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EX-31.1 - EXHIBIT 31.1 - Hi-Crush Partners LPexhibit311q215.htm
EX-31.2 - EXHIBIT 31.2 - Hi-Crush Partners LPexhibit312q215.htm
EX-32.2 - EXHIBIT 32.2 - Hi-Crush Partners LPexhibit322q215.htm
EX-95.1 - EXHIBIT 95.1 - Hi-Crush Partners LPexhibit951q215.htm
EX-31.3 - EXHIBIT 31.3 - Hi-Crush Partners LPexhibit313q215.htm
EX-32.3 - EXHIBIT 32.3 - Hi-Crush Partners LPexhibit323q215.htm
EX-32.1 - EXHIBIT 32.1 - Hi-Crush Partners LPexhibit321q215.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2015
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-35630 
Hi-Crush Partners LP
(Exact name of registrant as specified in its charter)
Delaware
90-0840530
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
Three Riverway, Suite 1550
 
Houston, Texas
77056
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code (713) 960-4777 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company.)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
There were 23,318,419 common units and 13,640,351 subordinated units outstanding on July 31, 2015.



INDEX TO FORM 10-Q

[2]


PART I
ITEM 1. FINANCIAL STATEMENTS.
HI-CRUSH PARTNERS LP
Condensed Consolidated Balance Sheets
(In thousands, except unit amounts)
(Unaudited)
 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash
$
6,923

 
$
4,646

Restricted cash
691

 
691

Accounts receivable, net
53,140

 
82,117

Inventories
28,142

 
23,684

Prepaid expenses and other current assets
3,971

 
4,081

Total current assets
92,867

 
115,219

Property, plant and equipment, net
266,529

 
241,325

Goodwill and intangible assets, net
65,284

 
66,750

Other assets
11,681

 
12,826

Total assets
$
436,361

 
$
436,120

Liabilities, Equity and Partners’ Capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
11,766

 
$
24,878

Accrued and other current liabilities
9,951

 
12,248

Due to sponsor
7,739

 
13,459

Current portion of long-term debt
2,000

 
2,000

Total current liabilities
31,456

 
52,585

Long-term debt
235,006

 
198,364

Asset retirement obligation
6,897

 
6,730

Total liabilities
273,359

 
257,679

Commitments and contingencies

 

Equity and partners’ capital:
 
 
 
General partner interest

 

Limited partner interests, 36,958,770 and 36,952,426 units outstanding, respectively
160,356

 
175,962

Total partners’ capital
160,356

 
175,962

Non-controlling interest
2,646

 
2,479

Total equity and partners' capital
163,002

 
178,441

Total liabilities, equity and partners’ capital
$
436,361

 
$
436,120

See Notes to Unaudited Condensed Consolidated Financial Statements.

[3]


HI-CRUSH PARTNERS LP
Condensed Consolidated Statements of Operations
(In thousands, except per unit amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014 (a)
Revenues
$
83,958

 
$
82,724

 
$
186,069

 
$
153,302

Cost of goods sold (including depreciation, depletion and amortization)
63,698

 
43,859

 
132,337

 
88,025

Gross profit
20,260

 
38,865

 
53,732

 
65,277

Operating costs and expenses:
 
 
 
 
 
 
 
General and administrative expenses
5,749

 
6,679

 
11,967

 
13,104

Accretion of asset retirement obligation
84

 
66

 
167

 
123

Income from operations
14,427

 
32,120

 
41,598

 
52,050

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(2,979
)
 
(2,315
)
 
(6,296
)
 
(3,725
)
Net income
11,448

 
29,805

 
35,302

 
48,325

Loss (income) attributable to non-controlling interest
2

 
(264
)
 
(167
)
 
(412
)
Net income attributable to Hi-Crush Partners LP
$
11,450

 
$
29,541

 
$
35,135

 
$
47,913

Earnings per unit:
 
 
 
 
 
 
 
Common units - basic
$
0.31

 
$
0.77

 
$
0.92

 
$
1.32

Subordinated units - basic
$
0.31

 
$
0.77

 
$
0.92

 
$
1.32

Common units - diluted
$
0.31

 
$
0.75

 
$
0.91

 
$
1.25

Subordinated units - diluted
$
0.31

 
$
0.75

 
$
0.91

 
$
1.25


(a) Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 5.
See Notes to Unaudited Condensed Consolidated Financial Statements.


[4]


HI-CRUSH PARTNERS LP
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2015
 
2014 (a)
Operating activities:
 
 
 
Net income
$
35,302

 
$
48,325

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and depletion
5,712

 
3,904

Amortization of intangible assets
1,466

 
3,604

Amortization of deferred charges into interest expense
826

 
444

Management fees paid by Member on behalf of Hi-Crush Augusta LLC

 
492

Accretion of asset retirement obligation
167

 
123

Unit-based compensation to independent directors and employees
1,937

 
353

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
28,977

 
(9,489
)
Prepaid expenses and other current assets
165

 
223

Inventories
(2,842
)
 
3,285

Other assets
562

 
(79
)
Accounts payable
(6,011
)
 
3,236

Accrued and other current liabilities
(2,514
)
 
3,191

Due to sponsor
(5,720
)
 
(3,933
)
Net cash provided by operating activities
58,027

 
53,679

Investing activities:
 
 
 
Cash paid for acquisition of preferred interest in Hi-Crush Augusta LLC

 
(224,250
)
Capital expenditures for property, plant and equipment
(39,633
)
 
(10,061
)
Net cash used in investing activities
(39,633
)
 
(234,311
)
Financing activities:
 
 
 
Proceeds from equity issuance

 
170,828

Proceeds from issuance of long-term debt
50,000

 
198,000

Repayment of long-term debt
(13,500
)
 
(138,750
)
Loan origination costs
(101
)
 
(6,808
)
Distributions paid
(52,516
)
 
(32,118
)
Net cash (used in) provided by financing activities
(16,117
)
 
191,152

Net increase in cash
2,277

 
10,520

Cash:
 
 
 
Beginning of period
4,646

 
20,608

End of period
$
6,923

 
$
31,128

Non-cash investing and financing activities:
 
 
 
Decrease in accounts payable and accrued and other current liabilities for additions to property, plant and equipment
$
(7,101
)
 
$
(269
)
Cash paid for interest, net of amount capitalized
$
5,469

 
$
3,282


(a) Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 5.
See Notes to Unaudited Condensed Consolidated Financial Statements.

