
2020 |
|
|
65,601 |
|
Thereafter |
|
|
12,145 |
|
Total |
|
$ |
542,948 |
|
|
21. |
Supplemental Cash Flow Information |
Supplemental cash flow information and non-cash investing and financing activities are as follows:
|
|
Years Ended December 31, |
|
|||||||||
(In thousands) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
25,850 |
|
|
$ |
29,981 |
|
|
$ |
26,403 |
|
Cash (received) paid during the period for taxes |
|
|
(31 |
) |
|
|
75 |
|
|
|
36 |
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash right of way additions to electric plant |
|
|
— |
|
|
|
337 |
|
|
|
1,275 |
|
Change in accrued additions to electric plant |
|
|
6,942 |
|
|
|
20,633 |
|
|
|
8,876 |
|
Allowance for funds used during construction - debt |
|
|
1,767 |
|
|
|
1,635 |
|
|
|
12,579 |
|
Net non-cash equity issuances related to the Merger and Reorganization |
|
|
97,193 |
|
|
|
— |
|
|
|
— |
|
Net non-cash noncontrolling equity issuances related to the Merger and Reorganization |
|
|
119,607 |
|
|
|
— |
|
|
|
— |
|
Non-cash members' contributions |
|
|
— |
|
|
|
— |
|
|
|
369 |
|
Non-cash noncontrolling interests contributions |
|
|
— |
|
|
|
— |
|
|
|
119 |
|
Non-cash noncontrolling interests equity issuance |
|
|
755 |
|
|
|
4,648 |
|
|
|
32,052 |
|
Dividends and distributions payable |
|
|
13,634 |
|
|
|
14,130 |
|
|
|
— |
|
|
22. |
Quarterly Financial Information (Unaudited) |
Summarized unaudited consolidated quarterly information for the years ended December 31 follows:
(In thousands, except per share data) |
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
Year |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue |
|
$ |
29,372 |
|
|
$ |
29,458 |
|
|
$ |
41,452 |
|
|
$ |
50,921 |
|
|
$ |
151,203 |
|
General and administrative expense |
|
|
(48,733 |
) |
|
|
(4,728 |
) |
|
|
(5,504 |
) |
|
|
(5,641 |
) |
|
|
(64,606 |
) |
Depreciation |
|
|
(9,508 |
) |
|
|
(9,671 |
) |
|
|
(10,259 |
) |
|
|
(10,773 |
) |
|
|
(40,211 |
) |
Interest expense, net |
|
|
(7,422 |
) |
|
|
(6,939 |
) |
|
|
(6,723 |
) |
|
|
(7,470 |
) |
|
|
(28,554 |
) |
Other income, net |
|
|
626 |
|
|
|
847 |
|
|
|
707 |
|
|
|
868 |
|
|
|
3,048 |
|
Income tax expense |
|
|
(208 |
) |
|
|
(124 |
) |
|
|
(243 |
) |
|
|
(374 |
) |
|
|
(949 |
) |
Net (loss) income |
|
|
(35,873 |
) |
|
|
8,843 |
|
|
|
19,430 |
|
|
|
27,531 |
|
|
|
19,931 |
|
Less: Net (loss) income attributable to noncontrolling interest |
|
|
(9,000 |
) |
|
|
2,481 |
|
|
|
5,458 |
|
|
|
7,725 |
|
|
|
6,664 |
|
Net (loss) income attributable to InfraREIT, Inc. |
|
$ |
(26,873 |
) |
|
$ |
6,362 |
|
|
$ |
13,972 |
|
|
$ |
19,806 |
|
|
$ |
13,267 |
|
Basic EPS (1) |
|
$ |
(0.65 |
) |
|
$ |
0.15 |
|
|
$ |
0.32 |
|
|
$ |
0.45 |
|
|
$ |
0.31 |
|
Diluted EPS (1) |
|
$ |
(0.65 |
) |
|
$ |
0.15 |
|
|
$ |
0.32 |
|
|
$ |
0.45 |
|
|
$ |
0.31 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue |
|
$ |
24,837 |
|
|
$ |
25,225 |
|
|
$ |
39,309 |
|
|
$ |
45,044 |
|
|
$ |
134,415 |
|
General and administrative expense |
|
|
(3,412 |
) |
|
|
(3,284 |
) |
|
|
(6,143 |
) |
|
|
(5,786 |
) |
|
|
(18,625 |
) |
Depreciation |
|
|
(8,461 |
) |
|
|
(8,366 |
) |
|
|
(8,998 |
) |
|
|
(9,255 |
) |
|
|
(35,080 |
) |
Interest expense, net |
|
|
(7,681 |
) |
|
|
(7,984 |
) |
|
|
(8,699 |
) |
|
|
(8,377 |
) |
|
|
(32,741 |
) |
Other (expense) income, net |
|
|
(133 |
) |
|
|
172 |
|
|
|
294 |
|
|
|
(17,569 |
) |
|
|
(17,236 |
) |
Income tax expense |
|
|
(158 |
) |
|
|
(250 |
) |
|
|
(248 |
) |
|
|
(297 |
) |
|
|
(953 |
) |
Net income |
|
|
4,992 |
|
|
|
5,513 |
|
|
|
15,515 |
|
|
|
3,760 |
|
|
|
29,780 |
|
Less: Net income attributable to noncontrolling interest |
|
|
1,147 |
|
|
|
1,278 |
|
|
|
3,621 |
|
|
|
836 |
|
|
|
6,882 |
|
Net income attributable to InfraREIT, Inc. |
|
$ |
3,845 |
|
|
$ |
4,235 |
|
|
$ |
11,894 |
|
|
$ |
2,924 |
|
|
$ |
22,898 |
|
Basic EPS (1) |
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
|
$ |
0.65 |
|
Diluted EPS (1) |
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
|
$ |
0.65 |
|
(1) |
Basic and diluted net income per common share are computed independently for each quarter and full year based on the respective average number of common shares outstanding; therefore, the sum of the quarterly net income per common share data may not equal the net income per common share for the year. |
|
23. |
Subsequent Events |
On January 4, 2016, the Company issued an aggregate of 4,735 shares of common stock and 29,722 LTIP Units to seven members of the Company’s board of directors with a grant date fair value of $18.58 per common share or LTIP Unit and a fair value of $0.6 million. The 29,722 LTIP Units are scheduled to vest in January 2017, subject to continued service, and the 4,735 shares of common stock fully vested at issuance.
