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EX-32.2 - EXHIBIT 32.2 - Hi-Crush Inc.exhibit322q315.htm
EX-31.2 - EXHIBIT 31.2 - Hi-Crush Inc.exhibit312q315.htm
EX-32.3 - EXHIBIT 32.3 - Hi-Crush Inc.exhibit323q315.htm
EX-32.1 - EXHIBIT 32.1 - Hi-Crush Inc.exhibit321q315.htm
EX-95.1 - EXHIBIT 95.1 - Hi-Crush Inc.exhibit951q315.htm
EX-31.1 - EXHIBIT 31.1 - Hi-Crush Inc.exhibit311q315.htm
EX-31.3 - EXHIBIT 31.3 - Hi-Crush Inc.exhibit313q315.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 September 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 1350
 
Houston, Texas
77056
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code (713) 980-6200 
Three Riverway, Suite 1550
Houston, Texas, 77056
(Former Address)
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
As of October 23, 2015, there were 36,959,270 common units outstanding.



HI-CRUSH PARTNERS LP
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)
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash
$
5,035

 
$
4,646

Restricted cash

 
691

Accounts receivable, net
53,504

 
82,117

Inventories
33,380

 
23,684

Prepaid expenses and other current assets
3,975

 
4,081

Total current assets
95,894

 
115,219

Property, plant and equipment, net
262,272

 
241,325

Goodwill and intangible assets, net
45,945

 
66,750

Other assets
13,701

 
12,826

Total assets
$
417,812

 
$
436,120

Liabilities, Equity and Partners’ Capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
13,844

 
$
24,878

Accrued and other current liabilities
7,894

 
12,248

Due to sponsor
9,276

 
13,459

Current portion of long-term debt
2,436

 
2,000

Total current liabilities
33,450

 
52,585

Long-term debt
249,140

 
198,364

Asset retirement obligation
6,981

 
6,730

Total liabilities
289,571

 
257,679

Commitments and contingencies

 

Equity and partners’ capital:
 
 
 
General partner interest

 

Limited partner interests, 36,959,270 and 36,952,426 units outstanding, respectively
125,560

 
175,962

Total partners’ capital
125,560

 
175,962

Non-controlling interest
2,681

 
2,479

Total equity and partners' capital
128,241

 
178,441

Total liabilities, equity and partners’ capital
$
417,812

 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014 (a)
Revenues
$
81,494

 
$
102,316

 
$
267,563

 
$
255,618

Cost of goods sold (including depreciation, depletion and amortization)
66,400

 
55,640

 
198,737

 
143,665

Gross profit
15,094

 
46,676

 
68,826

 
111,953

Operating costs and expenses:
 
 
 
 
 
 
 
General and administrative expenses
5,979

 
6,183

 
17,946

 
19,287

Impairments and other expenses (Note 12)
23,718

 

 
23,718

 

Accretion of asset retirement obligation
84

 
61

 
251

 
184

Income (loss) from operations
(14,687
)
 
40,432

 
26,911

 
92,482

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(3,386
)
 
(3,111
)
 
(9,682
)
 
(6,836
)
Net income (loss)
(18,073
)
 
37,321

 
17,229

 
85,646

Income attributable to non-controlling interest
(35
)
 
(292
)
 
(202
)
 
(704
)
Net income (loss) attributable to Hi-Crush Partners LP
$
(18,108
)
 
$
37,029

 
$
17,027

 
$
84,942

Earnings (loss) per limited partner unit:
 
 
 
 
 
 
 
Basic
$
(0.49
)
 
$
0.86

 
$
0.43

 
$
2.24

Diluted
$
(0.49
)
 
$
0.83

 
$
0.42

 
$
2.15


(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)
 
Nine Months Ended
 
September 30,
 
2015
 
2014 (a)
Operating activities:
 
 
 
Net income
$
17,229

 
$
85,646

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and depletion
10,031

 
6,581

Losses on property, plant and equipment
4,781

 

Amortization of intangible assets
2,199

 
4,385

Loss on impairment of intangible assets
18,606

 

Amortization of deferred charges into interest expense
1,242

 
853

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

 
492

Accretion of asset retirement obligation
251

 
184

Unit-based compensation to independent directors and employees
2,985

 
922

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
28,613

 
(21,507
)
Prepaid expenses and other current assets
93

 
(807
)
Inventories
(5,565
)
 
(150
)
Other assets
(1,804
)
 
(2,427
)
Accounts payable
(2,657
)
 
175

Accrued and other current liabilities
(4,683
)
 
7,131

Due to sponsor
(4,183
)
 
(3,640
)
Net cash provided by operating activities
67,138

 
77,838

Investing activities:
 
 
 
Acquisition of Hi-Crush Augusta LLC

 
(224,250
)
Capital expenditures for property, plant and equipment
(48,267
)
 
(22,321
)
Restricted cash, net
691

 

Net cash used in investing activities
(47,576
)
 
(246,571
)
Financing activities:
 
 
 
Proceeds from equity issuance

 
170,693

Proceeds from issuance of long-term debt
65,000

 
198,000

Repayment of long-term debt
(14,000
)
 
(139,250
)
Loan origination costs
(101
)
 
(7,096
)
Redemption of common units

 
(19
)
Distributions paid
(70,072
)
 
(53,578
)
Net cash (used in) provided by financing activities
(19,173
)
 
168,750

Net increase in cash
389

 
17

Cash:
 
 
 
Beginning of period
4,646

 
20,608

End of period
$
5,035

 
$
20,625

Non-cash investing and financing activities:
 
 
 
Increase (decrease) in accounts payable and accrued and other current liabilities for additions to property, plant and equipment
$
(8,377
)
 
$
5,567

Cash paid for interest
$
8,440

 
$
5,984


(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

Conversion of subordinated units to common units

 
(19,960
)
 
19,960

 

 

 

 

Unit-based compensation expense

 
2,772

 

 
2,772

 
2,772

 

 
2,772

Distributions, including distribution equivalent rights
(2,622
)
 
(42,886
)
 
(24,893
)
 
(67,779
)
 
(70,401
)
 

 
(70,401
)
Net income
2,622

 
792

 
13,613

 
14,405

 
17,027

 
202

 
17,229

Balance at September 30, 2015
$

 
$
125,560

 
$

 
$
125,560

 
$
125,560

 
$
2,681

 
$
128,241

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% 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 agreement, (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 agreement. 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 agreement with various financial institutions by amending and restating its prior $200,000 revolving credit agreement (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.
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 2017 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.

[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)

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.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Partnership performed its annual assessment of the recoverability of goodwill during the third quarter of 2015.
During the first nine months of 2015, global oil and natural gas commodity prices, particularly crude oil, significantly decreased as compared to 2014. This decrease in commodity prices has had, and is expected to continue to have, a negative impact on industry drilling and well completion activity, which affects the demand for frac sand.  
Although we have seen a significant decrease in the price of our common units since August 2014, which has resulted in an overall reduction in our market capitalization, our market capitalization exceeds our recorded net book value as of September 30, 2015.  Uncertain market conditions for frac sand resulting from current oil and natural gas prices continue. We have updated our internal business outlook of the D & I Silica, LLC ("D&I") reporting unit to consider the current economic environment that affects our operations. As part of the first step of goodwill impairment testing, we updated our assessment of our future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable. We have calculated a present value of the cash flows to arrive at an estimate of fair value under the income approach, and then used the market approach to corroborate this value. As a result of these estimates, we determined that there was no impairment of goodwill as of September 30, 2015. However, should energy industry conditions further deteriorate, there is a possibility that the $33,745 of goodwill resulting from the acquisition of D&I in 2013 may be impaired in a future period.  Any resulting non-cash impairment charges to earnings may be material. Specific uncertainties affecting our estimated fair value include the impact of competition, the prices of frac sand, future overall activity levels and demand for frac sand, the activity levels of our significant customers, and other factors affecting the rate of our future growth. These factors will continue to be reviewed and assessed going forward. Additional adverse developments with regard to these factors could have a further negative impact on our fair value.
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 $182,225 as of September 30, 2015, based on the market price quoted from external sources, compared with a carrying value of $197,000. 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 or loss shall be allocated to the partners based on their respective sharing of income specified in the partnership agreement. Net income or loss per unit applicable to limited partners is computed by dividing limited partners’ interest in net income or loss, after deducting any sponsor incentive distributions, by the weighted-average number of outstanding limited partner 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.

[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)

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 September 30, 2015 and December 31, 2014, the Partnership did not have any liabilities for uncertain tax positions or gross unrecognized tax benefit.
Recent Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, which specifies that all inventory, excluding inventory that is measured using the last-in, first-out method or the retail inventory method, be measured at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendment is effective for the Partnership beginning in the first quarter of 2017, with early adoption permitted, and should be applied prospectively. 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:
 
September 30, 2015
 
December 31, 2014
Raw material
$
34

 
$
63

Work-in-process
17,325

 
8,892

Finished goods
13,651

 
13,441

Spare parts
2,370

 
1,288

Inventories
$
33,380

 
$
23,684


4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
 
September 30, 2015
 
December 31, 2014
Buildings
$
5,845

 
$
3,930

Mining property and mine development
48,697

 
46,967

Plant and equipment
150,764

 
134,870

Rail and rail equipment
29,464

 
23,161

Transload facilities and equipment
61,494

 
31,742

Construction-in-progress
2,217

 
18,519

Property, plant and equipment
298,481

 
259,189

Less: Accumulated depreciation and depletion
(36,209
)
 
(17,864
)
Property, plant and equipment, net
$
262,272

 
$
241,325

Depreciation and depletion expense was $4,319 and $2,677 during the three months ended September 30, 2015 and 2014, respectively, and $10,031 and $6,581 during the nine months ended September 30, 2015 and 2014, respectively.
The Partnership recognized a loss on the disposal of fixed assets of $20 and $70 during the three and nine months ended September 30, 2015, respectively, and we recognized a gain on the disposal of fixed assets of $34 and $15 during the three and nine months ended September 30, 2014, respectively.
The Partnership recognized an impairment of $4,455 related to the write-down of certain property, plant and equipment to its net realizable value and we recognized expense of $256 related to the abandonment of certain transload construction projects during the three months ended September 30, 2015. These expenses are included in impairments and other expenses in our Condensed Consolidated Statements of Operations. Refer to Note 12 for additional disclosure on impairments.

