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Form 10-Q Hi-Crush Partners LP For: Sep 30

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November 4, 2014 6:03 AM EST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549�
�
�
�
Form�10-Q�
�
�
�
(Mark One)
�
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
�
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September�30, 2014
or
�
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
�
EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-35630�
�
�
�
Hi-Crush Partners LP
(Exact name of registrant as specified in its charter)
�
�
�
Delaware
90-0840530
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
�
�
Three Riverway, Suite 1550
�
Houston, Texas
77056
(Address of Principal Executive Offices)
(Zip Code)
Registrants telephone number, including area code (713)�960-4777�
�
�
�
Indicate by check mark whether the registrant (1)�has filed all reports required to be filed by Section�13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12�months (or for such shorter period that the registrant was required to file such reports), and (2)�has been subject to such filing requirements for the past 90�days.�������Yes�������No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule�405 of Regulation�S-T (� 232.405 of this chapter) during the preceding 12�months (or for such shorter period that the registrant was required to submit and post such files).�������Yes�������No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule�12b-2 of the Exchange Act. (Check one):
Large�accelerated�filer �
�
Accelerated�filer x
�
�
�
Non-accelerated filer �
(Do not check if a smaller reporting company.)
Smaller�reporting�company �
Indicate by check mark whether the registrant is a shell company (as defined in Rule�12b-2 of the Exchange Act).�������Yes�������No
There were 23,312,075 common units and 13,640,351 subordinated units outstanding on October�31, 2014.


INDEX TO FORM 10-Q
�
Page
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�

[2]

PART IFINANCIAL INFORMATION�

[3]

ITEM�1. FINANCIAL STATEMENTS.

[4]

HI-CRUSH PARTNERS LP
Condensed Consolidated Balance Sheets
(In thousands, except unit amounts)
(Unaudited)
�
September�30, 2014
�
December 31, 2013(a)
Assets
�
�
�
Current assets:
�
�
�
Cash
$
20,625

�
$
20,608

Restricted cash
690

�
690

Accounts receivable
58,949

�
37,442

Inventories
22,385

�
22,418

Prepaid expenses and other current assets
2,600

�
1,625

Total current assets
105,249

�
82,783

Property, plant and equipment, net
217,324

�
195,834

Goodwill and intangible assets, net
67,551

�
71,936

Other assets
12,596

�
3,808

Total assets
$
402,720

�
$
354,361

Liabilities, Equity and Partners Capital
�
�
�
Current liabilities:
�
�
�
Accounts payable
$
15,850

�
$
10,108

Accrued and other current liabilities
14,800

�
7,669

Due to sponsor
6,712

�
10,352

Current portion of long-term debt
2,000

�


Total current liabilities
39,362

�
28,129

Long-term debt
195,118

�
138,250

Asset retirement obligation
4,812

�
4,628

Total liabilities
239,292

�
171,007

Commitments and contingencies

�

Equity and partners capital:
�
�
�
General partner interest


�


Limited partner interests, 36,952,426 and 28,865,171 units outstanding, respectively
161,200

�
138,580

Class B units, zero and 3,750,000 units outstanding, respectively


�
9,543

Total partners capital
161,200

�
148,123

Non-controlling interest
2,228

�
35,231

Total equity and partners' capital
163,428

�
183,354

Total liabilities, equity and partners capital
$
402,720

�
$
354,361

�
�
�
�
(a)�Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.

[5]

HI-CRUSH PARTNERS LP
Condensed Consolidated Statement of Operations
(In thousands, except unit and per unit amounts)
(Unaudited)
�
Three Months
�
Nine Months
�
Ended September 30,
�
Ended September 30,
�
2014
�
2013(a)
�
2014(a)
�
2013(a)
Revenues
$
102,316

�
$
53,158

�
$
255,618

�
$
114,995

Cost of goods sold (including depreciation, depletion and amortization)
55,640

�
31,868

�
143,665

�
58,613

Gross profit
46,676

�
21,290

�
111,953

�
56,382

Operating costs and expenses:
�
�
�
�
�
�
�
General and administrative expenses
6,183

�
5,543

�
19,287

�
13,322

Exploration expense


�


�


�
56

Accretion of asset retirement obligation
61

�
57

�
184

�
172

Income from operations
40,432

�
15,690

�
92,482

�
42,832

Other income (expense):
�
�
�
�
�
�
�
Interest expense
(3,111
)
�
(1,273
)
�
(6,836
)
�
(2,301
)
Net income
37,321

�
14,417

�
85,646

�
40,531

Income attributable to non-controlling interest
(292
)
�
(62
)
�
(704
)
�
(150
)
Net income attributable to Hi-Crush Partners LP
$
37,029

�
$
14,355

�
$
84,942

�
$
40,381

Earnings per unit:
�
�
�
�
�
�
�
Common units - basic
$
0.86

�
$
0.52

�
$
2.24

�
$
1.45

Subordinated units - basic
$
0.86

�
$
0.52

�
$
2.24

�
$
1.45

Common units - diluted
$
0.83

�
$
0.52

�
$
2.15

�
$
1.45

Subordinated units - diluted
$
0.83

�
$
0.52

�
$
2.15

�
$
1.45

�
�
�
�
�
�
�
�
(a)�Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.


[6]

HI-CRUSH PARTNERS LP
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
�
Nine Months
�
Nine Months
�
Ended
�
Ended
�
September 30, 2014(a)
�
September 30, 2013(a)
Operating activities:
�
�
�
Net income
$
85,646

�
$
40,531

Adjustments to reconcile net income to net cash provided by operating activities:
�
�
�
Depreciation and depletion
6,581

�
4,259

Amortization of intangible assets
4,385

�
2,025

Amortization of deferred charges into interest expense
853

�
325

Management fees paid by Member on behalf of Hi-Crush Augusta LLC
492

�
895

Accretion of asset retirement obligation
184

�
172

Loss on replacement of equipment


�
191

Unit based compensation to independent directors and employees
922

�
100

Changes in operating assets and liabilities:
�
�
�
Accounts receivable
(21,507
)
�
(389
)
Prepaid expenses and other current assets
(807
)
�
3

Inventories
(150
)
�
(4,382
)
Other assets
(2,427
)
�
(1,238
)
Accounts payable
175

�
(1,022
)
Accrued and other current liabilities
7,131

�
3,545

Due to sponsor
(3,640
)
�
8,979

Deferred revenue


�
(1,715
)
Net cash provided by operating activities
77,838

�
52,279

Investing activities:
�
�
�
Cash paid for acquisition of Hi-Crush Augusta LLC
(224,250
)
�


Cash paid for acquisition of D & I Silica, LLC


�
(95,277
)
Capital expenditures for property, plant and equipment
(22,321
)
�
(8,886
)
Net cash used in investing activities
(246,571
)
�
(104,163
)
Financing activities:
�
�
�
Proceeds from equity issuance, net
170,693

�


Proceeds from issuance of long-term debt
198,000

�
138,250

Repayment of long-term debt
(139,250
)
�
(33,250
)
Affiliate financing, net


�
5,615

Loan origination costs
(7,096
)
�
(805
)
Redemption of common units
(19
)
�


Distributions paid
(53,578
)
�
(44,270
)
Net cash provided by financing activities
168,750

�
65,540

Net increase in cash
17

�
13,656

Cash:
�
�
�
Beginning of period
20,608

�
10,498

End of period
$
20,625

�
$
24,154

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

�
$
(612
)
Due to affiliate balance converted into non-controlling interest


�
47,715

Transferred basis of preferred interest in Hi-Crush Augusta LLC


�
9,543

Unit based cost for acquisition of D & I Silica, LLC


�
37,358

Cash paid for interest, net of amount capitalized
5,984

�
1,854

�
�
�
�
(a)�Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.

[7]

HI-CRUSH PARTNERS LP
Condensed Consolidated Statement of Partners Capital
(In thousands, except unit amounts)
(Unaudited)
�
�
�
�
�
�
Limited Partners
�
�
�
�
�
�
�
General
Partner
Capital
�
Sponsor
Class B
Units
�
Public
Common
Unit�Capital
�
Sponsor
Common
Unit�Capital
�
Sponsor
Subordinated
Unit Capital
�
Total
Limited
Partner� Capital
�
Total
Partner
Capital
�
Non-Controlling Interest
�
Total Equity and Partners' Capital
Balance at January�1, 2014(a)
$


�
$
9,543

�
$
88,321

�
$


�
$
50,259

�
$
138,580

�
$
148,123

�
$
35,231

�
$
183,354

Issuance of limited partner units to independent directors and employees


�


�
458

�


�


�
458

�
458

�


�
458

Unit based compensation expense


�


�
632

�


�


�
632

�
632

�


�
632

Management fees paid by sponsor on behalf of the Partnership(a)


�


�


�


�


�


�


�
492

�
492

Issuance of 4,325,000 common units


�


�
170,693

�


�


�
170,693

�
170,693

�


�
170,693

Acquisition of 390,000 common units of Hi-Crush Augusta LLC


�


�
(111,794
)
�


�
(78,257
)
�
(190,051
)
�
(190,051
)
�
(34,199
)
�
(224,250
)
Redemption of common units


�


�
(19
)
�


�


�
(19
)
�
(19
)
�


�
(19
)
Conversion of Class B units into 3,750,000 common units


�
(9,543
)
�


�
9,543

�


�
9,543

�


�


�


Cash distributions
(168
)
�


�
(29,293
)
�
(2,156
)
�
(21,961
)
�
(53,410
)
�
(53,578
)
�


�
(53,578
)
Net income(a)
168

�


�
48,789

�


�
35,985

�
84,774

�
84,942

�
704

�
85,646

Secondary offering of common units by sponsor


�


�
7,387

�
(7,387
)
�


�


�


�


�


Balance at September 30, 2014
$


�
$


�
$
175,174

�
$


�
$
(13,974
)
�
$
161,200

�
$
161,200

�
$
2,228

�
$
163,428

�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
(a)�Financial information has been recast to include the financial position and results attributable to Hi-Crush Augusta LLC. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.

[8]

HI-CRUSH PARTNERS LP
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per ton and per unit amounts, or where otherwise noted)
1. Business and Organization
Hi-Crush Partners LP (together with its subsidiaries, the Partnership, we, us or our) is a Delaware limited partnership formed on May�8, 2012 to acquire selected sand reserves and related processing and transportation facilities of Hi-Crush Proppants LLC. In connection with its formation, the Partnership issued�a non-economic general partner interest to Hi-Crush GP LLC, our general partner (the General Partner or Hi-Crush GP), and�a 100.0% limited partner interest to Hi-Crush Proppants LLC (the sponsor), its organizational limited partner.
On January�31, 2013, the Partnership entered into an agreement with the sponsor to acquire a preferred interest in Hi-Crush Augusta LLC (Augusta), the entity that owned the sponsors Augusta facility, which is located in Eau Claire County, Wisconsin, for $37,500 in cash and 3,750,000 newly issued convertible Class B units in the Partnership. The sponsor did not receive distributions on the Class B units until certain thresholds were met and they converted into common units. The conditions precedent to conversion of the Class B units were satisfied upon payment of our distribution on August 15, 2014 and, upon such payment, the sponsor, who was the sole owner of our Class B units, elected to convert all of the 3,750,000 Class B units into common units on a one-for-one basis.� The sponsor received a per unit distribution on the converted common units for the second quarter of 2014 in an amount equal to the per unit distribution that was paid to all the common and subordinated units for the same period.
On June�10, 2013, the Partnership acquired an independent frac sand supplier, D & I Silica, LLC (D&I), transforming the Partnership into an integrated Northern White frac sand producer, transporter, marketer and distributor. The Partnership acquired D&I for $95,159 in cash and 1,578,947 common units (See Note 4  Business Combination  Accounting for Acquisition of D&I). Founded in 2006, D&I was the largest independent frac sand supplier to the oil and gas industry drilling in the Marcellus and Utica shales. We operate through an extensive logistics network of rail-served origin and destination terminals located in the Midwest near supply sources and strategically throughout Pennsylvania, Ohio, New York and Texas.
On April 8, 2014, the Partnership entered into a contribution agreement with the sponsor to acquire substantially all of the remaining equity interests in the sponsors Augusta facility for cash consideration of $224,250 (the Augusta Contribution, See Note 8 - Acquisition of Hi-Crush Augusta LLC) . To finance the Augusta Contribution and refinance the Partnerships revolving credit facility, (i) on April 8, 2014, the Partnership commenced a primary public offering of 4,250,000 common units representing limited partnership interests in the Partnership and (ii) on April 28, 2014, the Partnership entered into a $200,000 senior secured term loan facility with certain lenders. The Partnerships primary public offering closed on April�15, 2014. On May 9, 2014, the Partnership issued an additional 75,000 common units pursuant to the partial exercise of the underwriters' over-allotment option in connection with the April 2014 primary public offering. Net proceeds to the Partnership from the primary offering and the exercise of the over-allotment option totaled $170,693. Upon receipt of the proceeds from the public offering on April 15, 2014, the Partnership paid off the outstanding balance of $124,750 under its revolving credit facility. The Augusta Contribution closed on April 28, 2014, and at closing, the Partnerships preferred equity interest in Augusta was converted into common equity interests of Augusta. Following the Augusta Contribution, the Partnership owns 98.0% of Augustas common equity interests. In addition, on April 28, 2014, the Partnership entered into a $150,000 senior secured revolving credit facility with various financial institutions by amending and restating its prior $200,000 revolving credit facility (See Note 9 - Long-Term Debt).


[9]

2. Basis of Presentation and Use of Estimates
The accompanying unaudited interim Condensed Consolidated Financial Statements (interim statements) of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Partnerships Consolidated Financial Statements for the year ended December�31, 2013, which are included in the Partnerships Annual Report on Form 10-K filed with the SEC on February 28, 2014. The year-end balance sheet data was derived from the audited financial statements, as recasted, but does not include all disclosures required by GAAP.
The Augusta Contribution was accounted for as a transaction between entities under common control whereby Augusta's net assets were recorded at their historical cost. Therefore, the Partnership's historical financial information was recast to combine Augusta and the Partnership as if the combination had been in effect since inception of common control. Refer to Note 8 for additional disclosure regarding the Augusta Contribution.
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.


