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1. Organization and Operations
Cypress Energy Partners, L.P. (the “Partnership”) is a Delaware limited partnership formed in 2013 to provide independent pipeline inspection and integrity services to producers and pipeline companies and to provide saltwater disposal (“SWD”) and other water and environmental services to U.S. onshore oil and natural gas producers and trucking companies. Trading of our common units began January 15, 2014 on the New York Stock Exchange under the symbol “CELP.” At our Initial Public Offering (“IPO”), 4,312,500 of our outstanding 5,920,467 common units were made available to the general public. The remaining common units and 100% of the subordinated units are constructively owned by affiliates, employees and directors of the Partnership.
Our business is organized into the Pipeline Inspection Services (“PIS”), Integrity Services (“IS”) and Water and Environmental Services (“W&ES”) reportable segments. In conjunction with our acquisition of a 51% interest in Brown Integrity, LLC (see Note 4), we changed our reportable segments during the second quarter by adding the IS segment (see Note 11). In addition, the Pipeline Inspection and Integrity Services segment was renamed Pipeline Inspection Services. PIS provides pipeline inspection and other services to energy exploration and production (“E&P”) and mid-stream companies and their vendors throughout the United States and Canada. The inspectors of PIS perform a variety of inspection services on midstream pipelines, gathering systems and distribution systems, including data gathering and supervision of third-party construction, inspection, and maintenance and repair projects.
IS provides independent integrity services to major natural gas and petroleum pipeline companies, as well as pipeline construction companies located throughout the United States. Field personnel in this segment primarily perform hydrostatic testing on newly constructed and existing natural gas and petroleum pipelines.
W&ES provides services to oil and natural gas producers and trucking companies through its ownership and operation of eight commercial SWD facilities in the Bakken Shale region of the Williston Basin in North Dakota and two in the Permian Basin in Texas. All of the facilities utilize specialized equipment and remote monitoring to minimize downtime and increase efficiency for peak utilization. These facilities also contain oil skimming processes that remove any remaining oil from water delivered to the sites. In addition to these SWD facilities, we provide management and staffing services for third-party SWD facilities in the Bakken Shale region, pursuant to management agreements. We also own a 25% member interest in one of the managed wells.
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2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2015 and 2014 include our accounts and those of our controlled subsidiaries. Investments where we do not have the ability to exercise control, but do have the ability to exercise significant influence, are accounted for using the equity method of accounting. All significant intercompany transactions and account balances have been eliminated in consolidation. The Condensed Consolidated Balance Sheet at December 31, 2014 is derived from audited financial statements.
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Condensed Consolidated Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Condensed Consolidated Financial Statements do not include all the information and notes required by GAAP for complete consolidated financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Condensed Consolidated Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2014 included in our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2015. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Partnership’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies are consistent with those disclosed in Note 2 included in our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2015, containing our amended Consolidated Financial Statements for the year ended December 31, 2014.
Income Taxes
A publicly-traded partnership is required to generate at least 90% of its gross income (as defined for federal income tax purposes) from certain qualifying sources. At least 90% of our gross income has been qualifying income since our IPO.
As a limited partnership, we generally are not subject to federal, state or local income taxes. The tax on the Partnership’s net income is generally borne by the individual partners. Net income for financial statement purposes may differ significantly from taxable income of the partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregated difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partners’ tax attributes in us is not available to us. The Partnership’s Canadian activity remains taxable in Canada, as well as the activities of a wholly owned subsidiary, Tulsa Inspection Resources – PUC, LLC (“TIR-PUC”), which has elected to be taxed as a corporation for U.S. federal income tax purposes. Consequently, the Partnership records income tax expense for our Canadian operations, our U.S. corporate operations and any state income and franchise taxes specifically applicable to the Partnership.
Non-controlling Interest
We have certain consolidated subsidiaries in which outside parties own interests. The non-controlling interest shown in our Condensed Consolidated Financial Statements represents the other owners’ share of these entities.
Identifiable Intangible Assets
Our recorded identifiable intangible assets primarily include customer lists, trademarks and trade names. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which is the period over which the asset is expected to contribute directly or indirectly to our future cash flows. We have no indefinite-lived intangibles other than goodwill. The determination of the fair value of the intangible assets and the estimated useful lives are based on an analysis of all pertinent factors including (1) the use of widely-accepted valuation approaches, the income approach, or the cost approach, (2) our expected use of the asset, (3) the expected useful life of related assets, (4) any legal, regulatory, or contractual provisions, including renewal or extension periods that would cause substantial costs or modifications to existing agreements, and (5) the effects of demand, competition, and other economic factors. Should any of the underlying assumptions indicate that the value of the intangible assets might be impaired, we may be required to reduce the carrying value and subsequent useful life of the asset. If the underlying assumptions governing the amortization of an intangible asset were later determined to have significantly changed, we may be required to adjust the amortization period of such asset to reflect any new estimate of its useful life. Any write-down of the value or unfavorable change in the useful life of an intangible asset would increase expense at that time. There were no impairments of identifiable intangible assets during the three and six month periods ended June 30, 2015 or 2014.
Goodwill
Goodwill is not amortized, but is subject to an annual review on November 1 (or at other dates if events or changes in circumstances indicate that the carrying value of goodwill may be impaired) for impairment at a reporting unit level. The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. A reporting unit is an operating segment or a component that is one level below an operating segment. We have determined that PIS, IS and W&ES are the appropriate reporting units for testing goodwill impairment. The accounting estimate relative to assessing the impairment of goodwill is a critical accounting estimate for each of our reportable segments. There were no impairments of goodwill during the three and six month periods ended June 30, 2015 or 2014.
Impairments of Long-Lived Assets
We assess property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, changes in regulatory and political environments and historical and future cash flow and profitability measurements. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation on operating expenses and the outlook for national or regional market supply and demand for the services we provide. There were no recorded impairments of long-lived assets for the three and six month periods ended June 30, 2015 or 2014.
New Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers in May 2014. ASU 2014-09 is intended to clarify the principles for recognizing revenue and develop a common standard for recognizing revenue for GAAP and International Financial Reporting Standards that is applicable to all organizations. The Partnership was originally required to comply with this ASU beginning in 2017. We are currently evaluating the impact of this ASU on the financial information of the Partnership. We do not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows. On July 9, 2015, the FASB voted to delay the effective date to periods beginning after December 15, 2017.
The FASB issued ASU 2015-03 – Interest – Imputation of Interest in April 2015. This guidance requires debt issuance costs related to our long-term debt (currently reflected as a non-current asset) to be presented on the balance sheet as a reduction of the carrying amount of the long-term debt. The Partnership will be required to comply with this ASU beginning in 2016. It requires retrospective application and we plan to adopt this guidance beginning in the first quarter of 2016. We are currently reviewing the new requirements to determine the impact this guidance will have on our Consolidated Financial Statements.
The FASB issued ASU 2015-06 – Earnings Per Share in April 2015. The amendments in this update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. The amendments should be applied retrospectively for all financial statements presented. This ASU will be effective for fiscal and interim periods beginning after December 15, 2015. The Partnership does not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows.
In June 2015, the FASB issued ASU 2015-10 – Technical Corrections and Improvements. The amendments in this update represent changes to clarify the Codification, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to the Partnership. Specifically as it relates to the Partnership, for nonrecurring fair value measurements estimated at a date during the reporting period other than the end of the reporting period, we are required to clearly indicate that the fair value information presented is not as of the period’s end as well as the date or period that the measurement was taken. The effective date of this guidance varies based on the amendments in the ASU, however, the fair value portion of the ASU referred to above is effective upon its issuance.
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3. Initial Public Offering
On January 21, 2014, the Partnership completed its IPO consisting of 4,312,500 common units, representing limited partner interests in the Partnership at a price to the public of $20.00 per common unit ($18.70 per common unit, net of underwriting discounts, commissions and fees) which included a 562,500 unit over-allotment option that was exercised by the underwriters. We received proceeds of $80.2 million from the IPO, after deducting underwriting discounts and structuring fees. The net proceeds from the IPO were distributed to Cypress Energy Holdings II, LLC (“Holdings II”), a wholly owned subsidiary of Cypress Energy Holdings, LLC (“Holdings”), as reimbursement for certain capital expenditures it incurred with respect to assets contributed to us.
Total incurred deferred offering costs of $2.9 million were charged to Owners’ Equity against the proceeds of the IPO. The Partnership incurred $0.4 million of offering costs during the six months ended June 30, 2014 that were expensed as incurred. No offering costs were incurred during the three or six month periods ended June 30, 2015. These non-recurring costs are reflected as offering costs in the Condensed Consolidated Statements of Income for the six months ended June 30, 2014.
In connection with the IPO, Holdings II conveyed a 100% interest in Cypress Energy Partners, LLC ("CEP LLC") in exchange for a 47.8% limited partner interest in the Partnership and the right to receive the proceeds of the IPO. In addition, affiliates of Holdings, conveyed an aggregate 50.1% interest in Tulsa Inspection Resources, LLC (“TIR LLC”), Tulsa Inspection Resources – Nondestructive Examination, LLC and Tulsa Inspection Resources Holdings, LLC (collectively, the “TIR Entities”) to the Partnership in exchange for an aggregate 15.7% limited partner interest in the Partnership.
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4. Acquisitions
Brown Integrity, LLC
On May 6, 2015, the Partnership acquired a 51% interest in Brown Integrity, LLC (“Brown”), an integrity services business focused on hydrostatic testing, for preliminary consideration of $10.6 million which was financed through the Partnership’s credit facilities. In addition, provisions in the purchase agreement provide for earn-out payments totaling up to $9.5 million dependent upon Brown’s achieving certain financial milestones over a two-year period post-acquisition. The Partnership also has the right, but not the obligation, to acquire the remaining 49% of Brown commencing May 1, 2017 pursuant to a formula that would yield a maximum purchase price of $28 million in any combination of cash and Partnership units. The effective date of the transaction was May 1, 2015.
The acquisition of Brown qualified as a business combination and is accounted for under the acquisition method of accounting. As of the end of the reporting period, the initial accounting for the business combination is incomplete. The following information remains outstanding as of the end of the reporting period which is preventing us from finalizing the acquisition accounting:
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The adjusted purchase price has not been finalized as a result of provisions in the agreement that call for adjustments after a 90-day “look-back” period and a subsequent 20-day resolution period based on the value of certain working capital items. We have recorded provisional amounts for these items based on current estimates. We expect the adjusted purchase price to be finalized in the third quarter of 2015. |
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We are in the process of finalizing our forecasts associated with our estimates of the contingent consideration liability. There is uncertainty around the estimates including the recent downturn in the energy industry and other factors specific to the anticipated performance of the legacy Brown operations. Based on the two months of recorded results for the acquired entity and our estimates of future performance, we have not recorded any liability for the contingent consideration. As new information is obtained, we may adjust the liability accordingly. |
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Given the timing of the transaction relative to the end of the reporting period, we have recorded provisional amounts for certain acquired real estate as we continue to gather information on comparable values in the region. |
We have preliminarily recognized amounts for identified tangible and intangible assets acquired and liabilities assumed at their estimated acquisition date fair values based on discounted cash flow projections, estimated replacement cost and other valuation techniques. The Partnership used an estimate of replacement cost based on comparable market prices to value the acquired property and equipment and utilized discounted cash flows to value the intangible assets. Key assumptions used in the valuations included projections of future operating results and the Partnership’s estimated weighted average cost of capital. Due to the unobservable nature of these inputs, these estimates are considered Level 3 fair value estimates.
The preliminary allocated purchase price and assessment of the fair value of the assets acquired and liabilities assumed was as follows (in thousands):
(in thousands) |
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Cash |
$ | 175 | ||
Accounts receivable |
3,229 | |||
Other current assets |
126 | |||
Property and equipment |
2,578 | |||
Intangible assets: |
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Customer relationships |
3,128 | |||
Trade names and trademarks |
2,049 | |||
Non-competition agreements |
143 | |||
Goodwill |
9,992 | |||
Fair value of assets acquired |
21,420 | |||
Fair value of current liabilities |
1,293 | |||
Fair value of non-controlling interests |
9,506 | |||
Purchase price |
$ | 10,621 |
Intangible assets will be amortized on a straight-line basis over periods ranging from 5 – 10 years. Goodwill represents the excess of cost over the fair value of identified tangible and intangible assets, less liabilities and contingent liabilities. The Partnership believes that the locations, synergies created, and the projected future cash flows of Brown merit the recognition of this asset. The goodwill is fully deductible for income tax purposes by our partners.