On January 14, 2016, the Company issued $100.0 million in 10 year senior secured notes, Series B due January 14, 2026. The proceeds from these notes were used to repay the outstanding balance on SDTS’s revolving credit facility and for general operating purposes.
In February 2016, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Cross Valley Project. Currently, negotiations are in progress regarding such purchase.
On March 2, 2016, the Company’s board of directors declared a quarterly dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis, payable on April 21, 2016 to holders of record as of March 31, 2016. The Company’s board of directors also authorized the Operating Partnership to make a distribution of $0.25 per OP Unit to the partners in the Operating Partnership, which includes affiliates of Hunt.
|
InfraREIT, Inc.
SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015
(In thousands)
Description (1) |
|
Encumbrances |
|
|
Initial Cost to Company (2) |
|
|
Cost Subsequent to Acquisition |
|
|
Gross Amount Carried at Period Close (3) |
|
|
Accumulated Depreciation |
|
|
Date of Construction (4) |
|
Date Acquired |
|
Depreciation Life in Latest Income Statements is Computed (5) |
|||||||||
|
|
|
|
|
|
Electric Plant |
|
|
Improvements |
|
|
Carrying Cost |
|
|
Electric Plant Total |
|
|
|
|
|
|
|
|
|
|
|
||||
S/B/C assets |
|
$ |
268,620 |
|
|
$ |
713,502 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
713,502 |
|
|
$ |
(129,770 |
) |
|
(4) |
|
(4) |
|
(5) |
McAllen assets |
|
|
61,676 |
|
|
|
155,970 |
|
|
|
— |
|
|
|
— |
|
|
|
155,970 |
|
|
|
(21,943 |
) |
|
(4) |
|
(4) |
|
(5) |
CREZ assets |
|
|
294,159 |
|
|
|
669,189 |
|
|
|
— |
|
|
|
— |
|
|
|
669,189 |
|
|
|
(29,960 |
) |
|
(4) |
|
(4) |
|
(5) |
Stanton Transmission Loop assets |
|
|
15,767 |
|
|
|
92,572 |
|
|
|
— |
|
|
|
— |
|
|
|
92,572 |
|
|
|
(58,309 |
) |
|
(4) |
|
(4) |
|
(5) |
ERCOT Transmission assets |
|
|
19,917 |
|
|
|
44,062 |
|
|
|
— |
|
|
|
— |
|
|
|
44,062 |
|
|
|
(782 |
) |
|
(4) |
|
(4) |
|
(5) |
(1) |
Asset descriptions correspond to asset groups under individual leases. |
(2) |
Because the Company’s assets consist entirely of electric plant assets, which are regulated by the PUCT, electric plant is stated at original cost, which includes cost of contracted services, direct labor, materials, acquisition adjustments, capitalized interest and overhead items. |
(3) |
See reconciliation on next page. |
(4) |
Because additions and improvements to the T&D assets are ongoing, construction and acquisition dates are not applicable. |
(5) |
Provision for depreciation of electric plant is computed using straight-lines rates as follows: |
Transmission plant |
|
1.69% - 3.15% |
Distribution plant |
|
1.74% - 5.96% |
General plant |
|
0.80% - 5.12% |
InfraREIT, Inc.
SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION
FIXED ASSET RECONCILATION
(In thousands)
|
|
December 31, |
|
||||||
|
|
2015 |
|
|
|
2014 |
|
||
Electric plant |
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,447,247 |
|
|
|
$ |
1,298,946 |
|
Additions |
|
|
235,263 |
|
|
|
|
153,395 |
|
Retirements |
|
|
(7,215 |
) |
(1) |
|
|
(5,094 |
) |
Ending balance |
|
|
1,675,295 |
|
|
|
|
1,447,247 |
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
220,101 |
|
|
|
|
194,569 |
|
Depreciation expense |
|
|
40,211 |
|
|
|
|
35,080 |
|
Retirements |
|
|
(7,215 |
) |
(1) |
|
|
(5,094 |
) |
Cost of removal |
|
|
(12,333 |
) |
|
|
|
(4,454 |
) |
Ending balance |
|
|
240,764 |
|
|
|
|
220,101 |
|
Electric plant, net |
|
$ |
1,434,531 |
|
|
|
$ |
1,227,146 |
|
(1) |
Retirements are shown net of the accumulated depreciation related to the assets that were classified as electric plant held for future use and placed in service as transmission assets during August 2015. |
|
Description of Business
InfraREIT, Inc. is a Maryland corporation and the surviving corporation of a merger (Merger) with InfraREIT, L.L.C., a Delaware limited liability company, completed on February 4, 2015 in connection with the initial public offering (IPO) of InfraREIT, Inc. As used in these financial statements, unless the context requires otherwise or except as otherwise noted, the words “Company” and “InfraREIT” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership.