[10]

3. Significant Accounting Policies
In addition to the significant accounting policies listed below, a comprehensive discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K filed with the SEC on February 28, 2014.
Restricted Cash
The Partnership must pledge cash escrow accounts for the benefit of the Pennsylvania Department of Transportation, Bureau of Rail Freight, Ports and Waterways (PennDot) to guarantee performance on rail improvement projects partially funded by PennDot. The funds are released when the project is completed.
Revenue Recognition
Frac sand sales revenues are recognized when legal title passes to the customer, which may occur at the production facility, rail origin or at the destination terminal. At that point, delivery has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of sand deliveries are recorded as deferred revenue. Revenue from make-whole provisions in our customer contracts is recognized at the end of the defined cure period.
A substantial portion of our frac sand is sold under long-term supply agreements, the current terms of which expire between 2016 and 2019. The agreements define, among other commitments, the volume of product that the Partnership must provide, the price that will be charged to the customer, and the volume that the customer must purchase at the end of the defined cure period, which can range from three months to the end of a contract year.
Transportation services revenues are recognized as the services have been completed, meaning the related services have been rendered. At that point, delivery of service has occurred, evidence of a contractual arrangement exists and collectability is reasonably assured. Amounts received from customers in advance of transportation services being rendered are recorded as deferred revenue.
Revenue attributable to silo storage leases is recorded on a straight-line basis over the term of the lease.
Fair Value of Financial Instruments
The amounts reported in the balance sheet as current assets or liabilities, including cash, accounts receivable, accounts payable, accrued and other current liabilities approximate fair value due to the short-term maturities of these instruments. The fair value of the senior secured term loan approximated $197,508 as of September�30, 2014, based on the market price quoted from external sources, compared with a carrying value of $199,000. If the senior secured term loan was measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy.
Net Income per Limited Partner Unit
We have identified the sponsors incentive distribution rights as participating securities and compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income specified in the partnership agreement. Net income per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners interest in net income, after deducting any sponsor incentive distributions, by the weighted-average number of outstanding common and subordinated units. Through March 31, 2014, basic and diluted net income per unit are the same as there were no potentially dilutive common or subordinated units outstanding.
Through August 15, 2014, the 3,750,000 Class B units outstanding did not have voting rights or rights to share in the Partnerships periodic earnings, either through participation in its distributions or through an allocation of its undistributed earnings or losses, and so were not deemed to be participating securities in their form as Class B units. In addition, the conversion of the Class B units into common units was fully contingent upon the satisfaction of defined criteria pertaining to the cumulative payment of distributions and earnings per unit of the Partnership as described in Note 10. As such, until all of the defined payment and earnings criteria were satisfied, the Class B units were not included in our calculation of either basic or diluted earnings per unit. On August 15, 2014, the Class B units converted into common units, at which time income allocations commenced on such units and the common units were included in our calculation of basic and diluted earnings per unit.
As described in Note 2, the Partnership's historical financial information has been recast to consolidate Augusta for all periods presented. The amounts of incremental income or losses recasted to periods prior to the Augusta Contribution are excluded from the calculation of net income per limited partner unit.
Income Taxes
The Partnership and the sponsor are pass-through entities and are not considered taxing entities for federal tax purposes. Therefore, there is not a provision for income taxes in the accompanying condensed consolidated financial statements. The Partnerships net

[11]

income or loss is allocated to its partners in accordance with the partnership agreement. The partners are taxed individually on their share of the Partnerships earnings. At September�30, 2014 and December�31, 2013, the Partnership did not have any liabilities for uncertain tax positions or gross unrecognized tax benefit.
Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if "conditions or events raise substantial doubt about the entitys ability to continue as a going concern." The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Partnership is currently evaluating the future disclosure requirements under this guidance.




[12]

4. Business Combination  Accounting for Acquisition of D&I
On June�10, 2013, the Partnership acquired D&I, an independent frac sand supplier, transforming the Partnership into an integrated Northern White frac sand producer, transporter, marketer and distributor. The Partnership acquired D&I for $95,159 in cash and 1,578,947 common units, valued at $37,358 as of June�10, 2013.
The acquisition was accounted for under the acquisition method of accounting whereby management assessed the net assets acquired and recognized amounts for the identified assets acquired and liabilities assumed. The total purchase price of $132,517 was allocated to the net assets acquired as follows:
Assets acquired:
�
Cash
$
204

Restricted cash
688

Accounts receivable
17,908

Inventories
10,372

Prepaid expenses and other current assets
809

Property, plant and equipment
39,242

Intangible assets
41,878

Goodwill
33,745

Other assets
113

Total assets acquired
144,959

Liabilities assumed:
�
Accounts payable
11,646

Accrued liabilities and other current liabilities
796

Total liabilities assumed
12,442

Fair value of net assets acquired
$
132,517

The operations of D&I have been included in the financial statements prospectively from June 11, 2013.
The following table summarizes the supplemental condensed consolidated statements of operations information for the nine months ended September 30, 2013 on an unaudited pro forma basis as if the acquisition had occurred prior to January 1, 2013. The table includes adjustments that were directly attributable to the acquisition or are not expected to have a future impact on the Partnership. The pro forma results are for illustrative purposes only and are not intended to be indicative of the actual results that would have occurred should the transaction have been consummated at the beginning of the period, nor are they indicative of future results of operations.
�
Nine Months
�
Ended
�
September 30, 2013
�
Pro Forma
Revenues
$
170,047

Net income attributable to Hi-Crush Partners LP
$
50,232

Net income per limited partner unit:
�
Common units  basic and diluted
$
1.74

Subordinated units  basic and diluted
$
1.74

The pro forma financial information includes the impact of the following pro forma adjustments:
�
Nine Months
�
Ended
Pro Forma Debit / (Credit) Adjustments
September 30, 2013
Acquisition related expenses
$
(4,775
)
Other general and administrative expenses
(117
)
Interest expense on debt issued to fund acquisition
1,226

Depreciation and amortization
(8
)
Increase in weighted average common units outstanding
931,174


[13]

5. Goodwill and Intangible Assets
Changes in goodwill and intangible assets consisted of the following during the nine months ended September�30, 2014:
�
Goodwill
�
Intangible Assets
Balance at December�31, 2013
$
33,745

�
$
38,191

Amortization expense


�
(4,385
)
Balance at September 30, 2014
$
33,745

�
$
33,806

Goodwill
As of September�30, 2014, the Partnership had goodwill of $33,745 based on the allocation of the purchase price of its acquisition of D&I.
Intangible Assets
Intangible assets arising from the acquisition of D&I consisted of the following:
�
Useful�life
�
September�30, 2014
Supplier agreements
1-20�Years
�
$
21,997

Customer contracts and relationships
1-10 Years
�
18,132

Other intangible assets
1-3 Years
�
1,749

Intangible assets
�
�
41,878

Less: Accumulated amortization
�
�
(8,072
)
Intangible assets, net
�
�
$
33,806

Amortization expense was $4,385 and $2,025 for the nine months ended September�30, 2014 and 2013, respectively. Amortization expense was $781 and $1,662 for the three months ended September�30, 2014 and 2013, respectively. The weighted average remaining life of intangible assets was 12 years as of September�30, 2014. As of September�30, 2014, future amortization is as follows:
Fiscal Year
Amortization
2014 (Three Months)
$
742

2015
2,967

2016
2,938

2017
2,850

2018
2,850

Thereafter
21,459

�
$
33,806



[14]

6. Inventories
Inventories consisted of the following:
�
September�30,
2014
�
December�31,
2013
�
�
�
Recasted
Raw material
$
157

�
$
706

Work-in-process
10,297

�
9,075

Finished goods
10,430

�
11,585

Spare parts
1,501

�
1,052

�
$
22,385

�
$
22,418


[15]

7. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
�
September�30,
2014
�
December�31,
2013
�
�
�
Recasted
Buildings
$
3,930

�
$
3,814

Mining property and mine development
40,291

�
39,690

Plant and equipment
114,384

�
108,627

Rail and rail equipment
22,627

�
20,421

Transload facilities and equipment
30,910

�
30,265

Construction-in-progress
21,058

�
2,684

Property, plant and equipment
233,200

�
205,501

Less: Accumulated depreciation and depletion
(15,876
)
�
(9,667
)
Property, plant and equipment, net
$
217,324

�
$
195,834

Depreciation and depletion expense was $2,677 and $2,189 during the three months ended September�30, 2014 and 2013, respectively. Depreciation and depletion expense was $6,581 and $4,259 for the nine months ended September�30, 2014 and 2013, respectively. The Partnership recognized a loss on the replacement of equipment of $191 during the nine months ended September�30, 2013.

[16]

8. Acquisition of Hi-Crush Augusta LLC
On January�31, 2013, the Partnership entered into an agreement with our sponsor to acquire 100,000 preferred units in Augusta, the entity that owned our sponsors Augusta facility, for $37,500 in cash and 3,750,000 newly issued convertible Class B units in the Partnership. In connection with this acquisition, the Partnership incurred $451 of acquisition-related costs during the nine months ended September�30, 2013. Such expenses are included in general and administrative expenses in the Partnership's condensed consolidated statement of operations.
On April 28, 2014, the Partnership acquired 390,000 common units in Augusta for cash consideration of $224,250. In connection with this acquisition, the Partnerships preferred equity interest in Augusta was converted into 100,000 common units of Augusta. Following this transaction, the Partnership maintained a 98.0% controlling interest in Augustas common units, with the sponsor owning the remaining 2.0% of common units. In connection with the Augusta Contribution, the Partnership incurred $768 of acquisition-related costs during the nine months ended September�30, 2014. Such expenses are included in general and administrative expenses in the Partnership's condensed consolidated statement of operations.
The Augusta Contribution was accounted for as a transaction between entities under common control whereby Augusta's net assets were recorded at their historical cost. The difference between the consideration paid and the recasted historical cost of the net assets acquired was allocated in accordance with the partnership agreement to the common and subordinated unitholders based on their respective number of units outstanding as of April 28, 2014. However, this deemed distribution did not affect the tax basis capital accounts of the common and subordinated unitholders.
The Partnership's historical financial information was recast to combine the Condensed Consolidated Statements of Operations and the Condensed Consolidated Balance Sheets of the Partnership with those of Augusta as if the combination had been in effect since inception of common control. Any material transactions between the Partnership and Augusta have been eliminated. The balance of non-controlling interest as of December 31, 2013 represents the sponsor's interest in Augusta prior to the combination. Except for the combination of Condensed Consolidated Statements of Operations and the respective allocation of recasted net income between the controlling and non-controlling interest, capital transactions between the sponsor and Augusta prior to April 28, 2014 have not been allocated on a recasted basis to the common and subordinated unitholders. Such transactions are presented within the non-controlling interest column in the Condensed Consolidated Statement of Partners' Capital as the Partnership and its unitholders would not have participated in these transactions.
The following table summarizes the carrying value of Augusta's assets as of April 28, 2014, and the allocation of the cash consideration paid:
Net assets of Hi-Crush Augusta LLC as of April 28, 2014:
�
�
Cash
�
$
1,035

Accounts receivable
�
9,816

Inventories
�
4,012

Prepaid expenses and other current assets
�
114

Due from Hi-Crush Partners LP
�
1,756

Property, plant and equipment
�
84,900

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

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

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

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

Cost of Augusta acquisition
�
$
224,250

�
�
�
(a) The deemed distribution attributable to the excess purchase price was allocated to the common and subordinated unitholders based on the respective number of units outstanding as of April 28, 2014.
The following tables present our recasted revenues, net income and net income attributable to Hi-Crush Partners LP per limited partner unit giving effect to the Augusta Contribution, as reconciled to the revenues, net income and net income attributable to

[17]

Hi-Crush Partners LP per limited partnership unit of the Partnership. The amounts presented as "Partnership Consolidated" include the revenues and net income of Hi-Crush Augusta LLC from April 28, 2014 forward.
�
Three Months Ended September 30, 2013
�
Partnership
�
Augusta
�
�
�
Partnership
�
Historical
�
Historical
�
Eliminations
�
Recasted
Revenues
$
43,515

�
$
10,761

�
$
(1,118
)
�
$
53,158

Net income
$
15,040

�
$
3,127

�
$
(3,750
)
�
$
14,417

Net income attributable to Hi-Crush Partners LP per limited partner unit - basic
$
0.52

�


�


�
$
0.50

�
Nine Months Ended September 30, 2014
�
�
�
Augusta
�
�
�
�
�
Partnership
�
Through
�
�
�
Partnership
�
Consolidated
�
April 28, 2014
�
Eliminations
�
Recasted
Revenues
$
234,418

�
$
25,356

�
$
(4,156
)
�
$
255,618

Net income
$
82,105

�
$
11,398

�
$
(7,857
)
�
$
85,646

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

�


�


�
$
2.64

�
Nine Months Ended September 30, 2013
�
Partnership
�
Augusta
�
�
�
Partnership
�
Historical
�
Historical
�
Eliminations
�
Recasted
Revenues
$
90,244

�
$
26,833

�
$
(2,082
)
�
$
114,995

Net income
$
40,504

�
$
7,527

�
$
(7,500
)
�
$
40,531

Net income attributable to Hi-Crush Partners LP per limited partner unit - basic
$
1.45

�


�


�
$
1.45



[18]

9. Long-Term Debt
Long-term debt consisted of the following:
�
September�30,
2014
�
December�31,
2013
Term loan credit facility
$
197,118

�
$


Partnership credit facility


�
138,250

Less: current portion of long-term debt
(2,000
)
�


�
$
195,118

�
$
138,250

Revolving Credit Facility
On August�21, 2012, the Partnership entered into a credit agreement (the Prior Credit Agreement) providing for a $100,000 senior secured revolving credit facility (the Prior Credit Facility) with a term of four years. In connection with our acquisition of a preferred interest in Augusta, on January 31, 2013, the Partnership entered into a consent and first amendment to the Prior Credit Agreement whereby the lending banks, among other things, (i) consented to the amendment and restatement of the partnership agreement of the Partnership and (ii) agreed to amend the Prior Credit Agreement to permit the acquisition by the Partnership of a preferred equity interest in Hi-Crush Augusta LLC. On May 9, 2013, in connection with our acquisition of D&I, the Partnership entered into a commitment increase agreement and second amendment to the Prior Credit Agreement whereby the lending banks, among other things, consented to the increase of the aggregate commitments by $100,000 to a total of $200,000 and addition of lenders to the lending bank group. The outstanding balance under the Prior Credit Facility was paid in full on April�15, 2014.
On April 28, 2014, the Partnership replaced the Prior Credit Facility by entering into an amended and restated credit agreement (the "Revolving Credit Agreement"). The Revolving Credit Agreement is a senior secured revolving credit facility (the "Revolving Credit Facility") that permits aggregate borrowings of up to $150,000, including a $25,000 sublimit for letters of credit and a $10,000 sublimit for swing line loans. The Revolving Credit Facility matures on April 28, 2019.
The Revolving Credit Facility is secured by substantially all assets of the Partnership. In addition, the Partnership's subsidiaries have guaranteed the Partnership's obligations under the Revolving Credit Agreement and have granted to the revolving lenders security interests in substantially all of their respective assets.
Borrowings under the Revolving Credit Agreement bear interest at a rate equal to, at the Partnership's option, either (1) a base rate plus an applicable margin ranging between 1.25% per annum and 2.50% per annum, based upon the Partnership's leverage ratio, or (2) a Eurodollar rate plus an applicable margin ranging between 2.25% per annum and 3.50% per annum, based upon the Partnership's leverage ratio.
The Revolving Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including limits or restrictions on the Partnerships ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. The Revolving Credit Agreement also requires compliance with customary financial covenants, which are a leverage ratio and minimum interest coverage ratio. In addition, it contains customary events of default that entitle the lenders to cause any or all of the Partnerships indebtedness under the Revolving Credit Agreement to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. As of September�30, 2014, we were in compliance with the covenants contained in the Revolving Credit Agreement.
As of September�30, 2014, we had no indebtedness and $143,813 of undrawn borrowing capacity ($150,000, net of $6,187 letter of credit commitments) under our Revolving Credit Facility.
Term Loan Credit Facility
On April 28, 2014, the Partnership entered into a credit agreement (the "Term Loan Credit Agreement") providing for a senior secured term loan credit facility (the Term Loan Credit Facility) that permits aggregate borrowings of up to $200,000, which was fully drawn on April 28, 2014. The Term Loan Credit Agreement permits the Partnership, at its option, to add one or more incremental term loan facilities in an aggregate amount not to exceed $100,000. Any incremental term loan facility would be on terms to be agreed among the Partnership, the administrative agent and the lenders who agree to participate in the incremental facility. The maturity date of the Term Loan Credit Facility is April 28, 2021.
The Term Loan Credit Agreement is secured by substantially all assets of the Partnership. In addition, the Partnerships subsidiaries have guaranteed the Partnerships obligations under the Term Loan Credit Agreement and have granted to the lenders security interests in substantially all of their respective assets.