Summarized as reported and pro forma information for the three and six month periods ended June 30, 2015 and 2014 follows (in thousands):
Three months ended June 30, |
Six months ended June 30, |
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2015 |
2014 |
2015 |
2014 |
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Revenues - as reported |
$ | 90,953 | $ | 93,722 | $ | 185,019 | $ | 191,245 | ||||||||
Revenues - pro forma |
92,662 | 98,703 | 189,164 | 202,278 | ||||||||||||
Net income - as reported |
$ | 1,859 | $ | 4,929 | $ | 4,685 | $ | 8,446 | ||||||||
Net income - pro forma |
1,818 | 5,458 | 4,139 | 8,737 |
These pro forma results are for comparative purposes only and may not be indicative of the results that would have occurred had the acquisition happened as of the beginning of the periods presented or results that may be attained in the future.
The operating results of Brown are included in our Integrity Services segment which was created during the quarter in conjunction with the Brown acquisition (see Note 11).
TIR Entities
Effective February 1, 2015, the Partnership acquired the remaining 49.9% interest in the TIR Entities previously held by the affiliates of Holdings for $52.6 million. We financed this acquisition with borrowings under our acquisition revolving credit facility. The amount paid in excess of the previously recorded non-controlling interest in the TIR Entities has been reflected in the Condensed Consolidated Statement of Owners’ Equity as a distribution to the general partner.
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5. Credit Agreement
The Partnership is party to a credit agreement (as amended, the “Credit Agreement”) that provides up to $200.0 million in borrowing capacity, subject to certain limitations. The Credit Agreement includes a working capital revolving credit facility (“WCRCF”) which provides up to $75.0 million in borrowing capacity to fund working capital needs and an acquisition revolving credit facility (“ARCF”) which provides up to $125.0 million in borrowing capacity to fund acquisitions and expansion projects. In addition, the credit agreement provides for an accordion feature that allows us to increase the availability under the facilities by an additional $125.0 million. The Credit Agreement matures December 24, 2018.
At June 30, 2015 and December 31, 2014, outstanding borrowings under the credit agreement totaled $140.9 million and $77.6 million, respectively. Borrowings under the WCRCF totaled $52.0 and $50.0 million at June 30, 2015 and December 31, 2014, respectively. Borrowings under the WCRCF are limited by a monthly borrowing base calculation as defined in the Credit Agreement. If, at any time, outstanding borrowings under the WCRCF exceed the Partnership’s calculated borrowing base, principal in the amount of the excess is due upon submission of the borrowing base calculation. Borrowings under the ARCF totaled $88.9 million and $27.6 million at June 30, 2015 and December 31, 2014, respectively. Available borrowings under the ARCF may be limited by certain financial covenant ratios as defined in the agreement. The obligations under our Credit Agreement are secured by a first priority lien on substantially all assets of the Partnership.
All borrowings under the Credit Agreement bear interest, at our option, on a leveraged based grid pricing at (i) a base rate plus a margin of 1.25% to 2.75% per annum (“Base Rate Borrowing”) or (ii) an adjusted LIBOR rate plus a margin of 2.25% to 3.75% per annum (“LIBOR Borrowings”). The applicable margin is determined based on the leverage ratio of the Partnership, as defined in the credit agreement. Generally, the interest rate on credit agreement borrowings ranged between 2.68% and 4.04% for the six months ended June 30, 2015 and 2.65% and 3.50% for the six months ended June 30, 2014. Interest on Base Rate Borrowings is payable monthly. Interest on LIBOR Borrowings is paid upon maturity of the underlying LIBOR contract, but no less often than quarterly. Commitment fees are charged at a rate of 0.50% on any unused credit and are payable quarterly. Interest paid during the three months ended June 30, 2015 and 2014 was $1.1 million and $0.5 million, respectively, including commitment fees. Interest paid during the six months ended June 30, 2015 and 2014 was $1.8 million and $1.1 million, respectively, including commitment fees.
Our Credit Agreement contains various customary affirmative and negative covenants and restrictive provisions. Our Credit Agreement also requires maintenance of certain financial covenants, including a combined total adjusted leverage ratio (as defined in our credit agreement) of not more than 4.0 to 1.0 and an interest coverage ratio (as defined in our credit agreement) of not less than 3.0 to 1.0. At June 30, 2015, our total adjusted leverage ratio was 2.51 to 1.0 and our interest coverage ratio was 6.79 to 1.0, pursuant to the credit agreement. Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of our Credit Agreement, the lenders may declare any outstanding principal of our Credit Agreement debt, together with accrued and unpaid interest, to be immediately due and payable and may exercise the other remedies set forth or referred to in our credit agreement. We expect to remain in compliance with all or our financial debt covenants throughout the next twelve months.
In addition, our Credit Agreement restricts our ability to make distributions on, or redeem or repurchase, our equity interests. However, we may make distributions of available cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under our Credit Agreement, the borrowers and the guarantors are in compliance with the financial covenants, the borrowing base (which includes 100% of cash on hand) exceeds the amount of outstanding credit extensions under the WCRCF by at least $5.0 million and at least $5.0 million in lender commitments are available to be drawn under the WCRCF.
On May 4, 2015, the Partnership and the Partnership’s lenders entered into Amendment No. 2 to the Credit Agreement, which amends the Credit Agreement to, among other matters, (i) allow each of Tulsa Inspection Resources – Canada ULC and Foley Inspection Services ULC to join the Credit Agreement as an additional borrower under the Credit Agreement, and (ii) amend certain other provisions of the Credit Agreement as more specifically set forth in the Amendment.
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6. Income Taxes
Income tax expense reflected on the Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2015 and 2014 differs from an expected statutory rate of 35% primarily due to the non-taxable nature of partnership earnings for both U.S. federal and, in most cases, state income tax purposes offset by the corporate income taxes of TIR-PUC, the income taxes related to our Canadian operations and any applicable state income and franchise taxes.
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7. Equity Compensation
Effective at the closing of the IPO, our General Partner adopted a long-term incentive plan (“LTIP”) that authorized up to 1,182,600 units representing 10% of the initial outstanding units. Certain directors and employees of the Partnership have been awarded Phantom Restricted Units (“Units”) under the terms of the LTIP. The fair value of the awards issued is determined based on the quoted market value of the publically traded common units at each grant date, adjusted for a forfeiture rate, and other discounts attributable to the awarded units. This valuation is considered a Level 3 valuation under the fair value measurement hierarchy. Compensation expense is amortized over the vesting period of the grant. Prior to January 1, 2015, Holdings reimbursed the Partnership for the direct expense of the awards and allocated the expense to us through the annual administrative fee provided for under the terms of the omnibus agreement (Note 8). For the six months ended June 30, 2015 and 2014, compensation expense of $0.5 million and $0.2 million, respectively, was recorded under the LTIP. The following table sets forth the LTIP Unit activity for the six months ended June 30, 2015 and 2014:
Six Months Ended June 30, |
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2015 |
2014 |
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Weighted |
Weighted |
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Average |
Average |
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Grant |
Grant |
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Number |
Date Fair |
Number |
Date Fair |
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of Units |
Value / Unit |
of Units |
Value / Unit |
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Units at January 1 |
158,353 | $ | 18.11 | - | $ | - | ||||||||||
Units granted |
170,552 | 13.42 | 131,414 | 17.48 | ||||||||||||
Units vested and issued |
(7,467 | ) |
(19.72 | ) |
- | - | ||||||||||
Units forfeited |
(6,912 | ) |
(18.16 | ) |
(17,136 | ) |
(16.89 | ) |
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Units at June 30 |
314,526 | 15.53 | 114,278 | 17.57 |
Outstanding Units issued to directors vest ratably over a three-year period from the date of grant. Units granted to employees vest over either a five-year period or eighteen month period from the date of grant. For the five year awards, one third vests at the end of the third year, one third at the end of the fourth year and one third at the end of the fifth year. The eighteen month awards vest 100% at the end of the vesting period. Some awards vest in full upon the occurrence of certain events as defined in the LTIP agreement.
In conjunction with the IPO, phantom profits interest units previously issued under a previous LTIP were exchanged for 44,250 Units under the Partnership’s LTIP. Vesting under all of the exchanged awards was retroactive to the initial grant date. The awards are considered for all purposes to have been granted under the Partnership’s LTIP.
In addition, at IPO, certain profits interest units previously issued were converted into 44,451 subordinated units of the Partnership outside of the LTIP. Vesting for the subordinated units is retroactive to the initial grant date. Compensation expense associated with the subordinated units was less than $0.1 million and $0.2 million for the six months ended June 30, 2015 and 2014, respectively. The exchange of the phantom profits interest units and the profits interest units resulted in the reversal of the existing equity compensation liability of $0.1 million in the first quarter of 2014 as the new awards were accounted for as equity.
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8. Related-Party Transactions
Transactions with SBG Energy Services, LLC (SBG Energy) and Subsidiaries.
SBG Energy is a business partner in our salt water disposal operations in which a current board member has an ownership and management interest. Effective June 1, 2015, an affiliate of SBG Energy assigned and transferred its 49% membership interest in Cypress Energy Services, LLC (“CES LLC”) to the Partnership for one dollar (the “CES Transaction”). As a result, the Partnership now owns 100% of CES LLC. Because we already controlled and consolidated CES LLC in our Consolidated Financial Statements, the previously recorded non-controlling interest in CES LLC has been reflected in the Condensed Consolidated Statement of Owners’ Equity as an increase in equity of $0.9 million for our common and subordinated unitholders.
The CES Transaction was completed in conjunction with another transaction with SBG Energy effective July 1, 2015. On that date, the Partnership waived its rights to purchase and its rights of first refusal related to certain SWD assets pursuant to a previous option agreement with SBG Energy in exchange for $1.0 million.
Omnibus Agreement
Effective as of the closing of the IPO, we entered into an omnibus agreement with Holdings and other related parties. The omnibus agreement, as amended in February 2015, governs the following matters, among other things:
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our payment of an annual administrative fee in the amount of $4.04 million and $4.0 million for the years ended December 31, 2015 and 2014, respectively, to be paid in quarterly installments (pro-rated in 2014 from the IPO date) to Holdings for providing certain partnership overhead services, including certain executive management services by certain officers of our General Partner, and compensation expense for all employees required to manage and operate our business. This fee also includes the incremental general and administrative expenses we incur as a result of being a publicly traded partnership; |
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our right of first offer on Holdings’ and its subsidiaries’ assets used in, and entities primarily engaged in, providing SWD and other water and environmental services; and |
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indemnification of us by Holdings for certain environmental and other liabilities, including events and conditions associated with the operation of assets that occurred prior to the closing of the IPO and our obligation to indemnify Holdings for events and conditions associated with the operation of our assets that occur after the closing of the IPO and for environmental liabilities related to our assets to the extent Holdings is not required to indemnify us. |
So long as Holdings controls our General Partner, the omnibus agreement will remain in full force and effect, unless we and Holdings agree to terminate it sooner. If Holdings ceases to control our General Partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms. We and Holdings may agree to amend the omnibus agreement; however, amendments will also require the approval of the Conflicts Committee of our Board of Directors.
The amount charged by Holdings for the six months ended June 30, 2015 and 2014 was $2.02 million and $1.8 million, respectively. The amount charged by Holdings for the three months ended June 30, 2015 and 2014 was $1.01 million and $1.0 million, respectively. These amounts are reflected in general and administrative in the Condensed Consolidated Statements of Income. In addition to the expense charged under the omnibus agreement, Holdings incurred general and administrative expenses on our behalf totaling $0.2 million. These expenses are reflected as general and administrative in the Condensed Consolidated Statement of Income for the three and six month period ended June 30, 2015 and as an equity contribution in the Condensed Consolidated Statement of Owner’s Equity.
Distributions to / Advances from Parent
Prior to the IPO, we provided treasury and accounts payable services for Holdings and other affiliates. Amounts paid on behalf of Holdings and its affiliates, net of cash transfers from Holdings, are treated as a component of Parent Net Equity. Net distributions to Parent were $0.2 million for the six months ended June 30, 2014. There were no net distributions / advances to Parent during the six months ended June 30, 2015.
