NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
USD Partners LP and its consolidated subsidiaries, collectively referred to herein as we, us, our, the Partnership and USDP, is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group, LLC, or USD, through its wholly-owned subsidiary, USD Group LLC, or USDG. We were formed to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of our operating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies, refiners and marketers. Our network of crude oil terminals facilitate the transportation of heavy crude oil from Western Canada to key demand centers across North America. Our operations include railcar loading and unloading, storage and blending in onsite tanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. We also provide our customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons and biofuels by rail. We do not generally take ownership of the products that we handle, nor do we receive any payments from our customers based on the value of such products. We may on occasion enter into buy-sell arrangements in which we take temporary title to commodities while in our terminals. These arrangements are typically at fixed prices where we do not take commodity price exposure.
A substantial amount of the operating cash flows related to the terminalling services that we provide are generated from take-or-pay contracts with minimum monthly commitment fees and, as a result, are not directly related to actual throughput volumes at our crude oil terminals. Throughput volumes at our terminals are primarily influenced by the difference in price between Western Canadian Select, or WCS, and other grades of crude oil, commonly referred to as spreads, rather than absolute price levels. WCS spreads are influenced by several market factors, including the availability of supplies relative to the level of demand from refiners and other end users, the price and availability of alternative grades of crude oil, the availability of takeaway capacity, as well as transportation costs from supply areas to demand centers.
Recent Events
In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in March 2020, the World Health Organization declared that the spread of COVID-19 qualified as a global pandemic. The COVID-19 pandemic has adversely affected the global economy, disrupted global supply chains and created significant volatility in the financial markets. In addition, the pandemic has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement worldwide. In addition, in March 2020, members of the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil producing countries (“OPEC+”) failed to agree on oil production levels, which led to a substantial decline in oil prices and an increasingly volatile market. In April 2020, even though OPEC+ announced that it had reached an agreement to cut production by 9.7 million barrels per day, oil prices did not increase. As a result of these factors, there has been a significant reduction in demand for and prices of crude oil and natural gas liquids.
If the current depressed pricing environment continues for an extended period, it may lead to the potential impairment of long-lived assets and customer demand for our services may also be negatively impacted. Any material non-payment or nonperformance by any of our key customers resulting from the current market conditions could have a material adverse effect on our business, financial condition, and results of operations in future periods.
As a result of the overall downturn in the crude market and the decline in the demand for petroleum products, in March 2020, we tested the goodwill associated with our Casper terminal for impairment, which resulted in an impairment loss recognized for the three months ended March 31, 2020. Refer to Note 8. Goodwill and intangible assets for further discussion of the impairment loss at the Casper terminal.
In addition, in March 2020, United States legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was signed into law. The CARES Act is an emergency economic
stimulus package enacted in response to the coronavirus outbreak which, among other measures, contains numerous income tax provisions. Refer to Note 15. Income Taxes for further discussion of the impact of the CARES Act to our income taxes.
Basis of Presentation
Our accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete consolidated financial statements. In the opinion of our management, they contain all adjustments, consisting only of normal recurring adjustments, which our management considers necessary to present fairly our financial position as of March 31, 2020, our results of operations for the three months ended March 31, 2020 and 2019, and our cash flows for the three months ended March 31, 2020 and 2019. We derived our consolidated balance sheet as of December 31, 2019 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our results of operations for the three months ended March 31, 2020 and 2019 should not be taken as indicative of the results to be expected for the full year due to fluctuations in the supply of and demand for crude oil and biofuels, timing and completion of acquisitions, if any, changes in the fair market value of our derivative instruments and the impact of fluctuations in foreign currency exchange rates. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Foreign Currency Translation
We conduct a substantial portion of our operations in Canada, which we account for in the local currency, the Canadian dollar. We translate most Canadian dollar denominated balance sheet accounts into our reporting currency, the U.S. dollar, at the end of period exchange rate, while most accounts in our statement of operations are translated into our reporting currency based on the average exchange rate for each monthly period. Fluctuations in the exchange rate between the Canadian dollar and the U.S. dollar can create variability in the amounts we translate and report in U.S. dollars.
Within these consolidated financial statements, we denote amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.
US Development Group, LLC
USD and its affiliates are engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USD is the indirect owner of our general partner through its direct ownership of USDG and is currently owned by Energy Capital Partners, Goldman Sachs and certain of USD’s management team members.
2. RECENT ACCOUNTING PROUNOUNCEMENTS
Recently Adopted Accounting Pronouncements
Intangibles - Goodwill and Other
In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2017-04, or ASU 2017-04, which amends ASC Topic 350 to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Pursuant to the provisions of ASU 2017-04, an entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Rather, an entity will recognize an impairment loss for the amount by which the carrying amount of a reporting unit exceeds the reporting unit’s fair value. However, the loss recognized cannot exceed the
total amount of goodwill allocated to that reporting unit. The pronouncement is effective for fiscal years beginning after December 15, 2019, or for any interim impairment testing within those fiscal years and is required to be applied prospectively, with early adoption permitted.
We adopted the provisions of ASU 2017-04 on January 1, 2020. In March 2020, we tested the goodwill associated with our Casper terminal for impairment due to there being circumstances that suggested the fair value of the Casper reporting unit was less than its carrying amount. The circumstances identified related to the overall downturn in the crude market and the decline in the demand for petroleum products, which could lead to delays or reductions of expected throughput levels and changes in expectations for current and future contracts at the Casper terminal. Refer to Note 1. Organization and Basis of Presentation — Current Events for more information. This standard requires us to recognize an impairment loss for the amount by which the carrying amount of our Casper terminal exceeds the fair value of the terminal. Accordingly, we have recognized an impairment loss in our goodwill asset for the three months ended March 31, 2020. Refer to Note 8. Goodwill and Intangible assets for more information.
Recent Accounting Pronouncements Not Yet Adopted
Income Taxes (ASU 2019-12)
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, or ASU 2019-12, which amends ASC Topic 740 by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. In addition, under the provisions of ASU 2019-12, single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so.
The pronouncement is effective for fiscal years beginning after December 15, 2020, or for any interim periods within those fiscal years, with early adoption permitted. We do not expect to early adopt the provisions of this standard, nor do we anticipate that our adoption of this standard will have a material impact on our financial statements.
3. NET INCOME (LOSS) PER LIMITED PARTNER INTEREST
We allocate our net income (loss) among our general partner and limited partners using the two-class method in accordance with applicable authoritative accounting guidance. Under the two-class method, we allocate our net income (loss) and any net income (loss) in excess of distributions to our limited partners, our general partner and the holder of the incentive distribution rights, or IDRs, according to the distribution formula for available cash as set forth in our partnership agreement. We allocate any distributions in excess of earnings for the period to our limited partners and general partner based on their respective proportionate ownership interests in us, as set forth in our partnership agreement after taking into account distributions to be paid with respect to the IDRs. The formula for distributing available cash as set forth in our partnership agreement is as follows:
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Distribution Targets
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Portion of Quarterly
Distribution Per Unit
|
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Percentage Distributed to Limited Partners
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|
Percentage Distributed to
General Partner
(including IDRs) (1)
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Minimum Quarterly Distribution
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Up to $0.2875
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98%
|
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2%
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First Target Distribution
|
|
> $0.2875 to $0.330625
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|
98%
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|
2%
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Second Target Distribution
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|
> $0.330625 to $0.359375
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85%
|
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15%
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Third Target Distribution
|
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> $0.359375 to $0.431250
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75%
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25%
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Thereafter
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Amounts above $0.431250
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50%
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50%
|
(1)Assumes our general partner maintains a 2% general partner interest in us.
We determined basic and diluted net income (loss) per limited partner unit as set forth in the following tables:
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For the Three Months Ended March 31, 2020
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Common
Units
|
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Subordinated
Units (7)
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Class A
Units (7)
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General
Partner
Units
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Total
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(in thousands, except per unit amounts)
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Net loss attributable to general and limited partner interests in USD Partners LP (1)
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$
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(33,195)
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|
$
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(15)
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$
|
—
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$
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(571)
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$
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(33,781)
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Less: Distributable earnings (2)
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3,129
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—
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—
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54
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3,183
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Distributions in excess of earnings
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$
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(36,324)
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$
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(15)
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$
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—
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$
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(625)
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$
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(36,964)
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Weighted average units outstanding (3)
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25,516
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1,150
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—
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|
|
461
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|
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27,127
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Distributable earnings per unit (4)
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$
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0.12
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$
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—
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|
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$
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—
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|
|
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|
|
Overdistributed earnings per unit (5)
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(1.42)
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(0.01)
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—
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|
|
Net loss per limited partner unit (basic and diluted) (6)
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$
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(1.30)
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|
$
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(0.01)
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|
|
$
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—
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(1)Represents net loss allocated to each class of units based on the actual ownership of the Partnership during the period. There were no amounts attributed to the general partner for its incentive distribution rights.
(2)Represents the distributions payable for the period based upon the quarterly distribution amounts of $0.111 per unit or $0.444 on an annualized basis. Amounts presented for each class of units include a proportionate amount of the $152 thousand distributable to holders of the Equity classified Phantom Units pursuant to the distribution equivalent rights granted under the USD Partners LP 2014 Amended and Restated Long-Term Incentive Plan.
(3)Represents the weighted average units outstanding for the period.
(4)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.
(5)Represents the distributions in excess of earnings divided by the weighted average number of units outstanding for the period.
(6)Our computation of net income per limited partner unit excludes the effects of 1,367,678 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.
(7)In February 2019, pursuant to the terms set forth in our partnership agreement, the fourth and final vesting tranche of 38,750 Class A units vested and were converted into Common units. Additionally, in February 2020, the final tranche of 2,092,709 subordinated units were converted into common units. Refer to Note 17. Partners Capital for more information.