The Merger was accounted for as a reverse acquisition, which means for accounting purposes the Company treated the assets and liabilities of InfraREIT, Inc. as assumed and incorporated with the assets and liabilities of InfraREIT, L.L.C. The main assets and liabilities assumed were marketable securities of $1.1 million and a note payable of $1.0 million. The marketable securities were sold during February 2015 for $1.1 million resulting in a realized gain of $0.1 million which was recorded in other income (expense), net in the Consolidated Statements of Operations. Additionally, the note payable and associated interest were paid in full in February 2015.
Before the IPO, substantially all of the Company’s business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. InfraREIT, L.L.C. was organized on November 23, 2010 as a Delaware limited liability company that elected and qualified under the Internal Revenue Code of 1986, as amended (the Code), to be taxed as a real estate investment trust (REIT) for federal income tax purposes. InfraREIT, L.L.C. was the general partner of the Operating Partnership prior to the Merger and held a controlling financial investment in InfraREIT LP. After the Merger, InfraREIT, Inc. became the general partner of the Operating Partnership. InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, these financial statements present the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. The operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and the balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.
InfraREIT, L.L.C. was owned by Marubeni Corporation (Marubeni), John Hancock Life Insurance Company (U.S.A.), Teachers Insurance and Annuity Association of America, OpTrust Infrastructure N.A. Inc. (OpTrust) (collectively, founding investors) as well as Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary (Westwood Trust), and other private investors. Since the IPO, InfraREIT, Inc. has been owned by external investors as well as the founding investors, affiliates of Hunt Consolidated, Inc. (HCI) and other private investors.
The Company is externally managed and advised by Hunt Utility Services, LLC (Hunt Manager), a Delaware limited liability company. Hunt Manager is responsible for overseeing the Company’s day-to-day affairs.
The Company holds 71.9% of the outstanding partnership units (OP Units) in the Operating Partnership as of December 31, 2015 and is its general partner. The Company includes the accounts of the Operating Partnership and its subsidiaries in the consolidated financial statements. MC Transmission Holdings, Inc. (MC Transmission), which is a subsidiary of Marubeni Corporation (Marubeni), seven members of the Company’s board of directors and affiliates of HCI hold the other 28.1% of the outstanding OP Units as of December 31, 2015.
Sharyland Distribution & Transmission Services, L.L.C. (SDTS) is the owner of electric transmission and distribution assets (T&D assets) located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). Previously, SDTS held some of its assets through its former wholly owned subsidiaries, SDTS FERC, L.L.C. (SDTS FERC) and Sharyland Projects, L.L.C. (SPLLC). However in June 2015, SDTS FERC were merged with and into SDTS with SDTS as the surviving entity, and in December 2015, SPLLC was merged with and into SDTS with SDTS as the surviving entity (SDTS Merger).
The T&D assets include over 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 megawatt (MW) high-voltage direct current interconnection between Texas and Mexico (Railroad DC Tie). SDTS leases the T&D assets to Sharyland Utilities, L.P. (Sharyland or tenant), a Texas based utility, under several lease agreements, which operates and maintains the T&D assets. SDTS is subject to regulation as an electric utility by the Public Utility Commission of Texas (PUCT).
Initial Public Offering and Reorganization
InfraREIT, Inc. completed its IPO on February 4, 2015, issuing 23,000,000 shares of common stock at a price of $23.00, resulting in gross proceeds of $529.0 million.
Immediately after the closing of the IPO, InfraREIT, Inc. completed the Merger, with InfraREIT, L.L.C. merging with and into InfraREIT, Inc., and InfraREIT, Inc. as the surviving entity and general partner of the Operating Partnership. InfraREIT, Inc. used $172.4 million of the net proceeds from the IPO to fund the cash portion of the consideration issued in the Merger, as described in greater detail below. InfraREIT, Inc. contributed the remaining $323.2 million to the Operating Partnership in exchange for common OP Units (Common OP Units).
The Operating Partnership used the net proceeds from the IPO that it received from InfraREIT, Inc.:
|
· |
to repay an aggregate of $1.0 million of indebtedness to HCI; |
|
· |
to repay an aggregate of $72.0 million of indebtedness outstanding under the Operating Partnership’s revolving credit facility and $150.0 million of indebtedness outstanding under SDTS’s revolving credit facility; |
|
· |
to pay offering expenses (other than the underwriting discounts and commissions and the underwriter structuring fee) of $6.3 million; and |
|
· |
for general corporate purposes. |
The following bullets describe the Merger and related transactions that were effected in the first quarter of 2015 (collectively, the Reorganization).