[5]


HI-CRUSH PARTNERS LP
Condensed Consolidated Statement of Partners’ Capital
(In thousands)
(Unaudited)
 
 
 
Limited Partners
 
 
 
 
 
 
 
General
Partner
Capital
 
Common
Unit Capital
 
Subordinated
Unit Capital
 
Total
Limited
Partner
Capital
 
Total
Partner
Capital
 
Non-Controlling
Interest
 
Total Equity and
Partners' Capital
Balance at December 31, 2014
$

 
$
184,642

 
$
(8,680
)
 
$
175,962

 
$
175,962

 
$
2,479

 
$
178,441

Issuance of limited partner units to directors

 
200

 

 
200

 
200

 

 
200

Unit-based compensation expense

 
1,791

 

 
1,791

 
1,791

 

 
1,791

Distributions, including distribution equivalent rights
(2,622
)
 
(31,696
)
 
(18,414
)
 
(50,110
)
 
(52,732
)
 

 
(52,732
)
Net income
2,622

 
20,512

 
12,001

 
32,513

 
35,135

 
167

 
35,302

Balance at June 30, 2015
$

 
$
175,449

 
$
(15,093
)
 
$
160,356

 
$
160,356

 
$
2,646

 
$
163,002

See Notes to Unaudited Condensed Consolidated Financial Statements.

[6]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)


1. Basis of Presentation and Use of Estimates
The accompanying unaudited interim Condensed Consolidated Financial Statements (“interim statements”) of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Partnership’s Consolidated Financial Statements for the year ended December 31, 2014, which are included in the Partnership’s Annual Report on Form 10-K filed with the SEC on February 27, 2015. The year-end balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP.
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Hi-Crush Partners LP (together with its subsidiaries, the “Partnership”, “we”, “us” or “our”) is a Delaware limited partnership formed on May 8, 2012 to acquire selected sand reserves and related processing and transportation facilities of Hi-Crush Proppants LLC. In connection with its formation, the Partnership issued a non-economic general partner interest to Hi-Crush GP LLC, our general partner (the “General Partner” or “Hi-Crush GP”), and a 100.0% limited partner interest to Hi-Crush Proppants LLC (the “sponsor”), its organizational limited partner.
On April 8, 2014, the Partnership entered into a contribution agreement with the sponsor to acquire substantially all of the remaining equity interests in the sponsor’s Augusta facility for cash consideration of $224,250 (the “Augusta Contribution”, See Note 5 - Acquisition of Hi-Crush Augusta LLC). To finance the Augusta Contribution and refinance the Partnership’s revolving credit facility, (i) on April 8, 2014, the Partnership commenced a primary public offering of 4,250,000 common units representing limited partnership interests in the Partnership and (ii) on April 28, 2014, the Partnership entered into a $200,000 senior secured term loan facility with certain lenders. The Partnership’s primary public offering closed on April 15, 2014. On May 9, 2014, the Partnership issued an additional 75,000 common units pursuant to the partial exercise of the underwriters' over-allotment option in connection with the April 2014 primary public offering. Net proceeds to the Partnership from the primary offering and the exercise of the over-allotment option totaled $170,693. Upon receipt of the proceeds from the public offering on April 15, 2014, the Partnership paid off the outstanding balance of $124,750 under its revolving credit facility. The Augusta Contribution closed on April 28, 2014, and at closing, the Partnership’s preferred equity interest in Augusta was converted into common equity interests of Augusta. Following the Augusta Contribution, the Partnership owns 98.0% of Augusta’s common equity interests. In addition, on April 28, 2014, the Partnership entered into a $150,000 senior secured revolving credit facility with various financial institutions by amending and restating its prior $200,000 revolving credit facility (See Note 6 - Long-Term Debt).
The Augusta Contribution was accounted for as a transaction between entities under common control whereby Augusta's net assets were recorded at their historical cost. Therefore, the Partnership's historical financial information was recast to combine Augusta and the Partnership as if the combination had been in effect since inception of common control. Refer to Note 5 for additional disclosure regarding the Augusta Contribution.

2. Significant Accounting Policies
In addition to the significant accounting policies listed below, a comprehensive discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K filed with the SEC on February 27, 2015.
Restricted Cash
The Partnership must pledge cash escrow accounts for the benefit of the Pennsylvania Department of Transportation, Bureau of Rail Freight, Ports and Waterways (“PennDOT”) to guarantee performance on rail improvement projects partially funded by PennDOT. The funds are released when the project is completed.

[7]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Revenue Recognition
Frac sand sales revenues are recognized when legal title passes to the customer, which may occur at the production facility, rail origin or at the destination terminal. At that point, delivery has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of sand deliveries are recorded as deferred revenue. Revenue from make-whole provisions in our customer contracts is recognized at the end of the defined cure period.
A substantial portion of our frac sand is sold to customers with whom we have long-term supply agreements, the current terms of which expire between 2016 and 2020. The agreements define, among other commitments, the volume of product that the Partnership must provide, the price that will be charged to the customer, and the volume that the customer must purchase by the end of the defined cure periods, which can range from three months to the end of a contract year.
Transportation services revenues are recognized as the services have been completed, meaning the related services have been rendered. At that point, delivery of service has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of transportation services being rendered are recorded as deferred revenue.
Revenue attributable to silo storage leases is recorded on a straight-line basis over the term of the lease.
Fair Value of Financial Instruments
The amounts reported in the balance sheet as current assets or liabilities, including cash, accounts receivable, accounts payable, accrued and other current liabilities approximate fair value due to the short-term maturities of these instruments. The fair value of the senior secured term loan approximated $191,575 as of June 30, 2015, based on the market price quoted from external sources, compared with a carrying value of $197,500. If the senior secured term loan was measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy.
Net Income per Limited Partner Unit
We have identified the sponsor’s incentive distribution rights as participating securities and compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income specified in the partnership agreement. Net income per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners’ interest in net income, after deducting any sponsor incentive distributions, by the weighted-average number of outstanding common and subordinated units. Through March 31, 2014, basic and diluted net income per unit were the same as there were no potentially dilutive common or subordinated units outstanding.
Through August 15, 2014, the 3,750,000 Class B units outstanding did not have voting rights or rights to share in the Partnership’s periodic earnings, either through participation in its distributions or through an allocation of its undistributed earnings or losses, and so were not deemed to be participating securities in their form as Class B units. In addition, the conversion of the Class B units into common units was fully contingent upon the satisfaction of defined criteria pertaining to the cumulative payment of distributions and earnings per unit of the Partnership as described in Note 7. As such, until all of the defined payment and earnings criteria were satisfied, the Class B units were not included in our calculation of either basic or diluted earnings per unit. As such, for the quarter ended June 30, 2014, the Class B units were included in our calculation of diluted earnings per unit. On August 15, 2014, the Class B units converted into common units, at which time income allocations commenced on such units and the common units were included in our calculation of basic and diluted earnings per unit.
As described in Note 1, the Partnership's historical financial information has been recast to consolidate Augusta for all periods presented. The amounts of incremental income or losses recasted to periods prior to the Augusta Contribution are excluded from the calculation of net income per limited partner unit.
Income Taxes
The Partnership is a pass-through entity and is not considered a taxing entity for federal tax purposes. Therefore, there is not a provision for income taxes in the accompanying condensed consolidated financial statements. The Partnership’s net income or loss is allocated to its partners in accordance with the partnership agreement. The partners are taxed individually on their share of the Partnership’s earnings. At June 30, 2015 and December 31, 2014, the Partnership did not have any liabilities for uncertain tax positions or gross unrecognized tax benefit.