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For the Three Months Ended March 31, 2019
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|
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Common
Units
|
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Subordinated
Units
|
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Class A Units (7)
|
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General
Partner
Units
|
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Total
|
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|
|
(in thousands, except per unit amounts)
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|
|
|
|
|
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|
|
Net income attributable to general and limited partner interests in USD Partners LP (1)
|
|
$
|
1,054
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|
|
$
|
101
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|
|
$
|
—
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|
|
$
|
164
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|
|
$
|
1,319
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|
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Less: Distributable earnings (2)
|
|
9,273
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|
|
795
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|
|
—
|
|
|
317
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|
|
10,385
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|
|
Distributions in excess of earnings
|
|
$
|
(8,219)
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|
|
$
|
(694)
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|
|
$
|
—
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|
|
$
|
(153)
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|
|
$
|
(9,066)
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|
|
Weighted average units outstanding (3)
|
|
23,060
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|
|
3,255
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|
|
22
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|
|
461
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|
|
26,798
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|
|
Distributable earnings per unit (4)
|
|
$
|
0.40
|
|
|
$
|
0.24
|
|
|
$
|
—
|
|
|
|
|
|
|
Overdistributed earnings per unit (5)
|
|
(0.36)
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|
|
(0.21)
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|
|
—
|
|
|
|
|
|
|
Net income per limited partner unit (basic and diluted)(6)
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
—
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|
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|
|
(1)Represents net income allocated to each class of units based on the actual ownership of the Partnership during the period. The net income for each class of limited partner interest has been reduced by its proportionate amount of the approximate $141 thousand attributed to the general partner for its incentive distribution rights.
(2)Represents the distributions paid for the period based upon the quarterly distribution amount of $0.3625 per unit, or $1.45 per unit on an annualized basis. Amounts presented for each class of units include a proportionate amount of the $469 thousand distributed to holders of the Equity-classified Phantom Units pursuant to the distribution equivalent rights granted under the USD Partners Amended and Restated LP 2014 Long-Term Incentive Plan.
(3)Represents the weighted average units outstanding for the period.
(4)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.
(5)Represents the distributions in excess of earnings divided by the weighted average number of units outstanding for the period.
(6)Our computation of net income per limited partner unit excludes the effects of 1,292,474 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.
(7)In February 2019, pursuant to the terms set forth in our partnership agreement, the fourth and final vesting tranche of 38,750 Class A units vested and were converted into Common units. Refer to Note 17. Partners Capital for more information.
4. REVENUES
Disaggregated Revenues
We manage our business in two reportable segments: Terminalling services and Fleet services. Our segments offer different services and are managed accordingly. Our chief operating decision maker, or CODM, regularly reviews financial information about both segments in order to allocate resources and evaluate performance. As such, we have concluded that disaggregating revenue by reporting segments appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 14. Segment Reporting for our disaggregated revenues by segment. Additionally, the below tables summarize the geographic data for our revenues:
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|
|
Three Months Ended March 31, 2020
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|
|
U.S.
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Canada
|
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Total
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(in thousands)
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Third party
|
$
|
7,049
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|
|
$
|
17,858
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|
|
$
|
24,907
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|
Related party
|
$
|
2,305
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|
|
$
|
2,994
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|
|
$
|
5,299
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|
|
Three Months Ended March 31, 2019
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|
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|
U.S.
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|
Canada
|
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Total
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(in thousands)
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|
|
Third party
|
$
|
8,720
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|
|
$
|
11,738
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|
|
$
|
20,458
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|
|
Related party
|
$
|
2,374
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|
|
$
|
4,536
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|
|
$
|
6,910
|
|
Remaining Performance Obligations
The transaction price allocated to the remaining performance obligations associated with our terminalling and fleet services agreements as of March 31, 2020 are as follows for the periods indicated:
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|
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|
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|
|
|
|
|
|
For the nine months ending December 31, 2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
|
(in thousands)
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|
|
|
|
|
|
|
|
|
|
|
Terminalling Services (1) (2) (3)
|
$
|
75,245
|
|
|
$
|
96,071
|
|
|
$
|
72,491
|
|
|
$
|
36,761
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|
|
$
|
146,460
|
|
|
$
|
427,028
|
|
|
Fleet Services
|
772
|
|
|
1,016
|
|
|
1,269
|
|
|
38
|
|
|
8
|
|
|
3,103
|
|
|
Total
|
$
|
76,017
|
|
|
$
|
97,087
|
|
|
$
|
73,760
|
|
|
$
|
36,799
|
|
|
$
|
146,468
|
|
|
$
|
430,131
|
|
(1) A significant portion of our terminalling services agreements are denominated in Canadian dollars. We have converted the remaining performance obligations associated with these Canadian dollar-denominated contracts using the year-to-date average exchange rate of 0.7456 U.S. dollars per each Canadian dollar at March 31, 2020.
(2) Includes fixed monthly minimum commitment fees per contracts and excludes constrained estimates of variable consideration for rate-escalations associated with an index, such as the consumer price index, as well as any incremental revenue associated with volume activity above the minimum volumes set forth within the contracts. Also excludes constrained variable consideration included in certain of our terminalling services agreements that is based on crude oil pricing index differentials.
(3) Assumes USD’s Diluent Recovery Unit project goes into service in the second half of 2021, which will result in certain terminalling services agreements of our Hardisty terminal being automatically extended through mid-2031 and certain agreements at our Stroud terminal having a termination right in June 2022.
We have applied the practical expedient that allows us to exclude disclosure of performance obligations that are part of a contract that has an expected duration of one year or less.
Contract Assets
Our contract assets represent cumulative revenue that has been recognized in advance of billing the customer due to tiered billing provisions. In such arrangements, revenue is recognized using a blended rate based on the billing tiers of the agreement, as the services are consistently provided throughout the duration of the contractual arrangement.
We had the following amounts outstanding associated with our contract assets on our consolidated balance sheets in the financial statement line items presented below in the following table for the indicated periods:
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|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
Other current assets
|
$
|
261
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|
|
$
|
171
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|
|
Other current assets — related party
|
$
|
121
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|
|
$
|
264
|
|
|
|
|
|
|
Deferred Revenue
Our deferred revenue is a form of a contract liability and consists of amounts collected in advance from customers associated with their terminalling and fleet services agreements and deferred revenues associated with make-up rights, which will be recognized as revenue when earned pursuant to the terms of our contractual arrangements. We currently recognize substantially all of the amounts we receive for minimum volume commitments as revenue when collected, since breakage associated with these make-up rights is currently 100% based on our experience and expectations around usage of these options. Accordingly, we had no deferred revenues at March 31, 2020 for estimated breakage associated with the make-up rights options we granted to our customers.
We also have deferred revenue that represents cumulative revenue that has been deferred due to tiered billing provisions. In such arrangements, revenue is recognized using a blended rate based on the billing tiers of the agreement, as the services are consistently provided throughout the duration of the contractual arrangement, which we included in “Other non-current liabilities” on our consolidated balance sheets.
We have the following amounts outstanding associated with our deferred revenue on our consolidated balance sheets in the financial statement line items presented below in the following table for the indicated periods:
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|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
Deferred revenue
|
$
|
4,616
|
|
|
$
|
6,104
|
|
|
Deferred revenue — related party (1)
|
$
|
985
|
|
|
$
|
1,072
|
|
|
Other non-current liabilities
|
$
|
5,095
|
|
|
$
|
3,391
|
|
(1) Includes deferred revenue associated with customer prepayments from related parties. Refer to Note 12. Transactions with Related Parties for additional discussion of deferred revenues associated with related parties. Excludes deferred revenue from related parties associated with our fleet leases discussed below.
The following table presents the changes associated with the balance of our deferred revenue for the three months ended March 31, 2020:
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|
|
|
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|
|
December 31, 2019
|
|
Cash Additions for Customer Prepayments
|
|
Revenue Recognized
|
|
March 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Customer prepayments
|
|
$
|
6,104
|
|
|
$
|
4,616
|
|
|
$
|
(6,104)
|
|
|
$
|
4,616
|
|
|
Customer prepayments — related party (1)
|
|
$
|
1,072
|
|
|
$
|
985
|
|
|
$
|
(1,072)
|
|
|
$
|
985
|
|
|
Other contract liabilities
|
|
$
|
3,391
|
|
|
$
|
1,704
|
|
|
$
|
—
|
|
|
$
|
5,095
|
|
(1) Includes deferred revenue associated with customer prepayments from related parties. Refer to Note 12. Transactions with Related Parties for additional discussion of deferred revenues associated with related parties. Excludes deferred revenue from related parties associated with our fleet leases discussed below.
Deferred Revenue — Fleet Leases
Our deferred revenue also includes advance payments from customers of our Fleet services business, which will be recognized as Fleet leases revenue when earned pursuant to the terms of our contractual arrangements. We have likewise prepaid the rent on railcar leases that are associated with the deferred revenues of our fleet services business, which we will recognize as expense concurrently with our recognition of the associated revenue. We have included $0.4 million at March 31, 2020 and December 31, 2019, in “Deferred revenue — related party” on our consolidated balance sheets associated with customer prepayments for our fleet lease agreements. Refer to Note 7. Leases for additional discussion of our lease revenues.