Other Related Party Transactions
A current board member has an ownership interest in entities with which the Partnership transacts business – Rud Transportation, LLC (“Rud”) and SBG Pipeline SW 3903, LLC (“3903”). Total revenue recognized by the Partnership from Rud was $0.4 million and $0.8 million for the three months and $0.8 million and $1.4 million for the six months ended June 30, 2015 and 2014, respectively. Accounts receivable from Rud were $0.2 million and $0.3 million at June 30, 2015 and December 31, 2014, respectively, and is included in trade accounts receivable, net in the Condensed Consolidated Balance Sheets. Total revenue recognized by the Partnership from 3903 was $0.3 million for the three months and $0.5 million for the six months ended June 30, 2015. There were no revenues received from 3903 for the six months ended June 30, 2014. Accounts receivable from 3903 was $0.3 million at June 30, 2015 and $0.1 million at December 31, 2014 and is included in trade accounts receivable, net in the Condensed Consolidated Balance Sheets.
The Partnership provides management services to a 25% owned investee company, Alati Arnegard, LLC (“Arnegard”). Management fee revenue earned from Arnegard totaled $0.2 million for the three months and $0.3 million for the six months ended June 30, 2015 and 2014, respectively. Accounts receivable from Arnegard was $0.1 million at June 30, 2015 and December 31, 2014, and is included in trade accounts receivable, net in the Condensed Consolidated Balance Sheets.
CES LLC outsources staffing and payroll services to an unconsolidated affiliated entity, Cypress Energy Management – Bakken Operations, LLC (“CEM-BO”). CEM-BO was owned 49% by SBG Energy. Effective June 1, 2015, our General Partner acquired the 49% ownership interest of CEM-BO and now owns 100% of CEM-BO. Total employee related costs paid to CEM-BO were $0.4 million and $0.8 million for the three months ended June 30, 2015 and 2014, respectively and $1.1 million and $1.5 million for the six months ended June 30, 2015 and 2014, respectively. Included in accounts payable on the Condensed Consolidated Balance Sheets was $0.2 million at December 31, 2014, related to this arrangement. There was no accounts payable due CEM-BO at June 30, 2015.
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9. Earnings per Unit and Cash Distributions
Subsequent to the IPO, the Partnership presents earnings per unit information in accordance with ASC Topic 260 – Earnings per Share.
Net income per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners’ interest in net income, after deducting the General Partner’s incentive distributions, if any, by the weighted-average number of outstanding common and subordinated units. Diluted net income per common unit includes the dilutive impact of unvested Units granted under the LTIP. Our net income is allocated to the common and subordinated unitholders in accordance with their respective partnership percentages, after giving effect to priority income allocations for incentive distributions and other adjustments, if any, to our General Partner, pursuant to our partnership agreement. Net income per unit is only calculated for the Partnership subsequent to the IPO as no units were outstanding prior to January 21, 2014. The excess or shortfall of earnings relative to distributions is allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit. For the three months ended June 30, 2015, the weighted-average number of units outstanding was 11,831,258, comprised of 5,918,258 common units and 5,913,000 subordinated units. For the six months ended June 30, 2015, the weighted-average number of units outstanding was 11,829,717, comprised of 5,916,717 common units and 5,913,000 subordinated units. For the three and six month periods ended June 30, 2014, the weighted-average number of units outstanding was 11,826,000, comprised of 5,913,000 common units and 5,913,000 subordinated units.
In addition to the common and subordinated units, we have also identified incentive distribution rights as participating securities and use the two-class method when calculating the net income per unit applicable to limited partners, which is based on the weighted-average number of units outstanding during the period.
Our partnership agreement calls for minimum quarterly cash distributions. The following table summarizes the cash distributions declared and paid by the Partnership since our IPO. There were no cash distributions declared or paid prior to these distributions.
Total Cash |
||||||||||||||
Per Unit Cash |
Total Cash |
Distributions |
||||||||||||
Payment Date |
Distributions |
Distributions |
to Affiliates (c) |
|||||||||||
(in thousands) |
||||||||||||||
May 15, 2014 (a) |
$ | 0.301389 | $ | 3,565 | $ | 2,264 | ||||||||
August 14, 2014 |
0.396844 | 4,693 | 2,980 | |||||||||||
November 14, 2014 |
0.406413 | 4,806 | 3,052 | |||||||||||
Total 2014 Distributions |
1.104646 | 13,064 | 8,296 | |||||||||||
February 14, 2015 |
0.406413 | 4,806 | 3,052 | |||||||||||
May 14, 2015 |
0.406413 | 4,808 | 3,053 | |||||||||||
August 14, 2015 (b) |
0.406413 | 4,809 | 3,087 | |||||||||||
Total 2015 Distributions (through August 14, 2015) |
1.219239 | 14,423 | 9,192 | |||||||||||
Total Distributions (through August 14, 2015) since IPO |
$ | 2.323885 | $ | 27,487 | $ | 17,488 |
(a) Distribution was pro-rated from the date of our IPO through March 31, 2014.
(b) Second quarter 2015 distribution was declared and paid in the third quarter of 2015.
(c) Approximately 64.2% of the Partnership's outstanding units are held by affiliates.
In addition, the TIR Entities made total cash distributions of $2.8 million and $6.0 million during the three and six month periods ended June 30, 2015, respectively, of which $2.7 million and $4.4 million, respectively, was distributed to the Partnership and $0.1 million and $1.6 million, respectively, was distributed to the non-controlling members of the TIR Entities. During the three and six month periods ended June 30, 2014, the TIR Entities made total cash distributions of $3.0 million, of which $1.7 million was distributed to the Partnership and $1.3 million was distributed to the non-controlling members of the TIR Entities. Since the Partnership acquired the remaining interest in the TIR Entities (Note 4), no further distributions will be made to the non-controlling members.
|
10. Commitments and Contingencies
Letters of Credit
The Partnership has various performance obligations which are secured with short-term security deposits of $0.5 million at June 30, 2015 and December 31, 2014, included in prepaid expenses and other on the Condensed Consolidated Balance Sheets.
Employment Contract Commitments
A subsidiary of the Partnership has employment agreements with certain of its executives. The executive employment agreements are effective for a term of two to five years from the commencement date, after which time they will continue on an “at-will” basis. These agreements provide for minimum annual compensation, adjusted for annual increases as authorized by the Board of Directors. Certain agreements provide for severance payments in the event of specified termination of employment. At June 30, 2015 and December 31, 2014, the aggregate commitment for future compensation and severance was approximately $0.9 million. One of the agreements expires during the third quarter of 2015.
Compliance Audit Contingencies
Certain customer master service agreements (“MSA’s”) offer our customers the opportunity to perform periodic compliance audits, which include the examination of the accuracy of our invoices. Should our invoices be determined to be inconsistent with the MSA, or inaccurate, the MSA’s may provide the customer the right to receive a credit or refund for any overcharges identified. At any given time, we may have multiple audits underway. At June 30, 2015 and December 31, 2014, the Partnership recognized an estimated liability of $0.2 million associated with the probable settlement of ongoing customer audits of charges originally approved by customer representatives. These liabilities are reflected in accrued payroll and other on the Condensed Consolidated Balance Sheets.
Management Service Contracts
The Partnership has historically provided management services for non-owned SWD facilities under contractual arrangements. In May 2015, the Partnership was notified by principals of two of our management services customers (under common ownership) that they were terminating our management contracts. While management of the Partnership believes that the parties do not have the right to terminate the agreements pursuant to the terms of the agreements, the termination of these agreements has resulted in a reduction of management fee revenue and corresponding labor costs associated with staffing the facilities. Management fee revenues related to these contracts totaled $0.3 million for the six month period ended June 30, 2015. No revenues related to these contracts have been reflected in the accompanying financial statements for the three months ended June 30, 2015 due to the claimed termination. Revenues related to these contracts were $0.4 million and $0.7 million for the three and six month periods ended June 30, 2014, respectively. The Partnership has commenced litigation and settlement discussions regarding the improper termination of the agreements.
Legal Proceedings
On July 3, 2014, a group of former minority shareholders of Tulsa Inspection Resources, Inc. (“TIR Inc.”, the predecessor of the TIR Entities), formerly an Oklahoma corporation, filed a civil action in the United States District Court for the Northern District of Oklahoma against TIR LLC, members of TIR LLC, and certain affiliates of TIR LLC’s members. TIR LLC is the successor in interest to TIR Inc., resulting from a merger between the entities that closed in December 2013 (the “TIR Merger”). The former shareholders of TIR Inc. claim that they did not receive sufficient value for their shares in the TIR Merger and are seeking rescission of the TIR Merger or, alternatively, compensatory and punitive damages. The Partnership is not named as a defendant in this civil action. TIR LLC and the other defendants have been advised by counsel that the action lacks merit. We believe that the possibility of the Partnership incurring material losses as a result of this action is remote. In addition, the Partnership anticipates no disruption in its business operations related to this action.
On February 2, 2015, a former inspector for TIR LLC filed a putative collective action lawsuit alleging that TIR LLC failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act (“FLSA”) titled Fenley v. TIR LLC in the United States District Court for the District of Kansas. The plaintiff alleges he was a non-exempt employee of TIR LLC and that he and other potential class members were not paid overtime in compliance with the FLSA. The plaintiff seeks to proceed as a collective action and to receive unpaid overtime and other monetary damages, including attorney’s fees. On May 1, 2015, this case was dismissed without prejudice, due to improper venue.
|
11. Reportable Segments
The Partnership’s operations consist of three reportable segments: (i) Pipeline Inspection Services (“PIS”), (ii) Integrity Services (“IS”) and (iii) Water and Environmental Services (“W&ES”). In conjunction with the Brown acquisition (Note 4) in the second quarter of 2015, we created the IS segment. The economic characteristics of Brown were sufficiently dissimilar from our existing Pipeline Inspection and Integrity Services segment to result in the creation of a new segment. The Pipeline Inspection and Integrity Services segment was renamed Pipeline Inspection Services.
PIS – This segment represents our pipeline inspection services operations. We aggregate these operating entities for reporting purposes as they have similar economic characteristics, including centralized management and processing. This segment provides independent inspection services to various energy, public utility and pipeline companies. The inspectors in this segment perform a variety of inspection services on midstream pipelines, gathering systems and distribution systems, including data gathering and supervision of third-party construction, inspection and maintenance and repair projects. Our results in this segment are driven primarily by the number and type of inspectors performing services for customers and the fees charged for those services, which depend on the nature and duration of the project.
IS – This segment includes the newly acquired operations of Brown Integrity, LLC (Note 4). This segment provides independent integrity services to major natural gas and petroleum pipeline companies, as well as pipeline construction companies located throughout the United States. Field personnel in this segment primarily perform hydrostatic testing on newly constructed and existing natural gas and petroleum pipelines. Results in this segment are driven primarily by field personnel performing services for customers and the fees charged for those services, which depend on the nature, scope and duration of the project.
W&ES – This segment includes the operations of ten SWD facilities and fees related to the management of up to three additional SWD facilities. We aggregate these operating entities for reporting purposes as they have similar economic characteristics and have centralized management and processing. Segment results are driven primarily by the volumes of produced water and flowback water we inject into our SWD facilities and the fees we charge for our services. These fees are charged on a per barrel basis and vary based on the quantity and type of saltwater disposed, competitive dynamics and operating costs. In addition, for minimal marginal cost, we generate revenue by selling residual oil we recover from the disposed water.
Other – These amounts represent corporate and overhead items not specifically allocable to the other reportable segments
The following tables show operating income by reportable segment and a reconciliation of segment operating income to net income before income tax expense. The segments have been expanded in the current reporting period from two to three as a direct result of the acquisition of Brown.