[8]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Recent Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update No. 2015-06, which specifies 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 drop down transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the drop down transaction. In addition, the standard requires additional qualitative disclosures about how the rights to the earnings (losses) differ before and after the drop down transaction occurs for purposes of computing earnings per unit under the two-class method. The new accounting guidance is effective for the Partnership beginning in the first quarter of 2016, and should be applied retrospectively. The Partnership is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures, but does not anticipate that adoption will have a material impact on its financial position, results of operations or cash flows.

3. Inventories
Inventories consisted of the following:
 
June 30, 2015
 
December 31, 2014
Raw material
$
180

 
$
63

Work-in-process
10,742

 
8,892

Finished goods
14,760

 
13,441

Spare parts
2,460

 
1,288

Inventories
$
28,142

 
$
23,684


4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
 
June 30, 2015
 
December 31, 2014
Buildings
$
5,681

 
$
3,930

Mining property and mine development
48,113

 
46,967

Plant and equipment
146,131

 
134,870

Rail and rail equipment
27,018

 
23,161

Transload facilities and equipment
39,919

 
31,742

Construction-in-progress
24,833

 
18,519

Property, plant and equipment
291,695

 
259,189

Less: Accumulated depreciation and depletion
(25,166
)
 
(17,864
)
Property, plant and equipment, net
$
266,529

 
$
241,325

Depreciation and depletion expense was $4,035 and $2,428 during the three months ended June 30, 2015 and 2014, respectively, and $5,712 and $3,904 during the six months ended June 30, 2015 and 2014, respectively.


[9]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

5. Acquisition of Hi-Crush Augusta LLC
On January 31, 2013, the Partnership entered into an agreement with our sponsor to acquire 100,000 preferred units in Hi-Crush Augusta LLC ("Augusta"), the entity that owned our sponsor’s Augusta facility, for $37,500 in cash and 3,750,000 newly issued convertible Class B units in the Partnership.
On April 28, 2014, the Partnership acquired 390,000 common units in Augusta for cash consideration of $224,250. In connection with this acquisition, the Partnership’s preferred equity interest in Augusta was converted into 100,000 common units of Augusta. Following this transaction, the Partnership maintained a 98.0% controlling interest in Augusta’s common units, with our sponsor owning the remaining 2.0% of common units.
The Augusta Contribution was accounted for as a transaction between entities under common control whereby Augusta's net assets were recorded at their historical cost. The difference between the consideration paid and the recasted historical cost of the net assets acquired was allocated in accordance with the partnership agreement to the common and subordinated unitholders based on their respective number of units outstanding as of April 28, 2014. However, this deemed distribution did not affect the tax basis capital accounts of the common and subordinated unitholders.
The Partnership's historical financial information was recast to combine the Condensed Consolidated Statements of Operations and the Condensed Consolidated Balance Sheets of the Partnership with those of Augusta as if the combination had been in effect since inception of common control. Any material transactions between the Partnership and Augusta have been eliminated. The balance of non-controlling interest as of April 28, 2014 represented the sponsor's interest in Augusta prior to the combination. Except for the combination of Condensed Consolidated Statements of Operations and the respective allocation of recasted net income between the controlling and non-controlling interest, capital transactions between the sponsor and Augusta prior to April 28, 2014 have not been allocated on a recasted basis to the common and subordinated unitholders. Such transactions are presented within the non-controlling interest column in the Condensed Consolidated Statement of Partners' Capital as the Partnership and its unitholders would not have participated in these transactions.
The following table summarizes the carrying value of Augusta's assets as of April 28, 2014, and the allocation of the cash consideration paid:
Net assets of Hi-Crush Augusta LLC as of April 28, 2014:
 
 
Cash
 
$
1,035

Accounts receivable
 
9,816

Inventories
 
4,012

Prepaid expenses and other current assets
 
114

Due from Hi-Crush Partners LP
 
1,756

Property, plant and equipment
 
84,900

Accounts payable
 
(3,379
)
Accrued liabilities and other current liabilities
 
(2,926
)
Due to sponsor
 
(4,721
)
Asset retirement obligation
 
(2,993
)
Total carrying value of Augusta's net assets
 
$
87,614

 
 
 
Allocation of purchase price
 
 
Carrying value of sponsor's non-controlling interest prior to Augusta Contribution
 
$
35,951

Less: Carrying value of 2% of non-controlling interest retained by sponsor
 
(1,752
)
Purchase price allocated to non-controlling interest acquired
 
34,199

Excess purchase price over the historical cost of the acquired non-controlling interest (a)
 
190,051

Cost of Augusta acquisition
 
$
224,250

(a) The deemed distribution attributable to the excess purchase price was allocated to the common and subordinated unitholders based on the respective number of units outstanding as of April 28, 2014.

[10]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

The following tables present our recasted revenues, net income and net income attributable to Hi-Crush Partners LP per limited partnership unit giving effect to the Augusta Contribution, as reconciled to the revenues, net income and net income attributable to Hi-Crush Partners LP per limited partnership unit of the Partnership.
 