5. RESTRICTED CASH
We include in restricted cash amounts representing a cash account for which the use of funds is restricted by a facilities connection agreement among us and Gibson Energy Inc., or Gibson, that we entered into during 2014 in connection with the development of our Hardisty terminal. The collaborative arrangement is further discussed in Note 10. Collaborative Arrangement.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets to the amounts shown in our consolidated statements of cash flows for the specified periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
|
|
Cash and cash equivalents
|
$
|
4,622
|
|
|
$
|
3,069
|
|
|
Restricted Cash
|
8,200
|
|
|
5,655
|
|
|
Total cash, cash equivalents and restricted cash
|
$
|
12,822
|
|
|
$
|
8,724
|
|
6. PROPERTY AND EQUIPMENT
Our property and equipment is comprised of the following asset classifications as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Estimated
Depreciable Lives
(Years)
|
|
|
(in thousands)
|
|
|
|
|
Land
|
$
|
9,986
|
|
|
$
|
10,224
|
|
N/A
|
|
Trackage and facilities
|
120,764
|
|
|
126,008
|
|
10-30
|
|
Pipeline
|
32,735
|
|
|
32,916
|
|
20-30
|
|
Equipment
|
16,479
|
|
|
16,857
|
|
3-20
|
|
Furniture
|
62
|
|
|
66
|
|
5-10
|
|
Total property and equipment
|
180,026
|
|
|
186,071
|
|
|
|
Accumulated depreciation
|
(39,489)
|
|
|
(38,919)
|
|
|
|
Construction in progress (1)
|
695
|
|
|
585
|
|
|
|
Property and equipment, net
|
$
|
141,232
|
|
|
$
|
147,737
|
|
|
(1)The amounts classified as “Construction in progress” are excluded from amounts being depreciated. These amounts represent property that has not been placed into productive service as of the respective consolidated balance sheet date. We had no capitalized interest costs for the three months ended March 31, 2020 and $138 thousand for the same period in 2019.
Depreciation expense associated with property and equipment totaled $2.3 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.
7. LEASES
We have noncancellable operating leases for railcars, buildings, storage tanks, offices, railroad tracks, and land.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Weighted-average discount rate
|
|
|
5.8
|
%
|
|
Weighted average remaining lease term in years
|
|
|
2.58
|
Our total lease cost consisted of the following items for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
|
|
|
$
|
1,486
|
|
|
|
$
|
1,484
|
|
|
Short term lease cost
|
|
|
|
|
|
45
|
|
|
|
47
|
|
|
Variable lease cost
|
|
|
|
|
|
9
|
|
|
|
—
|
|
|
Sublease income
|
|
|
|
|
|
(1,341)
|
|
|
|
(1,333)
|
|
|
Total
|
|
|
|
|
|
$
|
199
|
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
The maturity analysis below presents the undiscounted cash payments we expect to make each period for property that we lease from others under noncancellable operating leases as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
2020
|
$
|
4,457
|
|
|
2021
|
5,509
|
|
|
2022
|
4,506
|
|
|
2023
|
22
|
|
|
|
|
|
|
|
|
Total lease payments
|
$
|
14,494
|
|
|
Less: imputed interest
|
(1,063)
|
|
|
Present value of lease liabilities
|
$
|
13,431
|
|
We serve as an intermediary to assist our customers with obtaining railcars. In connection with our leasing of railcars from third parties, we simultaneously enter into lease agreements with our customers for noncancellable terms that are designed to recover our costs associated with leasing the railcars plus a fee for providing this service. In addition to these leases we also have lease income from storage tanks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
(in thousands, except weighted average term)
|
|
|
|
Lease income (1)
|
|
|
|
|
|
$
|
2,186
|
|
|
$
|
2,565
|
|
|
Weighted average remaining lease term in years
|
|
|
|
|
|
|
|
2.55
|
(1)Lease income associated with crude oil storage tanks we lease to customers of our terminals totaling $1.2 million and $1.6 million is included in “Terminalling services” revenues on our consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively.
The maturity analysis below presents the undiscounted future minimum lease payments we expect to receive from customers each period for property they lease from us under noncancellable operating leases as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
2020
|
$
|
6,557
|
|
|
2021
|
8,290
|
|
|
2022
|
5,354
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
20,201
|
|
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. Our goodwill originated from our acquisition of the Casper terminal, which is included in our Terminalling services segment.
We test goodwill for impairment annually based on the carrying values of our reporting units on the first day of the third quarter of each year or more frequently if events or changes in circumstances suggest that the fair value of a reporting unit is less than its carrying value. In March 2020, we tested the goodwill associated with our Casper terminal for impairment due to the overall downturn in the crude market and the decline in the demand for petroleum products, which could lead to delays or reductions of expected throughput levels and changes in expectations for current and future contracts at the Casper terminal. Refer to Note 1. Organization and Basis of Presentation — Current Events for more information.
The critical assumptions used in our analysis include the following:
1) a weighted average cost of capital of 12%;
2) a capital structure consisting of approximately 65% debt and 35% equity based on the capital structure of market participants;
3) a range of EBITDA multiples derived from equity prices of public companies with similar operating and investment characteristics, from 7.25x to 8.25x;
4) a range of EBITDA multiples for transactions based on actual sales and purchases of comparable businesses, from 8.0x to 9.0x; and
5) a range of incremental volumes expected at our Casper terminal of approximately 4,000 to 25,000 bpd for terminalling and storage services resulting from the anticipated successful completion of the Enbridge DRA project in the second half of 2020 .
We measured the fair value of our Casper terminal reporting unit by using an income analysis, market analysis and transaction analysis with weightings of 50%, 25%and 25%, respectively. Our estimate of fair value required us to use significant unobservable inputs representative of a Level 3 fair value measurement, including assumptions related to the future performance of our Casper terminal.
We have determined that the carrying value of our Casper terminal reporting unit exceeded its fair value at March 31, 2020. Accordingly, we have recognized an impairment loss of $33.6 million in our goodwill asset and have included this charge in “Goodwill impairment loss” within our consolidated statement of operations for the three months ended March 31, 2020. For additional information see Note 2. Recent Accounting Pronouncements. As of March 31, 2020, we had no goodwill balance in our consolidated balance sheet.
Intangible Assets
The composition, gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
Carrying amount:
|
|
|
|
|
Customer service agreements
|
$
|
125,960
|
|
|
$
|
125,960
|
|
|
Other
|
106
|
|
|
106
|
|
|
Total carrying amount
|
126,066
|
|
|
126,066
|
|
|
Accumulated amortization:
|
|
|
|
|
Customer service agreements
|
(55,073)
|
|
|
(51,923)
|
|
|
Other
|
(46)
|
|
|
(44)
|
|
|
Total accumulated amortization
|
(55,119)
|
|
|
(51,967)
|
|
|
Total intangible assets, net
|
$
|
70,947
|
|
|
$
|
74,099
|
|
Amortization expense associated with intangible assets totaled $3.2 million for the three months ended March 31, 2020 and 2019, respectively.
We determined the overall downturn in the crude market and the decline in the demand for petroleum products, which could lead to delays or reduction of expected throughput levels and changes in expectations for current and future contracts in our terminalling services at the Casper terminal was an event that required us to evaluate our Casper terminal asset group for impairment. We measured the fair value of our Casper terminal assets by using projections of the undiscounted cash flows expected to be derived from the operation and disposition of the Casper terminal asset.
The critical assumptions underlying our projections included the following:
1) a range of incremental volumes expected at our Casper terminal of approximately 4,000 to 25,000 bpd for terminalling and storage services resulting from the anticipated successful completion of the Enbridge DRA project in the second half of 2020;
2) expected volumes for our blended services business for distribution to local refiners;
3) a 15 year remaining useful life of the primary asset, represented by our property and equipment of the Casper terminal asset group; and
4) a residual value of 8.0x projected cash flows for the Casper terminal at the end of the 15 year remaining life of the primary asset.
Our projections of the undiscounted cash flows expected to be derived from the operation and disposition of the Casper terminal asset group exceeded the carrying value of the asset group as of March 31, 2020, the date of our evaluation, indicating cash flows were expected to be sufficient to recover the carrying value of the Casper terminal asset group. Accordingly, we have not recognized any impairment of our asset.
9. DEBT
In November 2018, we amended and restated our senior secured credit agreement, which we originally established at the time of our initial public offering in October 2014. We refer to the amended and restated senior secured credit agreement executed in November 2018 as the Credit Agreement and the original senior secured credit agreement as the Previous Credit Agreement. Our Credit Agreement is a $385 million revolving credit facility (subject to limits set forth therein) with Citibank, N.A., as administrative agent, and a syndicate of lenders. Our Credit Agreement amends and restates in its entirety our Previous Credit Agreement.
Our Credit Agreement is a four year committed facility that initially matures on November 2, 2022. Our Credit Agreement provides us with the ability to request two one-year maturity date extensions, subject to the satisfaction of certain conditions, and allows us the option to increase the maximum amount of credit available up to a total facility size of $500 million, subject to receiving increased commitments from lenders and satisfaction of certain conditions.
Our Credit Agreement and any issuances of letters of credit are available for working capital, capital expenditures, general partnership purposes and continue the indebtedness outstanding under the Previous Credit Agreement. The Credit Agreement includes an aggregate $20 million sublimit for standby letters of credit and a $20 million sublimit for swingline loans. Obligations under the Credit Agreement are guaranteed by our restricted subsidiaries (as such term is defined therein) and are secured by a first priority lien on our assets and those of our restricted subsidiaries, other than certain excluded assets.