PIS |
IS |
W&ES |
Other |
Total |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Three months ended June 30, 2015 |
||||||||||||||||||||
Revenues |
$ | 83,501 | $ | 3,478 | $ | 3,974 | $ | - | $ | 90,953 | ||||||||||
Costs of services |
75,659 | 2,794 | 1,737 | - | 80,190 | |||||||||||||||
Gross margin |
7,842 | 684 | 2,237 | - | 10,763 | |||||||||||||||
General and administrative |
4,295 | 563 | 858 | 351 | 6,067 | |||||||||||||||
Depreciation, amortization and accretion |
628 | 105 | 641 | - | 1,374 | |||||||||||||||
Operating income |
$ | 2,919 | $ | 16 | $ | 738 | $ | (351 | ) | 3,322 | ||||||||||
Interest expense, net |
(1,440 | ) | ||||||||||||||||||
Other, net |
55 | |||||||||||||||||||
Net income before income tax expense |
$ | 1,937 | ||||||||||||||||||
Three months ended June 30, 2014 |
||||||||||||||||||||
Revenues |
$ | 87,727 | $ | - | $ | 5,995 | $ | - | $ | 93,722 | ||||||||||
Costs of services |
79,505 | - | 1,914 | - | 81,419 | |||||||||||||||
Gross margin |
8,222 | - | 4,081 | - | 12,303 | |||||||||||||||
General and administrative |
4,151 | - | 816 | - | 4,967 | |||||||||||||||
Depreciation, amortization and accretion |
636 | - | 940 | - | 1,576 | |||||||||||||||
Operating income |
$ | 3,435 | $ | - | $ | 2,325 | $ | - | 5,760 | |||||||||||
Interest expense, net |
(772 | ) | ||||||||||||||||||
Other, net |
37 | |||||||||||||||||||
Net income before income tax expense |
$ | 5,025 |
PIS |
IS |
W&ES |
Other |
Total |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Six months ended June 30, 2015 |
||||||||||||||||||||
Revenues |
$ | 173,315 | $ | 3,478 | $ | 8,226 | $ | - | $ | 185,019 | ||||||||||
Costs of services |
157,475 | 2,794 | 3,438 | - | 163,707 | |||||||||||||||
Gross margin |
15,840 | 684 | 4,788 | - | 21,312 | |||||||||||||||
General and administrative |
8,581 | 563 | 1,730 | 455 | 11,329 | |||||||||||||||
Depreciation, amortization and accretion |
1,254 | 105 | 1,273 | - | 2,632 | |||||||||||||||
Operating income |
$ | 6,005 | $ | 16 | $ | 1,785 | $ | (455 | ) | 7,351 | ||||||||||
Interest expense, net |
(2,447 | ) | ||||||||||||||||||
Other, net |
63 | |||||||||||||||||||
Net income before income tax expense |
$ | 4,967 | ||||||||||||||||||
Six months ended June 30, 2014 |
||||||||||||||||||||
Revenues |
$ | 179,990 | $ | - | $ | 11,255 | $ | - | $ | 191,245 | ||||||||||
Costs of services |
163,481 | - | 4,041 | - | 167,522 | |||||||||||||||
Gross margin |
16,509 | - | 7,214 | - | 23,723 | |||||||||||||||
General and administrative |
8,496 | - | 1,425 | - | 9,921 | |||||||||||||||
Depreciation, amortization and accretion |
1,271 | - | 1,866 | - | 3,137 | |||||||||||||||
Operating income |
$ | 6,742 | $ | - | $ | 3,923 | $ | - | 10,665 | |||||||||||
Interest expense, net |
(1,557 | ) | ||||||||||||||||||
Offering costs |
(446 | ) | ||||||||||||||||||
Other, net |
25 | |||||||||||||||||||
Net income before income tax expense |
$ | 8,687 | ||||||||||||||||||
Total Assets |
||||||||||||||||||||
June 30, 2015 |
$ | 140,605 | $ | 21,854 | $ | 46,945 | $ | 1,582 | ||||||||||||
December 31, 2014 |
$ | 136,224 | $ | - | $ | 50,296 | $ | 3,322 |
|
12. Condensed Consolidating Financial Information
The following financial information reflects consolidating financial information of the Partnership and its wholly owned guarantor subsidiaries and non-guarantor subsidiaries for the periods indicated. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of financial position, results of operations or cash flows had the guarantor subsidiaries or non-guarantor subsidiaries operated as independent entities. The Partnership has not presented separate financial and narrative information for each of the guarantor subsidiaries or non-guarantor subsidiaries because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantor subsidiaries and non-guarantor subsidiaries. The Partnership anticipates issuing debt securities that will be fully and unconditionally guaranteed by the guarantor subsidiaries. These debt securities will be jointly and severally guaranteed by the guarantor subsidiaries. There are no restrictions on the Partnership’s ability to obtain cash dividends or other distributions of funds from the guarantor subsidiaries.
Condensed Consolidating Balance Sheets
As of June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 90 | $ | 24,047 | $ | 4,450 | $ | - | $ | 28,587 | ||||||||||
Trade accounts receivable, net |
- | 44,312 | 8,577 | (392 | ) | 52,497 | ||||||||||||||
Receivables from affiliates |
- | 5,180 | - | (4,523 | ) | 657 | ||||||||||||||
Deferred tax assets |
- | 3 | 38 | - | 41 | |||||||||||||||
Prepaid expenses and other |
- | 1,295 | 169 | - | 1,464 | |||||||||||||||
Total current assets |
90 | 74,837 | 13,234 | (4,915 | ) | 83,246 | ||||||||||||||
Property and equipment: |
||||||||||||||||||||
Property and equipment, at cost |
- | 28,323 | 2,708 | - | 31,031 | |||||||||||||||
Less: Accumulated depreciation |
- | 4,884 | 155 | - | 5,039 | |||||||||||||||
Total property and equipment, net |
- | 23,439 | 2,553 | - | 25,992 | |||||||||||||||
Intangible assets, net |
- | 27,273 | 6,852 | - | 34,125 | |||||||||||||||
Goodwill |
- | 53,914 | 11,507 | - | 65,421 | |||||||||||||||
Investment in subsidiaries |
42,037 | - | - | (42,037 | ) | - | ||||||||||||||
Notes receivable - affiliates |
- | 14,601 | - | (14,601 | ) | - | ||||||||||||||
Debt issuance costs, net |
2,047 | - | - | - | 2,047 | |||||||||||||||
Other assets |
- | 144 | 11 | - | 155 | |||||||||||||||
Total assets |
$ | 44,174 | $ | 194,208 | $ | 34,157 | $ | (61,553 | ) | $ | 210,986 | |||||||||
LIABILITIES AND OWNERS' EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 134 | $ | 809 | $ | 2,037 | $ | - | $ | 2,980 | ||||||||||
Accounts payable - affiliates |
279 | (45 | ) | 4,289 | (4,523 | ) | - | |||||||||||||
Accrued payroll and other |
- | 15,097 | 891 | (392 | ) | 15,596 | ||||||||||||||
Income taxes payable |
- | 267 | - | - | 267 | |||||||||||||||
Total current liabilities |
413 | 16,128 | 7,217 | (4,915 | ) | 18,843 | ||||||||||||||
Long-term debt |
- | 135,400 | 5,500 | - | 140,900 | |||||||||||||||
Notes payable - affiliates |
- | (4 | ) | 13,925 | (13,921 | ) | - | |||||||||||||
Deferred tax liabilities |
- | - | 392 | - | 392 | |||||||||||||||
Asset retirement obligations |
- | 33 | - | - | 33 | |||||||||||||||
Total liabilities |
413 | 151,557 | 27,034 | (18,836 | ) | 160,168 | ||||||||||||||
Commitments and contingencies - Note 10 |
||||||||||||||||||||
Owners' equity: |
||||||||||||||||||||
Total partners' capital |
43,761 | 33,014 | 7,123 | (42,715 | ) | 41,344 | ||||||||||||||
Non-controlling interests |
- | 9,637 | - | (2 | ) | 9,474 | ||||||||||||||
Total owners' equity |
43,761 | 42,651 | 7,123 | (42,717 | ) | 50,818 | ||||||||||||||
Total liabilities and owners' equity |
$ | 44,174 | $ | 194,208 | $ | 34,157 | $ | (61,553 | ) | $ | 210,986 |
Condensed Consolidating Balance Sheets
As of December 31, 2014
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 982 | $ | 16,598 | $ | 3,177 | $ | - | $ | 20,757 | ||||||||||
Trade accounts receivable, net |
- | 49,569 | 4,514 | (8 | ) | 54,075 | ||||||||||||||
Receivables from affiliates |
22 | 8,809 | - | (8,831 | ) | - | ||||||||||||||
Deferred tax assets |
- | 15 | 53 | - | 68 | |||||||||||||||
Prepaid expenses and other |
- | 2,339 | 101 | - | 2,440 | |||||||||||||||
Total current assets |
1,004 | 77,330 | 7,845 | (8,839 | ) | 77,340 | ||||||||||||||
Property and equipment: |
||||||||||||||||||||
Property and equipment, at cost |
- | 27,769 | 109 | - | 27,878 | |||||||||||||||
Less: Accumulated depreciation |
- | 3,485 | 53 | - | 3,538 | |||||||||||||||
Total property and equipment, net |
- | 24,284 | 56 | - | 24,340 | |||||||||||||||
Intangible assets, net |
- | 28,414 | 1,831 | - | 30,245 | |||||||||||||||
Goodwill |
- | 53,915 | 1,630 | - | 55,545 | |||||||||||||||
Investment in subsidiaries |
98,965 | - | - | (98,965 | ) | - | ||||||||||||||
Notes receivable - affiliates |
- | 3,903 | - | (3,903 | ) | - | ||||||||||||||
Debt issuance costs, net |
2,318 | - | - | - | 2,318 | |||||||||||||||
Other assets |
- | 35 | 19 | - | 54 | |||||||||||||||
Total assets |
$ | 102,287 | $ | 187,881 | $ | 11,381 | $ | (111,707 | ) | $ | 189,842 | |||||||||
LIABILITIES AND OWNERS' EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 34 | $ | 2,161 | $ | 266 | $ | - | $ | 2,461 | ||||||||||
Accounts payable - affiliates |
- | 586 | 8,839 | (8,839 | ) | 586 | ||||||||||||||
Accrued payroll and other |
6 | 7,605 | 139 | - | 7,750 | |||||||||||||||
Income taxes payable |
- | 507 | 39 | - | 546 | |||||||||||||||
Total current liabilities |
40 | 10,859 | 9,283 | (8,839 | ) | 11,343 | ||||||||||||||
Long-term debt |
- | 77,600 | - | - | 77,600 | |||||||||||||||
Notes payable - affiliates |
- | - | 3,479 | (3,479 | ) | - | ||||||||||||||
Deferred tax liabilities |
- | - | 438 | - | 438 | |||||||||||||||
Asset retirement obligations |
- | 33 | - | - | 33 | |||||||||||||||
Total liabilities |
40 | 88,492 | 13,200 | (12,318 | ) | 89,414 | ||||||||||||||
Commitments and contingencies - Note 10 |
||||||||||||||||||||
Owners' equity: |
||||||||||||||||||||
Total partners' capital |
75,764 | 98,380 | (1,819 | ) | (98,470 | ) | 73,855 | |||||||||||||
Non-controlling interests |
26,483 | 1,009 | - | (919 | ) | 26,573 | ||||||||||||||
Total owners' equity |
102,247 | 99,389 | (1,819 | ) | (99,389 | ) | 100,428 | |||||||||||||
Total liabilities and owners' equity |
$ | 102,287 | $ | 187,881 | $ | 11,381 | $ | (111,707 | ) | $ | 189,842 |
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 82,521 | $ | 10,922 | $ | (2,490 | ) | $ | 90,953 | |||||||||
Costs of services |
- | 72,844 | 9,836 | (2,490 | ) | 80,190 | ||||||||||||||
Gross margin |
- | 9,677 | 1,086 | - | 10,763 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
351 | 4,722 | 994 | - | 6,067 | |||||||||||||||
Depreciation, amortization and accretion |
- | 1,223 | 151 | - | 1,374 | |||||||||||||||
Operating income |
(351 | ) | 3,732 | (59 | ) | - | 3,322 | |||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
2,665 | - | - | (2,665 | ) | - | ||||||||||||||
Interest expense, net |
(216 | ) | (1,072 | ) | (152 | ) | - | (1,440 | ) | |||||||||||
Other, net |
- | 47 | 8 | - | 55 | |||||||||||||||
Net income before income tax expense |
2,098 | 2,707 | (203 | ) | (2,665 | ) | 1,937 | |||||||||||||
Income tax expense |
- | 101 | (23 | ) | - | 78 | ||||||||||||||
Net income |
2,098 | 2,606 | (180 | ) | (2,665 | ) | 1,859 | |||||||||||||
Net income attributable to non-controlling interests |
- | (59 | ) | - | (18 | ) | (77 | ) | ||||||||||||
Net income attributable to controlling interests |
$ | 2,098 | $ | 2,665 | $ | (180 | ) | $ | (2,647 | ) | $ | 1,936 |
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2014
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 88,178 | $ | 5,561 | $ | (17 | ) | $ | 93,722 | |||||||||
Costs of services |
- | 76,357 | 5,079 | (17 | ) | 81,419 | ||||||||||||||
Gross margin |
- | 11,821 | 482 | - | 12,303 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
- | 4,500 | 467 | - | 4,967 | |||||||||||||||
Depreciation, amortization and accretion |
- | 1,524 | 52 | - | 1,576 | |||||||||||||||
Operating income |
- | 5,797 | (37 | ) | - | 5,760 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
5,101 | - | - | (5,101 | ) | - | ||||||||||||||
Interest expense, net |
(262 | ) | (479 | ) | (31 | ) | - | (772 | ) | |||||||||||
Offering costs |
- | - | - | - | - | |||||||||||||||
Other, net |
- | 37 | - | - | 37 | |||||||||||||||
Net income before income tax expense |
4,839 | 5,355 | (68 | ) | (5,101 | ) | 5,025 | |||||||||||||
Income tax expense |
- | 116 | (20 | ) | - | 96 | ||||||||||||||
Net income |
4,839 | 5,239 | (48 | ) | (5,101 | ) | 4,929 | |||||||||||||
Net income attributable to non-controlling interests |
1,111 | 138 | - | - | 1,249 | |||||||||||||||
Net income attributable to controlling interests |
$ | 3,728 | $ | 5,101 | $ | (48 | ) | $ | (5,101 | ) | $ | 3,680 |
Condensed Consolidating Statements of Income