[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 table presents 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.
 
Nine Months Ended September 30, 2014
 
 
 
Augusta
 
 
 
 
 
Partnership
 
Through
 
 
 
Partnership
 
Historical
 
April 28, 2014
 
Eliminations
 
Recasted
Revenues
$
234,418

 
$
25,356

 
$
(4,156
)
 
$
255,618

Net income
$
82,105

 
$
11,398

 
$
(7,857
)
 
$
85,646

Net income attributable to Hi-Crush Partners LP per limited partner unit - basic
$
2.24

 
 
 
 
 
$
2.64


6. Long-Term Debt
Long-term debt consisted of the following:
 
September 30, 2015
 
December 31, 2014
Term Loan Credit Facility
$
195,400

 
$
196,688

Revolving Credit Agreement
52,500

 

Other notes payable
3,676

 
3,676

Less: current portion of long-term debt
(2,436
)
 
(2,000
)
Long-term debt
$
249,140

 
$
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, 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 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 Agreement matures on April 28, 2019.
The Revolving 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 Revolving Credit Agreement and have granted to the revolving lenders security interests in substantially all of their respective assets.
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.

[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)

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 September 30, 2015, we were in compliance with the covenants contained in the Revolving Credit Agreement.
As of September 30, 2015, we had $89,811 of undrawn borrowing capacity ($150,000, net of $52,500 indebtedness and $7,689 letter of credit commitments) under our Revolving Credit Agreement.
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 September 30, 2015, we were in compliance with the terms of the agreement.
As of September 30, 2015, we had $195,400 indebtedness ($197,000, net of $1,600 of discounts) under our Term Loan Credit Facility, which carried an interest rate of 4.75% as of September 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 0.54% as of September 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 nine months ended September 30, 2015. As of September 30, 2015, the Partnership expects to make prepayments of approximately $436 based on the volume of sand extracted, delivered, sold and paid for through September 30, 2015.
Under the terms of the Revolving Credit Agreement, our leverage ratio (total debt to trailing four quarter EBITDA) may not exceed 3.50.  While our leverage ratio as of September 30, 2015, is below this threshold, if current market conditions persist, our leverage ratio will likely exceed this threshold during 2016, which could result in a breach of covenant event and an event of default under the Revolving Credit Agreement.  If such a default were to occur, and resulted in a cross default of the Term Loan Credit Agreement, all of our outstanding debt obligations could be accelerated. The Partnership is currently in discussions with the lenders to amend the Revolving Credit Agreement to, among other things, waive the leverage and other compliance ratios.  The Partnership makes no assurance that an amendment will be obtained.

[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
On August 17, 2015, all of the 13,640,351 issued and outstanding subordinated units representing limited partner interests in the Partnership were converted into common units, on a one-for-one basis for no additional consideration, upon the expiration of the subordination period set forth in the Partnership's Second Amended and Restated Agreement of Limited Partnership. As of September 30, 2015, our sponsor owned 13,640,351 common 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 nine months ended September 30, 2014, no net income was allocated to our Class B units and $168 was allocated to our holders of incentive distribution rights.
During the three months ended September 30, 2015, no income was allocated to our holders of incentive distribution rights. During the nine months ended September 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 limited partner unitholders and our holders of incentive distribution rights 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

 
$

On October 26, 2015, we announced the Board of Directors' decision to temporarily suspend the distribution payment to common unitholders. Therefore, no quarterly distribution was declared for the third quarter of 2015.


[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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Basic
36,959,020

 
35,077,527

 
36,958,692

 
32,162,763

Diluted
36,959,020

 
37,033,959

 
37,200,426

 
35,362,327

For purposes of calculating the Partnership’s earnings per unit under the two-class method, common units are treated as participating preferred units, and the previously outstanding subordinated units were 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 excludes any dilutive awards granted (see Note 8) if their effect is anti-dilutive. During the three months ended September 30, 2015, the Partnership incurred a net loss and all 240,404 potentially dilutive awards granted and outstanding were excluded from the diluted earnings per unit calculation. Diluted earnings per unit for the nine months ended September 30, 2015 includes the dilutive effect of awards granted and outstanding at the assumed number of units which would have vested if the performance period had ended on September 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 limited partner unitholders and incentive distribution rights holders is subject to the distribution waterfall in the partnership agreement. Net earnings or loss for the period are allocated to each class of partnership interest based on the distributions to be made.
The following table provides a reconciliation of net loss and the assumed allocation of net loss under the two-class method for purposes of computing net loss per limited partner unit for the three months ended September 30, 2015 (in thousands, except per unit amounts):
 
General Partner and IDRs
 
Limited Partner Units
 
Total
Declared distribution
$

 
$

 
$

Assumed allocation of distributions in excess of loss

 
(18,108
)
 
(18,108
)
Assumed allocation of net loss
$

 
$
(18,108
)
 
$
(18,108
)
 
 
 
 
 
 
Loss per limited partner unit - basic
 
 
$
(0.49
)
 
 
Loss per limited partner unit - diluted
 
 
$
(0.49
)
 
 

[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 limited partner unit for the nine months ended September 30, 2015 (in thousands, except per unit amounts):
 
General Partner and IDRs
 
Limited Partner Units
 
Total
Declared distribution
$
1,311

 
$
42,502

 
$
43,813

Assumed allocation of distributions in excess of earnings

 
(26,786
)
 
(26,786
)
Assumed allocation of net income
$
1,311

 
$
15,716

 
$
17,027

 
 
 
 
 
 
Earnings per limited partner unit - basic
 
 
$
0.43

 
 
Earnings per limited partner unit - diluted
 
 
$
0.42

 
 
Recasted Augusta Equity Transactions
Prior to the Augusta Contribution on April 28, 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

Outstanding at September 30, 2015
183,964

 
$
47.34

As of September 30, 2015, total compensation expense not yet recognized related to unvested PPUs was $5,504, with a weighted average remaining service period of 1.9 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

Vested
(500
)
 
$
34.09

Granted
42,200

 
$
34.09

Forfeited
(1,863
)
 
$
45.63

Outstanding at September 30, 2015
56,440

 
$
37.61

As of September 30, 2015, total compensation expense not yet recognized related to unvested TPUs was $1,568, with a weighted average remaining service period of 2.2 years.
Board and Other Unit Grants
The Partnership issued 6,344 and 5,532 common units to its independent directors during the nine months ended September 30, 2015 and 2014, respectively. During the nine months ended September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Performance Phantom Units
$
794

 
$
409

 
$
2,251

 
$
545

Time-Based Phantom Units
187

 
69

 
521

 
88

Director and other unit grants
67

 
91

 
213

 
289

Total compensation expense
$
1,048

 
$
569

 
$
2,985

 
$
922


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 September 30, 2015 and 2014, the Partnership incurred $1,034 and $2,587, respectively, of management and administrative service expenses from Hi-Crush Services. During the nine months ended September 30, 2015 and 2014, the Partnership incurred $2,652 and $6,946, 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 September 30, 2015, an outstanding balance of $9,276 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 months ended September 30, 2015 and 2014, the Partnership purchased $9,625 and $3,011, 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 nine months ended September 30, 2015 and 2014, the Partnership purchased $24,528 and $3,011, respectively, of sand from our sponsor's Whitehall facility.
During the nine months ended September 30, 2015, the Partnership purchased $2,754 of sand from Goose Landing, LLC, a wholly owned subsidiary of Northern Frac Proppants II, LLC. We did not purchase any sand during the three months ended September 30, 2015. 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 September 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 (the "Sand Supply Agreement"), 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 $2,352 and $4,011 for the three months ended September 30, 2015 and 2014, respectively, and $8,492 and $10,744 for the nine months ended September 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 September 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.
During 2015, we entered into a service agreement with a transload service provider which, beginning in the fourth quarter 2015, will require us to purchase a minimum amount of services over a specific period of time at a specific location. Our failure to purchase the minimum level of services would require us to pay a shortfall fee. However, the minimum quantities set forth in the agreement are not in excess of our current forecasted requirements at this location.

[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)

As of September 30, 2015, future minimum operating lease payments and minimum purchase commitments are as follows:
Fiscal Year
Operating
Leases
 
Minimum Purchase
Commitments
2015 (three months)
$
5,307

 
$
49

2016
22,355

 
1,072

2017
22,062

 
1,170

2018
21,156

 
1,170

2019
18,634

 
1,520

Thereafter
16,863

 
6,300

 
$
106,377

 
$
11,281

In addition, the Partnership has placed orders for additional leased railcars. Such long-term operating leases commence upon the future delivery of the railcars, which will result in additional future minimum operating lease payments. During the next two years, we expect to receive delivery of approximately 1,600 additional leased railcars. Following delivery of these additional railcars, we estimate our 2018 annual minimum lease payments will increase to approximately $33,000.
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.