[19]

Borrowings under the Term Loan Credit Agreement bear interest at a rate equal to, at the Partnerships option, either (1) a base rate plus an applicable margin of 2.75% per annum or (2) a Eurodollar rate plus an applicable margin of 3.75% per annum, subject to a LIBOR floor of 1.00%.
The Term Loan Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including limits or restrictions on the Partnerships ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. In addition, it contains customary events of default that entitle the lenders to cause any or all of the Partnerships indebtedness under the Term Loan Credit Agreement to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.
As of September�30, 2014, we had $197,118 indebtedness ($199,000, net of $1,882 of discounts) under our Term Loan Credit Facility, which carried an interest rate of 4.75% as of September�30, 2014.





[20]

10. Equity
As of September�30, 2014, our sponsor owned 13,640,351 subordinated units representing a 36.9% ownership interest in the limited partner units. In addition, our sponsor is the owner of our General Partner.�
Class B Units
On January�31, 2013, the Partnership issued 3,750,000 subordinated Class B units and paid $37,500 in cash to our sponsor in return for 100,000 preferred equity units in our sponsors Augusta facility. The Class B units did not have voting rights or rights to share in the Partnerships periodic earnings, either through participation in its distributions or through an allocation of its undistributed earnings or losses. The Class B units were eligible for conversion into common units once the Partnership had, for two consecutive quarters, (i)�generated operating surplus equal to at least $2.31 per common unit, subordinated unit and Class B unit on an annualized basis and (ii)�paid $2.10 per unit in annualized distributions on each common and subordinated unit, or 110% of the current minimum quarterly distribution for a period of two consecutive quarters, and our General Partner had determined, with the concurrence of the conflicts committee of the board of directors of our General Partner, that we were expected to maintain such performance for at least two succeeding quarters. The conditions precedent to conversion of the Class B units were satisfied upon payment of our distribution on August 15, 2014 and, upon such payment, the sponsor, who was the sole owner of our Class B units, elected to convert all of the 3,750,000 Class B units into common units on a one-for-one basis.�
Allocations of Net Income
Our partnership agreement contains provisions for the allocation of net income and loss to the unitholders (excluding Class B unitholders) and our General Partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage ownership interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to our sponsor.
During the three and nine months ended September�30, 2014, no net income was allocated to our Class B units, and $168 was allocated to our holders of incentive distribution rights.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive increasing percentages (ranging from 15.0% to 50.0%) of quarterly distributions from operating surplus after minimum quarterly distribution and target distribution levels exceed $0.54625 per unit per quarter. Our sponsor currently holds the incentive distribution rights, but it may transfer these rights at any time.
Distributions
Our partnership agreement sets forth the calculation to be used to determine the amount of cash distributions that our common and subordinated unitholders and our sponsor will receive.
Our recent distributions have been as follows:
Declaration Date
�
Amount�Declared
Per Unit (a)
�
Record Date
�
Date Paid
�
Amount Paid to Common and Subordinated Units
�
Amount Paid to Holders of Incentive Distribution Rights
January�17, 2013
�
$
0.4750

�
February�1, 2013
�
February�15, 2013
�
$
12,961

�
$


April�16, 2013
�
$
0.4750

�
May�1, 2013
�
May�15, 2013
�
$
12,961

�
$


July�17, 2013
�
$
0.4750

�
August�1, 2013
�
August�15, 2013
�
$
13,711

�
$


October�17, 2013
�
$
0.4900

�
November�1, 2013
�
November�15, 2013
�
$
14,144

�
$


January�15, 2014
�
$
0.5100

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

�
$


April�16, 2014
�
$
0.5250

�
May�1, 2014
�
May 15, 2014
�
$
17,392

�
$


July�16, 2014
�
$
0.5750

�
August�1, 2014
�
August 15, 2014
�
$
19,092

�
$
168

October�15, 2014
�
$
0.6250

�
October�31, 2014
�
November 14, 2014
�
$
23,095

�
$
695

(a)
For all common and subordinated units.
Net Income per Limited Partner Unit
The following table outlines our basic and diluted, weighted average limited partner units outstanding during the relevant periods:

[21]

�
Three Months
�
Nine Months
�
Ended September 30,
�
Ended September 30,
Weighted average limited partner units outstanding:
2014
�
2013
�
2014
�
2013
Common units - basic
21,437,176

�
15,224,820

�
18,522,412

�
14,293,060

Subordinated units - basic
13,640,351

�
13,640,351

�
13,640,351

�
13,640,351

Common units - diluted
23,393,608

�
15,224,820

�
21,721,976

�
14,293,060

Subordinated units - diluted
13,640,351

�
13,640,351

�
13,640,351

�
13,640,351

For purposes of calculating the Partnerships earnings per unit under the two-class method, common units are treated as participating preferred units, and subordinated units are treated as the residual equity interest, or common equity. Incentive distribution rights are treated as participating securities. As the Class B units did not have rights to share in the Partnerships periodic earnings, whether through participation in its distributions or through an allocation of its undistributed earnings or losses, they were not participating securities. In addition, the conversion of the Class B units into common units was fully contingent upon the satisfaction of defined criteria pertaining to the cumulative payment of distributions and earnings per unit of the Partnership as described in this Note 10. As such, until all of the defined payment and earnings criteria were satisfied, the Class B units were not included in our calculation of either basic or diluted earnings per unit. The Class B units were converted into common units on August 15, 2014, at which time income allocations commenced on such units. The sponsor was entitled to receive a per unit distribution on the newly converted common units for the second quarter of 2014 in an amount equal to the per unit distribution to be paid to all the common and subordinated units for the same period. As a result, this distribution was deducted from the calculation of limited partners' interest in net income for the nine months ended September 30, 2014. In addition, the Class B units were included in our calculation of diluted earnings per unit through August 15, 2014. Diluted earnings per unit for the three and nine months ended September 30, 2014 also includes the dilutive effect of LTIP awards granted in June 2014 (see Note 11) at the assumed number of units which would have vested if the performance period had ended on September 30, 2014.
Distributions made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive such distributions. Any unpaid cumulative distributions are allocated to the appropriate class of equity.�
Each period the Partnership determines the amount of cash available for distributions in accordance with the partnership agreement. The amount to be distributed to common unitholders, subordinated unitholders and incentive distribution rights holders is based on the distribution waterfall in the partnership agreement. Net earnings for the period are allocated to each class of partnership interest based on the distributions to be made. Additionally, if, during the subordination period, the Partnership does not have enough cash available to make the required minimum distribution to the common unit holders, the Partnership will allocate net earnings to the common unit holders based on the amount of distributions in arrears. When actual cash distributions are made based on distributions in arrears, those cash distributions will not be allocated to the common unitholders, as such earnings were allocated in previous periods.
The following table provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the three months ended September�30, 2014 (in thousands, except per unit amounts):

[22]

�
General Partner and IDRs
�
Common Units
�
Subordinated Units
�
Class B Units
�
Total
Declared distribution
$
695

�
$
14,570

�
$
8,525

�
$


�
$
23,790

Assumed allocation of undistributed net income attributable to the Partnership
6,164

�
3,868

�
3,207

�


�
13,239

Limited partners interest in net income
$
6,859

�
$
18,438

�
$
11,732

�
$


�
$
37,029

�
�
�
�
�
�
�
�
�


Earnings per unit - basic
�
�
$
0.86

�
$
0.86

�
�
�
�
Earnings per unit - diluted (1)
�
�
$
0.83

�
$
0.83

�
�
�
�
�
�
�
�
�
�
�
�
�
�
(1) Diluted earnings per unit includes the impact of income allocations attributable to a conversion of the Class B units into common units through conversion to common units on August 15, 2014.
The following table provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the nine months ended September�30, 2014 (in thousands, except per unit amounts):
�
General Partner and IDRs
�
Common Units
�
Subordinated Units
�
Class B Units
�
Total
Declared distribution
$
863

�
$
36,049

�
$
23,529

�
$
2,156

�
$
62,597

Assumed allocation of undistributed net income attributable to the Partnership
6,906

�
5,351

�
6,959

�


�
19,216

Limited partners interest in net income
$
7,769

�
$
41,400

�
$
30,488

�
$
2,156

�
$
81,813

Recast adjustments to include the results of operations of Hi-Crush Augusta LLC and income attributable to non-controlling interest
�
�
�
�
�
�
�
�
3,129

Net income attributable to Hi-Crush Partners LP
�
�
�
�
�
�
�
�
$
84,942

Earnings per unit - basic
�
�
$
2.24

�
$
2.24

�
�
�
�
Earnings per unit - diluted (1)
�
�
$
2.15

�
$
2.15

�
�
�
�
�
�
�
�
�
�
�
�
�
�
(1) Diluted earnings per unit includes the impact of income allocations attributable to a conversion of the Class B units into common units through conversion to common units on August 15, 2014.
Recasted Augusta Equity Transactions
During the nine months ended September 30, 2014, the sponsor provided $492 of management services and other expenses paid on behalf of Augusta. Such costs are recognized as non-cash capital contributions in the accompanying financial statements.

[23]

11. Unit Based Compensation
Long-Term Incentive Plan
On August�21, 2012, Hi-Crush GP adopted the Hi-Crush Partners LP Long Term Incentive Plan (the Plan) for employees, consultants and directors of Hi-Crush GP and those of its affiliates, including our sponsor, who perform services for the Partnership. The Plan consists of restricted units, unit options, phantom units, unit payments, unit appreciation rights, other equity-based awards, distribution equivalent rights and performance awards. The Plan limits the number of common units that may be issued pursuant to awards under the Plan to 1,364,035 units. Common units withheld to satisfy exercise prices or tax withholding obligations are available for delivery pursuant to other awards. The Plan is administered by Hi-Crush GPs Board of Directors or a committee thereof.
The cost of services received in exchange for an award of equity instruments is measured based on the grant-date fair value of the award and that cost is generally recognized over the vesting period of the award.
Performance Phantom Units - Equity Settled
The Partnership has awarded Performance Phantom Units ("PPUs") pursuant to the Plan to certain employees. The number of PPUs that will vest will range from 0% to 200% of the number of initially granted PPUs and is dependent on the Partnership's total unitholder return over a three-year performance period compared to the total unitholder return of a designated peer group. Each PPU represents the right to receive, upon vesting, one common unit representing limited partner interests in the Partnership. The PPUs are also entitled to forfeitable distribution equivalent rights ("DERs"), which accumulate during the performance period and are paid in cash on the date of settlement. The fair value of each PPU is estimated using a fair value approach and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period. Expected volatility is based on the historical market performance of our peer group. The following table presents information relative to our PPUs.
�
�
�
Grant Date
�
�
�
Weighted -
�
�
�
Average Fair
�
Units
�
Value per Unit
Outstanding at January 1, 2014


�
�
Granted
64,414

�
$
65.57

Outstanding at September 30, 2014
64,414

�
$
65.57

As of September 30, 2014, total compensation expense not yet recognized related to unvested PPUs was $3,678, with a weighted average remaining service period of 2.25 years.
Time-Based Phantom Units - Equity Settled
The Partnership has awarded Time-Based Phantom Units ("TPUs") pursuant to the Plan to certain employees which automatically vest if the employee remains employed at the end of a three-year vesting period. Each TPU represents the right to receive, upon vesting, one common unit representing limited partner interests in the Partnership. The TPUs are also entitled to forfeitable DERs, which accumulate during the vesting period and are paid in cash on the date of settlement. The fair value of each TPU is calculated based on the grant-date unit price and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period. The following table presents information relative to our TPUs.
�
�
�
Grant Date
�
Units
�
Value per Unit
Outstanding at January 1, 2014


�
�
Granted
17,018

�
$
47.33

Outstanding at September 30, 2014
17,018

�
$
47.33

As of September 30, 2014, total compensation expense not yet recognized related to unvested TPUs was $717, with a weighted average remaining service period of 2.75 years.
Board and Other Unit Grants
The Partnership issued 5,532 and 5,522 common units to its independent directors during the nine months ended September�30, 2014 and 2013, respectively. During the nine months ended September�30, 2014, the Partnership issued 7,022 common units to certain employees which vest approximately over a two year period.
Compensation Expense
The following table presents total compensation expense for unit-based compensation:

[24]

�
Three Months
�
Nine Months
�
Ended September 30,
�
Ended September 30,
�
2014
�
2013
�
2014
�
2013
Performance Phantom Units
$
409

�
$


�
$
545

�
$


Time-based Phantom Units
69

�


�
88

�


Director and other unit grants
91

�


�
289

�
100

Total compensation expense
$
569

�
$


�
$
922

�
$
100



[25]

12. Related Party Transactions
Effective August�16, 2012, our sponsor entered into a services agreement (the Services Agreement) with our General Partner, Hi-Crush Services LLC (Hi-Crush Services) and the Partnership, pursuant to which Hi-Crush Services provides certain management and administrative services to the Partnership to assist in operating the Partnerships business. Under the Services Agreement, the Partnership reimburses Hi-Crush Services and its affiliates, on a monthly basis, for the allocable expenses it incurs in its performance under the Services Agreement. These expenses include, among other things, salary, bonus, incentive compensation, rent and other administrative expenses for individuals and entities that perform services for the Partnership. Hi-Crush Services and its affiliates will not be liable to the Partnership for its performance of services under the Services Agreement, except for liabilities resulting from gross negligence. During the three months ended September�30, 2014 and 2013, the Partnership incurred $2,587 and $1,163, respectively, of management and administrative service expenses from Hi-Crush Services. During the nine months ended September�30, 2014 and 2013, the Partnership incurred $6,946 and $3,004, respectively, of management and administrative service expenses from Hi-Crush Services.
In the normal course of business, our sponsor and its affiliates, including Hi-Crush Services, and the Partnership may from time to time make payments on behalf of each other.
As of September�30, 2014, an outstanding balance of $6,712 payable to our sponsor is maintained as a current liability under the caption Due to Sponsor.
During the three and nine months ended September 30, 2014, the Partnership purchased $3,011 of sand from Hi-Crush Whitehall LLC, a subsidiary of our sponsor and the entity that owns the sponsor's Whitehall facility, at a purchase price in excess of our production cost per ton.