For the Six Months Ended June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 167,267 | $ | 21,489 | $ | (3,737 | ) | $ | 185,019 | |||||||||
Costs of services |
- | 147,782 | 19,662 | (3,737 | ) | 163,707 | ||||||||||||||
Gross margin |
- | 19,485 | 1,827 | - | 21,312 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
455 | 9,413 | 1,461 | - | 11,329 | |||||||||||||||
Depreciation, amortization and accretion |
- | 2,436 | 196 | - | 2,632 | |||||||||||||||
Operating income |
(455 | ) | 7,636 | 170 | - | 7,351 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
5,755 | - | - | (5,755 | ) | - | ||||||||||||||
Interest expense, net |
(474 | ) | (1,746 | ) | (227 | ) | - | (2,447 | ) | |||||||||||
Other, net |
- | 53 | 10 | - | 63 | |||||||||||||||
Net income before income tax expense |
4,826 | 5,943 | (47 | ) | (5,755 | ) | 4,967 | |||||||||||||
Income tax expense |
258 | 24 | - | 282 | ||||||||||||||||
Net income |
4,826 | 5,685 | (71 | ) | (5,755 | ) | 4,685 | |||||||||||||
Net income attributable to non-controlling interests |
145 | (70 | ) | - | 15 | 90 | ||||||||||||||
Net income attributable to controlling interests |
$ | 4,681 | $ | 5,755 | $ | (71 | ) | $ | (5,770 | ) | $ | 4,595 |
Condensed Consolidating Statements of Income
For the Six Months Ended June 30, 2014
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 176,934 | $ | 14,406 | $ | (95 | ) | $ | 191,245 | |||||||||
Costs of services |
- | 154,460 | 13,157 | (95 | ) | 167,522 | ||||||||||||||
Gross margin |
- | 22,474 | 1,249 | - | 23,723 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
- | 9,065 | 856 | - | 9,921 | |||||||||||||||
Depreciation, amortization and accretion |
- | 3,032 | 105 | - | 3,137 | |||||||||||||||
Operating income |
- | 10,377 | 288 | - | 10,665 | |||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
8,999 | - | - | (8,999 | ) | - | ||||||||||||||
Interest expense, net |
(441 | ) | (1,055 | ) | (61 | ) | - | (1,557 | ) | |||||||||||
Offering costs |
(446 | ) | - | - | - | (446 | ) | |||||||||||||
Other, net |
- | 25 | - | - | 25 | |||||||||||||||
Net income before income tax expense |
8,112 | 9,347 | 227 | (8,999 | ) | 8,687 | ||||||||||||||
Income tax expense |
- | 187 | 54 | - | 241 | |||||||||||||||
Net income |
8,112 | 9,160 | 173 | (8,999 | ) | 8,446 | ||||||||||||||
Net income attributable to non-controlling interests |
1,861 | 161 | - | - | 2,022 | |||||||||||||||
Net income attributable to controlling interests |
$ | 6,251 | $ | 8,999 | $ | 173 | $ | (8,999 | ) | $ | 6,424 |
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 2,098 | $ | 2,606 | $ | (180 | ) | $ | (2,665 | ) | $ | 1,859 | ||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | 100 | 37 | 137 | |||||||||||||||
Comprehensive income (loss) |
$ | 2,098 | $ | 2,606 | $ | (80 | ) | $ | (2,628 | ) | $ | 1,996 | ||||||||
Comprehensive income (loss) attributable to non-controlling interests |
- | (59 | ) | - | (18 | ) | (77 | ) | ||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 2,098 | $ | 2,665 | $ | (80 | ) | $ | (2,610 | ) | $ | 2,073 |
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended June 30, 2014
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 4,839 | $ | 5,239 | $ | (48 | ) | $ | (5,101 | ) | $ | 4,929 | ||||||||
Other comprehensive income: |
||||||||||||||||||||
Foreign currency translation |
- | - | 284 | 131 | 415 | |||||||||||||||
Comprehensive income (loss) |
$ | 4,839 | $ | 5,239 | $ | 236 | $ | (4,970 | ) | $ | 5,344 | |||||||||
Comprehensive income (loss) attributable to non-controlling interests |
1,111 | 138 | - | 207 | 1,456 | |||||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 3,728 | $ | 5,101 | $ | 236 | $ | (5,177 | ) | $ | 3,888 |
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Six Months Ended June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 4,826 | $ | 5,685 | $ | (71 | ) | $ | (5,755 | ) | $ | 4,685 | ||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | (491 | ) | (256 | ) | (747 | ) | ||||||||||||
Comprehensive income (loss) |
$ | 4,826 | $ | 5,685 | $ | (562 | ) | $ | (6,011 | ) | $ | 3,938 | ||||||||
Comprehensive income (loss) attributable to non-controlling interests |
145 | (70 | ) | - | (442 | ) | (367 | ) | ||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 4,681 | $ | 5,755 | $ | (562 | ) | $ | (5,569 | ) | $ | 4,305 |
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Six Months Ended June 30, 2014
(in thousands)
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 8,112 | $ | 9,160 | $ | 173 | $ | (8,999 | ) | $ | 8,446 | |||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | (31 | ) | (13 | ) | (44 | ) | ||||||||||||
Comprehensive income (loss) |
$ | 8,112 | $ | 9,160 | $ | 142 | $ | (9,012 | ) | $ | 8,402 | |||||||||
Comprehensive income (loss) attributable to non-controlling interests |
1,861 | 161 | - | 130 | 2,152 | |||||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 6,251 | $ | 8,999 | $ | 142 | $ | (9,142 | ) | $ | 6,250 |
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2015
(in thousands)
Non- |
||||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||||
Operating activities: |
||||||||||||||||||||||
Net income (loss) |
$ | 4,826 | $ | 5,685 |
|
$ | (71 | ) |
|
$ | (5,755 | ) | $ | 4,685 | ||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
||||||||||||||||||||||
Depreciation, amortization and accretion |
- | 2,553 |
|
276 |
|
- | 2,829 | |||||||||||||||
Loss on asset disposal |
- | - |
|
(1 | ) |
|
- | (1 | ) | |||||||||||||
Interest expense from debt issuance cost amortization |
271 | - |
|
- |
|
- | 271 | |||||||||||||||
Amortization of equity-based compensation |
532 | - |
|
- |
|
- | 532 | |||||||||||||||
Equity earnings in investee company |
- | (48 | ) |
|
- |
|
- | (48 | ) | |||||||||||||
Equity earnings in subsidiaries |
(5,755 | ) | - |
|
- |
|
5,755 | - | ||||||||||||||
Deferred tax benefit, net |
- | 12 |
|
16 |
|
- | 28 | |||||||||||||||
Non-cash allocated expenses |
183 | - |
|
- |
|
- | 183 | |||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||
Trade accounts receivable |
22 | 4,962 |
|
(834 | ) |
|
- | 4,150 | ||||||||||||||
Prepaid expenses and other |
- | 1,057 |
|
65 |
|
- | 1,122 | |||||||||||||||
Accounts payable and accrued payroll and other |
374 | 10,170 |
|
(3,320 | ) |
|
- | 7,224 | ||||||||||||||
Income taxes payable |
- | (240 | ) |
|
(39 | ) |
|
- | (279 | ) | ||||||||||||
Net cash provided by (used in) operating activities |
453 | 24,151 |
|
(3,908 | ) |
|
- | 20,696 | ||||||||||||||
Investing activities: |
||||||||||||||||||||||
Proceeds from fixed asset disposals |
- | 2 |
|
- |
|
- | 2 | |||||||||||||||
Acquisition of 49.9% interest in the TIR Entities |
- | (52,588 | ) | - | - | (52,588 | ) | |||||||||||||||
Acquisition of 51% of Brown Integrity, LLC |
- | (10,516 | ) | - | - | (10,516 | ) | |||||||||||||||
Purchase of property and equipment |
- | (1,309 | ) |
|
(30 | ) |
|
- | (1,339 | ) | ||||||||||||
Net cash used in investing activities |
- | (64,411 | ) |
|
(30 | ) |
|
- | (64,441 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||||
Advances on long-term debt |
- | 63,300 |
|
5,500 |
|
- | 68,800 | |||||||||||||||
Repayment of long-term debt |
- | (5,500 | ) |
|
- |
|
- | (5,500 | ) | |||||||||||||
Distributions from subsidiaries |
8,269 | (8,269 | ) |
|
- |
|
- | - | ||||||||||||||
Distributions to limited partners |
(9,614 | ) | - |
|
- |
|
- | (9,614 | ) | |||||||||||||
Distributions to non-controlling members of the TIR Entities |
- | (1,567 | ) |
|
- |
|
- | (1,567 | ) | |||||||||||||
Net cash provided by (used in) financing activities |
(1,345 | ) | 47,964 |
|
5,500 |
|
- | 52,119 | ||||||||||||||
Effects of exchange rates on cash |
- | (255 | ) |
|
(289 | ) |
|
- | (544 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(892 | ) | 7,449 |
|
1,273 |
|
- | 7,830 | ||||||||||||||
Cash and cash equivalents, beginning of period |
982 | 16,598 |
|
3,177 |
|
- | 20,757 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 90 | $ | 24,047 |
|
$ | 4,450 |
|
$ | - | $ | 28,587 | ||||||||||
Non-cash items: |
||||||||||||||||||||||
Accounts payable excluded from capital expenditures |
$ | - | 18 |
|
$ | - |
|
$ | - | $ | 18 |
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2014
(in thousands)
Non- |
||||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||||
Operating activities: |
||||||||||||||||||||||
Net income (loss) |
$ | 8,112 | $ | 9,160 |
|
$ | 173 |
|
$ | (8,999 | ) | $ | 8,446 | |||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
||||||||||||||||||||||
Depreciation, amortization and accretion |
- | 3,121 |
|
105 |
|
- | 3,226 | |||||||||||||||
Loss on asset disposal |
- | 3 |
|
- |
|
- | 3 | |||||||||||||||
Interest expense from debt issuance cost amortization |
367 | - |
|
- |
|
- | 367 | |||||||||||||||
Amortization of equity-based compensation |
424 | - |
|
- |
|
- | 424 | |||||||||||||||
Equity earnings in investee company |
- | (16 | ) |
|
- |
|
- | (16 | ) | |||||||||||||
Equity earnings in subsidiaries |
(8,999 | ) | - |
|
- |
|
8,999 | - | ||||||||||||||
Deferred tax benefit, net |
- | (105 | ) |
|
30 |
|
- | (75 | ) | |||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||
Trade accounts receivable |
- | 7,637 |
|
2,527 |
|
- | 10,164 | |||||||||||||||
Receivables from affiliates |
(177 | ) | 160 |
|
17 |
|
- | - | ||||||||||||||
Prepaid expenses and other |
320 | (215 | ) |
|
12 |
|
- | 117 | ||||||||||||||
Accounts payable and accrued payroll and other |
107 | 5,936 |
|
202 |
|
- | 6,245 | |||||||||||||||
Income taxes payable |
- | (14,878 | ) |
|
(1,205 | ) |
|
- | (16,083 | ) | ||||||||||||
Net cash provided by operating activities |
154 | 10,803 |
|
1,861 |
|
- | 12,818 | |||||||||||||||
Investing activities: |
||||||||||||||||||||||
Purchase of property and equipment |
- | (387 | ) |
|
(5 | ) |
|
- | (392 | ) | ||||||||||||
Net cash used in investing activities |
- | (387 | ) |
|
(5 | ) |
|
- | (392 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||||
Proceeds from initial public offering |
80,213 | - |
|
- |
|
- | 80,213 | |||||||||||||||
Distribution of initial public offering proceeds to Cypress Energy Holdings, LLC |
(80,213 | ) | - |
|
- |
|
- | (80,213 | ) | |||||||||||||
Payment of deferred offering costs |
(314 | ) | - |
|
- |
|
- | (314 | ) | |||||||||||||
Repayment of long-term debt |
- | (5,000 | ) |
|
- |
|
- | (5,000 | ) | |||||||||||||
Payments on behalf of affiliates |
(283 | ) | - |
|
- |
|
- | (283 | ) | |||||||||||||
Net advances from members |
314 | - |
|
- |
|
- | 314 | |||||||||||||||
Distributions from subsidiaries |
4,202 | (4,202 | ) |
|
- |
|
- | - | ||||||||||||||
Distributions to limited partners |
(3,566 | ) | - |
|
- |
|
- | (3,566 | ) | |||||||||||||
Distributions to non-controlling members of the TIR Entities |
- | (1,293 | ) |
|
- |
|
- | (1,293 | ) | |||||||||||||
Net cash provided by (used in) financing activities |
353 | (10,495 | ) |
|
- |
|
- | (10,142 | ) | |||||||||||||
Effects of exchange rates on cash |
- | - |
|
(39 | ) |
|
- | (39 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
507 | (79 | ) |
|
1,817 |
|
- | 2,245 | ||||||||||||||
Cash and cash equivalents, beginning of period |
- | 24,606 |
|
2,084 |
|
- | 26,690 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 507 | $ | 24,527 |
|
$ | 3,901 |
|
$ | - | $ | 28,935 | ||||||||||
Non-cash items: |
||||||||||||||||||||||
Accounts payable excluded from capital expenditures |
$ | - | $ | 42 |
|
$ | - |
|
$ | - | $ | 42 |
|
Basis of Presentation
The Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2015 and 2014 include our accounts and those of our controlled subsidiaries. Investments where we do not have the ability to exercise control, but do have the ability to exercise significant influence, are accounted for using the equity method of accounting. All significant intercompany transactions and account balances have been eliminated in consolidation. The Condensed Consolidated Balance Sheet at December 31, 2014 is derived from audited financial statements.