Three Months Ended June 30, 2014
 
 
 
Augusta
 
 
 
 
 
Partnership
 
Through
 
 
 
Partnership
 
Historical
 
April 28, 2014
 
Eliminations
 
Recasted
Revenues
$
76,274

 
$
7,773

 
$
(1,323
)
 
$
82,724

Net income
$
30,521

 
$
3,512

 
$
(4,228
)
 
$
29,805

Net income attributable to Hi-Crush Partners LP per limited partner unit - basic
$
0.77

 


 


 
$
0.75

 
Six Months Ended June 30, 2014
 
 
 
Augusta
 
 
 
 
 
Partnership
 
Through
 
 
 
Partnership
 
Historical
 
April 28, 2014
 
Eliminations
 
Recasted
Revenues
$
132,102

 
$
25,356

 
$
(4,156
)
 
$
153,302

Net income
$
44,784

 
$
11,398

 
$
(7,857
)
 
$
48,325

Net income attributable to Hi-Crush Partners LP per limited partner unit - basic
$
1.32

 
 
 
 
 
$
1.40


6. Long-Term Debt
Long-term debt consisted of the following:
 
June 30, 2015
 
December 31, 2014
Term Loan Credit Facility
$
195,830

 
$
196,688

Revolving Credit Facility
37,500

 

Other notes payable
3,676

 
3,676

Less: current portion of long-term debt
(2,000
)
 
(2,000
)
Long-term debt
$
235,006

 
$
198,364

Revolving Credit Facility
On August 21, 2012, the Partnership entered into a credit agreement (the “Prior Credit Agreement”) providing for a $100,000 senior secured revolving credit facility (the “Prior Credit Facility”) with a term of four years. In connection with our acquisition of a preferred interest in Augusta, on January 31, 2013, the Partnership entered into a consent and first amendment to the Prior Credit Agreement whereby the lending banks, among other things, (i) consented to the amendment and restatement of the partnership agreement of the Partnership and (ii) agreed to amend the Prior Credit Agreement to permit the acquisition by the Partnership of a preferred equity interest in Hi-Crush Augusta LLC. On May 9, 2013, in connection with our acquisition of D & I Silica, LLC ("D&I"), the Partnership entered into a commitment increase agreement and second amendment to the Prior Credit Agreement whereby the lending banks, among other things, consented to the increase of the aggregate commitments by $100,000 to a total of $200,000 and addition of lenders to the lending bank group. The outstanding balance under the Prior Credit Facility was paid in full on April 15, 2014.
On April 28, 2014, the Partnership replaced the Prior Credit Facility by entering into an amended and restated credit agreement (the "Revolving Credit Agreement"). The Revolving Credit Agreement is a senior secured revolving credit facility (the "Revolving Credit Facility") that permits aggregate borrowings of up to $150,000, including a $25,000 sublimit for letters of credit and a $10,000 sublimit for swing line loans. The Revolving Credit Facility matures on April 28, 2019.
The Revolving Credit Facility is secured by substantially all assets of the Partnership. In addition, the Partnership's subsidiaries have guaranteed the Partnership's obligations under the Revolving Credit Agreement and have granted to the revolving lenders security interests in substantially all of their respective assets.

[11]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Borrowings under the Revolving Credit Agreement bear interest at a rate equal to, at the Partnership's option, either (1) a base rate plus an applicable margin ranging between 1.25% per annum and 2.50% per annum, based upon the Partnership's leverage ratio, or (2) a Eurodollar rate plus an applicable margin ranging between 2.25% per annum and 3.50% per annum, based upon the Partnership's leverage ratio.
The Revolving Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including limits or restrictions on the Partnership’s ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. The Revolving Credit Agreement also requires compliance with customary financial covenants, which are a leverage ratio and minimum interest coverage ratio. In addition, it contains customary events of default that entitle the lenders to cause any or all of the Partnership’s indebtedness under the Revolving Credit Agreement to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. As of June 30, 2015, we were in compliance with the covenants contained in the Revolving Credit Agreement.
As of June 30, 2015, we had $104,811 of undrawn borrowing capacity ($150,000, net of $37,500 indebtedness and $7,689 letter of credit commitments) under our Revolving Credit Facility.
Term Loan Credit Facility
On April 28, 2014, the Partnership entered into a credit agreement (the "Term Loan Credit Agreement") providing for a senior secured term loan credit facility (the “Term Loan Credit Facility”) that permits aggregate borrowings of up to $200,000, which was fully drawn on April 28, 2014. The Term Loan Credit Agreement permits the Partnership, at its option, to add one or more incremental term loan facilities in an aggregate amount not to exceed $100,000. Any incremental term loan facility would be on terms to be agreed among the Partnership, the administrative agent and the lenders who agree to participate in the incremental facility. The maturity date of the Term Loan Credit Facility is April 28, 2021.
The Term Loan Credit Agreement is secured by substantially all assets of the Partnership. In addition, the Partnership’s subsidiaries have guaranteed the Partnership’s obligations under the Term Loan Credit Agreement and have granted to the lenders security interests in substantially all of their respective assets.
Borrowings under the Term Loan Credit Agreement bear interest at a rate equal to, at the Partnership’s option, either (1) a base rate plus an applicable margin of 2.75% per annum or (2) a Eurodollar rate plus an applicable margin of 3.75% per annum, subject to a LIBOR floor of 1.00%.
The Term Loan Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including limits or restrictions on the Partnership’s ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. In addition, it contains customary events of default that entitle the lenders to cause any or all of the Partnership’s indebtedness under the Term Loan Credit Agreement to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. As of June 30, 2015, we were in compliance with the terms of the agreement.
As of June 30, 2015, we had $195,830 indebtedness ($197,500, net of $1,670 of discounts) under our Term Loan Credit Facility, which carried an interest rate of 4.75% as of June 30, 2015.
Other Notes Payable
On October 24, 2014, the Partnership acquired land and underlying frac sand deposits. The Partnership paid cash consideration of $2,500, and issued a three-year promissory note in the amount of $3,676. The three year promissory note accrues interest at a rate equal to the applicable short-term federal rate, which was 0.43% as of June 30, 2015. All principal and accrued interest is due and payable at the end of the three-year note term. However, the note may be prepaid on a quarterly basis during the three-year term if sand is extracted, delivered, sold and paid for from the property.
The Partnership did not make any prepayments during the six months ended June 30, 2015.