|
· |
On January 29, 2015, the Operating Partnership effected a reverse unit split whereby each holder of OP Units received 0.938550 OP Units of the same class in exchange for each such unit it held immediately prior to such time, which is referred to as the unit split. Also, on January 29, 2015, InfraREIT, L.L.C. effected a reverse share split whereby each holder of shares received 0.938550 shares of the same class in exchange for each such share it held immediately prior to such time, which is referred to as the share split. All references to unit, share, per unit and per share amounts in these consolidated financial statements and related disclosures have been adjusted to reflect the reverse share split and reverse unit split for all periods presented. |
|
· |
On January 29, 2015, InfraREIT, Inc. issued 1,700,000 shares of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT) as a non-cash reorganization advisory fee in accordance with a structuring fee agreement, resulting in the recognition of a $44.9 million non-cash expense in the first quarter of 2015. |
|
· |
On February 4, 2015, the Operating Partnership issued 1,700,000 OP Units to InfraREIT, Inc. in respect of the structuring fee issuance of 1,700,000 shares of InfraREIT, Inc. common stock described immediately above. |
|
· |
On February 4, 2015, the Operating Partnership issued an aggregate of 28,000 of its profit interest OP Units (LTIP Units) to seven of InfraREIT’s directors. |
|
· |
On February 4, 2015, the Operating Partnership issued 983,418 Common OP Units to Hunt-InfraREIT in settlement of the Operating Partnership’s obligation to issue OP Units to Hunt-InfraREIT related to the CREZ Project. |
|
· |
On February 4, 2015, the Operating Partnership issued Hunt-InfraREIT 1,167,287 Common OP Units as an accelerated payment of a portion of the carried interest agreed to in 2010 in connection with the organization of InfraREIT, L.L.C. To effect the shift in ownership from the pre-IPO investors to Hunt-InfraREIT, an equal number of OP Units held by InfraREIT, L.L.C. in the Operating Partnership were canceled at the same time. |
|
· |
On February 4, 2015, as a result of the Merger, (1) holders of 8,000,000 common shares of InfraREIT, L.L.C. received $21.551 per common share, which was equal to the IPO price less the underwriting discounts and commissions and an underwriting structuring fee, (2) holders of the remaining 19,617,755 common shares of InfraREIT, L.L.C. received 19,617,755 shares of InfraREIT, Inc. Class A common stock and (3) holders of 25,145 Class C shares of InfraREIT, L.L.C. received 25,145 shares of InfraREIT, Inc. Class C common stock. |
|
· |
The founding investors each received both cash and stock consideration in the Merger, and all other pre-IPO investors received shares of InfraREIT, Inc. Class A common stock or Class C common stock in the Merger. InfraREIT, L.L.C. gave each other holder of its common shares the opportunity to receive cash consideration in the Merger, and each such holder elected (or was deemed to have elected) to receive shares of Class A common stock under the merger agreement. All holders of InfraREIT, L.L.C.’s Class C common shares, as a separate class, received shares of Class C common stock pursuant to the merger agreement. |
|
· |
On February 4, 2015, InfraREIT, Inc. contributed $323.2 million to the Operating Partnership in exchange for 15,000,000 Common OP Units. |
|
· |
On February 4, 2015, InfraREIT, Inc. issued 1,551,878 shares of common stock to Hunt-InfraREIT in exchange for 1,551,878 OP Units tendered for redemption by Hunt-InfraREIT in accordance with a redemption agreement. |
|
· |
On February 4, 2015, InfraREIT, Inc. purchased 6,242,999 common shares in consideration for the issuance of a promissory note to Westwood Trust in the principal amount of $66.5 million. |
|
· |
Westwood Trust immediately transferred the promissory note to MC Transmission, and, immediately following receipt of the promissory note, MC Transmission purchased 3,325,874 Common OP Units from the Operating Partnership in consideration for the assignment of the promissory note. The promissory note was then transferred to InfraREIT, Inc. in exchange for the redemption of 6,242,999 OP Units held by InfraREIT, Inc. and the subsequent cancellation of such promissory note, resulting in no cash consideration being paid or received pursuant to the purchase from Westwood Trust or the sale of Common OP Units to MC Transmission. |
|
· |
On March 9, 2015, the Operating Partnership issued 2,329,283 Common OP Units to Hunt-InfraREIT, and InfraREIT, Inc. canceled an equal number of shares of Class A common stock and Class C common stock. Each remaining share of Class A common stock and Class C common stock then converted to common stock on a one-for-one basis. This issuance settled InfraREIT, L.L.C.’s pre-IPO investors’ carried interest obligation agreed to by Hunt-InfraREIT under the investment documents entered into by the parties in 2010. |
|
· |
On March 9, 2015, the 11,264 long-term incentive plan units issued to two of InfraREIT, L.L.C.’s non-voting directors in May 2014 converted on a one-to-one basis to Common OP Units. |
Limited Partnership Agreement
In connection with the Reorganization, the Company adopted a Second Amended and Restated Limited Partnership Agreement which became effective with the closing of the IPO. Upon completion of the IPO, the Operating Partnership had five types of OP Units outstanding: Common OP Units, Class A OP Units, Class B OP Units, Class C OP Units and LTIP Units.
On March 9, 2015, the Operating Partnership issued Common OP Units in exchange for outstanding Class A OP Units and Class C OP Units. Such Common OP Units were allocated among the holders of Class A OP Units and Class C OP Units, and the Class A OP Units, Class B OP Units and Class C OP Units were canceled. Following such allocation, the Company adopted a Third Amended and Restated Limited Partnership Agreement that eliminated the provisions related to the Reorganization and the description of the Class A OP Units, Class B OP Units and Class C OP Units; however, it continues to allow amendments to authorize and issue additional classes of OP Units in the future.
Principles of Consolidation and Presentation
The consolidated financial statements include the Company’s accounts and the accounts of all other entities in which the Company has a controlling financial interest with noncontrolling interest of consolidated subsidiaries reported separately. All significant intercompany balances and transactions have been eliminated. SDTS maintains (and prior to their merger with and into SDTS, SDTS FERC and SPLLC also maintained) accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). In accordance with the applicable consolidation guidance, the Company’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and the PUCT which regulate its subsidiaries’ operations.
The Company and Hunt Manager are parties to a management agreement under which Hunt Manager provides certain services to the Company for a management fee. Historically, the Company’s Consolidated Statements of Operations included all costs incurred on the Company’s behalf by Hunt Manager, including compensation expenses, rent expense and other costs included in general and administrative expense on the Consolidated Statements of Operations totaling $11.6 million for the year ended December 31, 2013. On June 24, 2014, the Company’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, the Company’s general and administrative expenses for the years ended December 31, 2015 and 2014 do not include costs incurred by Hunt Manager during those periods, but do include management fees paid to Hunt Manager as well as additional costs the Company incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, the Company, through its subsidiary InfraREIT LP, incurred costs associated with management fees of $12.3 million and $10.0 million during the years ended December 31, 2015 and 2014, respectively.
The accompanying historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. The historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Regulation
For regulatory purposes, including regulatory reporting, the T&D assets owned by SDTS and the operations of Sharyland are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to SDTS (and previously applied to its former subsidiaries). The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 7, Other Assets.