Our long-term debt balances included the following components as of the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
$
|
224,000
|
|
|
$
|
220,000
|
|
|
Less: Deferred financing costs, net
|
(2,141)
|
|
|
(2,349)
|
|
|
Total long-term debt, net
|
$
|
221,859
|
|
|
$
|
217,651
|
|
We determined the capacity available to us under the terms of our Credit Agreement was as follows as of the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in millions)
|
|
|
|
Aggregate borrowing capacity under Credit Agreement
|
$
|
385.0
|
|
|
$
|
385.0
|
|
|
Less: Revolving Credit Facility amounts outstanding
|
224.0
|
|
|
220.0
|
|
|
|
|
|
|
|
Available under the Credit Agreement based on capacity
|
$
|
161.0
|
|
|
$
|
165.0
|
|
|
Available under the Credit Agreement based on covenants (1)
|
$
|
22.9
|
|
|
$
|
28.8
|
|
(1) Pursuant to the terms of our Credit Agreement, our borrowing capacity, currently, is limited to 4.5 times our trailing 12-month consolidated EBITDA, which equates to $22.9 million and $28.8 million of borrowing capacity available at March 31, 2020 and December 31, 2019, respectively.
The weighted average interest rate on our outstanding indebtedness was 3.55% and 4.24% at March 31, 2020 and December 31, 2019, respectively, without consideration to the effect of our derivative contracts. In addition to the interest we incur on our outstanding indebtedness, we pay commitment fees of 0.50% on unused commitments, which rate will vary based on our consolidated net leverage ratio, as defined in our Credit Agreement. We had interest payable of $1.1 million and $0.6 million at March 31, 2020 and December 31, 2019, respectively, recorded in “Other current liabilities” in our consolidated balance sheets. At March 31, 2020, we were in compliance with the covenants set forth in our Credit Agreement.
Interest expense associated with our outstanding indebtedness was as follows for the specified periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Interest expense on the Credit Agreement
|
|
|
|
|
$
|
2,532
|
|
|
$
|
2,875
|
|
|
Capitalized interest on construction in progress
|
|
|
|
|
—
|
|
|
(138)
|
|
|
Amortization of deferred financing costs
|
|
|
|
|
207
|
|
|
450
|
|
|
Total interest expense
|
|
|
|
|
$
|
2,739
|
|
|
$
|
3,187
|
|
10. COLLABORATIVE ARRANGEMENT
We entered into a facilities connection agreement in 2014 with Gibson under which Gibson developed, constructed and operates a pipeline and related facilities connected to our Hardisty terminal. Gibson’s storage terminal is the exclusive means by which our Hardisty terminal receives crude oil. Subject to certain limited exceptions regarding manifest train facilities, our Hardisty terminal is the exclusive means by which crude oil from Gibson’s Hardisty storage terminal may be transported by rail. We remit pipeline fees to Gibson for the transportation of crude oil to our Hardisty terminal based on a predetermined formula. Pursuant to our arrangement with Gibson, we incurred pipeline fees of $6.3 million and $5.1 million for the three months ended March 31, 2020 and 2019, respectively, which are presented as “Pipeline fees” in our consolidated statements of operations. We have included a liability related to this agreement in “Other Current Liabilities” on our consolidated balance sheets of $2.4 million and $1.2 million at March 31, 2020 and December 31, 2019, respectively.
11. NONCONSOLIDATED VARIABLE INTEREST ENTITIES
We have entered into purchase, assignment and assumption agreements to assign payment and performance obligations for certain operating lease agreements with lessors, as well as customer fleet service payments related to these operating leases, with unconsolidated entities in which we have variable interests. These variable interest entities, or VIEs, include LRT Logistics Funding LLC, USD Fleet Funding LLC, USD Fleet Funding Canada Inc., and USD Logistics Funding Canada Inc. We treat these entities as variable interests under the applicable accounting guidance due to their having an insufficient amount of equity invested at risk to finance their activities without additional subordinated financial support. We are not the primary beneficiary of the VIEs, as we do not have the power to direct the activities that most significantly affect the economic performance of the VIEs, nor do we have the power to remove the managing member under the terms of the VIEs’ limited liability company agreements. Accordingly, we do not consolidate the results of the VIEs in our consolidated financial statements.
The following table summarizes the total assets and liabilities between us and the VIEs as reflected in our consolidated balance sheets at March 31, 2020 and December 31, 2019, as well as our maximum exposure to losses from entities in which we have a variable interest, but are not the primary beneficiary. Generally, our maximum exposure to losses is limited to amounts receivable for services we provided, reduced by any deferred revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
Total assets
|
|
Total liabilities
|
|
Maximum exposure to loss
|
|
|
(in thousands)
|
|
|
|
|
|
Accounts receivable
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
—
|
|
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
17
|
|
|
$
|
10
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Total assets
|
|
Total liabilities
|
|
Maximum exposure to loss
|
|
|
(in thousands)
|
|
|
|
|
|
Accounts receivable
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
—
|
|
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
1
|
|
We have assigned certain payment and performance obligations under the leases and master fleet service agreements for 1,483 railcars to the VIEs, but we have retained certain rights and obligations with respect to the servicing of these railcars.
During the quarter ended March 31, 2020, we provided no explicit or implicit financial or other support to these VIEs that were not previously contractually required.
12. TRANSACTIONS WITH RELATED PARTIES
Nature of Relationship with Related Parties
USD is engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and other energy-related infrastructure across North America. USD is also the sole owner of USDG and the ultimate parent of our general partner. USD is owned by Energy Capital Partners, Goldman Sachs and certain members of its management.
USDG is the sole owner of our general partner and at March 31, 2020, owns 11,557,090 of our common units representing a 42.3% limited partner interest in us. As of March 31, 2020, a value of up to $10.0 million of these common units were pledged as collateral under USDG’s letter of credit facility. USDG also provides us with general and administrative support services necessary for the operation and management of our business.
USD Partners GP LLC, our general partner, currently owns all 461,136 of our general partner units representing a 1.7% general partner interest in us, as well as all of our incentive distribution rights. Pursuant to our partnership agreement, our general partner is responsible for our overall governance and operations.
USD Marketing LLC, or USDM, is a wholly-owned subsidiary of USDG organized to promote contracting for services provided by our terminals and to facilitate the marketing of customer products.
USD Terminals Canada II ULC, or USDTC II, is an indirect, wholly-owned Canadian subsidiary of USDG, organized for the purposes of pursuing expansion and other development opportunities associated with our Hardisty Terminal, pursuant to the Development Rights and Cooperation agreement between our wholly-owned subsidiary USD Terminals Canada ULC, or USDTC, and USDG. USDTC owns the legacy crude oil loading facility we refer to as the Hardisty terminal. USDTC II completed construction of the Hardisty South expansion (“Hardisty South”) which commenced operations in January 2019. Hardisty South, which is owned and operated by USDTC II, added one and one-half 120-railcar unit trains of transloading capacity per day, or approximately 112,500 barrels per day, of takeaway capacity to the terminal by modifying the existing loading rack and building additional infrastructure and trackage.
Omnibus Agreement
We are party to an omnibus agreement with USD, USDG and certain of their subsidiaries, or Omnibus Agreement, including our general partner, pursuant to which we obtain and make payments for specified services provided to us and for out-of-pocket costs incurred on our behalf. We pay USDG, in equal monthly installments, the annual amount USDG estimates will be payable by us during the calendar year for providing services for our benefit. The Omnibus Agreement provides that this amount may be adjusted annually to reflect, among other things, changes in the scope of the general and administrative services provided to us due to a contribution, acquisition or disposition of assets by us or our subsidiaries, or for changes in any law, rule or regulation applicable to us, which affects the cost of providing the general and administrative services. We also reimburse USDG for any out-of-pocket costs and expenses incurred on our behalf in providing general and administrative services to us. This reimbursement is in addition to the amounts we pay to reimburse our general partner and its affiliates for certain costs and expenses incurred on our behalf for managing our business and operations, as required by our partnership agreement.
The total amounts charged to us under the Omnibus Agreement for the three months ended March 31, 2020 and 2019 was $2.0 million and $2.5 million, respectively, which amounts are included in “Selling, general and administrative — related party” in our consolidated statements of operations. We had a payable balance of $0.6 million and $0.4 million with respect to these costs at March 31, 2020 and December 31, 2019, respectively included in “Accounts payable and accrued expenses — related party” in our consolidated balance sheets.
Marketing Services Agreement
In connection with our purchase of the Stroud terminal, we entered into a Marketing Services Agreement with USDM, in May 2017, whereby we granted USDM the right to market the capacity at the Stroud terminal in excess of the original capacity of our initial customer in exchange for a nominal per barrel fee. USDM is obligated to fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional throughput. Upon expiration of our contract with the initial Stroud customer in June 2020, the same marketing rights will apply to all throughput at the Stroud terminal in excess of the throughput necessary for the Stroud terminal to generate Adjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroud customer during the 12 months prior to expiration. We also granted USDG the right to develop other projects at the Stroud terminal in exchange for the payment to us of market-based compensation for the use of our property for such development projects. Any such development projects would be wholly-owned by USDG and would be subject to our existing right of first offer with respect to midstream projects developed by USDG. Payments made under the Marketing Services Agreement during the periods presented in this Report are discussed below under the heading “Related Party Revenue and Deferred Revenue.”
Hardisty Terminal Services Agreement
We entered into a terminal services agreement with USDTC II during the third quarter of 2019, whereby Hardisty South will provide terminalling services for a third-party customer of our Hardisty terminal for contracted capacity that exceeds the transloading capacity currently available, if needed. We incurred $2.0 million of expenses pursuant to the arrangement for the three months ended March 31, 2020, which amounts are included in “Operating and maintenance expense — related party” in our consolidated statements of operations. These costs represent the same rate, on a per barrel basis, that we received as revenue from our third-party customer, which is included in “Terminalling Services” revenue in our consolidated statements of operations. Additionally, in conjunction with this agreement, we recorded a contract asset of $375 thousand at March 31, 2020 on our consolidated balance sheet in “Other non-current assets — related party”, representing long-term prepaid expense associated with this agreement due to tiered billing provisions in the related terminalling services agreements.