[26]

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

[27]

14. Commitments and Contingencies
The Partnership enters into sales contracts with customers. These contracts establish minimum annual sand volumes that the Partnership is required to make available to such customers under initial terms ranging from three to six years. Through September�30, 2014, no payments for non-delivery of minimum annual sand volumes have been made by the Partnership to these customers under these contracts.
D&I has entered into a long-term supply agreement with a supplier which includes a requirement to purchase certain volumes and grades of sands at specified prices. The quantities set forth in such agreements are not in excess of our current requirements.
The Partnership has entered into royalty agreements under which it is committed to pay royalties on sand sold from the Wyeville and Augusta facilities for which the Partnership has received payment by the customer. Royalty expense is recorded as the sand is sold and is included in costs of goods sold. Royalty expense was $4,011 and $2,179 for the three months ended September�30, 2014 and 2013, respectively, and $10,743 and $5,618 for the nine months ended September�30, 2014 and 2013, respectively.
The Partnership has long-term leases for rail access, railcars and equipment at its terminal sites, which are also under long-term lease agreements with various railroads. As of September�30, 2014, future minimum operating lease payments are as follows:
Fiscal Year
Amount
2014 (Three Months)
$
2,704

2015
10,724

2016
9,830

2017
9,545

2018
8,715

Thereafter
10,092

�
$
51,610

From time to time the Partnership may be subject to various claims and legal proceedings which arise in the normal course of business. Management is not aware of any legal matters that are likely to have a material adverse effect on the Partnerships financial position, results of operations or cash flows.
In May 2012, Hi-Crush Operating LLC, a subsidiary of the Partnership, entered into a supply agreement for frac sand with Baker Hughes Oilfield Operations, Inc. (Baker Hughes). On September 19, 2012, Baker Hughes provided notice that it was terminating the contract and on November 12, 2012, Hi-Crush Operating LLC formally terminated the supply agreement and filed suit in the State District Court of Harris County, Texas. On October 8, 2013, Hi-Crush Operating LLC entered into a settlement agreement with Baker Hughes pursuant to which Hi-Crush Operating LLC and Baker Hughes agreed to jointly dismiss the lawsuit between the parties and, in connection with the settlement, the parties entered into a six-year supply agreement that requires Baker Hughes to purchase minimum volumes of frac sand each month.
Following the Partnerships November 2012 announcement that Hi-Crush Operating LLC had formally terminated its supply agreement with Baker Hughes in response to the repudiation of the agreement by Baker Hughes, the Partnership, our General Partner, certain of its officers and directors and its underwriters were named as defendants in purported securities class action lawsuits brought by the Partnerships unitholders in the United States District Court for the Southern District of New York. On February 11, 2013, the lawsuits were consolidated into one lawsuit, styled In re: Hi-Crush Partners L.P. Securities Litigation, No. 12-Civ-8557 (CM). A consolidated amended complaint was filed on February 15, 2013. That complaint asserted claims under sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, or the Securities Act, and sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, in connection with the Partnerships Registration Statement and a subsequent presentation. Among other things, the consolidated amended complaint alleges that defendants failed to disclose to the market certain alleged information relating to Baker Hughes repudiation of the supply agreement. On March 22, 2013, the Partnership filed a motion to dismiss the complaint. On December 2, 2013, the court issued an order dismissing the claims relating to the Partnerships Registration Statement, but did not dismiss the claims relating to alleged misrepresentations concerning the Partnerships relationship with Baker Hughes after the Partnerships initial public offering. The Partnership and the remaining defendants in the lawsuit have filed answers to the complaint. The Partnership believes the case is without merit and intends to vigorously defend itself. It is not possible to predict the outcome of this claim. However, in our opinion, the likelihood that the ultimate disposition of this claim will have a material adverse effect on our consolidated financial statements is remote.
On December 20, 2013, Stephen Bushansky, a purported unitholder of the Partnership, filed a lawsuit, derivatively on behalf of the Partnership, against our General Partner and certain of its officers and directors, in an action styled Bushansky v. Hi-Crush GP LLC, Cause No. 2013-76463, in the 215th Judicial District Court, Harris County, Texas. The lawsuit alleged that by failing to disclose Baker Hughes attempted repudiation of its supply agreement with Hi-Crush Operating LLC prior to the Partnerships November 2012 announcement terminating the agreement, defendants failed to design and implement an effective system of

[28]

internal controls to prevent the Partnership from violating federal securities laws. Plaintiff asserted a claim for breach of fiduciary duties of good faith, care, loyalty, reasonable inquiry, oversight and supervision. Plaintiff also asserted that the defendants aided and abetted in one anothers breaches of fiduciary duties and sought relief from defendants on the theory of indemnity for all damages that occurred as a result of defendants alleged violations. On January 29, 2014, defendants filed a motion to dismiss, plea to the jurisdiction, or in the alternative, motion to stay based on the mandatory contractual forum selection clause in our partnership agreement. On March 7, 2014, the court granted defendants' motion to dismiss without prejudice.


[29]

15. Asset Retirement Obligation
Although the ultimate amount of reclamation and closure costs to be incurred is uncertain, the Partnership maintains a post-closure reclamation and site restoration obligations as follows:
Balance at December�31, 2013 (Recasted)
$
4,628

Additions to liabilities


Accretion expense
184

Balance at September 30, 2014
$
4,812


[30]

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


























��



[31]

Condensed Consolidating Balance Sheet
As of September 30, 2014
�
Parent
�
Guarantor Subsidiaries
�
Non-Guarantor Subsidiaries
�
Consolidating Adjustments
�
Consolidated
Assets
�
�
�
�
�
�
�
�
�
Current assets:
�
�
�
�
�
�
�
�
�
Cash
$
15,339

�
$
3,394

�
$
1,892

�
$


�
$
20,625

Restricted cash


�
690

�


�


�
690

Accounts receivable


�
50,875

�
8,074

�


�
58,949

Intercompany receivables
103,721

�
107,635

�


�
(211,356
)
�


Inventories


�
17,651

�
6,740

�
(2,006
)
�
22,385

Prepaid expenses and other current assets
339

�
2,226

�
35

�


�
2,600

Total current assets
119,399

�
182,471


16,741

�
(213,362
)
�
105,249

Property, plant and equipment, net
5

�
119,753

�
97,566

�


�
217,324

Goodwill and intangible assets, net


�
67,551

�


�


�
67,551

Investment in consolidated affiliates
232,404

�


�
224,250

�
(456,654
)
�


Other assets
7,802

�
4,794

�


�


�
12,596

Total assets
$
359,610

�
$
374,569


$
338,557

�
$
(670,016
)
�
$
402,720

Liabilities, Equity and Non-Controlling Interest
�
�
�
�
�
�
�
�
�
Current liabilities:
�
�
�
�
�
�
�
�
�
Accounts payable
$
6

�
$
11,617

�
$
4,227

�
$


�
$
15,850

Accrued and other current liabilities
444

�
6,258

�
8,098

�


�
14,800

Intercompany payables


�


�
211,356

�
(211,356
)
�


Due to sponsor
842

�
5,436

�
434

�


�
6,712

Current portion of long-term debt
2,000

�


�


�


�
2,000

Total current liabilities
3,292

�
23,311


224,115

�
(211,356
)
�
39,362

Long-term debt
195,118

�


�


�


�
195,118

Asset retirement obligation


�
1,767

�
3,045

�


�
4,812

Total liabilities
198,410

�
25,078


227,160

�
(211,356
)
�
239,292

Commitments and contingencies


�


�


�


�


Equity and Non-Controlling Interest:
�
�
�
�
�
�
�
�
�
Equity
161,200

�
349,491

�
109,169

�
(458,660
)
�
161,200

Non-controlling interest


�


�
2,228

�


�
2,228

Total equity and non-controlling interest
161,200

�
349,491


111,397

�
(458,660
)
�
163,428

Total liabilities, equity and non-controlling interest
$
359,610

�
$
374,569


$
338,557

�
$
(670,016
)
�
$
402,720












[32]


Condensed Consolidating Balance Sheet
As of December 31, 2013
�
Parent
�
Guarantor Subsidiaries
�
Non-Guarantor Subsidiaries
�
Consolidating Adjustments
�
Consolidated
Assets
�
�
�
�
�
�
�
�
�
Current assets:
�
�
�
�
�
�
�
�
�
Cash
$
12,056

�
$
3,991

�
$
4,561

�
$


�
$
20,608

Restricted cash


�
690

�


�


�
690

Accounts receivable


�
31,581

�
5,861

�


�
37,442

Intercompany receivables


�
54,468

�
1,311

�
(55,779
)
�


Inventories


�
16,265

�
7,102

�
(949
)
�
22,418

Prepaid expenses and other current assets
573

�
859

�
193

�


�
1,625

Total current assets
12,629

�
107,854

�
19,028

�
(56,728
)
�
82,783

Property, plant and equipment, net
7

�
113,335

�
82,492

�


�
195,834

Goodwill and intangible assets, net


�
71,936

�


�


�
71,936

Investment in consolidated affiliates
329,604

�


�


�
(329,604
)
�


Other assets
1,467

�
2,341

�


�


�
3,808

Total assets
$
343,707

�
$
295,466

�
$
101,520

�
$
(386,332
)
�
$
354,361

Liabilities, Equity and Non-Controlling Interest
�
�
�
�
�
�
�
�
�
Current liabilities:
�
�
�
�
�
�
�
�
�
Accounts payable
$
219

�
$
8,087

�
$
1,802

�
$


�
$
10,108

Accrued and other current liabilities
459

�
3,917

�
3,293

�


�
7,669

Intercompany payables
55,779

�


�


�
(55,779
)
�


Due to Sponsor
877

�
382

�
9,093

�


�
10,352

Total current liabilities
57,334

�
12,386

�
14,188

�
(55,779
)
�
28,129

Long-term debt
138,250

�


�


�


�
138,250

Asset retirement obligation


�
1,673

�
2,955

�


�
4,628

Total liabilities
195,584

�
14,059

�
17,143

�
(55,779
)
�
171,007

Commitments and contingencies


�


�


�


�


Equity and Non-Controlling Interest:
�
�
�
�
�
�
�
�
�
Equity
148,123

�
281,407

�
49,146

�
(330,553
)
�
148,123

Non-controlling interest


�


�
35,231

�


�
35,231

Total equity and non-controlling interest
148,123

�
281,407

�
84,377

�
(330,553
)
�
183,354

Total liabilities, equity and non-controlling interest
$
343,707

�
$
295,466

�
$
101,520

�
$
(386,332
)
�
$
354,361

















[33]

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


�
$
88,982

�
$
24,964

�
$
(11,630
)
�
$
102,316

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


�
57,849

�
9,960

�
(12,169
)
�
55,640

Gross profit


�
31,133

�
15,004

�
539

�
46,676

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

�
2,117

�
359

�


�
6,183

Exploration expense


�


�


�


�


Accretion of asset retirement obligation


�
31

�
30

�


�
61

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

�
14,615

�
539

�
40,432

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

�


�


�
(43,783
)
�


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


�
(3,111
)
Net income
37,029

�
28,957

�
14,579

�
(43,244
)
�
37,321

Income attributable to non-controlling interest


�


�
(292
)
�


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

�
$
28,957

�
$
14,287

�
$
(43,244
)
�
$
37,029


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


�
$
217,734

�
$
65,742

�
$
(27,858
)
�
$
255,618

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


�
142,502

�
28,824

�
(27,661
)
�
143,665

Gross profit


�
75,232

�
36,918

�
(197
)
�
111,953

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

�
7,864

�
1,549

�


�
19,287

Exploration expense


�


�


�


�


Accretion of asset retirement obligation


�
94

�
90

�


�
184

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

�
35,279

�
(197
)
�
92,482

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

�


�


�
(101,506
)
�


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


�
(6,836
)
Net income
84,942

�
67,226

�
35,181

�
(101,703
)
�
85,646

Income attributable to non-controlling interest


�


�
(704
)
�


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

�
$
67,226

�
$
34,477

�
$
(101,703
)
�
$
84,942












[34]

Condensed Consolidating Statements of Operations
�
Three Months Ended September 30, 2013
�
Parent
�
Guarantor Subsidiaries
�
Non-Guarantor Subsidiaries
�
Consolidating Adjustments
�
Consolidated
Revenues
$


�
$
43,515

�
$
10,761

�
$
(1,118
)
�
$
53,158

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


�
25,958

�
7,028

�
(1,118
)
�
31,868

Gross profit


�
17,557

�
3,733

�


�
21,290

Operating costs and expenses:
�
�
�
�
�
�
�
�
�
General and administrative expenses
1,766

�
3,264

�
513

�


�
5,543

Exploration expense


�


�


�


�


Accretion of asset retirement obligation


�
29

�
28

�


�
57

Income from operations
(1,766
)
�
14,264

�
3,192

�


�
15,690

Other income (expense):
�
�
�
�
�
�
�
�
�
Earnings from consolidated affiliates
17,325

�


�


�
(17,325
)
�


Interest expense
(1,204
)
�
(4
)
�
(65
)
�


�
(1,273
)
Net income
14,355

�
14,260

�
3,127

�
(17,325
)
�
14,417

Income attributable to non-controlling interest


�


�
(62
)
�


�
(62
)
Net income attributable to Hi-Crush Partners LP
$
14,355

�
$
14,260

�
$
3,065

�
$
(17,325
)
�
$
14,355


�
Nine Months Ended September 30, 2013
�
Parent
�
Guarantor Subsidiaries
�
Non-Guarantor Subsidiaries
�
Consolidating Adjustments
�
Consolidated
Revenues
$


�
$
90,244

�
$
26,833

�
$
(2,082
)
�
$
114,995

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


�
43,325

�
17,370

�
(2,082
)
�
58,613

Gross profit


�
46,919

�
9,463

�


�
56,382

Operating costs and expenses:
�
�
�
�
�
�
�
�
�
General and administrative expenses
7,522

�
4,074

�
1,726

�


�
13,322

Exploration expense


�
46

�
10

�


�
56

Accretion of asset retirement obligation


�
88

�
84

�


�
172

Income from operations
(7,522
)
�
42,711

�
7,643

�


�
42,832

Other income (expense):
�
�
�
�
�
�
�
�
�
Earnings from consolidated affiliates
50,075

�


�


�
(50,075
)
�


Interest expense
(2,172
)
�
(13
)
�
(116
)
�


�
(2,301
)
Net income
40,381

�
42,698

�
7,527

�
(50,075
)
�
40,531

Income attributable to non-controlling interest


�


�
(150
)
�


�
(150
)
Net income attributable to Hi-Crush Partners LP
$
40,381

�
$
42,698

�
$
7,377

�
$
(50,075
)
�
$
40,381












[35]

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

�
$
63,666

�
$
28,793

�
$
(73,404
)
�
$
77,838

Investing activities:
�
�
�
�
�
�
�
�
�
Cash paid for acquisition of Hi-Crush Augusta LLC


�


�
(224,250
)
�


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


�
(7,513
)
�
(14,808
)
�


�
(22,321
)
Net cash used in investing activities


�
(7,513
)
�
(239,058
)
�


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

�


�


�


�
170,693

Proceeds from issuance of long-term debt
198,000

�


�


�


�
198,000

Repayment of long-term debt
(139,250
)
�


�


�


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

�
64,750

�


Loan origination costs
(7,096
)
�


�


�


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


�


�


�
(19
)
Distributions paid
(53,578
)
�


�
(8,654
)
�
8,654

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

�
73,404

�
168,750

Net increase (decrease) in cash
3,283

�
(597
)
�
(2,669
)
�


�
17

Cash:
�
�
�
�
�
�
�
�
�
Beginning of period
12,056

�
3,991

�
4,561

�


�
20,608

End of period
$
15,339

�
$
3,394

�
$
1,892

�
$


�
$
20,625

�
Nine Months Ended September 30, 2013
�
Parent
�
Guarantor Subsidiaries
�
Non-Guarantor Subsidiaries
�
Consolidating Adjustments
�
Consolidated
Net cash provided by operating activities
$
46,186

�
$
42,549

�
$
16,051

�
$
(52,507
)
�
$
52,279

Investing activities:
�
�
�
�
�
�
�
�
�
Cash paid for acquisition of Hi-Crush Augusta LLC
(37,500
)
�


�


�
37,500

�


Cash paid for acquisition of D&I Silica LLC
(95,277
)
�


�


�


�
(95,277
)
Capital expenditures for property, plant and equipment


�
(4,854
)
�
(4,032
)
�


�
(8,886
)
Net cash (used in) provided by investing activities
(132,777
)
�
(4,854
)
�
(4,032
)
�
37,500

�
(104,163
)
Financing activities:
�
�
�
�
�
�
�
�
�
Proceeds from issuance of long-term debt
138,250

�


�


�


�
138,250

Capital contribution


�


�
37,500

�
(37,500
)
�


Repayment of long-term debt


�


�
(33,250
)
�


�
(33,250
)
Advances to parent, net


�
(45,007
)
�


�
45,007

�


Affiliate financing, net


�
5,615

�


�


�
5,615

Loan origination costs
(805
)
�


�


�


�
(805
)
Distributions paid
(39,633
)
�


�
(12,137
)
�
7,500

�
(44,270
)
Net cash provided by (used in) financing activities
97,812

�
(39,392
)
�
(7,887
)
�
15,007

�
65,540

Net increase in cash
11,221

�
(1,697
)
�
4,132

�


�
13,656

Cash:
�
�
�
�
�
�
�
�
�
Beginning of period


�
10,498

�


�


�
10,498

End of period
$
11,221

�
$
8,801

�
$
4,132

�
$


�
$
24,154



[36]

17. Subsequent Events
On October�15, 2014, we declared a cash distribution totaling $23,095, or $0.6250 per common and subordinated unit. This distribution will be paid on November�14, 2014 to unitholders of record on October�31, 2014. A distribution of $695 was declared for the holder of our incentive distribution rights.


