Basis of Presentation and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
Notes to Financial Statements [Abstract] | |
Basis of Presentation and Significant Accounting Policies | NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
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We are a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. We also sell standard and custom-designed compressor packages and oilfield fluid pump systems, and provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide these compression services and equipment to a broad base of natural gas and oil exploration and production, midstream, and transmission companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina. We design and fabricate a majority of our compressor packages and use these compressor packages in conjunction with other equipment and personnel from affiliated companies to provide services to our customers. |
Presentation |
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Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. In the opinion of our management, our unaudited consolidated financial statements as of March 31, 2015, and for the three month periods ended March 31, 2015 and 2014, include all normal recurring adjustments that are necessary to provide a fair statement of our results for the interim periods. Operating results for the period ended March 31, 2015 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2015. |
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Results of operations for the three months ended March 31, 2015, reflect the impact of the acquisition of Compressor Systems, Inc. ("CSI"), a Delaware corporation on August 4 2014. For further discussion of the acquisition, see Note B - Acquisition. |
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The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in connection with the financial statements for the year ended December 31, 2014, and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 19, 2015. |
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Use of Estimates |
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The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For further discussion of fair value measurements in connection with the allocation of the purchase price of the CSI acquisition, see Note B - Acquisition. Actual results could differ from those estimates, and such differences could be material. |
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Cash Equivalents |
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We consider all highly liquid cash investments with maturities of three months or less when purchased to be cash equivalents. |
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Foreign Currencies |
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We have designated the Canadian dollar and Argentine peso as the functional currencies for our operations in Canada and Argentina, respectively. We are exposed to fluctuations between the U.S. dollar and certain foreign currencies, including the Canadian dollar, the Mexican peso, and the Argentine peso, as a result of our international operations. Foreign currency exchange gains and (losses) are included in Other Expense and totaled $(0.5) million and $(0.7) million during the quarters ended March 31, 2015 and 2014, respectively. |
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Inventories |
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Inventories consist primarily of compressor package parts and supplies and work in progress and are stated at the lower of cost or market value. For parts and supplies, cost is determined using the weighted average cost method. The cost of work in progress is determined using the specific identification method. Significant components of inventories as of March 31, 2015, and December 31, 2014, are as follows: |
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| March 31, 2015 | | December 31, 2014 | | | | | | | | | |
| (In Thousands) | | | | | | | | | |
Parts and supplies | 45,184 | | | 43,202 | | | | | | | | | | |
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Work in progress | 78,135 | | | 69,928 | | | | | | | | | | |
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Total inventories | $ | 123,319 | | | $ | 113,130 | | | | | | | | | | |
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Work in progress inventories consist primarily of new compressor units located at our fabrication facility in Midland, Texas. |
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Compression and Related Services Revenues and Costs |
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Our compression and related services revenues include revenues from our U.S. corporate subsidiaries' operating lease agreements with customers. For the three month periods ended March 31, 2015 and 2014, the following operating lease revenues and associated costs were included in compression and related service revenues and cost of compression and related services, respectively, in the accompanying consolidated statements of operations. |
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| Three Months Ended | | | | | | | | | |
March 31, | | | | | | | | | |
| 2015 | | 2014 | | | | | | | | | |
| (In Thousands) | | | | | | | | | |
Rental revenue | $ | 45,699 | | | $ | 2,832 | | | | | | | | | | |
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Cost of rental revenue | $ | 21,447 | | | $ | 1,782 | | | | | | | | | | |
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Earnings Per Common and Subordinated Unit |
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The computations of earnings per common and subordinated unit are based on the weighted average number of common and subordinated units, respectively, outstanding during the applicable period. Our subordinated units met the definition of a participating security, and, therefore, we are required to use the two-class method in the computation of earnings per unit. Effective August 18, 2014, all of our 6,273,970 subordinated units were automatically converted into common units on a one-for-one basis. Basic earnings per common and subordinated unit are determined by dividing net income (loss) allocated to the common units and subordinated units, respectively, after deducting the amount allocated to our General Partner (including any distributions to our General Partner on its incentive distribution rights), by the weighted average number of outstanding common and subordinated units, respectively, during the period. |
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When computing earnings per common and subordinated unit under the two-class method when distributions are greater than earnings, the amount of the distribution is deducted from net income and allocated to our General Partner (including incentive distribution rights, if any) for the period to which the calculation relates. The excess of distributions over earnings is allocated between the General Partner, common, and subordinated units based on how our partnership agreement allocates net losses. |
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When earnings are greater than distributions, we determine cash distributions based on available cash and determine the actual incentive distributions allocable to our General Partner based on actual distributions. When computing earnings per common and subordinated unit, the amount of the assumed incentive distribution rights, if any, is deducted from net income and allocated to our General Partner for the period to which the calculation relates. The remaining amount of net income, after deducting the assumed incentive distribution rights, is allocated between the General Partner, common and subordinated units based on how our Partnership Agreement allocates net earnings. |
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The following is a reconciliation of the weighted average number of common and subordinated units outstanding to the number of common and subordinated units used in the computations of net income (loss) per common and subordinated unit. |
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| Three Months Ended | | Three Months Ended | | | | | |
March 31, 2015 | March 31, 2014 | | | | | |
| Common | | Subordinated | | Common | | Subordinated | | | | | |
Units | Units | Units | Units | | | | | |