SDTS capitalizes allowance for funds used during construction (AFUDC) during the construction of its T&D assets, and SDTS lease agreements with Sharyland rely on FERC definitions and accepted standards regarding capitalization of expense to define key terms in the lease such as footprint projects, which are the amounts SDTS is obligated to fund pursuant to the leases. The amounts funded for these footprint projects include allocations of Sharyland employees’ time and overhead allocations consistent with FERC policies and U.S. GAAP.
Sharyland cannot be removed as lessee without prior approval from the PUCT. SDTS transacts with its tenant through several lease arrangements covering the T&D assets. These lease agreements include provisions for annual additions and retirements of the T&D assets in the form of new construction or other capitalized projects.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses and believes that the risk is not significant.
Restricted Cash
Restricted cash represents the principal and interest payable for two consecutive periods associated with the $25.0 million senior secured notes described in Note 9, Long-Term Debt.
Inventory
Inventory consists primarily of transmission parts and materials used in the construction of electric plant. Inventory is valued at average cost when it is acquired and used.
Assets Held for Sale
The Company records assets held for sale when certain criteria have been met as specified by Accounting Standard Codification (ASC) Topic 360, Property, Plant and Equipment. These criteria include management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to be completed within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell.
Electric Plant, net
Electric plant equipment is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments, and overhead items. In accordance with the FERC uniform system of accounts guidance, SDTS recognizes as a cost to construction work in progress (CWIP) AFUDC on other funds classified as other income, net and AFUDC on borrowed funds classified as a reduction of the interest expense, net on the Consolidated Statements of Operations.
The AFUDC blended rate utilized was 6.6%, 4.1% and 9.1% for the years ended December 31, 2015, 2014 and 2013, respectively.
Electric plant held for future use is included in electric plant, net.
Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future. The regulatory liability will be relieved as cost of removal charges are incurred upon asset retirement.
Repairs are the responsibility of Sharyland as the lessee under the lease agreements. Betterments and improvements generally are the responsibility of SDTS and are capitalized.
Provision for depreciation of electric plant is computed using composite straight-line rates as follows:
|
|
Years Ended December 31, |
||||
|
|
2015 |
|
2014 |
|
2013 |
Transmission plant |
|
1.69% - 3.15% |
|
1.69% - 3.15% |
|
2.57% - 3.00% |
Distribution plant |
|
1.74% - 5.96% |
|
1.74% - 5.96% |
|
2.50% - 3.10% |
General plant |
|
0.80% - 5.12% |
|
0.80% - 5.12% |
|
2.50% - 33.33% |
Impairment of Long-Lived Assets
The Company evaluates impairment of its long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable through expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.
Goodwill
Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise.
Accounting Standard Update (ASU) 2011-08, Testing of Goodwill for Impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not greater than the carrying amount, a quantitative calculation would not be needed.
The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2015, did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.
Investments
An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless (1) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other than temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.
Deferred Financing Costs
Amortization of deferred financing costs associated with the issuance of the $25.0 million senior secured notes and the revolving credit facilities is computed using the straight-line method over the life of the loan which approximates the effective interest method. Amortization of deferred financing costs associated with the Company’s regulated subsidiaries is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.
Derivative Instruments
The Company uses derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). ASC Topic 815, Derivatives and Hedging, requires all derivatives be recorded on the Consolidated Balance Sheets at fair value. The Company determines the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on the Consolidated Balance Sheets at its fair value.
Unrealized gains and losses on the effective cash flow hedging instrument are recorded as components of accumulated other comprehensive income. Realized gains and losses on the cash flow hedging instrument are recorded as adjustments to interest expense. Settlements of derivatives are included within operating activities on the Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument is recorded as an adjustment to interest expense in the current period.
Income Taxes
InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2010, and InfraREIT, Inc. will elect to be treated as a REIT commencing with its taxable year ended December 31, 2015. As a result, the Company generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of other organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). The Company’s policy is to distribute at least 100% of its taxable income. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements. Even if the Company maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, including excise taxes, and federal income taxes on any undistributed income.
At December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of $1.0 million. Of this amount $0.2 million was used for the year ended December 31, 2015 to offset an equivalent amount of regular taxable earnings. The net operating loss carryforward for federal tax purposes was $0.8 million at December 31, 2015 and will expire in 2026. The net operating loss carryforwards for alternative minimum tax (AMT) are generally limited to offsetting 90% of the alternative minimum taxable income (AMTI) for a given year.
The Company recognizes the impact of tax return positions that are more-likely-than-not to be sustained upon audit. Significant judgment is required to evaluate uncertain tax positions. The evaluation of uncertain tax positions is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
|
|
Years Ended December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Balance at January 1 |
|
$ |
2,135 |
|
|
$ |
1,238 |
|
Additions based on tax positions related to the current year |
|
|
789 |
|
|
|
897 |
|
Balance at December 31 |
|
$ |
2,924 |
|
|
$ |
2,135 |
|
The balance of unrecognized tax benefits relates to state taxes, all of which would impact the effective tax rate if recognized. The Company does not expect the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.
During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalties of $0.2 million, $0.1 million and $0.1 million, respectively. The Company had accrued interest and penalties of $0.4 million and $0.2 million at December 31, 2015 and 2014, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2012.
Revenue Recognition
The Company, through its subsidiaries, is the owner of the T&D assets and recognizes lease revenue over the term of lease agreements with Sharyland. The Company’s lease revenue includes annual payments and additional rents based upon a percentage of revenue earned by Sharyland on the leased assets in excess of annual specified breakpoints. In accordance with the lease agreements, Sharyland, the lessee and operator of the T&D assets, is responsible for the maintenance and operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC or any other regulatory entity with jurisdiction over the T&D assets. Each of the lease agreements with Sharyland is a net lease that obligates the lessee to pay all property related expenses, including maintenance, repairs, taxes and insurance, and to comply with the terms of the SDTS secured credit facilities and note purchase agreements. The Company recognizes base rent under these leases on a straight-line basis over the applicable lease term.