12. Impairments and Other Expenses
During the first nine months of 2015, global oil and natural gas commodity prices, particularly crude oil, significantly decreased as compared to 2014. This decrease in commodity prices has had, and is expected to continue to have, a negative impact on industry drilling and well completion activity, which affects the demand for frac sand.
We recognized one-time impairments and other expenses of $23,718, as outlined in the following table:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Impairment of Sand Supply Agreement
$
18,606

 
$

 
$
18,606

 
$

Impairment of idled administrative and transload facilities
4,455

 

 
4,455

 

Severance, retention and relocation
371

 

 
371

 

Abandonment of construction projects
256

 

 
256

 

Expiration of exclusivity agreement
30

 

 
30

 

Impairments and other expenses
$
23,718

 
$

 
$
23,718

 
$

During the three months ended September 30, 2015, we completed an impairment assessment of the intangible asset associated with the Sand Supply Agreement.  Given current market conditions, coupled with our ability to source sand from our sponsor on more favorable terms, we determined that the fair value of the agreement was less than its carrying value, resulting in an impairment of $18,606.
During the three months ended September 30, 2015, we elected to idle five destination transload facilities and three rail origin transload facilities.  In addition, to consolidate our administrative functions, we have commenced the process of closing down an office facility in Sheffield, Pennsylvania. As a result of these actions, we recognized an impairment of $4,455 related to the write down of these facilities’ assets to their net realizable value, and severance, retention and relocation costs of $371 for affected employees.


[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)

13. 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 September 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 September 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 September 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.

[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 September 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
2,001

 
$
2,226

 
$
808

 
$

 
$
5,035

Accounts receivable, net

 
49,560

 
3,944

 

 
53,504

Intercompany receivables
54,879

 
152,837

 

 
(207,716
)
 

Inventories

 
21,301

 
12,533

 
(454
)
 
33,380

Prepaid expenses and other current assets
155

 
3,782

 
38

 

 
3,975

Total current assets
57,035

 
229,706


17,323

 
(208,170
)
 
95,894

Property, plant and equipment, net
16

 
150,136

 
112,120

 

 
262,272

Goodwill and intangible assets, net

 
45,945

 

 

 
45,945

Investment in consolidated affiliates
311,135

 

 
224,250

 
(535,385
)
 

Other assets
6,583

 
7,118

 

 

 
13,701

Total assets
$
374,769

 
$
432,905


$
353,693

 
$
(743,555
)
 
$
417,812

Liabilities, Equity and Partners' Capital
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
38

 
$
11,077

 
$
2,729

 
$

 
$
13,844

Intercompany payables

 

 
207,716

 
(207,716
)
 

Accrued and other current liabilities
921

 
3,040

 
3,933

 

 
7,894

Due to sponsor
350

 
8,451

 
475

 

 
9,276

Current portion of long-term debt
2,000

 
436

 

 

 
2,436

Total current liabilities
3,309

 
23,004


214,853

 
(207,716
)
 
33,450

Long-term debt
245,900

 
3,240

 

 

 
249,140

Asset retirement obligation

 
1,901

 
5,080

 

 
6,981

Total liabilities
249,209

 
28,145


219,933

 
(207,716
)
 
289,571

Equity and partners' capital:
 
 
 
 
 
 
 
 
 
Partners' capital
125,560

 
404,760

 
131,079

 
(535,839
)
 
125,560

Non-controlling interest

 

 
2,681

 

 
2,681

Total equity and partners' capital
125,560

 
404,760


133,760

 
(535,839
)
 
128,241

Total liabilities, equity and partners' capital
$
374,769

 
$
432,905


$
353,693

 
$
(743,555
)
 
$
417,812



[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 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



[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 September 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
76,194

 
$
10,475

 
$
(5,175
)
 
$
81,494

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

 
63,154

 
8,154

 
(4,908
)
 
66,400

Gross profit

 
13,040

 
2,321

 
(267
)
 
15,094

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
2,406

 
3,003

 
570

 

 
5,979

Impairments and other expenses

 
23,692

 
26

 

 
23,718

Accretion of asset retirement obligation

 
34

 
50

 

 
84

Income (loss) from operations
(2,406
)
 
(13,689
)
 
1,675

 
(267
)
 
(14,687
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings (loss) from consolidated affiliates
(12,430
)
 

 

 
12,430

 

Interest expense
(3,272
)
 
(37
)
 
(77
)
 

 
(3,386
)
Net income (loss)
(18,108
)
 
(13,726
)
 
1,598

 
12,163

 
(18,073
)
Income attributable to non-controlling interest

 

 
(35
)
 

 
(35
)
Net income (loss) attributable to Hi-Crush Partners LP
$
(18,108
)
 
$
(13,726
)
 
$
1,563

 
$
12,163

 
$
(18,108
)
 
Nine Months Ended September 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
252,621

 
$
38,346

 
$
(23,404
)
 
$
267,563

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

 
197,125

 
26,229

 
(24,617
)
 
198,737

Gross profit

 
55,496

 
12,117

 
1,213

 
68,826

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
7,261

 
8,807

 
1,878

 

 
17,946

Impairments and other expenses

 
23,692

 
26

 

 
23,718

Accretion of asset retirement obligation

 
102

 
149

 

 
251

Income (loss) from operations
(7,261
)
 
22,895

 
10,064

 
1,213

 
26,911

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
33,793

 

 

 
(33,793
)
 

Interest expense
(9,505
)
 
(66
)
 
(111
)
 

 
(9,682
)
Net income (loss)
17,027

 
22,829

 
9,953

 
(32,580
)
 
17,229

Income attributable to non-controlling interest

 

 
(202
)
 

 
(202
)
Net income (loss) attributable to Hi-Crush Partners LP
$
17,027

 
$
22,829

 
$
9,751

 
$
(32,580
)
 
$
17,027


[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 Operations
 
Three Months Ended September 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
88,982

 
$
24,964

 
$
(11,630
)
 
$
102,316

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

 
57,849

 
9,960

 
(12,169
)
 
55,640

Gross profit

 
31,133

 
15,004

 
539

 
46,676

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
3,707

 
2,117

 
359

 

 
6,183

Accretion of asset retirement obligation

 
31

 
30

 

 
61

Income (loss) from operations
(3,707
)
 
28,985

 
14,615

 
539

 
40,432

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
43,783

 

 

 
(43,783
)
 

Interest expense
(3,047
)
 
(28
)
 
(36
)
 

 
(3,111
)
Net income (loss)
37,029

 
28,957

 
14,579

 
(43,244
)
 
37,321

Income attributable to non-controlling interest

 

 
(292
)
 

 
(292
)
Net income (loss) attributable to Hi-Crush Partners LP
$
37,029

 
$
28,957

 
$
14,287

 
$
(43,244
)
 
$
37,029


 
Nine Months Ended September 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues
$

 
$
217,734

 
$
65,742

 
$
(27,858
)
 
$
255,618

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

 
142,502

 
28,824

 
(27,661
)
 
143,665

Gross profit

 
75,232

 
36,918

 
(197
)
 
111,953

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
General and administrative expenses
9,874

 
7,864

 
1,549

 

 
19,287

Accretion of asset retirement obligation

 
94

 
90

 

 
184

Income (loss) from operations
(9,874
)
 
67,274

 
35,279

 
(197
)
 
92,482

Other income (expense):
 
 
 
 
 
 
 
 
 
Earnings from consolidated affiliates
101,506

 

 

 
(101,506
)
 

Interest expense
(6,690
)
 
(48
)
 
(98
)
 

 
(6,836
)
Net income (loss)
84,942

 
67,226

 
35,181

 
(101,703
)
 
85,646

Income attributable to non-controlling interest

 

 
(704
)
 

 
(704
)
Net income (loss) attributable to Hi-Crush Partners LP
$
84,942

 
$
67,226

 
$
34,477

 
$
(101,703
)
 
$
84,942



[23]

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
 
Nine Months Ended September 30, 2015
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash provided by operating activities
$
20,866

 
$
61,935

 
$
18,079

 
$
(33,742
)
 
$
67,138

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures for property, plant and equipment

 
(34,591
)
 
(13,676
)
 

 
(48,267
)
Restricted cash, net

 
691

 

 

 
691

Net cash used in investing activities

 
(33,900
)
 
(13,676
)
 

 
(47,576
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt
65,000

 

 

 

 
65,000

Repayment of long-term debt
(14,000
)
 

 

 

 
(14,000
)
Advances to parent, net

 
(29,299
)
 
(4,443
)
 
33,742

 

Loan origination costs
(101
)
 

 

 

 
(101
)
Distributions paid
(70,072
)
 

 

 

 
(70,072
)
Net cash provided by (used in) financing activities
(19,173
)
 
(29,299
)
 
(4,443
)
 
33,742

 
(19,173
)
Net increase (decrease) in cash
1,693

 
(1,264
)
 
(40
)
 

 
389

Cash:
 
 
 
 
 
 
 
 
 
Beginning of period
308

 
3,490

 
848

 

 
4,646

End of period
$
2,001

 
$
2,226

 
$
808

 
$

 
$
5,035

 
Nine Months Ended September 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash provided by operating activities
$
58,783

 
$
63,666

 
$
28,793

 
$
(73,404
)
 
$
77,838

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of Hi-Crush Augusta LLC

 

 
(224,250
)
 

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

 
(7,513
)
 
(14,808
)
 

 
(22,321
)
Net cash used in investing activities

 
(7,513
)
 
(239,058
)
 

 
(246,571
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from equity issuance
170,693

 

 

 

 
170,693

Proceeds from issuance of long-term debt
198,000

 

 

 

 
198,000

Repayment of long-term debt
(139,250
)
 

 

 

 
(139,250
)
Advances to parent, net
(224,250
)
 
(56,750
)
 
216,250

 
64,750

 

Loan origination costs
(7,096
)
 

 

 

 
(7,096
)
Redemption of common units
(19
)
 

 

 

 
(19
)
Distributions paid
(53,578
)
 

 
(8,654
)
 
8,654

 
(53,578
)
Net cash provided by (used in) financing activities
(55,500
)
 
(56,750
)
 
207,596

 
73,404

 
168,750

Net increase (decrease) in cash
3,283

 
(597
)
 
(2,669
)
 

 
17

Cash:
 
 
 
 
 
 
 
 
 
Beginning of period
12,056

 
3,991

 
4,561

 

 
20,608

End of period
$
15,339

 
$
3,394

 
$
1,892

 
$

 
$
20,625


[24]

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)

14. Subsequent Events
On October 26, 2015, we announced the Board of Directors' decision to temporarily suspend the distribution payment to common unitholders. Therefore, no quarterly distribution was declared for the third quarter of 2015.
On October 9, 2015, we announced plans to idle our Augusta production facility. As a result of the reduction in staffing levels, the Partnership will recognize approximately $223 in severance costs in the fourth quarter of 2015.