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Condensed Consolidated Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Condensed Consolidated Financial Statements do not include all the information and notes required by GAAP for complete consolidated financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Condensed Consolidated Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2014 included in our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2015. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Partnership’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Income Taxes
A publicly-traded partnership is required to generate at least 90% of its gross income (as defined for federal income tax purposes) from certain qualifying sources. At least 90% of our gross income has been qualifying income since our IPO.
As a limited partnership, we generally are not subject to federal, state or local income taxes. The tax on the Partnership’s net income is generally borne by the individual partners. Net income for financial statement purposes may differ significantly from taxable income of the partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregated difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partners’ tax attributes in us is not available to us. The Partnership’s Canadian activity remains taxable in Canada, as well as the activities of a wholly owned subsidiary, Tulsa Inspection Resources – PUC, LLC (“TIR-PUC”), which has elected to be taxed as a corporation for U.S. federal income tax purposes. Consequently, the Partnership records income tax expense for our Canadian operations, our U.S. corporate operations and any state income and franchise taxes specifically applicable to the Partnership.
Non-controlling Interest
We have certain consolidated subsidiaries in which outside parties own interests. The non-controlling interest shown in our Condensed Consolidated Financial Statements represents the other owners’ share of these entities.
Identifiable Intangible Assets
Our recorded identifiable intangible assets primarily include customer lists, trademarks and trade names. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which is the period over which the asset is expected to contribute directly or indirectly to our future cash flows. We have no indefinite-lived intangibles other than goodwill. The determination of the fair value of the intangible assets and the estimated useful lives are based on an analysis of all pertinent factors including (1) the use of widely-accepted valuation approaches, the income approach, or the cost approach, (2) our expected use of the asset, (3) the expected useful life of related assets, (4) any legal, regulatory, or contractual provisions, including renewal or extension periods that would cause substantial costs or modifications to existing agreements, and (5) the effects of demand, competition, and other economic factors. Should any of the underlying assumptions indicate that the value of the intangible assets might be impaired, we may be required to reduce the carrying value and subsequent useful life of the asset. If the underlying assumptions governing the amortization of an intangible asset were later determined to have significantly changed, we may be required to adjust the amortization period of such asset to reflect any new estimate of its useful life. Any write-down of the value or unfavorable change in the useful life of an intangible asset would increase expense at that time. There were no impairments of identifiable intangible assets during the three and six month periods ended June 30, 2015 or 2014.
Goodwill
Goodwill is not amortized, but is subject to an annual review on November 1 (or at other dates if events or changes in circumstances indicate that the carrying value of goodwill may be impaired) for impairment at a reporting unit level. The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. A reporting unit is an operating segment or a component that is one level below an operating segment. We have determined that PIS, IS and W&ES are the appropriate reporting units for testing goodwill impairment. The accounting estimate relative to assessing the impairment of goodwill is a critical accounting estimate for each of our reportable segments. There were no impairments of goodwill during the three and six month periods ended June 30, 2015 or 2014.
Impairments of Long-Lived Assets
We assess property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, changes in regulatory and political environments and historical and future cash flow and profitability measurements. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation on operating expenses and the outlook for national or regional market supply and demand for the services we provide. There were no recorded impairments of long-lived assets for the three and six month periods ended June 30, 2015 or 2014.
New Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers in May 2014. ASU 2014-09 is intended to clarify the principles for recognizing revenue and develop a common standard for recognizing revenue for GAAP and International Financial Reporting Standards that is applicable to all organizations. The Partnership was originally required to comply with this ASU beginning in 2017. We are currently evaluating the impact of this ASU on the financial information of the Partnership. We do not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows. On July 9, 2015, the FASB voted to delay the effective date to periods beginning after December 15, 2017.
The FASB issued ASU 2015-03 – Interest – Imputation of Interest in April 2015. This guidance requires debt issuance costs related to our long-term debt (currently reflected as a non-current asset) to be presented on the balance sheet as a reduction of the carrying amount of the long-term debt. The Partnership will be required to comply with this ASU beginning in 2016. It requires retrospective application and we plan to adopt this guidance beginning in the first quarter of 2016. We are currently reviewing the new requirements to determine the impact this guidance will have on our Consolidated Financial Statements.
The FASB issued ASU 2015-06 – Earnings Per Share in April 2015. The amendments in this update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. The amendments should be applied retrospectively for all financial statements presented. This ASU will be effective for fiscal and interim periods beginning after December 15, 2015. The Partnership does not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows.
In June 2015, the FASB issued ASU 2015-10 – Technical Corrections and Improvements. The amendments in this update represent changes to clarify the Codification, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to the Partnership. Specifically as it relates to the Partnership, for nonrecurring fair value measurements estimated at a date during the reporting period other than the end of the reporting period, we are required to clearly indicate that the fair value information presented is not as of the period’s end as well as the date or period that the measurement was taken. The effective date of this guidance varies based on the amendments in the ASU, however, the fair value portion of the ASU referred to above is effective upon its issuance.
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||||||
Revenues - as reported |
$ | 90,953 | $ | 93,722 | $ | 185,019 | $ | 191,245 | ||||||||
Revenues - pro forma |
92,662 | 98,703 | 189,164 | 202,278 | ||||||||||||
Net income - as reported |
$ | 1,859 | $ | 4,929 | $ | 4,685 | $ | 8,446 | ||||||||
Net income - pro forma |
1,818 | 5,458 | 4,139 | 8,737 |
(in thousands) |
||||
Cash |
$ | 175 | ||
Accounts receivable |
3,229 | |||
Other current assets |
126 | |||
Property and equipment |
2,578 | |||
Intangible assets: |
||||
Customer relationships |
3,128 | |||
Trade names and trademarks |
2,049 | |||
Non-competition agreements |
143 | |||
Goodwill |
9,992 | |||
Fair value of assets acquired |
21,420 | |||
Fair value of current liabilities |
1,293 | |||
Fair value of non-controlling interests |
9,506 | |||
Purchase price |
$ | 10,621 |
|
Six Months Ended June 30, |
||||||||||||||||
2015 |
2014 |
|||||||||||||||
Weighted |
Weighted |
|||||||||||||||
Average |
Average |
|||||||||||||||
Grant |
Grant |
|||||||||||||||
Number |
Date Fair |
Number |
Date Fair |
|||||||||||||
of Units |
Value / Unit |
of Units |
Value / Unit |
|||||||||||||
Units at January 1 |
158,353 | $ | 18.11 | - | $ | - | ||||||||||
Units granted |
170,552 | 13.42 | 131,414 | 17.48 | ||||||||||||
Units vested and issued |
(7,467 | ) |
(19.72 | ) |
- | - | ||||||||||
Units forfeited |
(6,912 | ) |
(18.16 | ) |
(17,136 | ) |
(16.89 | ) |
||||||||
Units at June 30 |
314,526 | 15.53 | 114,278 | 17.57 |
|
Total Cash |
||||||||||||||
Per Unit Cash |
Total Cash |
Distributions |
||||||||||||
Payment Date |
Distributions |
Distributions |
to Affiliates (c) |
|||||||||||
(in thousands) |
||||||||||||||
May 15, 2014 (a) |
$ | 0.301389 | $ | 3,565 | $ | 2,264 | ||||||||
August 14, 2014 |
0.396844 | 4,693 | 2,980 | |||||||||||
November 14, 2014 |
0.406413 | 4,806 | 3,052 | |||||||||||
Total 2014 Distributions |
1.104646 | 13,064 | 8,296 | |||||||||||
February 14, 2015 |
0.406413 | 4,806 | 3,052 | |||||||||||
May 14, 2015 |
0.406413 | 4,808 | 3,053 | |||||||||||
August 14, 2015 (b) |
0.406413 | 4,809 | 3,087 | |||||||||||
Total 2015 Distributions (through August 14, 2015) |
1.219239 | 14,423 | 9,192 | |||||||||||
Total Distributions (through August 14, 2015) since IPO |
$ | 2.323885 | $ | 27,487 | $ | 17,488 |
|
PIS |
IS |
W&ES |
Other |
Total |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Three months ended June 30, 2015 |
||||||||||||||||||||
Revenues |
$ | 83,501 | $ | 3,478 | $ | 3,974 | $ | - | $ | 90,953 | ||||||||||
Costs of services |
75,659 | 2,794 | 1,737 | - | 80,190 | |||||||||||||||
Gross margin |
7,842 | 684 | 2,237 | - | 10,763 | |||||||||||||||
General and administrative |
4,295 | 563 | 858 | 351 | 6,067 | |||||||||||||||
Depreciation, amortization and accretion |
628 | 105 | 641 | - | 1,374 | |||||||||||||||
Operating income |
$ | 2,919 | $ | 16 | $ | 738 | $ | (351 | ) | 3,322 | ||||||||||
Interest expense, net |
(1,440 | ) | ||||||||||||||||||
Other, net |
55 | |||||||||||||||||||
Net income before income tax expense |
$ | 1,937 | ||||||||||||||||||
Three months ended June 30, 2014 |
||||||||||||||||||||
Revenues |
$ | 87,727 | $ | - | $ | 5,995 | $ | - | $ | 93,722 | ||||||||||