The lease agreements provide for periodic supplemental adjustments of base rent based upon capital expenditures made by SDTS. The Company recognizes supplemental adjustments of base rent as a modification under these leases on a prospective straight-line basis over the applicable lease term. The Company recognizes percentage rent under these leases once the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints.
Asset Retirement Obligations
The Company has identified, but not recognized, asset retirement obligation liabilities related to the T&D assets, as a result of certain easements on property on which the Company has assets. Generally, such easements are perpetual and require only the retirement and removal of the assets upon cessation of the property’s use. Management has not estimated and recorded a retirement liability for such easements because the Company plans to use the facilities indefinitely.
Interest Expense, net
The Company’s interest expense, net primarily consists of interest expense from the senior notes and credit facilities, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt. AFUDC on borrowed funds of $1.8 million, $1.6 million and $12.6 million was recognized as a reduction of the Company’s interest expense during the years ended December 31, 2015, 2014 and 2013, respectively.
Other Income, net
AFUDC on other funds of $3.0 million, $1.1 million and $21.7 million was recognized in other income, net during the years ended December 31, 2015, 2014 and 2013, respectively.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income, which consists of unrealized gains and losses on derivative financial instruments. The Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedging instruments as other comprehensive income.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures, sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities in accordance with U.S. GAAP.
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Recently Issued Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. This amendment affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for periods beginning after December 15, 2015 with early adoption permitted. The adoption of the new guidance will not have an impact on the current consolidation, but may change the accounting associated with future transactions.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted, the new guidance will be applied on a retrospective basis with each balance sheet presented reflecting the new guidance along with transitional disclosures. The Company will adopt this presentation beginning with the three months ended March 31, 2016. The adoption will impact the Company’s presentation of its financial position, but will not have an impact on the Company’s results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined instead of retrospectively applying the adjustments. The change in provisional amounts will be recorded in the income statement for any effect on earnings for changes in depreciation, amortization or other income effect calculated as if the accounting had been completed at the acquisition date. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted in the first quarter of 2016, the new guidance will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption is not expected to have an impact on the Company’s financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.
Reportable Segments
U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Management has determined that the Company has one reportable segment, with activities related to ownership and leasing of rate-regulated electric T&D assets.
|
Provision for depreciation of electric plant is computed using composite straight-line rates as follows:
|
|
Years Ended December 31, |
||||
|
|
2015 |
|
2014 |
|
2013 |
Transmission plant |
|
1.69% - 3.15% |
|
1.69% - 3.15% |
|
2.57% - 3.00% |
Distribution plant |
|
1.74% - 5.96% |
|
1.74% - 5.96% |
|
2.50% - 3.10% |
General plant |
|
0.80% - 5.12% |
|
0.80% - 5.12% |
|
2.50% - 33.33% |
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
|
|
Years Ended December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Balance at January 1 |
|
$ |
2,135 |
|
|
$ |
1,238 |
|
Additions based on tax positions related to the current year |
|
|
789 |
|
|
|
897 |
|
Balance at December 31 |
|
$ |
2,924 |
|
|
$ |
2,135 |
|
|
Prepaids and other current assets are as follows:
|
|
December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Offering costs |
|
$ |
— |
|
|
$ |
4,397 |
|
Prepaid insurance |
|
|
267 |
|
|
|
249 |
|
Other |
|
|
293 |
|
|
|
251 |
|
Total prepaids and other current assets |
|
$ |
560 |
|
|
$ |
4,897 |
|
|
The major classes of electric plant are as follows:
|
|
December 31, |
|
|||||
(In thousands) |
|
2015 |
|
|
2014 |
|
||
Electric plant: |
|
|
|
|
|
|
|
|
Transmission plant |
|
$ |
1,080,050 |
|
|
$ |