[25]


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with our unaudited condensed financial statements and accompanying notes in “Item 1. Financial Statements” contained herein and our audited financial statements as of December 31, 2014, included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 27, 2015. The information provided below supplements, but does not form part of, our unaudited condensed financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. See “Forward-Looking Statements” in this Quarterly Report on Form 10-Q. All amounts are presented in thousands except tonnage, acreage or per unit data, or where otherwise noted.
Overview
We are a pure play, low-cost, domestic producer and supplier of premium monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. Our reserves consist of “Northern White” sand, a resource existing predominately in Wisconsin and limited portions of the upper Midwest region of the United States, which is highly valued as a preferred proppant because it exceeds all American Petroleum Institute (“API”) specifications. We own, operate and develop sand reserves and related excavation and processing facilities and will seek to acquire or develop additional reserves and facilities.
Our June 10, 2013 acquisition of D & I Silica, LLC (“D&I”) transformed us into an integrated Northern White frac sand producer, transporter, marketer and distributor. At the time of the acquisition, D&I was the largest independent frac sand supplier to the oil and gas industry drilling in the Marcellus and Utica shales. D&I operates through an extensive logistics network of rail-served origin and destination terminals located in the Midwest near supply sources and strategically throughout Pennsylvania, Ohio, New York and Texas.
We sell a substantial portion of the frac sand we produce to customers with whom we have long-term contracts. During the nine months ended September 30, 2015, we provided temporary price discounts to contract customers in response to the market driven decline in proppant demand. As of October 1, 2015, the average remaining contractual term was 3.8 years with remaining terms ranging from 27 to 60 months.
Our Assets and Operations
We own and operate the Wyeville facility, which is located in Monroe County, Wisconsin and, as of December 31, 2014, contained 75.5 million tons of proven sand reserves. We also own a 98.0% interest in the Augusta facility, which is located in Eau Claire County, Wisconsin and, as of December 31, 2014, contained 45.0 million tons of proven sand reserves. During the third quarter of 2014, our sponsor completed construction of the 1,447-acre Whitehall facility with integrated rail infrastructure. As of December 31, 2014, this facility contained 78.9 million tons of proven sand reserves and is capable of delivering approximately 2,600,000 tons of 20/70 frac sand per year. According to John T. Boyd Company ("John T. Boyd"), our proven reserves consist of coarse grade Northern White sand exceeding API specifications. Analysis of our sand by independent third-party testing companies indicates that they demonstrate characteristics exceeding of API specifications with regard to crush strength, turbidity and roundness and sphericity.
We acquired the Wyeville acreage and commenced construction of the Wyeville facility in January 2011. We completed construction of the Wyeville facility and commenced sand excavation and processing in June 2011 with an initial plant processing capacity of 950,000 tons per year, and customer shipments were initiated in July 2011. We completed an expansion in March 2012 that increased our annual processing rated capacity to approximately 1,600,000 tons per year. The additional expansion to allow us to produce 100 mesh sand at our Wyeville facility was completed in 2013, which increased our annual processing capacity for all grades of sand to approximately 1,850,000 tons per year.
We acquired the Augusta acreage and commenced construction of the Augusta facility in March 2012. We completed construction of the Augusta facility and commenced sand excavation and processing in June 2012 with an initial plant processing capacity of 1,600,000 tons of 20/70 frac sand per year, and customer shipments were initiated in July 2012. We completed an expansion in the fourth quarter of 2014 that increased our annual processing rated capacity to approximately 2,600,000 tons of 20/70 frac sand per year.
Based on third-party reserve reports by John T. Boyd, as of January 1, 2015, we have an implied average reserve life of 27 years, assuming production at the rated capacity of 4,450,000 tons per year. As of September 30, 2015, we own 14 destination rail-based terminal locations throughout the Marcellus and Utica shales and the Permian Basin. Our terminals include approximately 400,000 tons of rail and silo storage capacity. Our Minerva, Mingo Junction, Pittston, Smithfield and Wellsboro terminals are capable of accommodating unit trains.

[26]


We are continuously looking to expand our geographic footprint by increasing the number of terminals we operate or utilize, allowing us to continue to deliver low-cost solutions to our customers and putting us in a stronger position to take advantage of opportunistic short term pricing agreements. We have entered into definitive agreements to jointly develop three energy rail hubs, one in the DJ Basin and two in the Permian Basin. All of these rail hubs will include unit train capable frac sand terminals.
Our destination terminals are strategically located to provide access to Class I railroads, which enables us to cost effectively ship product from our production facilities in Wisconsin and as necessary to meet our customers’ evolving in-basin product needs. As of September 30, 2015, we leased or owned 3,542 railcars used to transport our sand from origin to destination and managed a fleet of approximately 2,200 additional railcars dedicated to our facilities by our customers or the Class I railroads.
How We Generate Revenue
We generate revenue by excavating, processing and delivering frac sand and providing related services. A substantial portion of our frac sand is sold to our customers with whom we have long-term contracts which have current terms expiring between 2017 and 2020. Each contract defines the minimum volume of frac sand that the customer is required to purchase monthly and annually, the volume that we are required to make available, the technical specifications of the product and the price per ton. During the nine months ended September 30, 2015, we provided temporary price discounts to contract customers in response to the market driven decline in proppant demand. We also sell our frac sand on the spot market at prices and other terms determined by the existing market conditions as well as the specific requirements of the customer.
Delivery of sand to our customers may occur at the rail origin or at the destination terminal. We generate service revenues through performance of transportation services including railcar storage fees, transload services, silo storage and other miscellaneous services performed on behalf of our customers.
Due to sustained freezing temperatures in our area of operation during winter months, it is industry practice to halt excavation activities and operation of the wet plant during those months. As a result, we excavate and wash sand in excess of current delivery requirements during the months when those facilities are operational. This excess sand is placed in stockpiles that feed the dry plant and fill customer orders throughout the year.
Costs of Conducting Our Business
The principal expenses involved in production of raw frac sand are excavation costs, labor, utilities, maintenance and royalties. We have a contract with a third party to excavate raw frac sand, deliver the raw frac sand to our processing facility and move the sand from our wet plant to our dry plant. We pay a fixed price per ton excavated and delivered without regard to the amount of sand excavated that meets API specifications. Accordingly, we incur excavation costs with respect to the excavation of sand and other materials from which we ultimately do not derive revenue (rejected materials), and for sand which is still to be processed through the dry plant and not yet sold. However, the ratio of rejected materials to total amounts excavated has been, and we believe will continue to be, in line with our expectations, given the extensive core sampling and other testing we undertook at our facilities.
Labor costs associated with employees at our processing facilities represent the most significant cost of converting raw frac sand to finished product. We incur utility costs in connection with the operation of our processing facility, primarily electricity and natural gas, which are both susceptible to fluctuations. Our facilities require periodic scheduled maintenance to ensure efficient operation and to minimize downtime. Excavation, direct and indirect labor, utilities and maintenance costs are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.
We pay royalties to third parties at our facilities at various rates, as defined in the individual royalty agreements, at an aggregate rate up to $6.15 per ton of sand excavated, delivered at our on-site rail facilities and paid for by our customers.
The principal expenses involved in distribution of raw sand are the cost of purchased sand, costs for the transportation and storage of sand, including freight charges, fuel surcharges, terminal switch fees, demurrage costs and storage fees, and costs to operate our terminals, including labor and rent.
We purchase sand from our sponsor's Whitehall facility, through a long-term supply agreement with a third party at a specified price per ton and also through the spot market. We incur transportation costs including trucking, rail freight charges and fuel surcharges when transporting our sand from its origin to destination. We utilize a diverse base of railroads to transport our sand and transportation costs are typically negotiated through long-term working relationships.
In addition to our sand and transportation costs, we incur other costs, some of which are passed through to our customers. For example, we incur terminal switch fees payable to the railroads when they transport to certain of our locations along with demurrage and storage fees. We also pay demurrage and storage fees when we utilize system railcars as additional storage capacity at our terminals. Other key components involved in transporting and offloading our sand shipments include on-site labor and railcar rental fees. As of September 30, 2015, our railcar fleet included 3,542 owned or leased under long-term operating lease agreements. In addition, there are approximately 2,200 railcars owned or leased by our customers included in our managed fleet. As of September 30, 2015, we had approximately 250 railcars in storage. We expect that we will place additional railcars into storage during the fourth quarter of 2015.