Hardisty Shared Facilities Agreement
USDTC facilitates the provision of services on behalf of USDTC II pursuant to the terms of a shared facilities agreement, which includes all subcontracted railcar loading, operating, maintenance, pipeline and management services for the entire Hardisty terminal, including Hardisty South owned by USDTC II. USDTC passes through a
proportionate amount of the cost of such services to USDTC II. Our financial statements only reflect the cost incurred by USDTC.
Related Party Revenue and Deferred Revenue
We have agreements to provide terminalling and fleet services for USDM with respect to our Hardisty terminal and terminalling services with respect to our Stroud terminal, which also include reimbursement to us for certain out-of-pocket expenses we incur.
USDM assumed the rights and obligations for terminalling capacity at our Hardisty terminal from another customer in June 2017 to facilitate the origination of crude oil barrels by the Stroud customer from our Hardisty terminal for delivery to the Stroud terminal. As a result of USDM assuming these rights and obligations and in order to accommodate the needs of the Stroud customer, the contracted term for the capacity held by USDM at our Hardisty terminal was extended from June 30, 2019 to June 30, 2020. USDM controls approximately 25% of the available monthly capacity of the Hardisty terminal at March 31, 2020. The terms and conditions of these agreements are similar to the terms and conditions of agreements we have with other parties at the Hardisty terminal that are not related to us.
In connection with our purchase of the Stroud terminal, we also entered into a Marketing Services Agreement with USDM, as discussed above. Pursuant to the terms of the agreement, we receive a fixed amount per barrel from USDM in exchange for marketing the additional capacity available at the Stroud terminal. We also received revenue for providing additional terminalling services at our Hardisty terminal to USDM pursuant to the terms of its existing agreements with us. Additionally, effective January 2019, we entered into a six month terminalling services agreement with USDM at our Casper terminal to maximize utilization of available terminalling and storage capacity by offering these services to customers on an uncommitted basis at current market rates. This agreement automatically renews for successive periods of six months on an evergreen basis unless otherwise canceled by either party. We include amounts received pursuant to these arrangements as revenue in the table below under “Terminalling services — related party” in our consolidated statements of operations. Additionally, we received revenue from USDM for the lease of 200 railcars pursuant to the terms of an existing agreement with us, which is included in the table below under “Fleet leases — related party” and “Fleet services — related party” and in our consolidated statements of operations.
Our related party revenues from USD and affiliates are presented below in the following table for the indicated periods:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Terminalling services — related party
|
|
|
|
|
$
|
4,088
|
|
|
$
|
5,638
|
|
|
Fleet leases — related party
|
|
|
|
|
984
|
|
|
984
|
|
|
Fleet services — related party
|
|
|
|
|
227
|
|
|
227
|
|
|
Freight and other reimbursables — related party
|
|
|
|
|
—
|
|
|
61
|
|
|
|
|
|
|
|
$
|
5,299
|
|
|
$
|
6,910
|
|
We had the following amounts outstanding with USD and affiliates on our consolidated balance sheets as presented below in the following table for the indicated periods:
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|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
Accounts receivable — related party
|
$
|
2,556
|
|
|
$
|
1,778
|
|
|
Accounts payable and accrued expenses — related party (1)
|
$
|
339
|
|
|
$
|
87
|
|
|
Other current and non-current assets — related party (2)
|
$
|
571
|
|
|
$
|
358
|
|
|
Deferred revenue — related party (3)
|
$
|
1,395
|
|
|
$
|
1,482
|
|
(1)Includes amounts payable to a related party pursuant to the Hardisty Terminal Services Agreement, discussed above, as well as other accounts payable related party amounts associated with our terminalling services business. Does not include amounts payable to related parties associated with the Omnibus Agreement, as discussed above.
(2)Includes a contract asset associated with a lease agreement with USDM and cumulative revenue that has been recognized in advance of billing the customer due to tiered billing provisions. Refer to Note 4. Revenue for further discussion. Also includes a contract asset associated with the Hardisty Terminal Services Agreement with USDTC II, as discussed above.
(3)Represents deferred revenues associated with our terminalling and fleet services agreements with USD and affiliates for amounts we have collected from them for their prepaid leases and prepaid minimum volume commitment fees.
Cash Distributions
We paid the following aggregate cash distributions to USDG as a holder of our common units and the sole owner of our subordinated units and to USD Partners GP LLC for their general partner interest and as holder of our IDRs.
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Declaration Date
|
|
Record Date
|
|
Distribution
Payment Date
|
|
Amount Paid to
USDG
|
|
Amount Paid to
USD Partners GP LLC
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
January 30, 2020
|
|
February 10, 2020
|
|
February 19, 2020
|
|
$
|
4,276
|
|
|
$
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. COMMITMENTS AND CONTINGENCIES
From time to time, we may be involved in legal, tax, regulatory and other proceedings in the ordinary course of business. We do not believe that we are currently a party to any such proceedings that will have a material adverse impact on our financial condition or results of operations.
14. SEGMENT REPORTING
We manage our business in two reportable segments: Terminalling services and Fleet services. The Terminalling services segment charges minimum monthly commitment fees under multi-year take-or-pay contracts to load and unload various grades of crude oil into and from railcars, as well as fixed fees per gallon to transload ethanol from railcars, including related logistics services. We also facilitate rail-to-pipeline shipments of crude oil. Our Terminalling services segment also charges minimum monthly fees to store crude oil in tanks that are leased to our customers. The Fleet services segment provides customers with railcars and fleet services related to the transportation of liquid hydrocarbons and biofuels under multi-year, take-or-pay contracts. Corporate activities are not considered a reportable segment, but are included to present shared services and financing activities which are not allocated to our established reporting segments.
Our segments offer different services and are managed accordingly. Our chief operating decision maker, or CODM, regularly reviews financial information about both segments in order to allocate resources and evaluate performance. Our CODM assesses segment performance based on the cash flows produced by our established reporting segments using Segment Adjusted EBITDA. Segment Adjusted EBITDA is a measure calculated in accordance with GAAP. We define Segment Adjusted EBITDA as “Net income (loss)” of each segment adjusted for depreciation and amortization, interest, income taxes, changes in contract assets and liabilities, deferred revenues,
foreign currency transaction gains and losses and other items which do not affect the underlying cash flows produced by our businesses. As such, we have concluded that disaggregating revenue by reporting segments appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
Terminalling
services
|
|
Fleet
services
|
|
Corporate
|
|
Total
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Terminalling services
|
$
|
24,235
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,235
|
|
|
Terminalling services — related party
|
4,088
|
|
|
—
|
|
|
—
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
Fleet leases — related party
|
—
|
|
|
984
|
|
|
—
|
|
|
984
|
|
|
Fleet services
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
Fleet services — related party
|
—
|
|
|
227
|
|
|
—
|
|
|
227
|
|
|
Freight and other reimbursables
|
617
|
|
|
5
|
|
|
—
|
|
|
622
|
|
|
Freight and other reimbursables — related party
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total revenues
|
28,940
|
|
|
1,266
|
|
|
—
|
|
|
30,206
|
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Subcontracted rail services
|
3,445
|
|
|
—
|
|
|
—
|
|
|
3,445
|
|
|
Pipeline fees
|
6,347
|
|
|
—
|
|
|
—
|
|
|
6,347
|
|
|
Freight and other reimbursables
|
617
|
|
|
5
|
|
|
—
|
|
|
622
|
|
|
Operating and maintenance
|
4,088
|
|
|
1,020
|
|
|
—
|
|
|
5,108
|
|
|
Selling, general and administrative
|
1,723
|
|
|
313
|
|
|
3,137
|
|
|
5,173
|
|
|
Goodwill impairment loss
|
33,589
|
|
|
—
|
|
|
—
|
|
|
33,589
|
|
|
Depreciation and amortization
|
5,422
|
|
|
—
|
|
|
—
|
|
|
5,422
|
|
|
Total operating costs
|
55,231
|
|
|
1,338
|
|
|
3,137
|
|
|
59,706
|
|
|
Operating loss
|
(26,291)
|
|
|
(72)
|
|
|
(3,137)
|
|
|
(29,500)
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
2,739
|
|
|
2,739
|
|
|
Loss associated with derivative instruments
|
—
|
|
|
—
|
|
|
2,873
|
|
|
2,873
|
|
|
Foreign currency transaction gain
|
(74)
|
|
|
(6)
|
|
|
(12)
|
|
|
(92)
|
|
|
Other income, net
|
(729)
|
|
|
—
|
|
|
(3)
|
|
|
(732)
|
|
|
Benefit from income taxes
|
(47)
|
|
|
(460)
|
|
|
—
|
|
|
(507)
|
|
|
Net income (loss)
|
$
|
(25,441)
|
|
|
$
|
394
|
|
|
$
|
(8,734)
|
|
|
$
|
(33,781)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
Terminalling
services
|
|
Fleet
services
|
|
Corporate
|
|
Total
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Terminalling services
|
$
|
19,998
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,998
|
|
|
Terminalling services — related party
|
5,638
|
|
|
—
|
|
|
—
|
|
|
5,638
|
|
|
|
|
|
|
|
|
|
|
|
Fleet leases — related party
|
—
|
|
|
984
|
|
|
—
|
|
|
984
|
|
|
Fleet services
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
|
|
Fleet services — related party
|
—
|
|
|
227
|
|
|
—
|
|
|
227
|
|
|
Freight and other reimbursables
|
298
|
|
|
105
|
|
|
—
|
|
|
403
|
|
|
Freight and other reimbursables — related party
|
7
|
|
|
54
|
|
|
—
|
|
|
61
|
|
|
Total revenues
|
25,941
|
|
|
1,427
|
|
|
—
|
|
|
27,368
|
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Subcontracted rail services
|
3,565
|
|
|
—
|
|
|
—
|
|
|
3,565
|
|
|
Pipeline fees
|
5,061
|
|
|
—
|
|
|
—
|
|
|
5,061
|
|
|
Freight and other reimbursables
|
305
|
|
|
159
|
|
|
—
|
|
|
464
|
|
|
Operating and maintenance
|
2,163
|
|
|
1,048
|
|
|
—
|
|
|
3,211
|
|
|
Selling, general and administrative
|
1,663
|
|
|
289
|
|
|
2,975
|
|
|
4,927
|
|
|
Goodwill impairment loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Depreciation and amortization
|
4,734
|
|
|
—
|
|
|
—
|
|
|
4,734
|
|
|
Total operating costs
|
17,491
|
|
|
1,496
|
|
|
2,975
|
|
|
21,962
|
|
|
Operating income (loss)
|
8,450
|
|
|
(69)
|
|
|
(2,975)
|
|
|
5,406
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
3,187
|
|
|
3,187
|
|
|
Loss associated with derivative instruments
|
—
|
|
|
—
|
|
|
672
|
|
|
672
|
|
|
Foreign currency transaction loss (gain)
|
(41)
|
|
|
4
|
|
|
219
|
|
|
182
|
|
|
Other income, net
|
(24)
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
|
Provision for income taxes
|
67
|
|
|
3
|
|
|
—
|
|
|
70
|
|
|
Net income (loss)
|
$
|
8,448
|
|
|
$
|
(76)
|
|
|
$
|
(7,053)
|
|
|
$
|
1,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
The following tables present the computation of Segment Adjusted EBITDA, which is a measure determined in accordance with GAAP, for each of our segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Terminalling Services Segment
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Net income (loss)
|
|
|
|
|
$
|
(25,441)
|
|
|
$
|
8,448
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (1)
|
|
|
|
|
(21)
|
|
|
(7)
|
|
|
Depreciation and amortization
|
|
|
|
|
5,422
|
|
|
4,734
|
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
(47)
|
|
|
67
|
|
|
Foreign currency transaction gain (2)
|
|
|
|
|
(74)
|
|
|
(41)
|
|
|
Loss associated with disposal of assets
|
|
|
|
|
—
|
|
|
8
|
|
|
Goodwill impairment loss
|
|
|
|
|
33,589
|
|
|
—
|
|
|
Other income
|
|
|
|
|
—
|
|
|
(17)
|
|
|
Non-cash deferred amounts (3)
|
|
|
|
|
437
|
|
|
(51)
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
|
|
|
$
|
13,865
|
|
|
$
|
13,141
|
|
(1) Represents interest income associated with our Terminalling Services segment that is included in “Other expense (income), net” in our consolidated statements of operations.