[12]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

7. Equity
As of June 30, 2015, our sponsor owned 13,640,351 subordinated units representing a 36.9% ownership interest in the limited partner units. In addition, our sponsor is the owner of our General Partner. 
Class B Units
On January 31, 2013, the Partnership issued 3,750,000 subordinated Class B units and paid $37,500 in cash to our sponsor in return for 100,000 preferred equity units in our sponsor’s Augusta facility. The Class B units did not have voting rights or rights to share in the Partnership’s periodic earnings, either through participation in its distributions or through an allocation of its undistributed earnings or losses. The Class B units were eligible for conversion into common units upon satisfaction of certain conditions. The conditions precedent to conversion of the Class B units were satisfied upon payment of our distribution on August 15, 2014 and, upon such payment, our sponsor, who was the sole owner of our Class B units, elected to convert all of the 3,750,000 Class B units into common units on a one-for-one basis. 
Incentive Distribution Rights
Incentive distribution rights represent the right to receive increasing percentages (ranging from 15.0% to 50.0%) of quarterly distributions from operating surplus after minimum quarterly distribution and target distribution levels exceed $0.54625 per unit per quarter. Our sponsor currently holds the incentive distribution rights, but it may transfer these rights at any time.
Allocations of Net Income
Our partnership agreement contains provisions for the allocation of net income and loss to the unitholders and our General Partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage ownership interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to our sponsor.
During the three and six months ended June 30, 2014, no net income was allocated to our Class B units or to holders of incentive distribution rights.
During the three months ended June 30, 2015, no distributions were allocated to our holders of incentive distribution rights. During the six months ended June 30, 2015, $1,311 was allocated to our holders of incentive distribution rights.
Distributions
Our partnership agreement sets forth the calculation to be used to determine the amount of cash distributions that our common and subordinated unitholders and our sponsor will receive.
Our recent distributions have been as follows:
Declaration Date
 
Amount Declared Per Unit
 
Record Date
 
Payment Date
 
Payment to Common and Subordinated Units
 
Payment to Holders of Incentive Distribution Rights
January 15, 2014
 
$
0.5100

 
January 31, 2014
 
February 14, 2014
 
$
14,726

 
$

April 16, 2014
 
$
0.5250

 
May 1, 2014
 
May 15, 2014
 
$
17,388

 
$

July 16, 2014
 
$
0.5750

 
August 1, 2014
 
August 15, 2014
 
$
19,088

 
$
168

October 15, 2014
 
$
0.6250

 
October 31, 2014
 
November 14, 2014
 
$
23,092

 
$
695

January 15, 2015
 
$
0.6750

 
January 30, 2015
 
February 13, 2015
 
$
24,947

 
$
1,311

April 16, 2015
 
$
0.6750

 
May 1, 2015
 
May 15, 2015
 
$
24,947

 
$
1,311

July 21, 2015
 
$
0.4750

 
August 5, 2015
 
August 14, 2015
 
$
17,555

 
$


[13]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Net Income per Limited Partner Unit
The following table outlines our basic and diluted, weighted average limited partner units outstanding during the relevant periods:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Weighted average limited partner units outstanding:
2015
 
2014
 
2015
 
2014
Common units - basic
23,318,419

 
18,828,359

 
23,318,174

 
17,040,874

Subordinated units - basic
13,640,351

 
13,640,351

 
13,640,351

 
13,640,351

Common units - diluted
23,560,423

 
22,721,490

 
23,560,178

 
20,934,005

Subordinated units - diluted
13,640,351

 
13,640,351

 
13,640,351

 
13,640,351

For purposes of calculating the Partnership’s earnings per unit under the two-class method, common units are treated as participating preferred units, and subordinated units are treated as the residual equity interest, or common equity. Incentive distribution rights are treated as participating securities. As the Class B units did not have rights to share in the Partnership’s periodic earnings, whether through participation in its distributions or through an allocation of its undistributed earnings or losses, they were not participating securities. In addition, the conversion of the Class B units into common units was fully contingent upon the satisfaction of defined criteria. As such, until all of the defined payment and earnings criteria were satisfied, the Class B units were not included in our calculation of either basic or diluted earnings per unit during the three months ended March 31, 2014. The Class B units were converted into common units on August 15, 2014, at which time income allocations commenced on such units.
Diluted earnings per unit for the three and six months ended June 30, 2015 includes the dilutive effect of LTIP awards granted (see Note 8) at the assumed number of units which would have vested if the performance period had ended on June 30, 2015.
Distributions made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive such distributions. Any unpaid cumulative distributions are allocated to the appropriate class of equity. 
Each period the Partnership determines the amount of cash available for distributions in accordance with the partnership agreement. The amount to be distributed to common unitholders, subordinated unitholders and incentive distribution rights holders is based on the distribution waterfall in the partnership agreement. Net earnings for the period are allocated to each class of partnership interest based on the distributions to be made. Additionally, if, during the subordination period, the Partnership does not have enough cash available to make the required minimum distribution to the common unit holders, the Partnership will allocate net earnings to the common unit holders based on the amount of distributions in arrears. When actual cash distributions are made based on distributions in arrears, those cash distributions will not be allocated to the common unitholders, as such earnings were allocated in previous periods.
The following table provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the three months ended June 30, 2015 (in thousands, except per unit amounts):
 
General Partner and IDRs
 
Common Units
 
Subordinated Units
 
Total
Declared distribution
$

 
$
11,076

 
$
6,479

 
$
17,555

Assumed allocation of distributions in excess of earnings

 
(3,852
)
 
(2,253
)
 
(6,105
)
Limited partners’ interest in net income
$

 
$
7,224

 
$
4,226

 
$
11,450

 
 
 
 
 
 
 
 
Earnings per unit - basic
 
 
$
0.31

 
$
0.31

 
 
Earnings per unit - diluted
 
 
$
0.31

 
$
0.31

 
 

[14]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

The following table provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the six months ended June 30, 2015 (in thousands, except per unit amounts):
 
General Partner and IDRs
 
Common Units
 
Subordinated Units
 
Total
Declared distribution
$
1,311

 
$
26,816

 
$
15,686

 
$
43,813

Assumed allocation of distributions in excess of earnings

 
(5,475
)
 
(3,203
)
 
(8,678
)
Limited partners’ interest in net income
$
1,311

 
$
21,341

 
$
12,483

 
$
35,135

 
 
 
 
 
 
 
 
Earnings per unit - basic
 
 
$
0.92

 
$
0.92

 
 
Earnings per unit - diluted
 
 
$
0.91

 
$
0.91

 
 
Recasted Augusta Equity Transactions
During the six months ended June 30, 2014, the sponsor provided $492 of management services and other expenses paid on behalf of Augusta. Such costs are recognized as non-cash capital contributions in the accompanying financial statements.