Costs of services |
79,505 | - | 1,914 | - | 81,419 | |||||||||||||||
Gross margin |
8,222 | - | 4,081 | - | 12,303 | |||||||||||||||
General and administrative |
4,151 | - | 816 | - | 4,967 | |||||||||||||||
Depreciation, amortization and accretion |
636 | - | 940 | - | 1,576 | |||||||||||||||
Operating income |
$ | 3,435 | $ | - | $ | 2,325 | $ | - | 5,760 | |||||||||||
Interest expense, net |
(772 | ) | ||||||||||||||||||
Other, net |
37 | |||||||||||||||||||
Net income before income tax expense |
$ | 5,025 |
PIS |
IS |
W&ES |
Other |
Total |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Six months ended June 30, 2015 |
||||||||||||||||||||
Revenues |
$ | 173,315 | $ | 3,478 | $ | 8,226 | $ | - | $ | 185,019 | ||||||||||
Costs of services |
157,475 | 2,794 | 3,438 | - | 163,707 | |||||||||||||||
Gross margin |
15,840 | 684 | 4,788 | - | 21,312 | |||||||||||||||
General and administrative |
8,581 | 563 | 1,730 | 455 | 11,329 | |||||||||||||||
Depreciation, amortization and accretion |
1,254 | 105 | 1,273 | - | 2,632 | |||||||||||||||
Operating income |
$ | 6,005 | $ | 16 | $ | 1,785 | $ | (455 | ) | 7,351 | ||||||||||
Interest expense, net |
(2,447 | ) | ||||||||||||||||||
Other, net |
63 | |||||||||||||||||||
Net income before income tax expense |
$ | 4,967 | ||||||||||||||||||
Six months ended June 30, 2014 |
||||||||||||||||||||
Revenues |
$ | 179,990 | $ | - | $ | 11,255 | $ | - | $ | 191,245 | ||||||||||
Costs of services |
163,481 | - | 4,041 | - | 167,522 | |||||||||||||||
Gross margin |
16,509 | - | 7,214 | - | 23,723 | |||||||||||||||
General and administrative |
8,496 | - | 1,425 | - | 9,921 | |||||||||||||||
Depreciation, amortization and accretion |
1,271 | - | 1,866 | - | 3,137 | |||||||||||||||
Operating income |
$ | 6,742 | $ | - | $ | 3,923 | $ | - | 10,665 | |||||||||||
Interest expense, net |
(1,557 | ) | ||||||||||||||||||
Offering costs |
(446 | ) | ||||||||||||||||||
Other, net |
25 | |||||||||||||||||||
Net income before income tax expense |
$ | 8,687 | ||||||||||||||||||
Total Assets |
||||||||||||||||||||
June 30, 2015 |
$ | 140,605 | $ | 21,854 | $ | 46,945 | $ | 1,582 | ||||||||||||
December 31, 2014 |
$ | 136,224 | $ | - | $ | 50,296 | $ | 3,322 |
|
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 90 | $ | 24,047 | $ | 4,450 | $ | - | $ | 28,587 | ||||||||||
Trade accounts receivable, net |
- | 44,312 | 8,577 | (392 | ) | 52,497 | ||||||||||||||
Receivables from affiliates |
- | 5,180 | - | (4,523 | ) | 657 | ||||||||||||||
Deferred tax assets |
- | 3 | 38 | - | 41 | |||||||||||||||
Prepaid expenses and other |
- | 1,295 | 169 | - | 1,464 | |||||||||||||||
Total current assets |
90 | 74,837 | 13,234 | (4,915 | ) | 83,246 | ||||||||||||||
Property and equipment: |
||||||||||||||||||||
Property and equipment, at cost |
- | 28,323 | 2,708 | - | 31,031 | |||||||||||||||
Less: Accumulated depreciation |
- | 4,884 | 155 | - | 5,039 | |||||||||||||||
Total property and equipment, net |
- | 23,439 | 2,553 | - | 25,992 | |||||||||||||||
Intangible assets, net |
- | 27,273 | 6,852 | - | 34,125 | |||||||||||||||
Goodwill |
- | 53,914 | 11,507 | - | 65,421 | |||||||||||||||
Investment in subsidiaries |
42,037 | - | - | (42,037 | ) | - | ||||||||||||||
Notes receivable - affiliates |
- | 14,601 | - | (14,601 | ) | - | ||||||||||||||
Debt issuance costs, net |
2,047 | - | - | - | 2,047 | |||||||||||||||
Other assets |
- | 144 | 11 | - | 155 | |||||||||||||||
Total assets |
$ | 44,174 | $ | 194,208 | $ | 34,157 | $ | (61,553 | ) | $ | 210,986 | |||||||||
LIABILITIES AND OWNERS' EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 134 | $ | 809 | $ | 2,037 | $ | - | $ | 2,980 | ||||||||||
Accounts payable - affiliates |
279 | (45 | ) | 4,289 | (4,523 | ) | - | |||||||||||||
Accrued payroll and other |
- | 15,097 | 891 | (392 | ) | 15,596 | ||||||||||||||
Income taxes payable |
- | 267 | - | - | 267 | |||||||||||||||
Total current liabilities |
413 | 16,128 | 7,217 | (4,915 | ) | 18,843 | ||||||||||||||
Long-term debt |
- | 135,400 | 5,500 | - | 140,900 | |||||||||||||||
Notes payable - affiliates |
- | (4 | ) | 13,925 | (13,921 | ) | - | |||||||||||||
Deferred tax liabilities |
- | - | 392 | - | 392 | |||||||||||||||
Asset retirement obligations |
- | 33 | - | - | 33 | |||||||||||||||
Total liabilities |
413 | 151,557 | 27,034 | (18,836 | ) | 160,168 | ||||||||||||||
Commitments and contingencies - Note 10 |
||||||||||||||||||||
Owners' equity: |
||||||||||||||||||||
Total partners' capital |
43,761 | 33,014 | 7,123 | (42,715 | ) | 41,344 | ||||||||||||||
Non-controlling interests |
- | 9,637 | - | (2 | ) | 9,474 | ||||||||||||||
Total owners' equity |
43,761 | 42,651 | 7,123 | (42,717 | ) | 50,818 | ||||||||||||||
Total liabilities and owners' equity |
$ | 44,174 | $ | 194,208 | $ | 34,157 | $ | (61,553 | ) | $ | 210,986 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 982 | $ | 16,598 | $ | 3,177 | $ | - | $ | 20,757 | ||||||||||
Trade accounts receivable, net |
- | 49,569 | 4,514 | (8 | ) | 54,075 | ||||||||||||||
Receivables from affiliates |
22 | 8,809 | - | (8,831 | ) | - | ||||||||||||||
Deferred tax assets |
- | 15 | 53 | - | 68 | |||||||||||||||
Prepaid expenses and other |
- | 2,339 | 101 | - | 2,440 | |||||||||||||||
Total current assets |
1,004 | 77,330 | 7,845 | (8,839 | ) | 77,340 | ||||||||||||||
Property and equipment: |
||||||||||||||||||||
Property and equipment, at cost |
- | 27,769 | 109 | - | 27,878 | |||||||||||||||
Less: Accumulated depreciation |
- | 3,485 | 53 | - | 3,538 | |||||||||||||||
Total property and equipment, net |
- | 24,284 | 56 | - | 24,340 | |||||||||||||||
Intangible assets, net |
- | 28,414 | 1,831 | - | 30,245 | |||||||||||||||
Goodwill |
- | 53,915 | 1,630 | - | 55,545 | |||||||||||||||
Investment in subsidiaries |
98,965 | - | - | (98,965 | ) | - | ||||||||||||||
Notes receivable - affiliates |
- | 3,903 | - | (3,903 | ) | - | ||||||||||||||
Debt issuance costs, net |
2,318 | - | - | - | 2,318 | |||||||||||||||
Other assets |
- | 35 | 19 | - | 54 | |||||||||||||||
Total assets |
$ | 102,287 | $ | 187,881 | $ | 11,381 | $ | (111,707 | ) | $ | 189,842 | |||||||||
LIABILITIES AND OWNERS' EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 34 | $ | 2,161 | $ | 266 | $ | - | $ | 2,461 | ||||||||||
Accounts payable - affiliates |
- | 586 | 8,839 | (8,839 | ) | 586 | ||||||||||||||
Accrued payroll and other |
6 | 7,605 | 139 | - | 7,750 | |||||||||||||||
Income taxes payable |
- | 507 | 39 | - | 546 | |||||||||||||||
Total current liabilities |
40 | 10,859 | 9,283 | (8,839 | ) | 11,343 | ||||||||||||||
Long-term debt |
- | 77,600 | - | - | 77,600 | |||||||||||||||
Notes payable - affiliates |
- | - | 3,479 | (3,479 | ) | - | ||||||||||||||
Deferred tax liabilities |
- | - | 438 | - | 438 | |||||||||||||||
Asset retirement obligations |
- | 33 | - | - | 33 | |||||||||||||||
Total liabilities |
40 | 88,492 | 13,200 | (12,318 | ) | 89,414 | ||||||||||||||
Commitments and contingencies - Note 10 |
||||||||||||||||||||
Owners' equity: |
||||||||||||||||||||
Total partners' capital |
75,764 | 98,380 | (1,819 | ) | (98,470 | ) | 73,855 | |||||||||||||
Non-controlling interests |
26,483 | 1,009 | - | (919 | ) | 26,573 | ||||||||||||||
Total owners' equity |
102,247 | 99,389 | (1,819 | ) | (99,389 | ) | 100,428 | |||||||||||||
Total liabilities and owners' equity |
$ | 102,287 | $ | 187,881 | $ | 11,381 | $ | (111,707 | ) | $ | 189,842 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 82,521 | $ | 10,922 | $ | (2,490 | ) | $ | 90,953 | |||||||||
Costs of services |
- | 72,844 | 9,836 | (2,490 | ) | 80,190 | ||||||||||||||
Gross margin |
- | 9,677 | 1,086 | - | 10,763 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
351 | 4,722 | 994 | - | 6,067 | |||||||||||||||
Depreciation, amortization and accretion |
- | 1,223 | 151 | - | 1,374 | |||||||||||||||
Operating income |
(351 | ) | 3,732 | (59 | ) | - | 3,322 | |||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
2,665 | - | - | (2,665 | ) | - | ||||||||||||||
Interest expense, net |
(216 | ) | (1,072 | ) | (152 | ) | - | (1,440 | ) | |||||||||||
Other, net |
- | 47 | 8 | - | 55 | |||||||||||||||
Net income before income tax expense |
2,098 | 2,707 | (203 | ) | (2,665 | ) | 1,937 | |||||||||||||
Income tax expense |
- | 101 | (23 | ) | - | 78 | ||||||||||||||
Net income |
2,098 | 2,606 | (180 | ) | (2,665 | ) | 1,859 | |||||||||||||
Net income attributable to non-controlling interests |
- | (59 | ) | - | (18 | ) | (77 | ) | ||||||||||||
Net income attributable to controlling interests |
$ | 2,098 | $ | 2,665 | $ | (180 | ) | $ | (2,647 | ) | $ | 1,936 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 88,178 | $ | 5,561 | $ | (17 | ) | $ | 93,722 | |||||||||
Costs of services |
- | 76,357 | 5,079 | (17 | ) | 81,419 | ||||||||||||||
Gross margin |
- | 11,821 | 482 | - | 12,303 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
- | 4,500 | 467 | - | 4,967 | |||||||||||||||
Depreciation, amortization and accretion |
- | 1,524 | 52 | - | 1,576 | |||||||||||||||
Operating income |
- | 5,797 | (37 | ) | - | 5,760 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
5,101 | - | - | (5,101 | ) | - | ||||||||||||||
Interest expense, net |
(262 | ) | (479 | ) | (31 | ) | - | (772 | ) | |||||||||||
Offering costs |
- | - | - | - | - | |||||||||||||||
Other, net |
- | 37 | - | - | 37 | |||||||||||||||
Net income before income tax expense |
4,839 | 5,355 | (68 | ) | (5,101 | ) | 5,025 | |||||||||||||
Income tax expense |
- | 116 | (20 | ) | - | 96 | ||||||||||||||
Net income |
4,839 | 5,239 | (48 | ) | (5,101 | ) | 4,929 | |||||||||||||
Net income attributable to non-controlling interests |
1,111 | 138 | - | - | 1,249 | |||||||||||||||
Net income attributable to controlling interests |
$ | 3,728 | $ | 5,101 | $ | (48 | ) | $ | (5,101 | ) | $ | 3,680 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 167,267 | $ | 21,489 | $ | (3,737 | ) | $ | 185,019 | |||||||||
Costs of services |
- | 147,782 | 19,662 | (3,737 | ) | 163,707 | ||||||||||||||
Gross margin |
- | 19,485 | 1,827 | - | 21,312 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
455 | 9,413 | 1,461 | - | 11,329 | |||||||||||||||
Depreciation, amortization and accretion |
- | 2,436 | 196 | - | 2,632 | |||||||||||||||
Operating income |
(455 | ) | 7,636 | 170 | - | 7,351 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
5,755 | - | - | (5,755 | ) | - | ||||||||||||||
Interest expense, net |
(474 | ) | (1,746 | ) | (227 | ) | - | (2,447 | ) | |||||||||||
Other, net |
- | 53 | 10 | - | 63 | |||||||||||||||
Net income before income tax expense |