(2) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.
(3) Represents the change in non-cash contract assets and liabilities associated with revenue recognized at blended rates based on tiered rate structures in certain of our customer contracts and deferred revenue associated with deficiency credits that are expected to be used in the future prior to their expiration. Amounts presented are net of the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Fleet Services Segment
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Net income (loss)
|
|
|
|
|
$
|
394
|
|
|
$
|
(76)
|
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
(460)
|
|
|
3
|
|
|
Foreign currency transaction loss (gain) (1)
|
|
|
|
|
(6)
|
|
|
4
|
|
|
Segment Adjusted EBITDA
|
|
|
|
|
$
|
(72)
|
|
|
$
|
(69)
|
|
|
|
|
|
|
|
|
|
|
(1) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.
15. INCOME TAXES
U.S. Federal and State Income Taxes
We are treated as a partnership for U.S. federal and most state income tax purposes, with each partner being separately taxed on their share of our taxable income. We have elected to classify one of our subsidiaries, USD Rail LP, as an entity taxable as a corporation for U.S. federal income tax purposes due to treasury regulations that do not permit the income of this subsidiary to be classified as “qualifying income” as such term is defined in §7704(d) of the Internal Revenue Code of 1986, as amended, or the Code. We are also subject to state franchise tax in the state of Texas, which is treated as an income tax under the applicable accounting guidance. Our U.S. federal income tax expense is based on the statutory federal income tax rate of 21%, as applied to USD Rail LP’s taxable losses of $0.1 million for the three months ended March 31, 2020 and 2019.
Foreign Income Taxes
Our Canadian operations are conducted through entities that are subject to Canadian federal and Alberta provincial income taxes. The Canadian federal income tax on business income is currently 15%. In June 2019, the Canadian province of Alberta enacted a tax rate decrease that reduces the tax rate on business income from the previous rate of 12% to an ultimate rate of 8% effective for 2022. The reduction in the tax rate on business income is phased in over three years beginning with a reduction to a rate of 11% effective July 1, 2019, with further reductions of 1% in each successive year until it reaches 8% on January 1, 2022. As a result, the effective tax rate on business income for Alberta businesses in 2020 is 10%.
We recognize income tax expense in our consolidated financial statements based upon enacted rates in effect for the periods presented. As such for the three months ended March 31, 2020, income tax expense for our Canadian operations is determined based upon the combined federal and provincial income tax rate of 25%, representing a 15% federal income tax rate and a 10% provincial income tax rate. For the three months ended March 31, 2019, income tax expense of our Canadian operations was determined based on the combined federal and provincial income tax rate of 27%. The combined income tax rate of 23%, representing a 15% federal income tax rate and an 8% provincial income tax rate, was used to compute the deferred income tax benefit, representing the impact of temporary differences that are expected to reverse in the future.
CARES Act
On March 27, 2020, the CARES Act was signed into law. The CARES Act is an emergency economic stimulus package enacted in response to the coronavirus outbreak which, among other measures, contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for tax years ending before the date of enactment. For us, the most significant change included in the CARES Act was the impact to U.S. net operating loss carryback provisions. U.S. net operating losses incurred in tax years 2018, 2019, or 2020 can now be carried back to the preceding five tax years and may be used to fully offset taxable income (i.e. they are not subject to the 80 percent net income offset limitation of Section 172 of the Code).
As a result of these CARES Act changes, in the first quarter of 2020 we recognized a current tax benefit of $517 thousand for a claimable tax refund by carrying back U.S. net operating losses incurred in 2018, 2019, and the first quarter of 2020. We also recognized a one-time deferred tax expense of $46 thousand in the first quarter of 2020 due to the net effect of utilizing all U.S. net operating loss deferred tax assets and releasing the corresponding U.S. valuation allowance as of December 31, 2019. We expect to incur additional tax benefit in 2020 due to anticipated taxable losses. The tax impacts of the CARES Act were computed with the best available information, and will be adjusted after the 2019 and 2020 U.S. tax returns are finalized. However, we do not expect these adjustments to have a material change to the tax provision in future periods.
Estimated Annual Effective Income Tax Rate
The following table presents a reconciliation of our income tax based on the U.S. federal statutory income tax rate and our effective income tax rate:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Income tax expense (benefit) at the U.S. federal statutory rate
|
|
|
|
|
|
|
|
|
$
|
(7,201)
|
|
|
21
|
%
|
|
$
|
292
|
|
|
21
|
%
|
|
Amount attributable to partnership not subject to income tax
|
|
|
|
|
|
|
|
|
7,153
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|
|
(21)
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%
|
|
(265)
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|
|
(19)
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%
|
|
Foreign income tax rate differential
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|
|
|
|
|
|
|
|
10
|
|
|
—
|
%
|
|
23
|
|
|
2
|
%
|
|
Other - CARES Act
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|
|
|
|
|
|
(204)
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|
1
|
%
|
|
—
|
|
|
—
|
%
|
|
State income tax expense
|
|
|
|
|
|
|
|
|
9
|
|
|
—
|
%
|
|
3
|
|
|
—
|
%
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
(274)
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|
|
1
|
%
|
|
17
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|
|
1
|
%
|
|
Provision for (benefit from) income taxes
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|
|
|
|
|
|
|
|
$
|
(507)
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|
|
2
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%
|
|
$
|
70
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|
|
5
|
%
|
We determined our year-to-date 2020 provision for income taxes using an estimated annual effective income tax rate of 2% on a consolidated basis for fiscal year 2020. This rate incorporates the applicable income tax rates of the various domestic and foreign tax jurisdictions to which we are subject.
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|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
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|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Current income tax expense (benefit):
|
|
|
|
|
|
|
|
|
U.S. federal income tax benefit
|
|
|
|
|
$
|
(517)
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|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
State income tax expense
|
|
|
|
|
9
|
|
|
3
|
|
|
Canadian federal and provincial income taxes expense
|
|
|
|
|
353
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax expense (benefit)
|
|
|
|
|
(155)
|
|
|
319
|
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
|
|
U.S. federal income tax expense
|
|
|
|
|
47
|
|
|
—
|
|
|
Canadian federal and provincial income taxes benefit
|
|
|
|
|
(399)
|
|
|
(249)
|
|
|
Total change in deferred income tax benefit
|
|
|
|
|
(352)
|
|
|
(249)
|
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
$
|
(507)
|
|
|
$
|
70
|
|
Our deferred income tax assets and liabilities reflect the income tax effect of differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Major components of deferred income tax assets and liabilities associated with our operations were as follows as of the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
|
(in thousands)
|
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
$
|
—
|
|
|
$
|
438
|
|
|
$
|
438
|
|
|
Capital loss carryforwards
|
—
|
|
|
387
|
|
|
387
|
|
|
Operating loss carryforwards
|
—
|
|
|
—
|
|
|
—
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
Unbilled revenue
|
—
|
|
|
(481)
|
|
|
(481)
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
(47)
|
|
|
—
|
|
|
(47)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
—
|
|
|
(387)
|
|
|
(387)
|
|
|
Deferred income tax liability, net
|
$
|
(47)
|
|
|
$
|
(43)
|
|
|
$
|
(90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
$
|
—
|
|
|
$
|
272
|
|
|
$
|
272
|
|
|
|
Capital loss carryforwards
|
—
|
|
|
$
|
387
|
|
|
$
|
387
|
|
|
|
Operating loss carryforwards
|
320
|
|
|
—
|
|
|
320
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
Unbilled revenue
|
—
|
|
|
(730)
|
|
|
(730)
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
(46)
|
|
|
—
|
|
|
(46)
|
|
|
|
Property and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Valuation allowance
|
(274)
|
|
|
(387)
|
|
|
(661)
|
|
|
|
Deferred income tax liability, net
|
$
|
—
|
|
|
$
|
(458)
|
|
|
$
|
(458)
|
|
|
We had no loss carryforwards for U.S. federal tax purposes remaining at March 31, 2020. We had loss carryforwards of $1.5 million remaining as of December 31, 2019. We had loss carryforwards for Canadian tax purposes of $4.0 million and $4.3 million as of March 31, 2020 and December 31, 2019, respectively. A portion of our Canadian loss carryforward is for capital items that do not expire under currently enacted Canadian tax law, while $0.9 million of the carryforward amount relates to Canadian operating losses that will expire in 2034.