[37]

ITEM�2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with our unaudited condensed financial statements and accompanying notes in Item 1. Financial Statements contained herein and our audited financial statements as of December�31, 2013, included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 28, 2014, as amended by the Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 2014. The information provided below supplements, but does not form part of, our unaudited condensed financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. See Forward-Looking Statements in this Quarterly Report on Form 10-Q. All amounts are presented in thousands except tonnage, acreage or per unit data, or where otherwise noted.

[38]

Overview
We are a pure play, low-cost, domestic producer and supplier of premium monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. Our reserves consist of Northern White sand, a resource existing predominately in Wisconsin and limited portions of the upper Midwest region of the United States, which is highly valued as a preferred proppant because it exceeds all American Petroleum Institute (API) specifications. We own, operate and develop sand reserves and related excavation and processing facilities and will seek to acquire or develop additional facilities. Our 651-acre facility with integrated rail infrastructure, located near Wyeville, Wisconsin (the Wyeville facility) enables us to process and cost-effectively deliver approximately 1,600,000 tons of frac sand per year. We also own a 98.0% interest in Hi-Crush Augusta LLC (Augusta), the entity that owns a 1,187-acre facility with integrated rail infrastructure, located in Eau Claire County, Wisconsin (the Augusta facility), which enables us to process and cost-effectively deliver a further 1,600,000 tons of frac sand per year. We are in the process of expanding the capacity of our Augusta facility by an additional 1,000,000 tons, which we expect to be completed during the fourth quarter of 2014.
A substantial portion of our frac sand production is sold to leading pressure pumping service providers under long-term contracts that require our customers to pay a specified price for a specified volume of frac sand each month. From October 2013 to October 2014, we entered into amendments of existing supply agreements and four new supply agreements, each requiring the customer to purchase minimum volumes of frac sand each month. As of November 1, 2014, we had contracted to sell 3.8 million tons in 2014 and 6.6 million tons in 2015 from our production facilities and destination terminals. The pricing of the sand varies for each mesh size and delivery point. Based on the terms of the agreements, we expect our customers to take 70 to 80 percent of the volumes under FOB plant pricing in 2014 and 65% to 75% percent in 2015. As of November 1, 2014, the contracts had an average remaining life of 4.4 years.
On June 10, 2013, we acquired D&I Silica, LLC (D & I), an independent frac sand supplier, transforming us into an integrated Northern White frac sand producer, transporter, marketer and distributor. The Partnership acquired D&I for $95,159 in cash and 1,578,947 common units. Founded in 2006, D&I was the largest independent frac sand supplier to the oil and gas industry drilling in the Marcellus and Utica shales. We operate through an extensive logistics network of rail-served origin and destination terminals located in the Midwest near supply sources and strategically throughout Pennsylvania, Ohio, New York and Texas.
On May 9, 2013, we entered into a commitment increase agreement and second amendment to our then-existing revolving credit facility whereby the lending banks, among other things, consented to the increase of the aggregate commitments by $100,000 to a total of $200,000 and addition of lenders to the lending bank group. On June 10, 2013, we drew $100,000 under the credit facility to fund the acquisition of D&I.
On January 31, 2013, we entered into an agreement with our sponsor to acquire a preferred interest in Augusta for $37,500 in cash and 3.75 million Class B units in the Partnership. Our sponsor did not receive distributions on the Class B units until they converted into common units. The conditions precedent to conversion of the Class B units were satisfied upon payment of our distribution on August 15, 2014 and, the sponsor, who is the sole owner of our Class B units, elected to convert all of the 3,750,000 Class B units into common units on a one-for-one basis.� The preferred interest in Augusta entitled us to a preferred distribution of up to $3,750 per quarter, or $15,000 annually.
On April 8, 2014, the Partnership entered into a contribution agreement with the sponsor to acquire substantially all of the remaining equity interests in the sponsors Augusta facility for cash consideration of $224,250 (the Augusta Contribution). To finance the Augusta Contribution and refinance the Partnerships revolving credit facility, (i) on April 8, 2014, the Partnership commenced a primary public offering of 4,250,000 common units representing limited partnership interests in the Partnership and (ii) on April 28, 2014, the Partnership entered into a $200,000 senior secured term loan facility with certain lenders. The Partnerships primary public offering closed on April�15, 2014. On May 9, 2014, the Partnership issued an additional 75,000 common units pursuant to the partial exercise of the underwriters' over-allotment option in connection with the April 2014 primary public offering. Net proceeds to the Partnership from the primary offering and the exercise of the over-allotment option totaled $170,693. Upon receipt of the proceeds from the public offering on April 15, 2014, the Partnership paid off the outstanding balance of $124,750 under its revolving credit facility. The Augusta Contribution closed on April 28, 2014, and at closing, the Partnerships preferred equity interest in Augusta was converted into common equity interests of Augusta. Following the Augusta Contribution, the Partnership owns 98.0% of Augustas common equity interests. In addition, on April 28, 2014, the Partnership entered into a $150,000 senior secured revolving credit facility with various financial institutions by amending and restating its prior $200,000 revolving credit facility.


[39]

Basis of Presentation
The following discussion of our historical performance and financial condition is derived from the historical financial statements.
Factors Impacting Comparability of Our Financial Results
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future principally for the following reasons:
"
We completed our acquisition of D&I in June 2013. On June�10, 2013, we acquired D&I, an independent frac sand supplier, transforming us into an integrated Northern White frac sand producer, transporter, marketer and distributor. As a result of the acquisition, we now operate through an extensive logistics network of rail-served origin and destination terminals. Subsequent to June 10, 2013, we incur freight and logistics costs involved in the sourcing of sand to the destination terminals, as well as purchase sand from third parties.
"
We constructed additional equipment and silo storage facilities to produce and ship 100 mesh product. During the third quarter of 2013, we began selling 100 mesh product to customers. During 2014, we completed construction of additional equipment and silo storage facilities to produce and store 100 mesh product at our facilities. Sales prices for 100 mesh are typically lower than prices of other grades of sand.
"
We are incurring increased interest expense on our credit facility as a result of our acquisition of D&I and the Augusta Contribution. As of January 1, 2013, we did not have any indebtedness outstanding. In January 2013, in connection with our acquisition of a preferred interest in Augusta, we drew $38,250 under our credit facility. In June 2013, in connection with our acquisition of D&I, we drew $100,000 under our credit facility. In March 2014, we repaid $13,500 under our credit facility. The remaining outstanding balance of the credit facility was repaid in full on April 15, 2014 with the proceeds from a public offering of our common units. On April 28, 2014, the Partnership entered into a senior secured term loan credit facility that permits aggregate borrowings of up to $200,000, which was fully drawn down on April 28, 2014. The outstanding balance of $197,118 carries an interest rate of 4.75% as of September 30, 2014.

[40]

Our Assets and Operations
We own and operate the Wyeville facility, which is located in Monroe County, Wisconsin and, as of December�31, 2013, contained 62.6�million tons of proven, recoverable saleable sand reserves. As of April 28, 2014, we own a 98.0% interest in the Augusta facility, which is located in Eau Claire County, Wisconsin and, as of December�31, 2013, contained 46.8�million tons of proven, recoverable sand reserves. According to John T. Boyd, a leading mining consulting firm focused on the mineral and natural gas industries (John T. Boyd), our proven reserves at these facilities consist of coarse grade Northern White sand exceeding API specifications. Analysis of our sand at these facilities by independent third-party testing companies indicates that it demonstrates characteristics exceeding API specifications with regard to crush strength, turbidity and roundness and sphericity.
During the third quarter of 2013, we began selling 100 mesh product to customers. During 2014, we completed construction of additional equipment and silo storage facilities to store 100 mesh product at our facilities. During the third quarter of 2014, our sponsor completed construction of the 1,277 acre facility with integrated rail infrastructure, located in Independence, Wisconsin (the Whitehall facility). As of December 31, 2013, this facility contained 84.1 million tons of proven, recoverable salable sand reserves and is capable of delivering approximately 2,600,000 tons of frac sand per year.
As of November 1, 2014, we had contracted to sell 3.8 million tons in 2014 and 6.6 million tons in 2015 from our production facilities and destination terminals. Based on reserve reports prepared by John T. Boyd, and assuming production at our rated capacity of 3,200,000 tons of 20/70 frac sand per year, our production facilities have an implied average 34-year reserve life as of December 31, 2013.
As of September 30, 2014, we operated 14 destination rail-based terminal locations throughout the Marcellus, Permian and Utica shale basins. Our destination terminals include 296,200 tons of rail storage capacity and we are currently in the process of expanding our silo storage capacity in the Marcellus and Utica shales by more than 70,000 tons, which will result in over 100,000 tons of silo storage capacity in this region. Our Minerva, Pittston, Smithfield and Wellsboro terminals are capable of accommodating unit trains.
We are continuously looking to increase the number of destination terminals we operate and expand our geographic footprint, allowing us to further enhance our customer service and putting us in a stronger position to take advantage of opportunistic short term pricing agreements. Our destination terminals are strategically located to provide access to Class I railroads, which enables us to cost effectively ship product from our production facilities in Wisconsin. We also have the ability to connect to short-line railroads as necessary to meet our customers evolving in-basin product needs. As of September 30, 2014, we leased or owned 2,070 railcars used to transport our sand from origin to destination and manage a fleet of approximately 3,900 additional railcars dedicated to our facilities by our customers or the Class I railroads.


[41]

How We Generate Revenue
We generate revenue by excavating, processing and delivering frac sand and providing related services. A substantial portion of our frac sand is sold to our customers under long-term contracts that require our customers to pay a specified price for a specified annual volume of sand, which contracts have current terms expiring between 2016 and 2019. Each contract defines the minimum volume of frac sand that the customer is required to purchase monthly and annually, the volume that we are required to make available, the technical specifications of the product, the price per ton and liquidated damages in the event either we or the customer fails to meet minimum requirements. Prices in our current contracts are fixed for the entire term of the contracts with certain volumes being subject to annual fixed price escalators. As a result, our revenue during the duration of these contracts may not follow broader industry pricing trends.
Delivery of sand to our customers may occur at the rail origin or at the destination terminal. We generate service revenues through performance of transportation services including railcar storage fees, transload services, silo storage and other miscellaneous services performed on behalf of our customers. In addition to our frac sand and service revenues, we lease silo space to customers under long-term lease agreements, which typically require monthly payments over the term of the lease.
Due to sustained freezing temperatures in our area of operation during winter months, it is industry practice to halt excavation activities and operation of the wet plant during those months. As a result, we excavate and wash sand in excess of current delivery requirements during the months when those facilities are operational. This excess sand is placed in stockpiles that feed the dry plant and fill customer orders throughout the year.


[42]

Costs of Conducting Our Business
The principal expenses involved in production of raw frac sand are excavation costs, labor, utilities, maintenance and royalties. We have a contract with a third party to excavate raw frac sand, deliver the raw frac sand to our processing facility and move the sand from our wet plant to our dry plant. We pay a fixed price per ton excavated and delivered without regard to the amount of sand excavated that meets API specifications. Accordingly, we incur excavation costs with respect to the excavation of sand and other materials from which we ultimately do not derive revenue (rejected materials), and for sand which is still to be processed through the dry plant and not yet sold. However, the ratio of rejected materials to total amounts excavated has been, and we believe will continue to be, in line with our expectations, given the extensive core sampling and other testing we undertook at our facilities.
Labor costs associated with employees at our processing facilities represent the most significant cost of converting raw frac sand to finished product. We incur utility costs in connection with the operation of our processing facility, primarily electricity and natural gas, which are both susceptible to fluctuations. Our facilities require periodic scheduled maintenance to ensure efficient operation and to minimize downtime. Excavation, direct and indirect labor, utilities and maintenance costs are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.
We pay royalties to third parties at our facilities at various rates, as defined in the individual royalty agreements, at an aggregate rate of approximately $2.50 to $6.15 per ton of sand excavated, delivered at our on-site rail facilities and paid for by our customers.
The principal expenses involved in distribution of raw sand are the cost of purchased sand, freight charges, fuel surcharges, terminal switch fees, demurrage costs, storage fees, labor and rent.
We purchase sand through a long-term supply agreement with a third party at a specified price per ton, through the spot market and also from our Sponsor's Whitehall facility. We incur transportation costs including trucking, rail freight charges and fuel surcharges when transporting our sand from its origin to destination. We utilize a diverse base of railroads to transport our sand and transportation costs are typically negotiated through long-term working relationships.
In addition to our sand and transportation costs, we incur other costs, some of which are passed through to our customers. For example, we incur terminal switch fees payable to the railroads when they transport to certain of our locations along with demurrage and storage fees. We also pay demurrage and storage fees when we utilize system railcars as additional storage capacity at our terminals. Other key components involved in transporting and offloading our sand shipments include on-site labor and railcar rental fees.
We incur general and administrative costs related to our corporate operations. Under our partnership agreement and the services agreement with our sponsor and our General Partner, our sponsor has discretion to determine, in good faith, the proper allocation of costs and expenses to us for its services, including expenses incurred by our General Partner and its affiliates on our behalf. The allocation of such costs are based on managements best estimate of time and effort spent on the respective operations and facilities. Under these agreements, we reimburse our sponsor for all direct and indirect costs incurred on our behalf.


[43]

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

[44]

�
Three Months
�
Nine Months
�
Ended September 30,
�
Ended September 30,
(in thousands)
2014
�
2013
�
2014
�
2013
Reconciliation of distributable cash flow to net income:
�
�
�
�
�
�
�
Net income
$
37,321

�
$
14,417

�
$
85,646

�
$
40,531

Depreciation and depletion expense
2,677

�
2,189

�
6,581

�
4,259

Amortization expense
781

�
1,662

�
4,385

�
2,025

Interest expense
3,111

�
1,273

�
6,836

�
2,301

EBITDA
$
43,890

�
$
19,541

�
$
103,448

�
$
49,116

Less: Cash interest paid
(2,702
)
�
(1,178
)
�
(5,984
)
�
(1,854
)
Less: Income attributable to non-controlling interest
(292
)
�
(62
)
�
(704
)
�
(150
)
Less: Maintenance and replacement capital expenditures, including accrual for reserve replacement (1)
(1,387
)
�
(807
)
�
(3,644
)
�
(2,117
)
Add: Accretion of asset retirement obligation
61

�
57

�
184

�
172

Add: Unit based compensation
569

�


�
922

�


Distributable cash flow
$
40,139

�
$
17,551

�
$
94,222

�
$
45,167

Adjusted for: Distributable cash flow attributable to Hi-Crush Augusta LLC, net of intercompany eliminations, prior to the Augusta Contribution (2)


�
50

�
(7,199
)
�
2,511

Distributable cash flow attributable to Hi-Crush Partners LP
40,139

�
17,601

�
87,023

�
47,678

Less: Distributable cash flow attributable to holders of incentive distribution rights
(7,791
)
�


�
(10,244
)
�


Distributable cash flow attributable to common and subordinated unitholders
$
32,348

�
$
17,601

�
$
76,779

�
$
47,678

(1)
Maintenance and replacement capital expenditures, including accrual for reserve replacement, were determined based on an estimated reserve replacement cost of $1.35 per ton produced and delivered during the period. Such expenditures include those associated with the replacement of equipment and sand reserves, to the extent that such expenditures are made to maintain our long-term operating capacity. The amount presented does not represent an actual reserve account or requirement to spend the capital.
(2)
The Partnership's historical financial information has been recast to consolidate Augusta for all periods presented. For purposes of calculating distributable cash flow attributable to Hi-Crush Partners LP, the Partnership excludes the incremental amount of recasted distributable cash flow earned during the periods prior to the Augusta Contribution.