8. Unit-Based Compensation
Long-Term Incentive Plan
On August 21, 2012, Hi-Crush GP adopted the Hi-Crush Partners LP Long Term Incentive Plan (the “Plan”) for employees, consultants and directors of Hi-Crush GP and those of its affiliates, including our sponsor, who perform services for the Partnership. The Plan consists of restricted units, unit options, phantom units, unit payments, unit appreciation rights, other equity-based awards, distribution equivalent rights and performance awards. The Plan limits the number of common units that may be issued pursuant to awards under the Plan to 1,364,035 units. Common units withheld to satisfy exercise prices or tax withholding obligations are available for delivery pursuant to other awards. The Plan is administered by Hi-Crush GP’s Board of Directors or a committee thereof.
The cost of services received in exchange for an award of equity instruments is measured based on the grant-date fair value of the award and that cost is generally recognized over the vesting period of the award.
Performance Phantom Units - Equity Settled
The Partnership has awarded Performance Phantom Units ("PPUs") pursuant to the Plan to certain employees. The number of PPUs that will vest will range from 0% to 200% of the number of initially granted PPUs and is dependent on the Partnership's total unitholder return over a three-year performance period compared to the total unitholder return of a designated peer group. Each PPU represents the right to receive, upon vesting, one common unit representing limited partner interests in the Partnership. The PPUs are also entitled to forfeitable distribution equivalent rights ("DERs"), which accumulate during the performance period and are paid in cash on the date of settlement. The fair value of each PPU is estimated using a fair value approach and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period. Expected volatility is based on the historical market performance of our peer group. The following table presents information relative to our PPUs.
 
Units
 
Grant Date Weighted-Average Fair Value per Unit
Outstanding at January 1, 2015
64,414

 
$
65.57

Granted
119,550

 
$
37.52

Forfeited

 
$

Outstanding at June 30, 2015
183,964

 
$
47.34

As of June 30, 2015, total compensation expense not yet recognized related to unvested PPUs was $6,297, with a weighted average remaining service period of 2.2 years.

[15]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Time-Based Phantom Units - Equity Settled
The Partnership has awarded Time-Based Phantom Units ("TPUs") pursuant to the Plan to certain employees which automatically vest if the employee remains employed at the end of a three-year vesting period. Each TPU represents the right to receive, upon vesting, one common unit representing limited partner interests in the Partnership. The TPUs are also entitled to forfeitable DERs, which accumulate during the vesting period and are paid in cash on the date of settlement. The fair value of each TPU is calculated based on the grant-date unit price and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period. The following table presents information relative to our TPUs.
 
Units
 
Grant Date Weighted-Average Fair Value per Unit
Outstanding at January 1, 2015
16,603

 
$
47.33

Granted
42,200

 
$
34.09

Forfeited
(763
)
 
$
59.00

Outstanding at June 30, 2015
58,040

 
$
37.55

As of June 30, 2015, total compensation expense not yet recognized related to unvested TPUs was $1,755, with a weighted average remaining service period of 2.4 years.
Board and Other Unit Grants
The Partnership issued 6,344 and 5,532 common units to its independent directors during the six months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2014, the Partnership issued 7,022 common units to certain employees which vest approximately over a two year period.
Compensation Expense
The following table presents total unit-based compensation expense:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Performance Phantom Units
$
793

 
$
136

 
$
1,457

 
$
136

Time-Based Phantom Units
187

 
19

 
334

 
19

Director and other unit grants
73

 
115

 
146

 
198

Total compensation expense
$
1,053

 
$
270

 
$
1,937

 
$
353


9. Related Party Transactions
Effective August 16, 2012, our sponsor entered into a services agreement (the “Services Agreement”) with our General Partner, Hi-Crush Services LLC (“Hi-Crush Services”) and the Partnership, pursuant to which Hi-Crush Services provides certain management and administrative services to the Partnership to assist in operating the Partnership’s business. Under the Services Agreement, the Partnership reimburses Hi-Crush Services and its affiliates, on a monthly basis, for the allocable expenses it incurs in its performance under the Services Agreement. These expenses include, among other things, administrative, rent and other expenses for individuals and entities that perform services for the Partnership. Hi-Crush Services and its affiliates will not be liable to the Partnership for its performance of services under the Services Agreement, except for liabilities resulting from gross negligence. During the three months ended June 30, 2015 and 2014, the Partnership incurred $974 and $2,390, respectively, of management and administrative service expenses from Hi-Crush Services. During the six months ended June 30, 2015 and 2014, the Partnership incurred $1,618 and $4,359, respectively, of management and administrative service expenses from Hi-Crush Services.
In the normal course of business, our sponsor and its affiliates, including Hi-Crush Services, and the Partnership may from time to time make payments on behalf of each other.
As of June 30, 2015, an outstanding balance of $7,739 payable to our sponsor is maintained as a current liability under the caption “Due to sponsor.”

[16]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

During the three and six months ended June 30, 2015, the Partnership purchased $7,849 and $14,903, respectively, of sand from Hi-Crush Whitehall LLC, a subsidiary of our sponsor and the entity that owns the sponsor's Whitehall facility, at a purchase price in excess of our production cost per ton.
During the three and six months ended June 30, 2015, the Partnership purchased $329 and $2,754, respectively, of sand from Goose Landing, LLC, a wholly owned subsidiary of Northern Frac Proppants II, LLC. The father of Mr. Alston, who is our general partner's Chief Operating Officer, owned a beneficial equity interest in Northern Frac Proppants II, LLC. The terms of the purchase price were the result of arm's length negotiations.

10. Segment Reporting
The Partnership manages, operates and owns assets utilized to supply frac sand to its customers. It conducts operations through its one operating segment titled "Frac Sand Sales". This reporting segment of the Partnership is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

11. Commitments and Contingencies
The Partnership enters into sales contracts with customers. These contracts establish minimum annual sand volumes that the Partnership is required to make available to such customers under initial terms ranging from three to six years. Through June 30, 2015, no payments for non-delivery of minimum annual sand volumes have been made by the Partnership to customers under these contracts.
D&I has entered into a long-term supply agreement with a supplier which includes a requirement to purchase certain volumes and grades of sands at specified prices. The quantities set forth in such agreement are not in excess of our current requirements.
The Partnership has entered into royalty agreements under which it is committed to pay royalties on sand sold from its production facilities for which the Partnership has received payment by the customer. Royalty expense is recorded as the sand is sold and is included in costs of goods sold. Royalty expense was $2,638 and $3,820 for the three months ended June 30, 2015 and 2014, respectively, and $6,140 and $6,733 for the six months ended June 30, 2015 and 2014, respectively.
On October 24, 2014, the Partnership entered into a purchase and sale agreement to acquire certain tracts of land and specific quantities of the underlying frac sand deposits. The transaction includes three separate tranches of land and deposits, to be acquired over a three year period from 2014 through 2016. During 2014, the Partnership acquired the first tranche of land for $6,176. As of June 30, 2015, the Partnership has committed to purchase the remaining two tranches during 2015 and 2016 for total consideration of $12,352.
The Partnership has long-term leases for rail access, railcars and equipment at its terminal sites, which are also under long-term lease agreements with various railroads. As of June 30, 2015, future minimum operating lease payments are as follows:
Fiscal Year
Amount
2015 (six months)
$
9,345

2016
17,873

2017
17,565

2018
16,558

2019
13,649

Thereafter
8,268

 
$
83,258

From time to time the Partnership may be subject to various claims and legal proceedings which arise in the normal course of business. Management is not aware of any legal matters that are likely to have a material adverse effect on the Partnership’s financial position, results of operations or cash flows.