We are subject to examination by the taxing authorities for the years ended December 31, 2019, 2018 and 2017. We did not have any unrecognized income tax benefits or any income tax reserves for uncertain tax positions as of March 31, 2020 and December 31, 2019.
16. DERIVATIVE FINANCIAL INSTRUMENTS
Our net income (loss) and cash flows are subject to fluctuations resulting from changes in interest rates on our variable rate debt obligations and from changes in foreign currency exchange rates, particularly with respect to the U.S. dollar and the Canadian dollar. In limited circumstances, we may also hold long positions in the commodities we handle on behalf of our customers, which exposes us to commodity price risk. We use derivative financial instruments, including futures, forwards, swaps, options and other financial instruments with similar characteristics, to manage the risks associated with market fluctuations in interest rates, foreign currency exchange rates and commodity prices, as well as to reduce volatility in our cash flows. We have not historically designated, nor do we expect to designate, our derivative financial instruments as hedges of the underlying risk exposure. All of our financial instruments are employed in connection with an underlying asset, liability and/or forecasted transaction and are not entered into for speculative purposes.
Interest Rate Derivatives
We use interest rate derivative financial instruments to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. Under our Credit Agreement, one-month LIBOR is used as the index rate for the interest we are charged on amounts borrowed under our Revolving Credit Facility. Effective November 2017, we entered into a five-year interest rate collar contract with a $100 million notional value. The collar establishes a range where we will pay the counterparty if the one-month Overnight Index Swap, or OIS, falls below the established floor rate of 1.70%, and the counterparty will pay us if the one-month OIS rate exceeds the established ceiling rate of 2.50%. The collar settles monthly through the termination date in October 2022. No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the predetermined ceiling or floor rate. Prior to February 2019, our interest rate collar contract discussed above was based on one-month LIBOR, which is being phased out by financial institutions in the United States.
Derivative Positions
We record all of our derivative financial instruments at their fair values in the line items specified below within our consolidated balance sheets, the amounts of which were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
(1,392)
|
|
|
(139)
|
|
|
Other non-current liabilities
|
(2,302)
|
|
|
(687)
|
|
|
|
$
|
(3,694)
|
|
|
$
|
(826)
|
|
We have not designated our derivative financial instruments as hedges of our interest rate exposure. As a result, changes in the fair value of these derivatives are recorded as “Loss associated with derivative instruments” in our consolidated statements of operations. The gains or losses associated with changes in the fair value of our derivative contracts do not affect our cash flows until the underlying contract is settled by making or receiving a payment to or from the counterparty. In connection with our derivative activities, we recognized the following amounts during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Loss associated with derivative instruments
|
|
|
|
|
$
|
2,873
|
|
|
$
|
672
|
|
We determine the fair value of our derivative financial instruments using third party pricing information that is derived from observable market inputs, which we classify as level 2 with respect to the fair value hierarchy.
The following table presents summarized information about the fair values of our outstanding interest rate contracts for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
Notional
|
|
Interest Rate Parameters
|
|
Fair Value
|
|
Fair Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Collar Agreements Maturing in 2022
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
$
|
100,000,000
|
|
|
2.5
|
%
|
|
$
|
6
|
|
|
$
|
83
|
|
|
Floor
|
|
$
|
100,000,000
|
|
|
1.7
|
%
|
|
(3,700)
|
|
|
(909)
|
|
|
Total
|
|
|
|
|
|
$
|
(3,694)
|
|
|
$
|
(826)
|
|
We record the fair market value of our derivative financial instruments in our consolidated balance sheets as current and non-current assets or liabilities on a net basis by counterparty. The terms of the International Swaps and Derivatives Association Master Agreement, which governs our financial contracts, include master netting agreements that allow the parties to our derivative contracts to elect net settlement in respect of all transactions under the agreements. The effect of the rights of offset are presented in the tables below as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
Non-current assets
|
|
Current liabilities
|
|
Non-current liabilities
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives — gross presentation
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
(1,393)
|
|
|
$
|
(2,307)
|
|
|
$
|
(3,694)
|
|
|
Effects of netting arrangements
|
|
(1)
|
|
|
(5)
|
|
|
1
|
|
|
5
|
|
|
—
|
|
|
Fair value of derivatives — net presentation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,392)
|
|
|
$
|
(2,302)
|
|
|
$
|
(3,694)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
Non-current assets
|
|
Current liabilities
|
|
Non-current liabilities
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives — gross presentation
|
|
$
|
—
|
|
|
$
|
83
|
|
|
$
|
(139)
|
|
|
$
|
(770)
|
|
|
$
|
(826)
|
|
|
Effects of netting arrangements
|
|
—
|
|
|
(83)
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
Fair value of derivatives — net presentation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(139)
|
|
|
$
|
(687)
|
|
|
$
|
(826)
|
|
17. PARTNERS’ CAPITAL
Our common units represent and subordinated units represented limited partner interests in us. The holders of common units and subordinated units are entitled to participate in partnership distributions and to exercise the rights and privileges available to limited partners under our partnership agreement.
In February 2019, pursuant to the terms set forth in our partnership agreement, the fourth and final vesting tranche of 38,750 Class A units vested and was converted into our common units. We determined that each vested Class A unit would receive one common unit at conversion based upon our distributions paid for the four preceding quarters. As a result, the final tranche of 38,750 Class A units were converted into 38,750 common units and no Class A units remain outstanding at March 31, 2020. Our Class A units were limited partner interests in us that entitled the holders to nonforfeitable distributions that were equivalent to the distributions paid with respect to our common units (excluding any arrearages of unpaid minimum quarterly distributions from prior quarters) and, as a result, were considered participating securities. Our Class A units did not have voting rights and vested in four equal annual installments over the four years following the consummation of our initial public offering, or IPO, only if we grew our annualized distributions each year. If we did not achieve positive distribution growth in any of those years, the Class A units that would otherwise vest for that year would be forfeited. The Class A units contained a conversion feature, which, upon vesting, provided for the conversion of the Class A units into common units based on a conversion factor that was tied to the level of our distribution growth for the applicable year. The conversion factor was 1.00 for the first vesting tranche, 1.50 for the second vesting tranche, 1.00 for the third vesting tranche and 1.00 for the fourth vesting tranche.
Our partnership agreement provides that, while any subordinated units remained outstanding, holders of our common units had the right to receive distributions of available cash from operating surplus each quarter in an amount equal to our minimum quarterly distribution per unit, plus (with respect to the common units) any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus were made on the subordinated units.
Subordinated units converted into common units on a one-for-one basis in separate sequential tranches. Each tranche was comprised of 20.0% of the subordinated units issued in conjunction with our IPO. Each separate tranche was eligible to convert on or after December 31, 2015 (but no more frequently than once in any twelve-month period), provided on such date: (i) distributions of available cash from operating surplus on each of the outstanding common units, Class A units, subordinated units and general partner units equaled or exceeded $1.15 per unit (the annualized minimum quarterly distribution) for the four quarter period immediately preceding that date; (ii) the adjusted operating surplus generated during the four quarter period immediately preceding that date equaled or exceeded the sum of $1.15 per unit (the annualized minimum quarterly distribution) on all of the common units, Class A units, subordinated units and general partner units outstanding during that period on a fully diluted basis; and (iii) there were no arrearages in the payment of the minimum quarterly distribution on our common units. For each successive tranche, the four quarter period specified in clauses (i) and (ii) above must have commenced after the four quarter period applicable to any prior tranche of subordinated units. In February 2020, pursuant to the terms set forth in our partnership agreement, we converted the fifth and final tranche of 2,092,709 of our subordinated units into common units upon satisfaction of the conditions established for conversion.
Pursuant to the terms of the USD Partners LP Amended and Restated 2014 Long-Term Incentive Plan, which we refer to as the A/R LTIP, our phantom unit awards, or Phantom Units, granted to directors and employees of our general partner and its affiliates, which are classified as equity, are converted into our common units upon vesting.
Equity-classified Phantom Units totaling 518,475 vested during the first three months in 2020, of which 339,073 were converted into our common units after 179,402 Phantom Units were withheld from participants for the payment of applicable employment-related withholding taxes. The conversion of these Phantom Units did not have any economic impact on Partners’ Capital, since the economic impact is recognized over the vesting period. Additional information and discussion regarding our unit based compensation plans is included below in Note 18. Unit Based Compensation.