4,826 | 5,943 | (47 | ) | (5,755 | ) | 4,967 | |||||||||||||
Income tax expense |
258 | 24 | - | 282 | ||||||||||||||||
Net income |
4,826 | 5,685 | (71 | ) | (5,755 | ) | 4,685 | |||||||||||||
Net income attributable to non-controlling interests |
145 | (70 | ) | - | 15 | 90 | ||||||||||||||
Net income attributable to controlling interests |
$ | 4,681 | $ | 5,755 | $ | (71 | ) | $ | (5,770 | ) | $ | 4,595 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Revenues |
$ | - | $ | 176,934 | $ | 14,406 | $ | (95 | ) | $ | 191,245 | |||||||||
Costs of services |
- | 154,460 | 13,157 | (95 | ) | 167,522 | ||||||||||||||
Gross margin |
- | 22,474 | 1,249 | - | 23,723 | |||||||||||||||
Operating costs and expense: |
||||||||||||||||||||
General and administrative |
- | 9,065 | 856 | - | 9,921 | |||||||||||||||
Depreciation, amortization and accretion |
- | 3,032 | 105 | - | 3,137 | |||||||||||||||
Operating income |
- | 10,377 | 288 | - | 10,665 | |||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings (loss) in subsidiaries |
8,999 | - | - | (8,999 | ) | - | ||||||||||||||
Interest expense, net |
(441 | ) | (1,055 | ) | (61 | ) | - | (1,557 | ) | |||||||||||
Offering costs |
(446 | ) | - | - | - | (446 | ) | |||||||||||||
Other, net |
- | 25 | - | - | 25 | |||||||||||||||
Net income before income tax expense |
8,112 | 9,347 | 227 | (8,999 | ) | 8,687 | ||||||||||||||
Income tax expense |
- | 187 | 54 | - | 241 | |||||||||||||||
Net income |
8,112 | 9,160 | 173 | (8,999 | ) | 8,446 | ||||||||||||||
Net income attributable to non-controlling interests |
1,861 | 161 | - | - | 2,022 | |||||||||||||||
Net income attributable to controlling interests |
$ | 6,251 | $ | 8,999 | $ | 173 | $ | (8,999 | ) | $ | 6,424 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 2,098 | $ | 2,606 | $ | (180 | ) | $ | (2,665 | ) | $ | 1,859 | ||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | 100 | 37 | 137 | |||||||||||||||
Comprehensive income (loss) |
$ | 2,098 | $ | 2,606 | $ | (80 | ) | $ | (2,628 | ) | $ | 1,996 | ||||||||
Comprehensive income (loss) attributable to non-controlling interests |
- | (59 | ) | - | (18 | ) | (77 | ) | ||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 2,098 | $ | 2,665 | $ | (80 | ) | $ | (2,610 | ) | $ | 2,073 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 4,839 | $ | 5,239 | $ | (48 | ) | $ | (5,101 | ) | $ | 4,929 | ||||||||
Other comprehensive income: |
||||||||||||||||||||
Foreign currency translation |
- | - | 284 | 131 | 415 | |||||||||||||||
Comprehensive income (loss) |
$ | 4,839 | $ | 5,239 | $ | 236 | $ | (4,970 | ) | $ | 5,344 | |||||||||
Comprehensive income (loss) attributable to non-controlling interests |
1,111 | 138 | - | 207 | 1,456 | |||||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 3,728 | $ | 5,101 | $ | 236 | $ | (5,177 | ) | $ | 3,888 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 4,826 | $ | 5,685 | $ | (71 | ) | $ | (5,755 | ) | $ | 4,685 | ||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | (491 | ) | (256 | ) | (747 | ) | ||||||||||||
Comprehensive income (loss) |
$ | 4,826 | $ | 5,685 | $ | (562 | ) | $ | (6,011 | ) | $ | 3,938 | ||||||||
Comprehensive income (loss) attributable to non-controlling interests |
145 | (70 | ) | - | (442 | ) | (367 | ) | ||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 4,681 | $ | 5,755 | $ | (562 | ) | $ | (5,569 | ) | $ | 4,305 |
Non- |
||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
Net income (loss) |
$ | 8,112 | $ | 9,160 | $ | 173 | $ | (8,999 | ) | $ | 8,446 | |||||||||
Other comprehensive (loss): |
||||||||||||||||||||
Foreign currency translation |
- | - | (31 | ) | (13 | ) | (44 | ) | ||||||||||||
Comprehensive income (loss) |
$ | 8,112 | $ | 9,160 | $ | 142 | $ | (9,012 | ) | $ | 8,402 | |||||||||
Comprehensive income (loss) attributable to non-controlling interests |
1,861 | 161 | - | 130 | 2,152 | |||||||||||||||
Comprehensive income (loss) attributable to controlling interests |
$ | 6,251 | $ | 8,999 | $ | 142 | $ | (9,142 | ) | $ | 6,250 |
Non- |
||||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||||
Operating activities: |
||||||||||||||||||||||
Net income (loss) |
$ | 4,826 | $ | 5,685 |
|
$ | (71 | ) |
|
$ | (5,755 | ) | $ | 4,685 | ||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
||||||||||||||||||||||
Depreciation, amortization and accretion |
- | 2,553 |
|
276 |
|
- | 2,829 | |||||||||||||||
Loss on asset disposal |
- | - |
|
(1 | ) |
|
- | (1 | ) | |||||||||||||
Interest expense from debt issuance cost amortization |
271 | - |
|
- |
|
- | 271 | |||||||||||||||
Amortization of equity-based compensation |
532 | - |
|
- |
|
- | 532 | |||||||||||||||
Equity earnings in investee company |
- | (48 | ) |
|
- |
|
- | (48 | ) | |||||||||||||
Equity earnings in subsidiaries |
(5,755 | ) | - |
|
- |
|
5,755 | - | ||||||||||||||
Deferred tax benefit, net |
- | 12 |
|
16 |
|
- | 28 | |||||||||||||||
Non-cash allocated expenses |
183 | - |
|
- |
|
- | 183 | |||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||
Trade accounts receivable |
22 | 4,962 |
|
(834 | ) |
|
- | 4,150 | ||||||||||||||
Prepaid expenses and other |
- | 1,057 |
|
65 |
|
- | 1,122 | |||||||||||||||
Accounts payable and accrued payroll and other |
374 | 10,170 |
|
(3,320 | ) |
|
- | 7,224 | ||||||||||||||
Income taxes payable |
- | (240 | ) |
|
(39 | ) |
|
- | (279 | ) | ||||||||||||
Net cash provided by (used in) operating activities |
453 | 24,151 |
|
(3,908 | ) |
|
- | 20,696 | ||||||||||||||
Investing activities: |
||||||||||||||||||||||
Proceeds from fixed asset disposals |
- | 2 |
|
- |
|
- | 2 | |||||||||||||||
Acquisition of 49.9% interest in the TIR Entities |
- | (52,588 | ) | - | - | (52,588 | ) | |||||||||||||||
Acquisition of 51% of Brown Integrity, LLC |
- | (10,516 | ) | - | - | (10,516 | ) | |||||||||||||||
Purchase of property and equipment |
- | (1,309 | ) |
|
(30 | ) |
|
- | (1,339 | ) | ||||||||||||
Net cash used in investing activities |
- | (64,411 | ) |
|
(30 | ) |
|
- | (64,441 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||||
Advances on long-term debt |
- | 63,300 |
|
5,500 |
|
- | 68,800 | |||||||||||||||
Repayment of long-term debt |
- | (5,500 | ) |
|
- |
|
- | (5,500 | ) | |||||||||||||
Distributions from subsidiaries |
8,269 | (8,269 | ) |
|
- |
|
- | - | ||||||||||||||
Distributions to limited partners |
(9,614 | ) | - |
|
- |
|
- | (9,614 | ) | |||||||||||||
Distributions to non-controlling members of the TIR Entities |
- | (1,567 | ) |
|
- |
|
- | (1,567 | ) | |||||||||||||
Net cash provided by (used in) financing activities |
(1,345 | ) | 47,964 |
|
5,500 |
|
- | 52,119 | ||||||||||||||
Effects of exchange rates on cash |
- | (255 | ) |
|
(289 | ) |
|
- | (544 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(892 | ) | 7,449 |
|
1,273 |
|
- | 7,830 | ||||||||||||||
Cash and cash equivalents, beginning of period |
982 | 16,598 |
|
3,177 |
|
- | 20,757 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 90 | $ | 24,047 |
|
$ | 4,450 |
|
$ | - | $ | 28,587 | ||||||||||
Non-cash items: |
||||||||||||||||||||||
Accounts payable excluded from capital expenditures |
$ | - | 18 |
|
$ | - |
|
$ | - | $ | 18 |
Non- |
||||||||||||||||||||||
Parent |
Guarantors |
Guarantors |
Eliminations |
Consolidated |
||||||||||||||||||
Operating activities: |
||||||||||||||||||||||
Net income (loss) |
$ | 8,112 | $ | 9,160 |
|
$ | 173 |
|
$ | (8,999 | ) | $ | 8,446 | |||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
||||||||||||||||||||||
Depreciation, amortization and accretion |
- | 3,121 |
|
105 |
|
- | 3,226 | |||||||||||||||
Loss on asset disposal |
- | 3 |
|
- |
|
- | 3 | |||||||||||||||
Interest expense from debt issuance cost amortization |
367 | - |
|
- |
|
- | 367 | |||||||||||||||
Amortization of equity-based compensation |
424 | - |
|
- |
|
- | 424 | |||||||||||||||
Equity earnings in investee company |
- | (16 | ) |
|
- |
|
- | (16 | ) | |||||||||||||
Equity earnings in subsidiaries |
(8,999 | ) | - |
|
- |
|
8,999 | - | ||||||||||||||
Deferred tax benefit, net |
- | (105 | ) |
|
30 |
|
- | (75 | ) | |||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||
Trade accounts receivable |
- | 7,637 |
|
2,527 |
|
- | 10,164 | |||||||||||||||
Receivables from affiliates |
(177 | ) | 160 |
|
17 |
|
- | - | ||||||||||||||
Prepaid expenses and other |
320 | (215 | ) |
|
12 |
|
- | 117 | ||||||||||||||
Accounts payable and accrued payroll and other |
107 | 5,936 |
|
202 |
|
- | 6,245 | |||||||||||||||
Income taxes payable |
- | (14,878 | ) |
|
(1,205 | ) |
|
- | (16,083 | ) | ||||||||||||
Net cash provided by operating activities |
154 | 10,803 |
|
1,861 |
|
- | 12,818 | |||||||||||||||
Investing activities: |
||||||||||||||||||||||
Purchase of property and equipment |
- | (387 | ) |
|
(5 | ) |
|
- | (392 | ) | ||||||||||||
Net cash used in investing activities |
- | (387 | ) |
|
(5 | ) |
|
- | (392 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||||
Proceeds from initial public offering |
80,213 | - |
|
- |
|
- | 80,213 | |||||||||||||||
Distribution of initial public offering proceeds to Cypress Energy Holdings, LLC |
(80,213 | ) | - |
|
- |
|
- | (80,213 | ) | |||||||||||||
Payment of deferred offering costs |
(314 | ) | - |
|
- |
|
- | (314 | ) | |||||||||||||
Repayment of long-term debt |
- | (5,000 | ) |
|
- |
|
- | (5,000 | ) | |||||||||||||
Payments on behalf of affiliates |
(283 | ) | - |
|
- |
|
- | (283 | ) | |||||||||||||
Net advances from members |
314 | - |
|
- |
|
- | 314 | |||||||||||||||
Distributions from subsidiaries |
4,202 | (4,202 | ) |
|
- |
|
- | - | ||||||||||||||
Distributions to limited partners |
(3,566 | ) | - |
|
- |
|
- | (3,566 | ) | |||||||||||||
Distributions to non-controlling members of the TIR Entities |
- | (1,293 | ) |
|
- |
|
- | (1,293 | ) | |||||||||||||
Net cash provided by (used in) financing activities |
353 | (10,495 | ) |
|
- |
|
- | (10,142 | ) | |||||||||||||
Effects of exchange rates on cash |
- | - |
|
(39 | ) |
|
- | (39 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
507 | (79 | ) |
|
1,817 |
|
- | 2,245 | ||||||||||||||
Cash and cash equivalents, beginning of period |
- | 24,606 |
|
2,084 |
|
- | 26,690 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 507 | $ | 24,527 |
|
$ | 3,901 |
|
$ | - | $ | 28,935 | ||||||||||
Non-cash items: |
||||||||||||||||||||||
Accounts payable excluded from capital expenditures |
$ | - | $ | 42 |
|
$ | - |
|
$ | - | $ | 42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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