[17]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

12. Condensed Consolidating Financial Information
The Partnership has filed a registration statement on Form S-3 to register, among other securities, debt securities. Each of the subsidiaries of the Partnership as of March 31, 2014 (other than Hi-Crush Finance Corp., whose sole purpose is to act as a co-issuer of any debt securities) was a 100% directly or indirectly owned subsidiary of the Partnership (the “guarantors”), will issue guarantees of the debt securities, if any of them issue guarantees, and such guarantees will be full and unconditional and will constitute the joint and several obligations of such guarantors. As of June 30, 2015, the guarantors were our sole subsidiaries, other than Hi-Crush Finance Corp., Hi-Crush Augusta Acquisition Co. LLC, Hi-Crush Canada Inc and Hi-Crush Canada Distribution Corp., which are our 100% owned subsidiaries, and Augusta, of which we own 98.0% of the common equity interests.
As of June 30, 2015, the Partnership had no assets or operations independent of its subsidiaries, and there were no significant restrictions upon the ability of the Partnership or any of its subsidiaries to obtain funds from its respective subsidiaries by dividend or loan. As of June 30, 2015, none of the assets of our subsidiaries represented restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.
For the purpose of the following financial information, the Partnership's investments in its subsidiaries are presented in accordance with the equity method of accounting. The operations, cash flows and financial position of the co-issuer are not material and therefore have been included with the parent's financial information.
Condensed consolidating financial information for the Partnership and its combined guarantor and combined non-guarantor subsidiaries is as follows for the dates and periods indicated.

[18]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Condensed Consolidating Balance Sheet
As of June 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
1,051

 
$
4,988

 
$
884

 
$

 
$
6,923

Restricted cash

 
691

 

 

 
691

Accounts receivable, net

 
50,079

 
3,061

 

 
53,140

Intercompany receivables
62,627

 
142,376

 

 
(205,003
)
 

Inventories

 
18,187

 
10,141

 
(186
)
 
28,142

Prepaid expenses and other current assets
366

 
3,532

 
73

 

 
3,971

Total current assets
64,044

 
219,853


14,159

 
(205,189
)
 
92,867

Property, plant and equipment, net
18

 
154,293

 
112,218

 

 
266,529

Goodwill and intangible assets, net

 
65,284

 

 

 
65,284

Investment in consolidated affiliates
323,566

 

 
224,250

 
(547,816
)
 

Other assets
6,927

 
4,754

 

 

 
11,681

Total assets
$
394,555

 
$
444,184


$
350,627

 
$
(753,005
)
 
$
436,361

Liabilities, Equity and Partners' Capital
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
184

 
$
7,885

 
$
3,697

 
$

 
$
11,766

Intercompany payables

 

 
205,003

 
(205,003
)
 

Accrued and other current liabilities
549

 
5,463

 
3,939

 

 
9,951

Due to sponsor
136

 
6,806

 
797

 

 
7,739

Current portion of long-term debt
2,000

 

 

 

 
2,000

Total current liabilities
2,869

 
20,154


213,436

 
(205,003
)
 
31,456

Long-term debt
231,330

 
3,676

 

 

 
235,006

Asset retirement obligation

 
1,868

 
5,029

 

 
6,897

Total liabilities
234,199

 
25,698


218,465

 
(205,003
)
 
273,359

Equity and partners' capital:
 
 
 
 
 
 
 
 
 
Partners' capital
160,356

 
418,486

 
129,516

 
(548,002
)
 
160,356

Non-controlling interest

 

 
2,646

 

 
2,646

Total equity and partners' capital
160,356

 
418,486


132,162

 
(548,002
)
 
163,002

Total liabilities, equity and partners' capital
$
394,555

 
$
444,184


$
350,627

 
$
(753,005
)
 
$
436,361



[19]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Condensed Consolidating Balance Sheet
As of December 31, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
308

 
$
3,490

 
$
848

 
$

 
$
4,646

Restricted cash

 
691

 

 

 
691

Accounts receivable, net

 
71,504

 
10,613

 

 
82,117

Intercompany receivables
88,621

 
120,401

 

 
(209,022
)
 

Inventories

 
18,828

 
6,521

 
(1,665
)
 
23,684

Prepaid expenses and other current assets
277

 
3,802

 
2

 

 
4,081

Total current assets
89,206

 
218,716

 
17,984

 
(210,687
)
 
115,219

Property, plant and equipment, net
23

 
136,240

 
105,062

 

 
241,325

Goodwill and intangible assets, net

 
66,750

 

 

 
66,750

Investment in consolidated affiliates
277,343

 

 
224,250

 
(501,593
)
 

Other assets
7,511

 
5,315

 

 

 
12,826

Total assets
$
374,083

 
$
427,021

 
$
347,296

 
$
(712,280
)
 
$
436,120

Liabilities, Equity and Partners' Capital
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
151

 
$
21,401

 
$
3,326

 
$

 
$
24,878

Intercompany payables

 

 
209,021

 
(209,021
)
 

Accrued and other current liabilities
513

 
6,236

 
5,499

 

 
12,248

Due to sponsor
769

 
11,978

 
712

 

 
13,459

Current portion of long-term debt
2,000

 

 

 

 
2,000

Total current liabilities
3,433

 
39,615

 
218,558

 
(209,021
)
 
52,585

Long-term debt
194,688

 
3,676

 

 

 
198,364

Asset retirement obligation

 
1,799

 
4,931

 

 
6,730

Total liabilities
198,121

 
45,090

 
223,489

 
(209,021
)
 