[27]


We incur general and administrative costs related to our corporate operations. Under our partnership agreement and the services agreement with our sponsor and our general partner, our sponsor has discretion to determine, in good faith, the proper allocation of costs and expenses to us for its services, including expenses incurred by our general partner and its affiliates on our behalf. The allocation of such costs are based on management’s best estimate of time and effort spent on the respective operations and facilities. Under these agreements, we reimburse our sponsor for all direct and indirect costs incurred on our behalf.
How We Evaluate Our Operations
We utilize various financial and operational measures to evaluate our operations. Management measures the performance of the Partnership through performance indicators, including gross profit, production costs, earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA and distributable cash flow.
Gross Profit and Production Costs
Price per ton excavated is fixed, and royalties are generally fixed based on tons excavated, delivered and paid for. Considering this largely fixed cost base, our production costs will largely be affected by our ability to control other direct and indirect costs associated with processing frac sand. We use production costs, which we define as costs of goods sold at our production facilities excluding depreciation and depletion, to measure our financial performance. We believe production costs are meaningful measures because it provides a measure of operating performance that is unaffected by historical cost basis.
Gross profit is further impacted by our ability to control other direct and indirect costs associated with the transportation and delivery of frac sand to our customers. We use gross profit, which we define as revenues less costs of goods sold, to measure our financial performance. We believe gross profit is a meaningful measure because it provides a measure of profitability and operating performance.
As a result, production volumes, costs of goods sold per ton, production costs per ton, sales volumes, sales price per ton sold and gross profit are key metrics used by management to evaluate our results of operations.
EBITDA, Adjusted EBITDA and Distributable Cash Flow
We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income (loss) plus depreciation, depletion and amortization and interest expense, net of interest income. We define Adjusted EBITDA as EBITDA, adjusted for any non-cash impairments of long-lived assets. We use distributable cash flow to evaluate whether we are generating sufficient cash flow to support distributions to our unitholders. We define distributable cash flow as Adjusted EBITDA less cash paid for interest expense, income attributable to non-controlling interests and maintenance and replacement capital expenditures, including accrual for reserve replacement, plus accretion of asset retirement obligations and non-cash unit based compensation. Distributable cash flow will not reflect changes in working capital balances. EBITDA and Adjusted EBITDA are supplemental measures utilized by our management and other users of our financial statements such as investors, commercial banks, research analysts and others, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. Distributable cash flow is a supplemental measure used to measure the ability of our assets to generate cash sufficient to support our indebtedness and make cash distributions to our unitholders. 
Note Regarding Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

[28]


The following table presents a reconciliation of EBITDA, Adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure, as applicable, for each of the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Reconciliation of distributable cash flow to net income:
 
 
 
 
 
 
 
Net income (loss)
$
(18,073
)
 
$
37,321

 
$
17,229

 
$
85,646

Depreciation and depletion expense
4,319

 
2,677

 
10,031

 
6,581

Amortization expense
733

 
781

 
2,199

 
4,385

Interest expense
3,386

 
3,111

 
9,682

 
6,836

EBITDA
$
(9,635
)
 
$
43,890

 
$
39,141

 
$
103,448

Non-cash impairments of long-lived assets
23,061

 

 
23,061

 

Adjusted EBITDA
$
13,426

 
$
43,890

 
$
62,202

 
$
103,448

Less: Cash interest paid
(2,971
)
 
(2,702
)
 
(8,440
)
 
(5,984
)
Less: Income attributable to non-controlling interest
(35
)
 
(292
)
 
(202
)
 
(704
)
Less: Maintenance and replacement capital expenditures, including accrual for reserve replacement (a)
(1,282
)
 
(1,387
)
 
(3,661
)
 
(3,644
)
Add: Accretion of asset retirement obligation
84

 
61

 
251

 
184

Add: Unit-based compensation
1,048

 
569

 
2,985

 
922

Distributable cash flow
$
10,270

 
$
40,139

 
$
53,135

 
$
94,222

Adjusted for: Distributable cash flow attributable to Hi-Crush Augusta LLC, net of intercompany eliminations, prior to the Augusta Contribution (b)

 

 

 
(7,199
)
Distributable cash flow attributable to Hi-Crush Partners LP
10,270

 
40,139

 
53,135

 
87,023

Less: Distributable cash flow attributable to holders of incentive distribution rights

 
(7,791
)
 
(1,311
)
 
(10,244
)
Distributable cash flow attributable to limited partner unitholders
$
10,270

 
$
32,348

 
$
51,824

 
$
76,779

(a)
Maintenance and replacement capital expenditures, including accrual for reserve replacement, were determined based on an estimated reserve replacement cost of $1.35 per ton produced and delivered during the period. Such expenditures include those associated with the replacement of equipment and sand reserves, to the extent that such expenditures are made to maintain our long-term operating capacity. The amount presented does not represent an actual reserve account or requirement to spend the capital.
(b)
The Partnership's historical financial information has been recast to consolidate Augusta for all periods presented. For purposes of calculating distributable cash flow attributable to Hi-Crush Partners LP, the Partnership excludes the incremental amount of recasted distributable cash flow earned during the periods prior to the Augusta Contribution.
Basis of Presentation
The following discussion of our historical performance and financial condition is derived from the historical financial statements.
Factors Impacting Comparability of Our Financial Results
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future principally for the following reasons:
We impaired the intangible value associated with a third party supply agreement. During the three months ended September 30, 2015, we completed an impairment assessment of the intangible asset associated with a third party supply agreement (the "Sand Supply Agreement").  Given current market conditions, coupled with our ability to source sand from our sponsor on more favorable terms, we determined that the fair value of the agreement was less than its carrying value, resulting in an impairment of $18,606.

[29]


We realized asset impairments and other expenses during the third quarter of 2015. During the three months ended September 30, 2015, we elected to idle five destination transload facilities and three rail origin transload facilities.  In addition, to consolidate our administrative functions, we have commenced the process of closing down an office facility in Sheffield, Pennsylvania.  As a result of these actions, we recognized an impairment of $4,455 related to the write down of these facilities’ assets to their net realizable value, and severance, retention and relocation costs of $371 for affected employees.
During October 2015, we idled our Augusta production facility. As a result of recent market conditions, we elected to temporarily idle our Augusta production facility. During the nine months ended September 30, 2015, we produced and delivered 1.1 million tons out of the Augusta facility. As a result of the reduction in staffing levels, we will recognize approximately $223 in severance costs in the fourth quarter of 2015.
Our sponsor's Whitehall facility did not commence operations until September 2014. Our first purchase of frac sand from the Whitehall facility occurred in September 2014. Accordingly, our financial statements for the first eight months don not reflect volume purchases from the Whitehall facility.
We completed an expansion of our Augusta facility. During the fourth quarter of 2014, we completed an expansion of our Augusta facility that increased rated processing capacity from 1,600,000 to approximately 2,600,000 tons of 20/70 frac sand per year.
We constructed additional equipment and silo storage facilities to produce and ship 100 mesh product. During 2013 and 2014, we completed construction of additional equipment and silo storage facilities to produce and store 100 mesh product at our facilities. Sales prices for 100 mesh are typically lower than prices of other grades of sand.
We are incurring increased interest expense as a result of our acquisition of the Augusta facility. As of January 1, 2014, we had $138,250 of indebtedness outstanding under our revolver credit facility. In March 2014, we repaid $13,500 under our revolver credit facility. The remaining outstanding balance of the revolver credit facility was repaid in full on April 15, 2014 with the proceeds from a public offering of our common units. On April 28, 2014, the Partnership entered into a senior secured term loan credit facility that permits aggregate borrowings of up to $200,000, which was fully drawn down on April 28, 2014. The outstanding balance of $197,000 carries an interest rate of 4.75% as of September 30, 2015.
Market Conditions
During the nine months ended September 30, 2015, oil and natural gas prices continued to persist at levels well below those experienced during the nine months ended September 30, 2014. As a result, the number of rigs drilling for oil and gas continued to fall from the high levels achieved during third quarter 2014. As the timing and extent of a rebound is uncertain, exploration and production companies sharply reduced their drilling activities in an effort to control costs during the first nine months of 2015. In addition, many exploration and production companies have announced that a significant number of wells drilled during the first nine months of 2015 have not yet been completed and may not be completed for an indefinite period. The combination of these factors, among others, has reduced proppant demand and pricing during the first nine months of 2015 from the levels experienced during 2014. Given the energy industry's outlook for fourth quarter activity levels, and our customers anticipating much greater than the usual seasonal declines across the industry, we expect the downward trend in well completion activity to continue in the fourth quarter with more pressure on frac sand pricing and reduced sales volumes.
In general, pricing for Northern White frac sand increased throughout 2014 and reached its highest levels for the year during the fourth quarter. During 2015, spot market prices for Northern White frac sand have declined, as sand producers with excess inventories discounted sand pricing, and in some cases, substantially discounted sand pricing.
As a result of the market dynamics existing during the nine months ended September 30, 2015, we have engaged and continue to be engaged in ongoing discussions with all of our contract customers regarding pricing and volume requirements under our existing contracts. While these discussions continue, we have provided contract customers with temporary pricing discounts, in certain circumstances in exchange for, among other things, additional term and/or volume. We continue to engage in discussions and may deliver sand at prices or at volumes below those provided for in our existing contracts. We expect that these circumstances may continue to negatively affect our revenues, net income and cash generated from operations for the remainder of 2015 and will likely continue into 2016.
We took several steps to ensure we continue to deliver low-cost solutions to our customers, including construction of additional in-basin storage facilities and marketing of our product through additional third-party operated terminals. We reduced the volumes of sand purchased from third parties, and are working to ensure that volumes were sourced at our lowest cost, combining our lowest production cost with the lowest origin to destination freight rates where possible. We strategically managed the size of our railcar fleet by reducing the use of system cars to reduce cost. We also focused on ensuring optimal origin and destination routing as we experienced a larger percentage of our sales being made FOB destination.