[45]

Results of Operations
Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013
The following table presents consolidated revenues and expenses for the periods indicated.
�
Three Months
�
Three Months
�
Ended
�
Ended
�
September 30,
�
September 30,
�
2014
�
2013
Revenues
$
102,316

�
$
53,158

Costs of goods sold:
�
�
�
Production costs
14,274

�
11,411

Other cost of sales
38,328

�
18,047

Depreciation, depletion and amortization
3,038

�
2,410

Gross profit
46,676

�
21,290

Operating costs and expenses:
�
�
�
General and administrative
6,183

�
5,543

Exploration expense


�


Accretion of asset retirement obligation
61

�
57

Income from operations
40,432

�
15,690

Other income (expense):
�
�


Interest expense
(3,111
)
�
(1,273
)
Net income
37,321

�
14,417

Income attributable to non-controlling interest
(292
)
�
(62
)
Net income attributable to Hi-Crush Partners LP
$
37,029

�
$
14,355


Revenues
Revenues generated from the sale of frac sand were $83,420 for the three months ended September�30, 2014, during which we sold 1,180,602 tons of frac sand. Revenue was $48,505 for the three months ended September�30, 2013, during which we sold 709,488 tons of frac sand. Average sales price per ton was $71 for the three months ended September�30, 2014 and $68 for the three months ended September�30, 2013. The change in sales price between the two periods is due to the mix in pricing of FOB plant and FOB destination (68% and 69% of tons were sold FOB plant for the three months ended September�30, 2014 and 2013, respectively), the mix of product mesh sizes sold, and the impact of 5-10% price increases on spot sales at our distribution terminals.
Other revenue related to transload and terminaling, silo leases and other services was $18,896 and $4,653 for the three months ended September�30, 2014 and 2013, respectively. The increase in such revenues was driven by increased transloading services provided at our destination terminals.
Costs of goods sold  Production costs
We incurred production costs of $14,274, or $13.89 per ton produced and delivered, for the three months ended September�30, 2014, compared to $11,411, or $19.09 per ton produced and delivered for the three months ended September�30, 2013.
The principal components of production costs involved in operating our business are excavation costs, plant operating costs and royalties. Such costs, with the exception of royalties, are capitalized as a component of inventory and are reflected in costs of goods sold when inventory is sold. Royalties are charged to expense in the period in which they are incurred. The following table provides a comparison of the drivers impacting the level of production costs for the three months ended September�30, 2014 and 2013.

[46]

�
Three Months
�
Three Months
�
Ended
�
Ended
�
September 30,
�
September 30,
�
2014
�
2013
Excavation costs
$
3,211

�
3,272

Plant operating costs
7,052

�
5,960

Royalties
4,011

�
$
2,179

���Total production costs
$
14,274

�
$
11,411

The overall increase in production costs was attributable to higher tonnage produced and delivered from our production facilities during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, partially offset by reduced per ton costs due to operating efficiencies and reduced volumes of rejected material. Both factors are attributable, in part, to the increased production and sale of 100 mesh sand during the three months ended September 30, 2014 compared to the same period in the prior year.
Costs of goods sold  Other cost of sales
The other principal costs of goods sold are the cost of purchased sand, freight charges, fuel surcharges, terminal switch fees, demurrage costs, storage fees, labor and rent. The cost of purchased sand and transportation related charges are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold. Other cost components, including demurrage costs, storage fees, labor and rent are charged to costs of goods sold in the period in which they are incurred.
We purchase sand through a long-term supply agreement with a third party at a specified price per ton, through the spot market and from our Sponsor's Whitehall facility. For the three months ended September�30, 2014 and 2013, we incurred $4,178 and $8,016 of purchased sand costs, respectively. In addition, during the three months ended September 30, 2013, we incurred $838 of non-cash costs associated with the sale of inventory previously held as of June 10, 2013 and marked up to fair value in connection with the D&I acquisition.
We incur transportation costs including freight charges and fuel surcharges when transporting our sand from its origin to destination. For the three months ended September�30, 2014 and 2013, we incurred $26,636 and $8,215 of transportation costs, respectively. Other costs of sales was $4,503 and $2,096 during the three months ended September�30, 2014 and 2013, respectively, and was primarily comprised of demurrage, storage fees and on-site labor. The increase in transportation and other costs of sales was driven by increased throughput of tonnage at our destination terminals.
Costs of goods sold  Depreciation, depletion and amortization of intangible assets
For the three months ended September�30, 2014 and 2013, we incurred $3,038 and $2,410, respectively, of depreciation, depletion and amortization expense.
Gross Profit
Gross profit was $46,676 and $21,290 for the three months ended September�30, 2014 and 2013, respectively. Gross profit was primarily impacted by additional tons sold and reduced production per ton produced and delivered.
Operating Costs and Expenses
For the three months ended September�30, 2014 and 2013, we incurred general and administrative of expenses of $6,183 and $5,543, respectively. The increase in such costs was attributable to unit based compensation of $569, and higher payroll and related costs from additional sponsor headcount.
Interest Expense
Interest expense was $3,111 and $1,273 for the three months ended September�30, 2014 and 2013, respectively. The increase in interest expense during the 2014 period was primarily attributable to interest on our new $200,000 senior secured term loan facility, which was fully drawn on April 28, 2014 to finance the Augusta Contribution.
Net Income Attributable to Hi-Crush Partners LP
Net income attributable to Hi-Crush Partners LP was $37,029 and $14,355 for the three months ended September�30, 2014 and 2013, respectively.


[47]

Results of Operations
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
The following table presents consolidated revenues and expenses for the periods indicated.
�
Nine Months
�
Nine Months
�
Ended
�
Ended
�
September 30,
�
September 30,
�
2014
�
2013
Revenues
$
255,618

�
$
114,995

Costs of goods sold:
�
�
�
Production costs
42,644

�
29,981

Other cost of sales
93,049

�
23,789

Depreciation, depletion and amortization
7,972

�
4,843

Gross profit
111,953

�
56,382

Operating costs and expenses:
�
�
�
General and administrative
19,287

�
13,322

Exploration expense


�
56

Accretion of asset retirement obligation
184

�
172

Income from operations
92,482

�
42,832

Other income (expense):
�
�
�
Interest expense
(6,836
)
�
(2,301
)
Net income
85,646

�
40,531

Income attributable to non-controlling interest
(704
)
�
(150
)
Net income attributable to Hi-Crush Partners LP
$
84,942

�
$
40,381

Revenues
Revenues generated from the sale of frac sand were $217,648 for the nine months ended September�30, 2014, during which we sold 3,102,897 tons of frac sand. Revenue was $109,345 for the nine months ended September�30, 2013, during which we sold 1,706,025 tons of frac sand. Average sales price per ton was $70 for the nine months ended September�30, 2014 and $64 for the nine months ended September�30, 2013. The change in sales price between the two periods is due to the mix in pricing of FOB plant and FOB destination (67% and 84% of tons were sold FOB plant for the nine months ended September�30, 2014 and 2013, respectively), the mix of product mesh sizes sold, and the impact of 5-10% price increases on spot sales at our distribution terminals.
Other revenue related to transload and terminaling, silo leases and other services was $37,970 and $5,650 for the nine months ended September�30, 2014 and 2013. The increase in such revenues was driven by increased transloading services provided at our destination terminals.
Costs of goods sold  Production costs
We incurred production costs of $42,644, or $15.80 per ton produced and delivered, for the nine months ended September�30, 2014, compared to $29,981, or $19.50 per ton produced and delivered for the nine months ended September�30, 2013.
The principal components of production costs involved in operating our business are excavation costs, plant operating costs and royalties. Such costs, with the exception of royalties, are capitalized as a component of inventory and are reflected in costs of goods sold when inventory is sold. Royalties are charged to expense in the period in which they are incurred. The following table provides a comparison of the drivers impacting the level of production costs for the nine months ended September�30, 2014 and 2013.

[48]

�
Nine Months
�
Nine Months
�
Ended
�
Ended
�
September 30,
�
September 30,
�
2014
�
2013
Excavation costs
$
12,721

�
$
8,031

Plant operating costs
19,179

�
16,332

Royalties
10,744

�
5,618

���Total production costs
$
42,644

�
$
29,981

The overall increase in production costs was attributable to higher tonnage produced and delivered from our production facilities during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, partially offset by reduced per ton costs due to operating efficiencies and reduced volumes of rejected material. Both factors are attributable, in part, to the increased production and sale of 100 mesh sand during the nine months ended September 30, 2014 compared to the same period in the prior year.
Costs of goods sold  Other cost of sales
The other principal costs of goods sold are the cost of purchased sand, freight charges, fuel surcharges, terminal switch fees, demurrage costs, storage fees, labor and rent. The cost of purchased sand and transportation related charges are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold. Other cost components, including demurrage costs, storage fees, labor and rent are charged to costs of goods sold in the period in which they are incurred.
We purchase sand through a long-term supply agreement with a third party at a specified price per ton and through the spot market. For the nine months ended September�30, 2014 and 2013, we incurred $11,379 and $10,790 of purchased sand costs, respectively. In addition, during the nine months ended September 30, 2013, we incurred $1,171 of non-cash costs associated with the sale of inventory previously held as of June 10, 2013 and marked up to fair value in connection with the D&I acquisition.
We incur transportation costs including freight charges and fuel surcharges when transporting our sand from its origin to destination. For the nine months ended September�30, 2014 and 2013, we incurred $67,886 and $10,157 of transportation costs, respectively. The increase in transportation costs is primarily due to the timing of the June 10, 2013 acquisition of D&I and increased throughput of tonnage at our destination terminals.
Other costs of sales was $10,773 and $2,789 during the nine months ended September�30, 2014 and 2013, respectively, and was primarily comprised of demurrage, storage fees and on-site labor. Demurrage and storage fees were significantly lower in the nine months ended September 30, 2014 compared to the period subsequent to the June 10, 2013 acquisition of D&I due to reduced volumes held in inventory at the destination terminals.
Costs of goods sold  Depreciation, depletion and amortization of intangible assets
For the nine months ended September�30, 2014 and 2013, we incurred $7,972 and $4,843, respectively, of depreciation, depletion and amortization expense. The increase in such costs is attributable to increased deprecation and amortization resulting from the timing of the June 10, 2013 acquisition of D&I.
Gross Profit
Gross profit was $111,953 and $56,382 for the nine months ended September�30, 2014 and 2013, respectively. Gross profit was primarily impacted by additional tons sold and additional gross profit contributed from the D&I operations.
Operating Costs and Expenses
For the nine months ended September�30, 2014 and 2013, we incurred general and administrative expenses of $19,287 and $13,322, respectively. The increase in such costs was attributable to $768 of transaction costs associated with the Augusta Contribution, increased amortization of intangible assets of $1,554, unit based compensation of $822, and higher payroll and related costs from additional sponsor headcount.
Interest Expense
Interest expense was $6,836 and $2,301 for the nine months ended September�30, 2014 and 2013, respectively. The increase in interest expense during the 2014 period was primarily attributable to interest on our new $200,000 senior secured term loan facility, which was fully drawn on April 28, 2014 to finance the Augusta Contribution.
Net Income Attributable to Hi-Crush Partners LP
Net income attributable to Hi-Crush Partners LP was $84,942 and $40,381 for the nine months ended September�30, 2014 and 2013, respectively.


[49]

Liquidity and Capital Resources
Overview
We expect our principal sources of liquidity will be cash generated by our operations, supplemented by borrowings under our amended and restated $150,000 five-year revolving credit facility, as necessary. We believe that cash from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements. As of October 31, 2014, our sources of liquidity consisted of $18,807 of available cash and $143,813 pursuant to available borrowings under our revolving credit facility ($150,000, net of $6,187 letter of credit commitments). In addition, our General Partner is authorized to issue an unlimited number of units without the approval of existing limited partner unitholders.
We expect that our future principal uses of cash will be for working capital, making distributions to our unitholders, capital expenditures and funding any debt service obligations. We are incurring construction costs to expand the annual capacity of the Augusta facility by 1.0 million tons. The expansion is expected to be completed in 2014 at an approximate cost of $25,000. On October�15, 2014, our General Partners board of directors declared a cash distribution for the third quarter of 2014 of $0.6250 per common and subordinated unit, or $2.50 on an annualized basis, and a distribution of $695 was declared for our holders of incentive distribution rights. This represented the ninth distribution declared by us and corresponds to a 32% increase from our minimum quarterly distribution of $0.4750 per unit. This distribution will be paid on November�14, 2014 to unitholders of record on October�31, 2014. On a going-forward basis, we intend to pay a quarterly distribution of $0.6250 per common and subordinated unit per quarter, which equates to approximately $23,095 per quarter, or $92,380 per year, based on the number of common and subordinated units outstanding, to the extent we have sufficient operating surplus, as defined in our partnership agreement, and cash generated from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner and its affiliates. If such distribution is paid, we intend to pay a quarterly distribution to our holders of incentive distribution rights of $695 per quarter, or $2,780 per year. We do not have a legal or contractual obligation to pay this distribution.
Working Capital
Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. As of September�30, 2014, we had a positive working capital balance of $44,572 as compared to a balance of $33,356 at December�31, 2013.
�
September 30, 2014
�
December 31, 2013
Current assets:
�
�
�
Accounts receivable
$
58,949

�
$
37,442

Inventories
22,385

�
22,418

Prepaid and other current assets
2,600

�
1,625

Total current assets
83,934

�
61,485

Current liabilities:
�
�
�
Accounts payable
15,850

�
10,108

Accrued and other current liabilities
14,800

�
7,669

Due to sponsor
6,712

�
10,352

Current portion of long-term debt
2,000

�


Total current liabilities
39,362

�
28,129

Working capital
$
44,572

�
$
33,356

Accounts receivable increased by $21,507 during the nine months ended September�30, 2014, which was driven by higher sales volumes in the month of September 2014 compared to December 2013.
Our inventory consists primarily of sand that has been excavated and processed through the wet plant, and finished goods in transit or in storage at our distribution terminals. The decrease in our inventory was primarily driven by decreased finished goods inventory of $1,155 during the period, offset by a $1,222 increase to our stockpile for processing through the dry plant for the upcoming winter season. Most of our finished goods inventory is either in transit to our customers or held at our terminals for future sale.
Accounts payable and accrued liabilities increased by $12,873 on a combined basis. The increase was primarily due to an increase in outstanding capital expenditures arising from the expansion project at our Augusta facility. The increase is also attributable to higher sales volumes and the wet plants not operating during the winter months, resulting in higher purchasing and other spending in the third quarter 2014 compared to the fourth quarter 2013.
Our accounts payable to our sponsor decreased during the nine months ended September�30, 2014, primarily as a result of the timing of payments made by Augusta to the Sponsor leading up to the Augusta Contribution.