Number of weighted average units outstanding | 33,144,701 | | | — | | | 9,275,936 | | | 6,273,970 | | | | | | |
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Nonvested units outstanding | — | | | — | | | 37,142 | | | — | | | | | | |
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Average diluted units outstanding | 33,144,701 | | | — | | | 9,313,078 | | | 6,273,970 | | | | | | |
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For the three months ended March 31, 2015, the average diluted units outstanding excludes the impact of all of the outstanding restricted unit awards, as the inclusion of these units would have been antidilutive. |
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Accumulated Other Comprehensive Income |
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Certain of our international operations maintain their accounting records in the local currencies that are their functional currencies. For these operations, the functional currency financial statements are converted to United States dollar equivalents, with the effect of the foreign currency translation adjustment reflected as a component of accumulated other comprehensive income . Accumulated other comprehensive income is included in partners’ capital in the accompanying consolidated balance sheets and consists of the cumulative currency translation adjustments associated with such international operations. Activity within accumulated other comprehensive income during the three month periods ended March 31, 2015 and 2014, is as follows: |
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| Three Months Ended March 31, | | | | | | | | | |
| 2015 | | 2014 | | | | | | | | | |
| (In Thousands) | | | | | | | | | |
Balance, beginning of period | $ | (3,336 | ) | | $ | 413 | | | | | | | | | | |
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Foreign currency translation adjustment | 176 | | | (2,968 | ) | | | | | | | | | |
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Balance, end of period | $ | (3,160 | ) | | $ | (2,555 | ) | | | | | | | | | |
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Activity within accumulated other comprehensive income includes no reclassifications to net income. |
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Allocation of Net Income (Loss) |
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Our net income (loss) is allocated to partners’ capital accounts in accordance with the provisions of our partnership agreement. |
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Distributions |
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On January 20, 2015, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended December 31, 2014 of $0.485 per unit. This distribution equates to a distribution of $1.94 per outstanding unit on an annualized basis. This cash distribution was paid on February 13, 2015, to all unitholders of record as of the close of business January 31, 2015. |
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On April 21, 2015, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended March 31, 2015 of $0.495 per unit. This distribution equates to a distribution of $1.98 per outstanding unit on an annualized basis. This cash distribution is to be paid on May 15, 2015 to all unitholders of record as of the close of business on May 1, 2015. |
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Fair Value Measurements |
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Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability. |
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Under generally accepted accounting principles, the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability. |
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill (a level 3 fair value measurement). Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets, including goodwill (a level 3 fair value measurement). The fair value of our financial instruments, which may include cash, temporary investments, accounts receivable, short-term borrowings, and variable-rate long-term debt pursuant to our bank credit agreement, approximate their carrying amounts. The fair values of our long-term 7.25% Senior Notes at March 31, 2015 and December 31, 2014, were approximately $308.0 million and $354.9 million, respectively, compared to an aggregate principal amount of $350.0 million as current rates on those dates were different from the stated interest rates on the 7.25% Senior Notes. We calculate the fair value of our 7.25% Senior Notes internally, using current market conditions and average cost of debt (a level 2 fair value measurement). |
We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency forward purchase and sale derivative contracts. For these fair value measurements, we utilize the quoted value as determined by our counterparty financial institution (a level 2 fair value measurement). A summary of these fair value measurements as of March 31, 2015 and December 31, 2014, is as follows: |
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| | | | Fair Value Measurements Using |
Description | | Total as of | | Quoted Prices | | Significant | | Significant |
31-Mar-15 | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
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Asset for foreign currency derivative contracts | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Liability for foreign currency derivative contracts | | (28 | ) | | — | | | (28 | ) | | — | |
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| | $ | (28 | ) | | | | | | |
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| | | | Fair Value Measurements Using |
Description | | Total as of | | Quoted Prices | | Significant | | Significant |
31-Dec-14 | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
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Asset for foreign currency derivative contracts | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Liability for foreign currency derivative contracts | | — | | | — | | | — | | | — | |
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New Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in the Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for our first quarter in fiscal 2017, pending a one year deferral currently under consideration by the FASB, under either full or modified retrospective adoption. Early application is not permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements. |
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In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (Topic 250). The ASU provides guidance on management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and in certain circumstances to provide related footnote disclosures. The ASU is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements. |
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In January 2015, the FASB issued ASU No. 2015-01, “Income Statements - Extraordinary and Unusual Items” (Sub-Topic 225-20), which eliminates from U.S. GAAP the concept of extraordinary items. The ASU eliminates the separate presentation of extraordinary items on the income statement, net of tax and the related earnings per share, but does not affect the requirement to disclose material items that are unusual in nature or occurring infrequently. The ASU is effective for the annual period ending after December 15, 2015 and interim periods within those annual periods, with early adoption permitted, and may be applied prospectively or retrospectively. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements. |
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In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. The ASU requires entities that have historically presented debt issuance costs as an asset to present those costs as a direct deduction from the carrying amount of the related debt liability. This presentation will result in the debt issuance costs being presented the same way debt discounts have historically been handled. The ASU does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. The ASU is effective for the annual period ending after December 15, 2015 and interim periods within those annual periods and is to be applied retrospectively. Early adoption is permitted. We plan to adopt this change retrospectively, and do not expect the adoption of this standard to have a material impact on our consolidated financial statements. |