[30]


On October 9, 2015, we announced a reduction in force to our employees in connection with our plan to idle the Augusta production facility, which has a higher cost structure than our lowest cost production facility. Given the current macro environment, we continue to focus on reducing our costs to enhance profitability and better serve our customers. However, during the fourth quarter of 2015, we expect to incur additional railcar storage expense upon delivery of additional leased railcars.
The following table presents sales, volume and pricing comparisons for the third quarter of 2015, as compared to the second quarter of 2015:
 
Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
 
 
Percentage
 
2015
 
2015
 
Change
 
Change
Revenues generated from the sale of frac sand (in thousands)
$
80,695

 
$
80,121

 
$
574

 
1
 %
Tons sold
1,409,032

 
1,190,156

 
218,876

 
18
 %
Percentage of volumes sold in-basin
49
%
 
58
%
 
(9
)%
 
(16
)%
Average price per ton sold
$
57

 
$
67

 
$
(10
)
 
(15
)%
We continued to provide additional price discounts to customers during the third quarter of 2015. Tons sold during the third quarter were 18% higher than the second quarter of 2015. The increased volumes, coupled with the price discounts and a higher percentage of volumes purchased FOB plant during the third quarter of 2015, led to our frac sand revenues remaining in line with the prior quarter.
Our sales volumes and pricing may be lower in the future if demand for frac sand continues to decrease. Such decreases could have a negative impact on our future liquidity if it results in lower net income and/or cash flows generated from operations. In such a circumstance, we may access availability under our revolving credit agreement and continue to focus on reducing our operating expenses. Despite the current market declines, we continue to believe that the long-term fundamental trends for frac sand demand, including the increased use of sand per lateral foot in well completions, remain favorable.
Results of Operations
Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014
The following table presents consolidated revenues and expenses for the periods indicated.
 
Three Months Ended
 
September 30,
 
2015
 
2014
Revenues
$
81,494

 
$
102,316

Costs of goods sold:
 
 
 
Production costs
10,744

 
14,274

Other cost of sales
51,026

 
38,328

Depreciation, depletion and amortization
4,630

 
3,038

Gross profit
15,094

 
46,676

Operating costs and expenses
29,781

 
6,244

Income (loss) from operations
(14,687
)
 
40,432

Other income (expense):
 
 


Interest expense
(3,386
)
 
(3,111
)
Net income (loss)
(18,073
)
 
37,321

Income attributable to non-controlling interest
(35
)
 
(292
)
Net income (loss) attributable to Hi-Crush Partners LP
$
(18,108
)
 
$
37,029


[31]


Revenues
Revenues generated from the sale of frac sand was $80,695 and $83,420 for the three months ended September 30, 2015 and 2014, respectively, during which we sold 1,409,032 and 1,180,602 tons of frac sand, respectively. Average sales price per ton was $57 and $71 for the three months ended September 30, 2015 and 2014, respectively. The decrease in sales price between the two periods is due primarily to declines in industry sand pricing, offset by the impact of a change in mix of FOB plant and in-basin volumes (49% and 32% of tons were sold in-basin for the three months ended September 30, 2015 and 2014, respectively). In-basin sales prices are generally much higher than FOB plant prices, as pricing of in-basin sales recovers transportation and other transloading costs. The average price per ton was also impacted somewhat by the mix of product mesh sizes sold. With the decline in oil and gas prices, and resulting decline in drilling activity, we continued to provide discounted pricing for contract customers in third quarter 2015. Price per ton exiting third quarter 2015 was generally lower than the third quarter 2014.
Other revenue related to transload and terminaling, silo leases and other services was $799 and $18,896 for the three months ended September 30, 2015 and 2014, respectively. The decrease in such revenues was driven by decreased transloading and logistics services provided at our destination terminals, resulting from lower overall industry sand demand.
Costs of goods sold – Production costs
We incurred production costs of $10,744, or $11.32 per ton produced and delivered, for the three months ended September 30, 2015, compared to $14,274, or $13.89 per ton produced and delivered for the three months ended September 30, 2014, reflecting a greater percentage of volumes produced and delivered from the Wyeville facility, as well as increased efficiencies.
The principal components of production costs involved in operating our business are excavation costs, plant operating costs and royalties. Such costs, with the exception of royalties, are capitalized as a component of inventory and are reflected in costs of goods sold when inventory is sold. Royalties are charged to expense in the period in which they are incurred. The following table provides a comparison of the drivers impacting the level of production costs for the three months ended September 30, 2015 and 2014.
 
Three Months Ended
 
September 30,
 
2015
 
2014
Excavation costs
$
2,532

 
$
3,211

Plant operating costs
5,860

 
7,052

Royalties
2,352

 
4,011

   Total production costs
$
10,744

 
$
14,274

Tons produced and delivered
949,238

 
1,027,611

Production cost per ton produced and delivered
$
11.32

 
$
13.89

The overall decrease in production costs was attributable to higher tonnage produced and delivered from our lowest cost facility during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, where a greater percentage was produced and delivered from our highest cost facility. In addition, our production cost per ton decreased due to lower excavation costs paid to our third party excavator and improved operating efficiencies, which resulted in reduced volumes of rejected material.
Costs of goods sold – Other cost of sales
The other principal costs of goods sold are the cost of purchased sand, freight charges, fuel surcharges, terminal switch fees, demurrage costs, storage fees, labor and rent. The cost of purchased sand and transportation related charges are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold. Other cost components, including costs associated with storage in-basin, such as demurrage and costs related to transload operations, such as labor and rent are charged to costs of goods sold in the period in which they are incurred.
We purchase sand from our sponsor's Whitehall facility, and through a long-term supply agreement with a third party at a specified price per ton and also through the spot market. For the three months ended September 30, 2015 and 2014, we incurred $10,057 and $7,189 of purchased sand costs, respectively. The increase was due to increased volumes purchased, offset by a lower purchase price paid in third quarter 2015 as compared to third quarter 2014.

[32]


We incur transportation costs including freight charges and fuel surcharges when transporting our sand from its origin to destination. For the three months ended September 30, 2015 and 2014, we incurred $37,009 and $26,636 of transportation costs, respectively. The increase in transportation costs was driven by increased throughput of tonnage at our destination terminals. Other costs of sales was $3,960 and $4,503 during the three months ended September 30, 2015 and 2014, respectively, and was primarily comprised of demurrage, storage fees and on-site labor. The decrease in other costs of sales was driven by decreased transloading activity and utilization of silo storage at our terminals.
Costs of goods sold – Depreciation, depletion and amortization of intangible assets
For the three months ended September 30, 2015 and 2014, we incurred $4,630 and $3,038, respectively, of depreciation, depletion and amortization expense. The increase was driven by additional assets, including depreciation of the costs associated with the expansion of the Augusta facility, and depletion of additional acreage acquired during the second half of 2014.
Gross Profit
Gross profit was $15,094 and $46,676 for the three months ended September 30, 2015 and 2014, respectively. Gross profit percentage declined from 45.6% in third quarter 2014 to 18.5% in third quarter 2015. The declines were primarily driven by pricing discounts and increased transportation costs as more volumes were sold at our destination terminals.
Operating Costs and Expenses
For the three months ended September 30, 2015 and 2014, we incurred general and administrative expenses of $5,979 and $6,183, respectively. For the three months ended September 30, 2015, we incurred impairments and other expenses of $23,718 related to the impairment of the Sand Supply Agreement, idled administrative and transload facilities, costs associated with staffing reductions and relocations, and cancelled construction projects.
Interest Expense
Interest expense was $3,386 and $3,111 for the three months ended September 30, 2015 and 2014, respectively. The increase in interest expense during the 2015 period was primarily attributable to additional borrowings on our revolver during the third quarter of 2015.
Net Income (Loss) Attributable to Hi-Crush Partners LP
Net loss attributable to Hi-Crush Partners LP was $18,108 for the three months ended September 30, 2015, compared to income of $37,029 for the three months ended September 30, 2014.
Results of Operations
Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014
The following table presents consolidated revenues and expenses for the periods indicated.
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Revenues
$
267,563

 
$
255,618

Costs of goods sold:
 
 
 
Production costs
37,091

 
42,644

Other cost of sales
150,684

 
93,049

Depreciation, depletion and amortization
10,962

 
7,972

Gross profit
68,826

 
111,953

Operating costs and expenses
41,915

 
19,471

Income from operations
26,911

 
92,482

Other income (expense):
 
 
 
Interest expense
(9,682
)
 
(6,836
)
Net income
17,229

 
85,646

Income attributable to non-controlling interest
(202
)
 
(704
)
Net income attributable to Hi-Crush Partners LP
$
17,027

 
$
84,942


[33]


Revenues
Revenues generated from the sale of frac sand was $247,690 and $217,648 for the nine months ended September 30, 2015 and 2014, respectively, during which we sold 3,794,531 and 3,102,897 tons of frac sand, respectively. Average sales price per ton was $65 and $70 for the nine months ended September 30, 2015 and 2014, respectively. The sales prices between the two periods differ due to the mix in pricing of FOB plant and in-basin volumes (50% and 33% of tons were sold in-basin for the nine months ended September 30, 2015 and 2014, respectively), offset by changes in industry sales price trends. With the decline in oil and gas prices and resulting decline in drilling activity, we began discounting pricing for contract customers during the first nine months of 2015. Generally, sales prices per ton were rising throughout 2014, and declining through the first nine months of 2015. Price per ton exiting third quarter 2015 was significantly lower than third quarter 2014. Average sales price per ton was also somewhat impacted by the mix of product mesh sizes.
Other revenue related to transload and terminaling, silo leases and other services was $19,873 and $37,970 for the nine months ended September 30, 2015 and 2014, respectively. The level of transloading and logistics services provided at our destination terminals was increasing during the first nine months of 2014, and decreasing during the corresponding period of 2015, both trends being in-line with industry demand for sand and our sales volumes.
Costs of goods sold – Production costs
We incurred production costs of $37,091, or $13.68 per ton produced and delivered, for the nine months ended September 30, 2015, compared to $42,644, or $15.80 per ton produced and delivered, for the nine months ended September 30, 2014.
The principal components of production costs involved in operating our business are excavation costs, plant operating costs and royalties. Such costs, with the exception of royalties, are capitalized as a component of inventory and are reflected in costs of goods sold when inventory is sold. Royalties are charged to expense in the period in which they are incurred. The following table provides a comparison of the drivers impacting the level of production costs for the nine months ended September 30, 2015 and 2014.
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Excavation costs
$
9,690