The board of directors of our general partner has adopted a cash distribution policy pursuant to which we intend to distribute at least the minimum quarterly distribution of $0.2875 per unit ($1.15 per unit on an annualized basis) on all of our units to the extent we have sufficient available cash after the establishment of cash reserves and the payment of our expenses, including payments to our general partner and its affiliates. The board of directors of our general partner may change our distribution policy at any time and from time to time. Our partnership agreement does not require us to pay cash distributions on a quarterly or other basis. The amount of distributions we pay under our cash distribution policy and the decision to make any distribution are determined by our general partner. For the quarter ended March 31, 2020, the board of directors of our general partner determined that we had sufficient available cash after the establishment of cash reserves and the payment of our expenses to distribute $0.111 per unit on all of our units.
18. UNIT BASED COMPENSATION
Class A units
Our Class A units vested annually over a four year period when established distribution growth target thresholds were met during each year of the four year vesting period. In February 2019, pursuant to the terms set forth in our partnership agreement, the fourth and final vesting tranche of 38,750 Class A units vested based upon our distributions paid for the four preceding quarters and were converted on a basis of one common unit for each Class A unit. As a result, we converted 38,750 Class A units into 38,750 common units in 2019 and no Class A units remain outstanding at March 31, 2020.
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Three Months Ended March 31,
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2020
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2019
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Class A units outstanding at beginning of period
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—
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38,750
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Vested
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—
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(38,750)
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Forfeited
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—
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—
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Class A units outstanding at end of period
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—
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—
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We recognized compensation expense in “Selling, general and administrative” with regard to our Class A units for the following amounts during the periods presented:
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Three months ended March 31,
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2020
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2019
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(in thousands)
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Selling, general and administrative
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$
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—
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$
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14
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For the three months ended March 31, 2020 and 2019 we had no forfeitures of Class A units. We elected to account for actual forfeitures as they occurred rather than applying an estimated forfeiture rate when determining compensation expense.
Each holder of a Class A unit was entitled to nonforfeitable cash distributions equal to the product of the number of Class A units outstanding for the participant and the cash distribution per unit paid to our common unitholders. These distributions were included in “Distributions” as presented in our consolidated statements of cash flows and our consolidated statement of partners’ capital. However, any distributions paid on Class A units that were forfeited were reclassified to unit based compensation expense when we determined that the Class A units were not
expected to vest. We recognized no compensation expense for the three months ended March 31, 2020 or 2019, for distributions paid on Class A units that were forfeited.
Long-term Incentive Plan
In 2020 and 2019, the board of directors of our general partner, acting in its capacity as our general partner, approved the grant of 694,140 and 633,637 Phantom Units, respectively, to directors and employees of our general partner and its affiliates under our A/R LTIP. At March 31, 2020, we had 942,829 Phantom Units remaining available for issuance. The Phantom Units are subject to all of the terms and conditions of the A/R LTIP and the Phantom Unit award agreements, which are collectively referred to as the Award Agreements. Award amounts for each of the grants are generally determined by reference to a specified dollar amount based on an allocation formula which included a percentage multiplier of the grantee’s base salary, among other factors, converted to a number of units based on the closing price of one of our common units preceding the grant date, as determined by the board of directors of our general partner and quoted on the NYSE.
Phantom Unit awards generally represent rights to receive our common units upon vesting. However, with respect to the awards granted to directors and employees of our general partner and its affiliates domiciled in Canada, for each Phantom Unit that vests, a participant is entitled to receive cash for an amount equivalent to the closing market price of one of our common units on the vesting date. Each Phantom Unit granted under the Award Agreements includes an accompanying distribution equivalent right, or DER, which entitles each participant to receive payments at a per unit rate equal in amount to the per unit rate for any distributions we make with respect to our common units. The Award Agreements granted to employees of our general partner and its affiliates generally contemplate that the individual grants of Phantom Units will vest in four equal annual installments based on the grantee’s continued employment through the vesting dates specified in the Award Agreements, subject to acceleration upon the grantee’s death or disability, or involuntary termination in connection with a change in control of the Partnership or our general partner. Awards to independent directors of the board of our general partner and an independent consultant typically vest over a one year period following the grant date.
The following tables present the award activity for our Equity-classified Phantom Units:
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Director and Independent Consultant Phantom Units
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Employee Phantom Units
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Weighted-Average Grant Date Fair Value Per Phantom Unit
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Phantom Unit awards at December 31, 2019
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37,139
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1,252,544
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$
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11.34
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Granted
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40,065
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594,912
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$
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10.15
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Vested
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(37,139)
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(481,336)
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$
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10.84
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Forfeited
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—
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(38,507)
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$
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11.08
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Phantom Unit awards at March 31, 2020
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40,065
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1,327,613
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$
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10.98
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Director and Independent Consultant Phantom Units
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Employee Phantom Units
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Weighted-Average Grant Date Fair Value Per Phantom Unit
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Phantom Unit awards at December 31, 2018
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34,611
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1,130,685
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$
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11.19
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Granted
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37,139
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544,857
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$
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11.37
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Vested
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(34,611)
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(417,348)
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$
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11.00
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Forfeited
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—
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(2,859)
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$
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10.94
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Phantom Unit awards at March 31, 2019
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37,139
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1,255,335
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$
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11.34
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The following tables present the award activity for our Liability-classified Phantom Units:
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Director and Independent Consultant Phantom Units
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Employee Phantom Units
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Weighted-Average Grant Date Fair Value Per Phantom Unit
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Phantom Unit awards at December 31, 2019
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12,177
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44,620
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$
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11.53
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Granted
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13,136
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46,027
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$
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10.15
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Vested
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(12,177)
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—
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$
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11.37
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Phantom Unit awards at March 31, 2020
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13,136
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90,647
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$
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10.76
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Director and Independent Consultant Phantom Units
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Employee Phantom Units
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Weighted-Average Grant Date Fair Value Per Phantom Unit
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Phantom Unit awards at December 31, 2018
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11,348
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29,265
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$
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11.31
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Granted
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12,177
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39,464
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$
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11.37
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Vested
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(11,348)
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—
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$
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11.55
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Phantom Unit awards at March 31, 2019
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12,177
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68,729
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$
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11.32
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The fair value of each Phantom Unit on the grant date is equal to the closing market price of our common units on the grant date. We account for the Phantom Unit grants to independent directors and employees of our general partner and its affiliates domiciled in Canada that are paid out in cash upon vesting, throughout the requisite vesting period, by revaluing the unvested Phantom Units outstanding at the end of each reporting period and recording a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations and recognizing a liability in “Other current liabilities” in our consolidated balance sheets. With respect to the Phantom Units granted to consultants, independent directors and employees of our general partner and its affiliates domiciled in the United States, we amortize the initial grant date fair value over the requisite service period using the straight-line method with a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations, with an offset to common units within the Partners’ Capital section of our consolidated balance sheet.
For the three months ended March 31, 2020 and 2019, we recognized $1.6 million and $1.4 million, respectively, of compensation expense associated with outstanding Phantom Units. As of March 31, 2020, we have unrecognized compensation expense associated with our outstanding Phantom Units totaling $14.5 million, which we expect to recognize over a weighted average period of 2.85 years. We have elected to account for actual forfeitures as they occur rather than using an estimated forfeiture rate to determine the number of awards we expect to vest.
We made payments to holders of the Phantom Units pursuant to the associated DERs we granted to them under the Award Agreements as follows:
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Three Months Ended March 31,
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2020
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2019
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(in thousands)
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Equity-classified Phantom Units (1)
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$
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477
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$
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418
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Liability-classified Phantom Units
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21
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15
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Total
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$
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498
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$
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433
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(1) We had $57 thousand and $7 thousand for the three months ended March 31, 2020 and 2019, respectively, to unit based compensation expense for DERs paid in relation to Phantom Units that have been forfeited.
19. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow information for the periods indicated:
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Three Months Ended March 31,
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2020
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2019
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(in thousands)
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Cash paid for income taxes
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$
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317
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$
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278
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Cash paid for interest
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$
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2,083
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$
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2,820
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Cash paid for operating leases
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$
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1,885
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$
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1,538
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The following table provides supplemental information for the item labeled “Other” in the “Net cash provided by operating activities” section of our consolidated statements of cash flows:
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Three Months Ended March 31,
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2020
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2019
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(in thousands)
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Loss associated with disposal of assets
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$
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—
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$
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8
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Amortization of deferred financing costs
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207
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450
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$
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207
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$
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458
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Non-cash activities
Leases
We recorded $2.8 million of right-of-use lease assets and the associated liabilities on our consolidated balance sheet as of March 31, 2020, representing non-cash activities resulting from new or extended lease agreements. See Note 7. Leases for further discussion.
Non-cash Investing Activities
For the three months ended March 31, 2020 and 2019, we had non-cash investing activities for capital expenditures for property, plant and equipment that were financed through accounts payable and accrued expenses as presented in the table below for the periods indicated:
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For the Three Months Ended March 31,
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2020
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2019
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(in thousands)
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Property, plant and equipment financed through accounts payable accrued liabilities
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$
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(182)
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$
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2,112
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20. SUBSEQUENT EVENTS
Distribution to Partners
On April 23, 2020, the board of directors of USD Partners GP LLC, acting in its capacity as our general partner, declared a quarterly cash distribution payable of $0.111 per unit, or $0.444 per unit on an annualized basis, for the three months ended March 31, 2020. The distribution represents a decrease of $0.259 per unit, or 70.0% below the prior quarter distribution per unit, and is 61.4% under our minimum quarterly distribution per unit. The distribution will be paid on May 15, 2020, to unitholders of record at the close of business on May 5, 2020. The distribution will include payment of $1.7 million to our public common unitholders, $1.3 million to USDG as a holder of our common units and $51 thousand to USD Partners GP LLC as a holder of the general partner interest.