257,679

Equity and partners' capital:
 
 
 
 
 
 
 
 
 
Partners' capital
175,962

 
381,931

 
121,328

 
(503,259
)
 
175,962

Non-controlling interest

 

 
2,479

 

 
2,479

Total equity and partners' capital
175,962

 
381,931

 
123,807

 
(503,259
)
 
178,441

Total liabilities, equity and partners' capital
$
374,083

 
$
427,021

 
$
347,296

 
$
(712,280
)
 
$
436,120



[20]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Condensed Consolidating Statements of Operations
 
Three Months Ended June 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
82,260

 
$
8,346

 
$
(6,648
)
 
$
83,958

Cost of goods sold (including depreciation, depletion and amortization)

 
64,681

 
7,695

 
(8,678
)
 
63,698

Gross profit

 
17,579

 
651

 
2,030

 
20,260

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
2,218

 
2,841

 
690

 

 
5,749

Accretion of asset retirement obligation

 
34

 
50

 

 
84

Income (loss) from operations
(2,218
)
 
14,704

 
(89
)
 
2,030

 
14,427

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
16,643

 

 

 
(16,643
)
 

Interest expense
(2,975
)
 
(3
)
 
(1
)
 

 
(2,979
)
Net income (loss)
11,450

 
14,701

 
(90
)
 
(14,613
)
 
11,448

Loss attributable to non-controlling interest

 

 
2

 

 
2

Net income (loss) attributable to Hi-Crush Partners LP
$
11,450

 
$
14,701

 
$
(88
)
 
$
(14,613
)
 
$
11,450


 
Six Months Ended June 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
176,427

 
$
27,871

 
$
(18,229
)
 
$
186,069

Cost of goods sold (including depreciation, depletion and amortization)

 
133,971

 
18,075

 
(19,709
)
 
132,337

Gross profit

 
42,456

 
9,796

 
1,480

 
53,732

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
4,855

 
5,804

 
1,308

 

 
11,967

Accretion of asset retirement obligation

 
68

 
99

 

 
167

Income (loss) from operations
(4,855
)
 
36,584

 
8,389

 
1,480

 
41,598

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
46,223

 

 

 
(46,223
)
 

Interest expense
(6,233
)
 
(29
)
 
(34
)
 

 
(6,296
)
Net income (loss)
35,135

 
36,555

 
8,355

 
(44,743
)
 
35,302

Income attributable to non-controlling interest

 

 
(167
)
 

 
(167
)
Net income (loss) attributable to Hi-Crush Partners LP
$
35,135

 
$
36,555

 
$
8,188

 
$
(44,743
)
 
$
35,135


[21]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Condensed Consolidating Statements of Operations
 
Three Months Ended June 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
70,518

 
$
23,195

 
$
(10,989
)
 
$
82,724

Cost of goods sold (including depreciation, depletion and amortization)

 
43,375

 
9,574

 
(9,090
)
 
43,859

Gross profit

 
27,143

 
13,621

 
(1,899
)
 
38,865

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
3,859

 
2,464

 
356

 

 
6,679

Accretion of asset retirement obligation

 
34

 
32

 

 
66

Income (loss) from operations
(3,859
)
 
24,645

 
13,233

 
(1,899
)
 
32,120

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
35,689

 

 

 
(35,689
)
 

Interest expense
(2,289
)
 
(1
)
 
(25
)
 

 
(2,315
)
Net income (loss)
29,541

 
24,644

 
13,208

 
(37,588
)
 
29,805

Income attributable to non-controlling interest

 

 
(264
)
 

 
(264
)
Net income (loss) attributable to Hi-Crush Partners LP
$
29,541

 
$
24,644

 
$
12,944

 
$
(37,588
)
 
$
29,541


 
Six Months Ended June 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
128,752

 
$
40,778

 
$
(16,228
)
 
$
153,302

Cost of goods sold (including depreciation, depletion and amortization)

 
84,653

 
18,864

 
(15,492
)
 
88,025

Gross profit

 
44,099

 
21,914

 
(736
)
 
65,277

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
6,167

 
5,747

 
1,190

 

 
13,104

Accretion of asset retirement obligation

 
63

 
60

 

 
123

Income (loss) from operations
(6,167
)
 
38,289

 
20,664

 
(736
)
 
52,050

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
57,723

 

 

 
(57,723
)
 

Interest expense
(3,643
)
 
(20
)
 
(62
)
 

 
(3,725
)
Net income (loss)
47,913

 
38,269

 
20,602

 
(58,459
)
 
48,325

Income attributable to non-controlling interest

 

 
(412
)
 

 
(412
)
Net income (loss) attributable to Hi-Crush Partners LP
$
47,913

 
$
38,269

 
$
20,190

 
$
(58,459
)
 
$
47,913



[22]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)

Condensed Consolidating Statements of Cash Flows
 
Six Months Ended June 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash provided by operating activities
$
16,860

 
$
47,556

 
$
19,603

 
$
(25,992
)
 
$
58,027

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures for property, plant and equipment

 
(28,758
)
 
(10,875
)
 

 
(39,633
)
Net cash used in investing activities

 
(28,758
)
 
(10,875
)
 

 
(39,633
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt
50,000

 

 

 

 
50,000

Repayment of long-term debt
(13,500
)
 

 

 

 
(13,500
)
Advances to parent, net

 
(17,300
)
 
(8,692
)
 
25,992

 

Loan origination costs
(101
)
 

 

 

 
(101
)
Distributions paid
(52,516
)
 

 

 

 
(52,516
)
Net cash provided by (used in) financing activities
(16,117
)
 
(17,300
)
 
(8,692
)
 
25,992

 
(16,117
)
Net increase in cash
743

 
1,498

 
36

 

 
2,277

Cash:
 
 
 
 
 
 
 
 
 
Beginning of period
308

 
3,490

 
848

 

 
4,646

End of period
$
1,051

 
$
4,988

 
$
884

 
$

 
$
6,923


 
Six Months Ended June 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash provided by operating activities
$
43,484

 
$
45,524

 
$
17,075

 
$
(52,404
)
 
$
53,679

Investing activities:
 
 
 
 
 
 
 
 
 
Cash paid for acquisition of preferred interest in Hi-Crush Augusta LLC

 

 
(224,250
)
 

 
(224,250
)
Capital expenditures for property, plant and equipment

 
(3,753
)
 
(6,308
)
 

 
(10,061
)
Net cash used in investing activities

 
(3,753
)
 
(230,558
)
 

 
(234,311