966,560 |
|
Distribution plant |
|
|
457,988 |
|
|
|
387,329 |
|
General plant |
|
|
15,655 |
|
|
|
15,018 |
|
Total plant in service |
|
|
1,553,693 |
|
|
|
1,368,907 |
|
CWIP |
|
|
121,602 |
|
|
|
41,222 |
|
Total electric plant |
|
|
1,675,295 |
|
|
|
1,410,129 |
|
Accumulated depreciation |
|
|
(240,764 |
) |
|
|
(220,101 |
) |
Electric plant held for future use |
|
|
— |
|
|
|
37,118 |
|
Electric plant, net |
|
$ |
1,434,531 |
|
|
$ |
1,227,146 |
|
|
Other assets are as follows:
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
||||||||||||||||||
(In thousands) |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||||
Deferred financing costs |
|
$ |
1,292 |
|
|
$ |
(368 |
) |
|
$ |
924 |
|
|
$ |
1,290 |
|
|
$ |
(143 |
) |
|
$ |
1,147 |
|
Other regulatory assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
27,112 |
|
|
|
(13,208 |
) |
|
|
13,904 |
|
|
|
25,701 |
|
|
|
(12,693 |
) |
|
|
13,008 |
|
Deferred costs recoverable in future years |
|
|
23,793 |
|
|
|
— |
|
|
|
23,793 |
|
|
|
23,793 |
|
|
|
— |
|
|
|
23,793 |
|
Other regulatory assets, net |
|
|
50,905 |
|
|
|
(13,208 |
) |
|
|
37,697 |
|
|
|
49,494 |
|
|
|
(12,693 |
) |
|
|
36,801 |
|
Investments |
|
|
2,519 |
|
|
|
— |
|
|
|
2,519 |
|
|
|
2,519 |
|
|
|
— |
|
|
|
2,519 |
|
Other assets |
|
$ |
54,716 |
|
|
$ |
(13,576 |
) |
|
$ |
41,140 |
|
|
$ |
53,303 |
|
|
$ |
(12,836 |
) |
|
$ |
40,467 |
|
|
Long-term debt consisted of the following:
|
|
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|
||||||||||
(In thousands) |
|
Maturity Date |
|
Amount Outstanding |
|
|
Interest Rate |
|
|
Amount Outstanding |
|
|
Interest Rate |
|
|
||||
Senior secured notes - $53.5 million |
|
December 30, 2029 |
|
$ |
44,512 |
|
|
|
7.25 |
% |
|
$ |
46,291 |
|
|
|
7.25 |
% |
|
Senior secured notes - $110.0 million |
|
September 30, 2030 |
|
|
101,627 |
|
|
|
6.47 |
% |
|
|
105,622 |
|
|
|
6.47 |
% |
|
Senior secured notes - $25.0 million |
|
December 30, 2020 |
|
|
18,750 |
|
|
|
8.50 |
% |
|
|
20,000 |
|
|
|
8.50 |
% |
|
Senior secured notes - $60.0 million |
|
June 20, 2018 |
|
|
60,000 |
|
|
|
5.04 |
% |
|
|
60,000 |
|
|
|
5.04 |
% |
|
Senior secured notes - $400.0 million |
|
December 3, 2025 |
|
|
400,000 |
|
|
|
3.86 |
% |
|
|
— |
|
|
N/A |
|
|
|
Senior secured credit facilities - $407.0 million |
|
June 20, 2018 |
|
|
— |
|
|
N/A |
|
|
|
397,843 |
|
|
|
2.42 |
% |
* |
|
Total long-term debt |
|
|
|
|
624,889 |
|
|
|
|
|
|
|
629,756 |
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
|
|
(7,423 |
) |
|
|
|
|
|
|
(19,234 |
) |
|
|
|
|
|
Debt classified as long-term debt |
|
|
|
$ |
617,466 |
|
|
|
|
|
|
$ |
610,522 |
|
|
|
|
|
|
* |
Interest based on LIBOR at December 31, 2014 plus an applicable margin. |
Future maturities of long-term debt are as follows for the years ended December 31:
(In thousands) |
|
Total |
|
|
2016 |
|
$ |
7,423 |
|
2017 |
|
|
7,849 |
|
2018 |
|
|
68,305 |
|
2019 |
|
|
8,792 |
|
2020 |
|
|
21,813 |
|
Thereafter |
|
|
510,707 |
|
Total |
|
$ |
624,889 |
|
|
Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:
|
|
Carrying |
|
|
Fair Value |
|
||||||||||
(In thousands) |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
624,889 |
|
|
$ |
— |
|
|
$ |
657,270 |
|
|
$ |
— |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
629,756 |
|
|
$ |
— |
|
|
$ |
658,306 |
|
|
$ |
— |
|
Contingent consideration - long-term |
|
|
27,378 |
|
|
|
— |
|
|
|
27,378 |
|
|
|
— |
|
Changes in Level 3 financial instruments were as follows:
(In thousands) |
|
Year Ended December 31, 2014 |
|
|
Contingent Consideration |
|
|
|
|
Beginning Balance |
|
$ |
12,554 |
|
Non-cash noncontrolling interest equity issuance |
|
|
(3,533 |
) |
Change in fair value of contingent consideration |
|
|
18,357 |
|
Gross transfers out of Level 3 |
|
|
(27,378 |
) |
Ending Balance |
|
$ |
— |
|
|
There were no changes in accumulated other comprehensive loss for the year ended December 31, 2015. Changes in accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 associated with the interest rate swap designated as a cash flow hedge were as follows:
(In thousands) |
|
Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc. |
|
|
Accumulated Other Comprehensive Loss Attributable to Noncontrolling Interest |
|
|
Total Accumulated Other Comprehensive Loss |
|
|||
Year Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
$ |
(77 |
) |
|
$ |
28 |
|
|
$ |
(49 |
) |
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
687 |
|
|
|
206 |
|
|
|
893 |
|
Net period other comprehensive income |
|
$ |
610 |
|
|
$ |
234 |
|
|
$ |
844 |
|
Year Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
$ |
(180 |
) |
|
$ |
(56 |
) |
|
$ |
(236 |
) |
Amounts reclassified from accumulated other comprehensive loss |
|
|
1,180 |
|
|
|
379 |
|
|
|
1,559 |
|
Net period other comprehensive income |
|
$ |
1,000 |
|
|
$ |
323 |
|
|
$ |
1,323 |
|
|