[50]

�
Nine Months
�
Nine Months
�
Ended
�
Ended
�
September 30,
�
September 30,
�
2014
�
2013
Net cash provided by (used in):
�
�
�
Operating activities
$
77,838

�
$
52,279

Investing activities
(246,571
)
�
$
(104,163
)
Financing activities
168,750

�
$
65,540

Cash Flows - Nine Months Ended September 30, 2014 and 2013
Operating Activities
Net cash provided by operating activities was $77,838 and $52,279 for the nine months ended September�30, 2014 and 2013, respectively. Operating cash flows include $85,646 and $40,531 of net income earned during the nine months ended September�30, 2014 and 2013, respectively, adjusted for non-cash operating expenses and changes in operating assets and liabilities described above. The increase in cash flows from operations was primarily attributable to additional cash flows generated from increased sales volumes.
Investing Activities
Net cash used in investing activities was $246,571 for the nine months ended September�30, 2014 and consisted of the $224,250 cost of the Augusta Contribution, capital expenditures primarily associated with the expansion of our Augusta facility, purchases of additional equipment and construction of facilities to produce and store 100 mesh product at our facilities, and construction costs for a new terminal facility in the Permian basin. Net cash used in investing activities was $104,163 for the nine months ended September�30, 2013 and consisted primarily of cash payments of $95,277 paid for D&I Silica, LLC and construction costs related to a new conveyor system installed over the rail line bisecting the Wyeville facility.
Financing Activities
Net cash provided by financing activities was $168,750 for the nine months ended September�30, 2014, and was comprised of $198,000 of cash proceeds from the term loan issuance and $170,693 from the issuance of 4,325,000 common units, offset by $53,578 of distributions to our unitholders, $7,096 of loan origination costs, a $138,250 repayment of our Prior Credit Facility and a $1,000 repayment of our term loan.
Net cash provided by financing activities was $65,540 for the nine months ended September�30, 2013, which included receipts of $138,250 of borrowings under our Prior Credit Facility and $5,615 of net repayments of affiliate financing from our sponsor. These inflows were offset by $44,270 of distributions, $805 of loan origination costs and a $33,250 repayment of long-term debt by Augusta.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are likely to have a material effect on our current or future financial condition, changes in financial condition, sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
The Partnership has long-term operating leases for rail access, railcars and equipment at its terminal sites, which are also under long-term lease agreements with various railroads.
Capital Requirements
Our sponsor contributed the net assets of its Wyeville facility and operations to us in connection with our initial public offering. We do not have any significant anticipated capital requirements associated with the Wyeville facility and there are currently no significant required capital commitments related to our terminal facilities. We are incurring construction costs to expand the annual capacity of the Augusta facility by 1.0 million tons. The expansion is expected to be completed in 2014 at an approximate cost of $25,000.
Revolving Credit Facility and Senior Secured Term Loan Facility
As of October 31, 2014, we have a $150,000 senior secured revolving credit facility (our "revolving credit facility"), which matures in April 2019. This facility amended, restated and replaced our prior $200,000 four-year senior secured revolving credit facility. As of October 31, 2014, we had no indebtedness and $143,813 of undrawn borrowing capacity ($150,000, net of $6,187 letter of credit commitments) under our revolving credit facility. The revolving credit facility is available to fund working capital and for other general corporate purposes, including the making of certain restricted payments permitted therein. Borrowings under our revolving credit facility are secured by substantially all of our assets.

[51]


As of October 31, 2014, we have a $200,000 senior secured term loan facility (our "senior secured term loan facility"), which matures in April 2021. As of October 31, 2014, the senior secured term loan facility was fully drawn. The senior secured term loan facility permits us to add one or more incremental term loan facilities in an aggregate amount not to exceed $100,000. Any incremental senior secured term loan facility would be on terms to be agreed among us, the administrative agent under the senior secured term loan facility and the lenders who agree to participate in the incremental facility.� Borrowings under our senior secured term loan facility are secured by substantially all of our assets.
For additional information regarding our revolving credit facility and our senior secured term loan facility, see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item�1 of this Quarterly Report on Form 10-Q.





[52]

Forward-Looking Statements
Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as may, assume, forecast, position, predict, strategy, expect, intend, plan, estimate, anticipate, believe, project, budget, potential, or continue, and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December�31, 2013. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
"
the amount of frac sand we are able to excavate and process, which could be adversely affected by, among other things, operating difficulties and unusual or unfavorable geologic conditions;
"
the volume of frac sand we are able to buy and sell;
"
the price at which we are able to buy and sell frac sand;
"
changes in the price and availability of natural gas or electricity;
"
changes in prevailing economic conditions;
"
unanticipated ground, grade or water conditions;
"
inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;
"
environmental hazards;
"
difficulties in obtaining or renewing environmental permits;
"
industrial accidents;
"
changes in laws and regulations (or the interpretation thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;
"
the outcome of litigation, claims or assessments, including unasserted claims;
"
inability to acquire or maintain necessary permits or mining or water rights;
"
facility shutdowns in response to environmental regulatory actions;
"
inability to obtain necessary production equipment or replacement parts;
"
reduction in the amount of water available for processing;
"
technical difficulties or failures;
"
labor disputes and disputes with our excavation contractor;
"
late delivery of supplies;
"
difficulty collecting receivables;
"
inability of our customers to take delivery;
"
fires, explosions or other accidents;
"
cave-ins, pit wall failures or rock falls;
"
our ability to borrow funds and access capital markets;
"
changes in the political environment of the drilling basins in which we operate; and
"
changes in the railroad infrastructure, price, capacity and availability, including the potential for rail line washouts.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

[53]

ITEM�3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
(Dollars in thousands)
Quantitative and Qualitative Disclosure of Market Risks
Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our risks have been predominantly related to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates and those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.
The market for frac sand is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the pressure pumping industry. However, because we generate a substantial amount of our revenues under long-term supply contracts, we believe we have only limited exposure to short-term fluctuations in the prices of crude oil and natural gas. We do not intend to hedge our indirect exposure to commodity risk.
Interest Rate Risk
As of September�30, 2014, we had $199,000 of principal outstanding under our senior secured term loan facility, with an effective interest rate of 4.75%. Assuming no change in the amount outstanding, the impact on interest expense of a 10% increase or decrease in the average interest rate would be approximately $945 per year.
Credit Risk  Customer Concentration
More than 50% of our volumes are sold to three customers. Our customers are generally pressure pumping service providers. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a customer defaults or if any of our contracts expires in accordance with its terms, and we are unable to renew or replace these contracts, our gross profit and cash flows, and our ability to make cash distributions to our unitholders may be adversely affected.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Partnership is currently evaluating the future disclosure requirements under this guidance.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptable in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
A discussion of our significant accounting policies is included in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item�1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, as filed with the SEC on February 28, 2014. Significant estimates include, but are not limited to, purchase accounting allocations and valuations, asset retirement obligations; depletion of mineral rights; inventory valuation, valuation of unit based compensation; and impairment of long-lived and intangible assets.

[54]

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



[55]

PART IIOTHER INFORMATION

[56]

ITEM�1. LEGAL PROCEEDINGS.
Legal Proceedings
The information required by this Item is contained in Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item�1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

[57]

ITEM�1A. RISK FACTORS.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December�31, 2013, as filed with the SEC on February 28, 2014. There have been no material changes to the risk factors previously disclosed under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December�31, 2013, except as set forth below:
We have entered into a revolving credit facility and senior secured term loan facility which contain restrictions and financial covenants that may restrict our business and financing activities.
Our revolving credit facility and senior secured term loan facility place financial restrictions and operating restrictions on our business, which may limit our flexibility to respond to opportunities and may harm our business, financial condition and results of operations.
The operating and financial restrictions and covenants in our revolving credit facility and senior secured term loan facility restrict, and potentially any other future financing agreements that we may enter into could restrict, our ability to finance future operations or capital needs, to engage in, expand or pursue our business activities or to make distributions to our unitholders. For example, our revolving credit facility contains covenants requiring us to maintain a leverage ratio of not more than 3.50 to 1.00 and a minimum interest coverage ratio of not less than 2.50 to 1.00. Additionally, our revolving credit facility and senior secured term loan facility restrict our ability to, among other things:
"
enter into a merger, consolidate or acquire capital in or assets of other entities;
"
incur additional indebtedness;
"
incur liens on property;
"
make certain investments;
"
enter into transactions with affiliates;
"
pay cash dividends; and
"
enter into sale lease back transactions.
Our compliance with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures, finance acquisitions, equipment purchases and development expenditures, or withstand a future downturn in our business.
Our ability to comply with any such restrictions and covenants is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in the revolving credit facility or senior secured term loan facility, a significant portion of our indebtedness may become immediately due and payable and our lenders commitment to make further loans to us may terminate. We may not have, or be able to obtain, sufficient funds to make these accelerated payments. Even if we could obtain alternative financing, that financing may not be on terms that are favorable or acceptable to us. If we are unable to repay amounts borrowed, the holders of the debt could initiate a bankruptcy proceeding or liquidation proceeding against the collateral. In addition, our obligations under our revolving credit facility and senior secured term loan facility are secured by substantially all of our assets and if we are unable to repay our indebtedness as required under these facilities, the lenders could seek to foreclose on our assets.



[58]

ITEM�2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table summarizes our repurchase activity during the three months ended September 30, 2014:
�
�
�
�
�
�
Total Number
�
Maximum
�
�
�
�
�
�
of Units
�
Number of
�
�
Total
�
�
�
Purchased as
�
Units That May
�
�
Number
�
Average
�
Part of Publicly
�
Yet be
�
�
of Units
�
Price
�
Announced
�
Purchased
Period
�
Purchased
�
Paid per Unit
�
Plans
�
Under the Plans
Quarter ended September 30, 2014 (1)
�
299

�
$
63.83

�


�


�
�
�
�
�
�
�
�
�
(1)�Of the 1,113 restricted common units that vested in July 2014, 299 units were sold back to us by employees to cover related withholding tax requirements.


[59]

ITEM�3. DEFAULTS UPON SENIOR SECURITIES.
None.

[60]

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

[61]

ITEM�5. OTHER INFORMATION.
None.

[62]

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

[63]

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
�
�
Hi-Crush Partners LP
����(Registrant)
By: Hi-Crush GP LLC, its general partner
�
�
�
Date:
November�4, 2014
/s/ Laura C. Fulton
�
�
Laura C. Fulton, Chief Financial Officer

[64]

HI-CRUSH PARTNERS LP
EXHIBIT INDEX
Exhibit
Number
�
Description
3.1
�
Certificate of Limited Partnership of Hi-Crush Partners LP (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, Registration No. 333-182574, filed with the SEC on July 9, 2012).
�
�
�
3.2
�
Second Amended and Restated Agreement of Limited Partnership of Hi-Crush Partners LP, dated January 31, 2013 (incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K, filed with the SEC on February 5, 2013).
�
�
�
10.1*
�
Second Amendment to Supply Agreement, dated August 8, 2014, by and between Weatherford U.S., L.P. and Hi-Crush Operating LLC.
�
�
�
23.1
�
Consent of John T. Boyd Company (incorporated by reference to Exhibit 23.2 to the Registrants Annual Report on Form 10-K, filed with the SEC on February 28, 2014).
�
�
�
31.1
�
Certification pursuant to Rule�13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Executive Officer, filed herewith.
�
�
�
31.2
�
Certification pursuant to Rule�13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Executive Officer, filed herewith.
�
�
�
31.3
�
Certification pursuant to Rule�13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Financial Officer, filed herewith.
�
�
�
32.1
�
Statement Required by 18 U.S.C. Section�1350, as Adopted Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002 signed by Principal Executive Officer, filed herewith. (1)
�
�
�
32.2
�
Statement Required by 18 U.S.C. Section�1350, as Adopted Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002 signed by Principal Executive Officer, filed herewith. (1)
�
�
�
32.3
�
Statement Required by 18 U.S.C. Section�1350, as Adopted Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002 signed by Principal Financial Officer, filed herewith. (1)
�
�
�
95.1
�
Mine Safety Disclosure Exhibit
�
�
�
101
�
Interactive Data Files- XBRL
�
�
�
(1)
�
This document is being furnished in accordance with SEC Release Nos. 33-8212 and 34-47551.
*
�
Parts of this exhibit have been omitted pursuant to a request for confidential treatment.
�


[65]
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


SECOND AMENDMENT TO SUPPLY AGREEMENT
THIS SECOND AMENDMENT TO SUPPLY AGREEMENT (defined in recitals) (this Second Amendment) is entered into and effective as of August 8, 2014, by and between Weatherford U.S., L.P., a Louisiana legal entity, on behalf of itself and its affiliates including Weatherford Artificial Lift Systems, L.L.C. (f/k/a Weatherford Artificial Lift Systems, Inc.), a Delaware limited liability company (collectively with its affiliates, Weatherford), and Hi-Crush Operating LLC, a Delaware limited liability company, on behalf of itself and its affiliates, including D & I Silica, LLC (collectively with its affiliates Supplier).
RECITALS
WHEREAS, Weatherford and Supplier are parties to that certain Supply Agreement, dated as of January 11, 2010 and effective as of January 11, 2011, as amended by that certain First Amendment to Supply Agreement, dated as of March 5, 2014, as amended by that certain Amended and Restated First Amendment to Supply Agreement, dated as of May 5, 2014 (as amended, the�Supply Agreement);
WHEREAS, Weatherford and Supplier desire to amend and restate the Supply Agreement as set forth in this Second Amendment; and
WHEREAS, each capitalized term not defined in the text of this Second Amendment has the meaning set forth in the Supply Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of these recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
Article I.
AMENDMENTS
The parties hereto hereby agree that the Supply Agreement is hereby amended as provided below effective as of the date hereof:
Section 1.01����Section 2.1 of the Supply Agreement
(a)
Section 2.1(a)(iii) of the Supply Agreement is hereby amended and restated in its entirety to read as follows:

(iii)����(A) Beginning on *** until *** (the Third Term), Supplier is obligated to sell and Weatherford is obligated to buy *** tons of Product consisting of *** tons of ***, *** tons of *** and *** tons of *** (the Third Phase Minimum Supply).