 
$
12,721

Plant operating costs
18,909

 
19,179

Royalties
8,492

 
10,744

   Total production costs
$
37,091

 
$
42,644

Tons produced and delivered
2,711,806

 
2,699,138

Production cost per ton produced and delivered
$
13.68

 
$
15.80

The overall decrease in production costs was attributable to lower production cost per ton due to lower excavation costs paid to our third party excavator, improved operating efficiencies, which resulted in reduced volumes of rejected material, and a focus on sourcing our sand from our lowest cost facility, offset by higher tonnage produced and delivered from our production facilities in 2015 as compared to 2014.
Costs of goods sold – Other cost of sales
The other principal costs of goods sold are the cost of purchased sand, freight charges, fuel surcharges, terminal switch fees, demurrage costs, storage fees, labor and rent. The cost of purchased sand and transportation related charges are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold. Other cost components, including costs associated with storage in-basin, such as demurrage and costs related to terminal operations, such as labor and rent are charged to costs of goods sold in the period in which they are incurred.
We purchase sand from our sponsor's Whitehall facility, through a long-term supply agreement with a third party at a specified price per ton and through the spot market. For the nine months ended September 30, 2015 and 2014, we incurred $28,816 and $14,390 of purchased sand costs, respectively. The increase was due to increased volumes purchased, offset by a lower purchase price paid in the first nine months of 2015 as compared to the same period in 2014.

[34]


We incur transportation costs including freight charges and fuel surcharges when transporting our sand from its origin to destination. For the nine months ended September 30, 2015 and 2014, we incurred $107,561 and $67,886 of transportation costs, respectively. Other costs of sales was $14,307 and $10,773 during the nine months ended September 30, 2015 and 2014, respectively, and was primarily comprised of demurrage, storage fees and on-site labor. The increase in transportation and other costs of sales was driven by increased throughput of tonnage at our destination terminals. The first nine months of 2015 was negatively impacted by a net $753 of non-recurring items, including repair costs of a silo at our Smithfield terminal and increased rail diversion costs primarily as a result of railcar moves to the Partnership's production facilities. These negative impacts were offset by a reduction in our accruals for the use of railcars.
Costs of goods sold – Depreciation, depletion and amortization of intangible assets
For the nine months ended September 30, 2015 and 2014, we incurred $10,962 and $7,972, respectively, of depreciation, depletion and amortization expense. The increase was driven by additional assets, including depreciation of the costs associated with the expansion of the Augusta facility, and depletion of additional acreage acquired during the second half of 2014.
Gross Profit
Gross profit was $68,826 and $111,953 for the nine months ended September 30, 2015 and 2014, respectively. Gross profit percentage declined from 43.8% in the first nine months of 2014 to 25.7% during the first nine months of 2015. The declines were primarily driven by pricing discounts and increased transportation costs as more volumes were sold at our destination terminals.
Operating Costs and Expenses
For the nine months ended September 30, 2015 and 2014, we incurred general and administrative expenses of $17,946 and $19,287, respectively. The decrease in such costs was primarily attributable to $768 of transaction costs associated with the Augusta Contribution in the second quarter of 2014 and decreased amortization of intangible assets of $1,732. These decreases were offset by additional payroll and related costs from additional sponsor headcount.
For the nine months ended September 30, 2015, we incurred impairments and other expenses of $23,718 related to the impairment of the Sand Supply Agreement, idled administrative and transload facilities, costs associated with staffing reductions and relocations and cancelled construction projects.
Interest Expense
Interest expense was $9,682 and $6,836 for the nine months ended September 30, 2015 and 2014, respectively. The increase in interest expense during the 2015 period was primarily attributable to additional borrowings on our revolver and interest on our new $200,000 senior secured term loan facility, which was fully drawn on April 28, 2014 to finance the Augusta Contribution.
Net Income Attributable to Hi-Crush Partners LP
Net income attributable to Hi-Crush Partners LP was $17,027 and $84,942 for the nine months ended September 30, 2015 and 2014, respectively.
Liquidity and Capital Resources
Overview
We expect our principal sources of liquidity will be cash generated by our operations, supplemented by borrowings under our amended and restated revolving credit agreement, as available. We believe that cash from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements. As of October 23, 2015, our sources of liquidity consisted of $12,606 of available cash and $89,811 pursuant to available borrowings under our revolving credit agreement ($150,000, net of $52,500 indebtedness and $7,689 letter of credit commitments). In addition, we have a $200,000 senior secured term loan facility which permits us to add one or more incremental term loan facilities in an aggregate amount not to exceed $100,000. Our General Partner is also authorized to issue an unlimited number of units without the approval of existing limited partner unitholders.
We expect that our future principal uses of cash will be for working capital, capital expenditures, funding debt service obligations and making any distributions to our unitholders. We spent $48,267 during the nine months ended September 30, 2015, representing the completion of the Augusta expansion and capital expenditures associated with expanding silo storage capacity at our Smithfield and Mingo Junction terminals, among other projects. We plan to spend $5,000 to $7,000 on capital expenditures during the remainder of 2015 primarily for expanding our distribution network. On October 26, 2015, our General Partner’s board of directors announced the temporary suspension of our quarterly distribution to common unitholders in order to conserve cash and preserve liquidity. It is currently uncertain when market conditions will improve, at which time it would be appropriate to reinstate the distribution.

[35]


Credit Ratings
On October 23, 2015, the credit rating of the Partnership’s senior secured term loan credit facility was BB- from Standard and Poor’s and B2 from Moody’s. The Standard and Poor's rating was upgraded to BB- in May 2015.
The credit ratings of the Partnership’s senior secured term loan facility reflect only the view of a rating agency and should not be interpreted as a recommendation to buy, sell or hold any of our securities.  A credit rating can be revised upward or downward or withdrawn at any time by a rating agency, if it determines that circumstances warrant such a change.  A credit rating from one rating agency should be evaluated independently of credit ratings from other rating agencies.

Working Capital
Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. At the end of any given period, accounts receivable and payable tied to sales and purchases are relatively balanced to the volume of tons sold during the period. The factors that typically cause overall variability in the Partnership's working capital are (1) the Partnership's cash position, (2) inventory levels, which the Partnership closely manages, or (3) major structural changes in the Partnership's asset base or business operations, such as any acquisition, divestures or organic capital expenditures. As of September 30, 2015, we had a positive working capital balance of $59,845 as compared to a balance of $59,297 at December 31, 2014.
 
September 30, 2015
 
December 31, 2014
Current assets:
 
 
 
Accounts receivable
$
53,504

 
$
82,117

Inventories
33,380

 
23,684

Prepaid and other current assets
3,975

 
4,081

Total current assets
90,859

 
109,882

Current liabilities:
 
 
 
Accounts payable
13,844

 
24,878

Accrued and other current liabilities
7,894

 
12,248

Due to sponsor
9,276

 
13,459

Total current liabilities
31,014

 
50,585

Working capital
$
59,845

 
$
59,297

Accounts receivable decreased $28,613 during the nine months ended September 30, 2015, which was driven by lower sales volumes during the third quarter of 2015 as compared to the fourth quarter of 2014.
Our inventory consists primarily of sand that has been excavated and processed through the wet plant and finished goods. The increase in our inventory was primarily driven by an $8,433 increase in our stockpile for processing through the dry plant during the upcoming winter months. Most of our finished goods inventory is either in transit or held at our terminals for future sale.
Accounts payable and accrued liabilities decreased by $15,388 on a combined basis, primarily due to a decrease in the outstanding payables associated with the expansion project at our Augusta facility. The decrease is also attributable to lower sales volumes, resulting in lower purchasing and other spending during the third quarter of 2015 as compared to the fourth quarter of 2014.
Our balance due to our sponsor decreased $4,183 during the nine months ended September 30, 2015, primarily as a result of decreased pricing of sand purchased from our sponsor's Whitehall facility, as compared to the pricing paid in the fourth quarter of 2014.
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Net cash provided by (used in):
 
 
 
Operating activities
$
67,138

 
$
77,838

Investing activities
(47,576
)
 
$
(246,571
)
Financing activities
(19,173
)
 