The following table shows the composition of the Company’s lease revenue:
|
|
Years Ended December 31, |
|
|||||||||
(In thousands) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|||
Base rent (straight-line) |
|
$ |
125,669 |
|
|
$ |
106,746 |
|
|
$ |
57,979 |
|
Percentage rent |
|
|
25,534 |
|
|
|
27,669 |
|
|
|
15,214 |
|
Total lease revenue |
|
$ |
151,203 |
|
|
$ |
134,415 |
|
|
$ |
73,193 |
|
Future minimum rent revenue expected in accordance with these lease agreements is as follows for the years ended December 31:
(In thousands) |
|
Total |
|
|
2016 |
|
$ |
148,751 |
|
2017 |
|
|
155,855 |
|
2018 |
|
|
81,673 |
|
2019 |
|
|
78,923 |
|
2020 |
|
|
65,601 |
|
Thereafter |
|
|
12,145 |
|
Total |
|
$ |
542,948 |
|
|
Supplemental cash flow information and non-cash investing and financing activities are as follows:
|
|
Years Ended December 31, |
|
|||||||||
(In thousands) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
25,850 |
|
|
$ |
29,981 |
|
|
$ |
26,403 |
|
Cash (received) paid during the period for taxes |
|
|
(31 |
) |
|
|
75 |
|
|
|
36 |
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash right of way additions to electric plant |
|
|
— |
|
|
|
337 |
|
|
|
1,275 |
|
Change in accrued additions to electric plant |
|
|
6,942 |
|
|
|
20,633 |
|
|
|
8,876 |
|
Allowance for funds used during construction - debt |
|
|
1,767 |
|
|
|
1,635 |
|
|
|
12,579 |
|
Net non-cash equity issuances related to the Merger and Reorganization |
|
|
97,193 |
|
|
|
— |
|
|
|
— |
|
Net non-cash noncontrolling equity issuances related to the Merger and Reorganization |
|
|
119,607 |
|
|
|
— |
|
|
|
— |
|
Non-cash members' contributions |
|
|
— |
|
|
|
— |
|
|
|
369 |
|
Non-cash noncontrolling interests contributions |
|
|
— |
|
|
|
— |
|
|
|
119 |
|
Non-cash noncontrolling interests equity issuance |
|
|
755 |
|
|
|
4,648 |
|
|
|
32,052 |
|
Dividends and distributions payable |
|
|
13,634 |
|
|
|
14,130 |
|
|
|
— |
|
|
Summarized unaudited consolidated quarterly information for the years ended December 31 follows:
(In thousands, except per share data) |
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
Year |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue |
|
$ |
29,372 |
|
|
$ |
29,458 |
|
|
$ |
41,452 |
|
|
$ |
50,921 |
|
|
$ |
151,203 |
|
General and administrative expense |
|
|
(48,733 |
) |
|
|
(4,728 |
) |
|
|
(5,504 |
) |
|
|
(5,641 |
) |
|
|
(64,606 |
) |
Depreciation |
|
|
(9,508 |
) |
|
|
(9,671 |
) |
|
|
(10,259 |
) |
|
|
(10,773 |
) |
|
|
(40,211 |
) |
Interest expense, net |
|
|
(7,422 |
) |
|
|
(6,939 |
) |
|
|
(6,723 |
) |
|
|
(7,470 |
) |
|
|
(28,554 |
) |
Other income, net |
|
|
626 |
|
|
|
847 |
|
|
|
707 |
|
|
|
868 |
|
|
|
3,048 |
|
Income tax expense |
|
|
(208 |
) |
|
|
(124 |
) |
|
|
(243 |
) |
|
|
(374 |
) |
|
|
(949 |
) |
Net (loss) income |
|
|
(35,873 |
) |
|
|
8,843 |
|
|
|
19,430 |
|
|
|
27,531 |
|
|
|
19,931 |
|
Less: Net (loss) income attributable to noncontrolling interest |
|
|
(9,000 |
) |
|
|
2,481 |
|
|
|
5,458 |
|
|
|
7,725 |
|
|
|
6,664 |
|
Net (loss) income attributable to InfraREIT, Inc. |
|
$ |
(26,873 |
) |
|
$ |
6,362 |
|
|
$ |
13,972 |
|
|
$ |
19,806 |
|
|
$ |
13,267 |
|
Basic EPS (1) |
|
$ |
(0.65 |
) |
|
$ |
0.15 |
|
|
$ |
0.32 |
|
|
$ |
0.45 |
|
|
$ |
0.31 |
|
Diluted EPS (1) |
|
$ |
(0.65 |
) |
|
$ |
0.15 |
|
|
$ |
0.32 |
|
|
$ |
0.45 |
|
|
$ |
0.31 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue |
|
$ |
24,837 |
|
|
$ |
25,225 |
|
|
$ |
39,309 |
|
|
$ |
45,044 |
|
|
$ |
134,415 |
|
General and administrative expense |
|
|
(3,412 |
) |
|
|
(3,284 |
) |
|
|
(6,143 |
) |
|
|
(5,786 |
) |
|
|
(18,625 |
) |
Depreciation |
|
|
(8,461 |
) |
|
|
(8,366 |
) |
|
|
(8,998 |
) |
|
|
(9,255 |
) |
|
|
(35,080 |
) |
Interest expense, net |
|
|
(7,681 |
) |
|
|
(7,984 |
) |
|
|
(8,699 |
) |
|
|
(8,377 |
) |
|
|
(32,741 |
) |
Other (expense) income, net |
|
|
(133 |
) |
|
|
172 |
|
|
|
294 |
|
|
|
(17,569 |
) |
|
|
(17,236 |
) |
Income tax expense |
|
|
(158 |
) |
|
|
(250 |
) |
|
|
(248 |
) |
|
|
(297 |
) |
|
|
(953 |
) |
Net income |
|
|
4,992 |
|
|
|
5,513 |
|
|
|
15,515 |
|
|
|
3,760 |
|
|
|
29,780 |
|
Less: Net income attributable to noncontrolling interest |
|
|
1,147 |
|
|
|
1,278 |
|
|
|
3,621 |
|
|
|
836 |
|
|
|
6,882 |
|
Net income attributable to InfraREIT, Inc. |
|
$ |
3,845 |
|
|
$ |
4,235 |
|
|
$ |
11,894 |
|
|
$ |
2,924 |
|
|
$ |
22,898 |
|
Basic EPS (1) |
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
|
$ |
0.65 |
|
Diluted EPS (1) |
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
|
$ |
0.65 |
|
(1) |
Basic and diluted net income per common share are computed independently for each quarter and full year based on the respective average number of common shares outstanding; therefore, the sum of the quarterly net income per common share data may not equal the net income per common share for the year. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|