$
168,750


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Cash Flows - Nine Months Ended September 30, 2015 and 2014
Operating Activities
Net cash provided by operating activities was $67,138 and $77,838 for the nine months ended September 30, 2015 and 2014, respectively. Operating cash flows include $17,229 and $85,646 of net income earned during the nine months ended September 30, 2015 and 2014, respectively, adjusted for non-cash operating expenses and the changes in operating assets and liabilities described above. The decrease in cash flows from operations was primarily attributable to decreased gross profit margins, offset by a net decrease in our working capital associated with lower revenues in the third quarter of 2015 as compared to the fourth quarter of 2014.
Investing Activities
Capital expenditures for property, plant and equipment was $48,267 for the nine months ended September 30, 2015, and primarily consisted of expenditures to expand our Augusta facility and our terminal facilities in Pennsylvania and Ohio. During the nine months ended September 30, 2015, $691 of restricted cash was released from escrow upon completion of a project. Net cash used in investing activities was $246,571 for the nine months ended September 30, 2014, which primarily consisted of the $224,250 cost of the Augusta Contribution, capital expenditures primarily associated with the expansion of our Augusta facility, purchases of additional equipment and construction of facilities to produce and store 100 mesh product at our facilities, and construction costs for our terminal facility in the Permian basin.
Financing Activities
Net cash used in financing activities was $19,173 for the nine months ended September 30, 2015, and was comprised of $52,500 of net borrowings under the revolving credit agreement, offset by $70,072 of distributions paid to our unitholders, $101 of loan origination costs, and $1,500 of repayments of our term loan.
Net cash used in financing activities was $168,750 for the nine months ended September 30, 2014, and was comprised of $198,000 of cash proceeds from the term loan issuance and $170,693 from the issuance of 4,325,000 common units, offset by $53,578 of distributions paid to our unitholders, $7,096 of loan origination costs, a $138,250 repayment of our Prior Credit Facility and a $1,000 repayment of our term loan.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are likely to have a material effect on our current or future financial condition, changes in financial condition, sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
The Partnership has long-term operating leases for rail access, railcars and equipment at its terminal sites, which are also under long-term lease agreements with various railroads.
Capital Requirements
During the nine months ended September 30, 2015, $48,267 was spent related to the expansion of silo storage capacities at our Smithfield and Mingo Junction terminals, expansion of our Augusta facility and capital improvements at our production facilities. In addition, we have entered into definitive agreements to jointly develop and operate three energy rail hubs, one in the DJ Basin and two in the Permian Basin. There are no other significant anticipated capital requirements associated with our production facilities. We plan to spend $5,000 to $7,000 on capital expenditures during the remainder of 2015 primary for expanding our distribution network.
Revolving Credit Agreement and Senior Secured Term Loan Facility
As of October 23, 2015, we have a $150,000 senior secured revolving credit agreement (our "revolving credit agreement"), which matures in April 2019. As of October 23, 2015, we had $52,500 of borrowings and $89,811 of undrawn borrowing capacity ($150,000, net of $52,500 of indebtedness and $7,689 letter of credit commitments) under our revolving credit agreement. The revolving credit agreement is available to fund working capital and for other general corporate purposes, including the making of certain restricted payments permitted therein. Borrowings under our revolving credit agreement are secured by substantially all of our assets.
As of October 23, 2015, we have a $200,000 senior secured term loan facility (our "senior secured term loan facility"), which matures in April 2021. As of October 23, 2015, the senior secured term loan facility was fully drawn with $197,000 balance outstanding. The senior secured term loan facility permits us to add one or more incremental term loan facilities in an aggregate amount not to exceed $100,000. Any incremental senior secured term loan facility would be on terms to be agreed among us, the administrative agent under the senior secured term loan facility and the lenders who agree to participate in the incremental facility. Borrowings under our senior secured term loan facility are secured by substantially all of our assets.
Under the terms of the revolving credit agreement, our leverage ratio (total debt to trailing four quarter EBITDA) may not exceed 3.50.  While our leverage ratio as of September 30, 2015, is below this threshold, if current market conditions persist, our leverage ratio will likely exceed this threshold during 2016, which could result in a breach of covenant event and an event of default under

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the revolving credit agreement.  If such a default were to occur, and resulted in a cross default of the senior secured term loan facility, all of our outstanding debt obligations could be accelerated. The Partnership is currently in discussions with the lenders to amend the revolving credit agreement to, among other things, waive the leverage and other compliance ratios.  The Partnership makes no assurance that an amendment will be obtained.
For additional information regarding our revolving credit agreement and our senior secured term loan facility, see Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Forward-Looking Statements
Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2014. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
the amount of frac sand we are able to excavate and process, which could be adversely affected by, among other things, operating difficulties and unusual or unfavorable geologic conditions;
the volume of frac sand we are able to buy and sell;
the price at which we are able to buy and sell frac sand;
changes in the price and availability of natural gas or electricity;
changes in prevailing economic conditions, including the extent of changes in natural gas, crude oil and other commodity prices;
unanticipated ground, grade or water conditions;
inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;
environmental hazards;
difficulties in obtaining or renewing environmental permits;
industrial accidents;
changes in laws and regulations (or the interpretation thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;
the outcome of litigation, claims or assessments, including unasserted claims;
inability to acquire or maintain necessary permits, licenses or other approvals, including mining or water rights;
facility shutdowns in response to environmental regulatory actions;
inability to obtain necessary production equipment or replacement parts;
reduction in the amount of water available for processing;
technical difficulties or failures;
labor disputes and disputes with our excavation contractor;
late delivery of supplies;
difficulty collecting receivables;
inability of our customers to take delivery;
changes in the price and availability of transportation;
fires, explosions or other accidents;
cave-ins, pit wall failures or rock falls;
our ability to borrow funds and access capital markets;
changes in the political environment of the drilling basins in which we and our customers operate; and
changes in the railroad infrastructure, price, capacity and availability, including the potential for rail line washouts.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
(Dollars in thousands)
Quantitative and Qualitative Disclosure of Market Risks
Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our risks have been predominantly related to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates and those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.
The market for frac sand is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the pressure pumping industry. We do not intend to hedge our indirect exposure to commodity risk.
Interest Rate Risk
As of September 30, 2015, we had $197,000 of principal outstanding under our senior secured term loan facility, with an effective interest rate of 4.75%. Assuming no change in the amount outstanding, the impact on interest expense of a 10% increase or decrease in the average interest rate would be approximately $936 per year.
Credit Risk – Customer Concentration
During the nine months ended September 30, 2015, approximately 50% of our revenues were earned from two customers, both of whom are investment grade. Our customers are generally pressure pumping service providers. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross profit and cash flows may be adversely affected.
Recent Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, which specifies that all inventory, excluding inventory that is measured using the last-in, first-out method or the retail inventory method, be measured at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendment is effective for the Partnership beginning in the first quarter of 2017, with early adoption permitted, and should be applied prospectively. 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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptable in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Partnership performed its annual assessment of the recoverability of goodwill during the third quarter of 2015.
During the first nine months of 2015, global oil and natural gas commodity prices, particularly crude oil, significantly decreased as compared to 2014. This decrease in commodity prices has had, and is expected to continue to have, a negative impact on industry drilling and well completion activity, which affects the demand for frac sand.  

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Although we have seen a significant decrease in the price of our common units since August 2014, which has resulted in an overall reduction in our market capitalization, our market capitalization exceeds our recorded net book value.  Uncertain market conditions for frac sand resulting from current oil and natural gas prices continue. We have updated our internal business outlook of the D&I reporting unit to consider the current economic environment that affects our operations. As part of the first step of goodwill impairment testing, we updated our assessment of our future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable. We have calculated a present value of the cash flows to arrive at an estimate of fair value under the income approach, and then used the market approach to corroborate this value. As a result of these estimates, we determined that there was no impairment of goodwill as of September 30, 2015. However, should energy industry conditions further deteriorate, there is a possibility that the $33,745 of goodwill resulting from the acquisition of D&I in 2013 may be impaired in a future period.  Any resulting non-cash impairment charges to earnings may be material. Specific uncertainties affecting our estimated fair value include the impact of competition, the prices of frac sand, future overall activity levels and demand for frac sand, the activity levels of our significant customers, and other factors affecting the rate of our future growth. These factors will continue to be reviewed and assessed going forward. Additional adverse developments with regard to these factors could have a further negative impact on our fair value.
A discussion of our significant accounting policies is included in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, as filed with the SEC on February 27, 2015. Significant estimates include, but are not limited to, purchase accounting allocations and valuations, asset retirement obligations, depletion of mineral rights, inventory valuation, valuation of unit based compensation, and impairment of long-lived and intangible assets.


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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II
ITEM 1. LEGAL PROCEEDINGS.
Legal Proceedings
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.

ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015. There have been no material changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.

ITEM 4. MINE SAFETY DISCLOSURES.
We adhere to a strict occupational health program aimed at controlling exposure to silica dust, which includes dust sampling, a respiratory protection program, medical surveillance, training and other components. Our safety program is designed to ensure compliance with the standards of our Occupational Health and Safety Manual and U.S. Federal Mine Safety and Health Administration (“MSHA”) regulations. For both health and safety issues, extensive training is provided to employees. We have safety committees at our plants made up of salaried and hourly employees. We perform annual internal health and safety audits and conduct semi-annual crisis management drills to test our abilities to respond to various situations. Health and safety programs are administered by our corporate health and safety department with the assistance of plant environmental, health and safety coordinators.
All of our production facilities are classified as mines and are subject to regulation by MSHA under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.

ITEM 5. OTHER INFORMATION.
None.

ITEM 6. EXHIBITS.
The exhibits to this report are listed in the Exhibit Index.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Hi-Crush Partners LP
    (Registrant)
By: Hi-Crush GP LLC, its general partner
 
 
 
Date:
October 26, 2015
/s/ Laura C. Fulton
 
 
Laura C. Fulton, Chief Financial Officer

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HI-CRUSH PARTNERS LP
EXHIBIT INDEX
Exhibit
Number
 
Description
3.1
 
Certificate of Limited Partnership of Hi-Crush Partners LP (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, Registration No. 333-182574, filed with the SEC on July 9, 2012).
3.2
 
Second Amended and Restated Agreement of Limited Partnership of Hi-Crush Partners LP, dated January 31, 2013 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 5, 2013).
23.1
 
Consent of John T. Boyd Company (incorporated by reference to Exhibit 23.2 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on February 27, 2015).
31.1
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Executive Officer, filed herewith.
31.2
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Executive Officer, filed herewith.
31.3
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Financial Officer, filed herewith.
32.1
 
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Principal Executive Officer, filed herewith. (1)
32.2
 
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Principal Executive Officer, filed herewith. (1)
32.3
 
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Principal Financial Officer, filed herewith. (1)
95.1
 
Mine Safety Disclosure Exhibit
101
 
Interactive Data Files- XBRL
 
 
 
(1)
 
This document is being furnished in accordance with SEC Release Nos. 33-8212 and 34-47551.
 


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