- 1 -
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


(B) Beginning on *** until *** (the Fourth Term), Supplier is obligated to sell and Weatherford is obligated to buy *** tons of Product consisting of *** tons of ***, *** tons of *** and *** tons of *** (the Fourth Phase Minimum Supply).
(b)
Section 2.1(a)(iv) of the Supply Agreement is hereby amended and restated in its entirety to read as follows:

(iv)����Beginning on *** until *** (the Fifth Term), Supplier is obligated to sell and Weatherford is obligated to buy *** tons of Product each year consisting of *** tons of ***, *** tons of *** and *** tons of *** (the Fifth Phase Minimum Supply). The First Phase Minimum Supply, Second Phase Minimum Supply, Third Phase Minimum Supply, Fourth Phase Minimum Supply and Fifth Phase Minimum Supply shall be collectively, the Minimum Supply.
(c)
Section 2.1(b) of the Supply Agreement is hereby amended by replacing the last sentence at the end thereof with the following text:

Additionally, (i) during the First Term, no more than *** of the Monthly Maximum Supply Availability in any given calendar month shall be *** or ***, (ii) during the Second Term, (A) no more than *** tons, *** tons and *** tons in any given calendar month shall be ***, *** or ***, respectively, and (B) no less than *** tons in any given calendar month shall be *** or ***, (iii) during the Third Term (A) no more than *** tons, *** tons and *** tons in any given calendar month shall be ***, *** or ***, respectively, and (B) no less than *** tons or *** tons in any given calendar month shall be *** or ***, respectively, (iv) during the Fourth Term (A)�no more than *** tons, *** tons and *** tons in any given calendar month shall be ***, *** or ***, respectively, and (B) no less than *** tons or *** tons in any given calendar month shall be *** or ***, respectively, (v) during the Fifth Term (A)�no more than *** tons, *** tons and *** tons in any given calendar month shall be ***, *** or ***, respectively, and (B) no less than *** tons or *** tons in any given calendar month shall be *** or ***, respectively, and (vi) Supplier is not obligated to sell to Weatherford more than *** tons of *** in any given calendar month. Notwithstanding the foregoing, Supplier will use commercially reasonable efforts to fulfill orders that exceed the Monthly Maximum Supply Availability and the monthly grade split maximums set forth in the preceding sentence.

(d)
Section 2.1(b) of the Supply Agreement is hereby further amended by adding the following at the end of the table thereof to read as follows:

2013 through May 2014
*** tons/month
June 2014 through August 2014
*** tons/month
September 2014
*** tons/month
October 2014 through April 2015
*** tons/month
May 2015 and thereafter
*** tons/month


- 2 -
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


Section 2.1(c)(ii) of the Supply Agreement is hereby amended and restated in its entirety to read as follows:

(ii) If Weatherford exercises the Flex Option, then on such date that the Flex Option is effective: (A) Section 2.1(a)(iv) shall be deemed automatically amended to reflect the permitted reallocation of volumes among ***, *** and *** in accordance with Section 2.1(c)(i), and (B) Section 2.1(b)(v) shall be deemed automatically amended as follows:
(I)
*** tons and *** tons shall each be increased by the number of additional tons of ***, if any, that Weatherford has elected to purchase pursuant to the Flex Option;
(II)
*** tons and *** tons shall each be increased by the number of additional tons of ***, if any, that Weatherford has elected to purchase pursuant to the Flex Option; and
(III)
*** tons shall be decreased by the aggregate number of tons of *** and *** that Weatherford has elected to purchase pursuant to the Flex Option.

(f)����Section 2.1(d) of the Supply Agreement is hereby amended by replacing *** with ***.
Section 1.02����Section 2.2 of the Supply Agreement.
Section 2.2(a)(ii) of the Supply Agreement is hereby amended by replacing *** with ***.
(a)
Section 2.2(a) of the Supply Agreement is hereby further amended by adding the following text immediately after the end of Section 2.2(a)(ii):

(iii)����From *** until ***, F.O.B. mine pricing will be fixed at (I)�$***/ton of 20/40 Premium Frac Sand, (II)�$***/ton of 30/50 Premium Frac Sand, (III)�$***/ton of 40/70 Premium Frac Sand and (IV) $***/ton of 100 Mesh Sand.

(b)
The first sentence of Section 2.2(c)(ii) of the Supply Agreement is hereby amended and restated in its entirety to read as follows:

(ii)����From the date hereof, the price of the Product sold to Weatherford under this Section 2.2(c) shall be FCA Suppliers transload facilities at the locations set forth in the table in Section 2.2(c)(iii) (subject to the price adjustments set forth in Section 2.2(c)(iv)); provided, however, that notwithstanding anything to the contrary contained herein (including the price adjustments set forth in Section�2.2(c)(iv)), from ***, the base pricing for any *** and *** sold under this Section 2.2(c) shall be increased by $*** per ton and $*** per ton, respectively.

Section 1.03����Section 2.3 of the Supply Agreement. Section 2.3 of the Supply Agreement is hereby amended and restated in its entirety to read as follows:
2.3
Weatherford Minimum Purchase Requirement. Weatherford shall be required to take and, in accordance with Section 3.1, pay for an aggregate of (i) *** tons of Product per Contract Year during the First Term (the First Term Minimum Purchase Requirement), (ii) *** tons of Product during

- 3 -
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


the Second Term (the Second Term Minimum Purchase Requirement), (iii)�*** tons of Product during the Third Term (the Third Term Minimum Purchase Requirement), (iv)�*** tons of Product during the Fourth Term (the Fourth Term Minimum Purchase Requirement), and (v) *** tons of Product per Contract Year during the Fifth Term (the Fifth Term Minimum Purchase Requirement and together with the First Term Minimum Purchase Requirement, the Second Term Minimum Purchase Requirement, the Third Term Minimum Purchase Requirement and the Fourth Term Minimum Purchase Requirement, the Minimum Purchase Requirement); provided, however, that if, due solely to the unavailability of rail cars in the market, Weatherford is unable to take delivery of Products as contemplated hereunder for a period of time during a Contract Year, Weatherford shall not be deemed to be in breach of this Agreement as a result of such failure so long as Weatherford is using commercially reasonable efforts to obtain rail cars and minimize the period of time during which Weatherford is unable to take delivery of Products; provided, further, however, that nothing in this sentence shall be construed to relieve Weatherford of its obligations to make payments under this Agreement other than any Makewhole Payments that accrue as a result of Weatherford being unable to take delivery of Products due solely to the unavailability of rail cars in the market so long as Weatherford is using commercially reasonable efforts to obtain rail cars and minimize the period of time during which Weatherford is unable to take delivery of Products. The Minimum Purchase Requirement shall be ordered by Weatherford in installments of not less than *** tons of Product per calendar month during the First Term, *** tons of Product per calendar month during the Second Term, *** tons of Product per calendar month during the Third Term, *** tons of Product per calendar month during the Fourth Term and *** tons of Product per calendar month during the Fifth Term (as applicable, the Monthly Minimum Requirement), and not more than the Monthly Maximum Supply Availability, beginning in July of 2011 and continuing thereafter for each calendar month during the Term. In the event that Weatherford fails to purchase one twelfth (1/12) of the Minimum Purchase Requirement of Product from Supplier during any particular calendar month in which Supplier was ready, willing and able to deliver *** tons of Product during the First Term, *** tons of Product during the Second Term, *** tons of Product during the Third Term, *** tons of Product during the Fourth Term or *** tons of Product during the Fourth Term, as applicable, then the Purchase Shortfall shall be the amount by which one twelfth (1/12) of the Minimum Purchase Requirement exceeds the amount of Product actually purchased by Weatherford during such calendar month. On written notice of such Purchase Shortfall to Weatherford by Supplier, Weatherford shall have *** months after the month of the Purchase Shortfall to purchase tonnage of Product in excess of the Monthly Minimum Requirement (but subject to the Monthly Maximum Supply Availability) to make up for the Purchase Shortfall. If Weatherford fails to purchase the full amount of the Purchase Shortfall in such *** month period, Weatherford shall be obligated to pay to Supplier an amount equal to the amount of the Purchase Shortfall not purchased by Weatherford in such *** month period (expressed in tons) multiplied by (A) $*** (for any Supply Shortfall occurring prior to *** and (B) $*** (for any Supply Shortfall occurring on or after ***) (the Makewhole Payment); provided, however, that Weatherford shall have no obligation to make the Makewhole Payment with respect to the first *** tons of *** that Weatherford is obligated to purchase each Contract Year. The Makewhole Payment shall be paid within *** days of written demand by Supplier, by wire transfer of immediately available funds to the account designated in writing by Supplier. The aggregate Purchase Shortfall amount for a Contract Year shall not exceed the Minimum Purchase Requirement for such Contract Year less the amount of Product ordered and delivered to Weatherford. Weatherford reserves the right to resell goods purchased from Supplier if deemed necessary by

- 4 -
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


Weatherford in order to satisfy the Minimum Purchase Requirement. Supplier shall not be obligated to deliver more than the Monthly Maximum Supply Availability on any given calendar month.
Article II.
GENERAL PROVISIONS; MISCELLANEOUS
Section 2.01����Supply Agreement. Except as expressly set forth herein, the Supply Agreement is and will remain unmodified and in full force and effect, including without limitation with respect to the volume requirements and pricing contained in the Supply Agreement in effect on the Effective Date. Each future reference to the Supply Agreement will refer to the Supply Agreement as amended by this Second Amendment.

Section 2.02����Counterparts. This Second Amendment may be executed in two or more counterparts, each of which will be deemed to be an original and all of which, when taken together, will be deemed to constitute one and the same agreement. Any party to this Second Amendment may deliver an executed counterpart hereof by facsimile transmission or electronic mail (as a portable document format (PDF) file) to another party hereto or thereto and any such delivery shall have the same force and effect as the delivery of a manually signed counterpart of this Second Amendment.

Section 2.03����Other Provisions. The provisions of the Supply Agreement with respect to notices and service, governing law, venue and waiver of jury trial are incorporated into this Second Amendment as though set forth herein.

[Signature Page Follows]


- 5 -
Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).


IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
WEATHERFORD:
WEATHERFORD U.S., L.P., on behalf of itself and its affiliates, including Weatherford Artificial Lift Systems, L.L.C. and Weatherford International, L.L.C.


By: /s/ Authorized Person����������������
Name: Authorized Person����
Title: Authorized Officer����

SUPPLIER:
HI-CRUSH OPERATING LLC


By:����/s/ Robert E. Rasmus����������������
Name: Robert E. Rasmus����
Title: co-Chief Executive Officer����


Signature Page to Second Amendment to Supply Agreement


Exhibit�31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
(Pursuant to Section�302 of the Sarbanes-Oxley Act of 2002)
I, Robert E. Rasmus, certify that:
1.�I have reviewed this Quarterly Report on Form 10-Q of Hi-Crush Partners LP;
2.�Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.�Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.�The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f) and 15d-15(f)) for the registrant and have:
(a)�Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)�Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)�Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)�Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.�The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a)�All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b)�Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
�
�
/s/ Robert E. Rasmus
Robert E. Rasmus
Co-Chief Executive Officer
November�4, 2014




Exhibit�31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
(Pursuant to Section�302 of the Sarbanes-Oxley Act of 2002)
I, James M. Whipkey, certify that:
1.�I have reviewed this Quarterly Report on Form 10-Q of Hi-Crush Partners LP;
2.�Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.�Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.�The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f) and 15d-15(f)) for the registrant and have:
(a)�Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)�Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)�Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)�Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.�The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a)�All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b)�Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
�
�
/s/ James M. Whipkey
James M. Whipkey
Co-Chief Executive Officer
November�4, 2014





Exhibit�31.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
(Pursuant to Section�302 of the Sarbanes-Oxley Act of 2002)
I, Laura C. Fulton certify that:
1.�I have reviewed this Quarterly Report on Form 10-Q of Hi-Crush Partners LP;
2.�Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.�Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.�The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f) and 15d-15(f)) for the registrant and have:
(a)�Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)�Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)�Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)�Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.�The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a)�All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b)�Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
�
�
/s/ Laura C. Fulton
Laura C. Fulton
Chief Financial Officer
November�4, 2014




Exhibit�32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-Q for the quarter ended September�30, 2014 of Hi-Crush Partners LP (the Partnership) as filed with the Securities and Exchange Commission on the date hereof (the Report) and pursuant to 18. U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, I, Robert E. Rasmus, Co-Chief Executive Officer of the Partnership, certify, that to my knowledge:
1.�The Report fully complies with the requirements of Section�13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.�The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
�
�
/s/ Robert E. Rasmus
Robert E. Rasmus
Co-Chief Executive Officer
November�4, 2014




Exhibit�32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-Q for the quarter ended September�30, 2014 of Hi-Crush Partners LP (the Partnership) as filed with the Securities and Exchange Commission on the date hereof (the Report) and pursuant to 18. U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, I, James M. Whipkey, Co-Chief Executive Officer of the Partnership, certify, that to my knowledge:
1.�The Report fully complies with the requirements of Section�13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.�The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
�
�
/s/ James M. Whipkey
James M. Whipkey
Co-Chief Executive Officer
November�4, 2014




Exhibit�32.3
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-Q for the quarter ended September�30, 2014 of Hi-Crush Partners LP (the Partnership) as filed with the Securities and Exchange Commission on the date hereof (the Report) and pursuant to 18. U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, I, Laura C. Fulton, Chief Financial Officer of the Partnership, certify, that to my knowledge:
1.�The Report fully complies with the requirements of Section�13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.�The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
�
�
/s/ Laura C. Fulton
Laura C. Fulton
Chief Financial Officer
November�4, 2014




Exhibit�95.1
MINE SAFETY DISCLOSURES
The following disclosures are provided pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the Mine Act).
Mine Safety Information
Whenever the Federal Mine Safety and Health Administration (MSHA) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.
Mine Safety Data
The following provides additional information about references used in the table below to describe the categories of violations, orders or citations issued by MSHA under the Mine Act:

"
Section 104 S&S Citations: Citations received from MSHA under section 104 of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard.
"
Section 104(b) Orders: Orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.
"
Section 104(d) Citations and Orders: Citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards.
"
Section 110(b)(2) Violations: Flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.
"
Section 107(a) Orders: Orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger (as defined by MSHA) existed.

The following table details the violations, citations and orders issued to us by MSHA during the quarter ended September�30, 2014:
Mine(1)
�
Section 104
S&S
Citations (#)
�
Section 104(b) Orders (#)
�
Section 104(d) Citations and Orders (#)
�
Section 110(b)(2) Violations (#)
�
Section 107(a) Orders (#)
�
Proposed Assessments(2) ($)
�
Mining Related Fatalities (#)
Wyeville, WI
�


�


�


�


�


�
$


�


Augusta, WI
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(1) The definition of mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools and minerals preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine. MSHA assigns an identification number to each mine and may or may not assign separate identification numbers to related facilities such as preparation facilities. We are providing the information in the table by mine rather than MSHA identification number because that is how we manage and operate our mining business and we believe this presentation will be more useful to investors than providing information based on MSHA identification numbers.
(2) Represents the total dollar value of the proposed assessment from MSHA under the Mine Act pursuant to the citations and/or orders preceding such dollar value in the corresponding row.






Pattern or Potential Pattern of Violations
During the quarter ended September�30, 2014, none of the mines operated by us received written notice from MSHA of (a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under section 104(e) of the Mine Act or (b) the potential to have such a pattern.
Pending Legal Actions
During the quarter ended September�30, 2014, we had no legal actions instituted by or resolved before the Federal Mine Safety and Health Review Commission (the "Commission"); as of September�30, 2014, we had no pending legal actions. The Commission is an independent adjudicative agency established by the Mine Act that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act. The following provides additional information of the types of proceedings that may be brought before the Commission:
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Contest Proceedings: A contest proceeding may be filed by an operator to challenge the issuance of a citation or order issued by MSHA.
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Civil Penalty Proceedings: A civil penalty proceeding may be filed by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order. The Partnership does not institute civil penalty proceedings based solely on the assessment amount of proposed penalties. Any initiated adjudications address substantive matters of law and policy instituted on conditions that are alleged to be in violation of mandatory standards of the Mine Act.
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Discrimination Proceedings: Involves a miners allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint. Also includes temporary reinstatement proceedings involving cases in which a miner has filed a complaint with MSHA stating that he or she has suffered discrimination and the miner has lost his or her position.
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Compensation Proceedings: A compensation proceeding may be filed by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due to miners idled by the orders.
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Temporary Relief: Applications for temporary relief are applications filed under section 105(b)(2) of the Mine Act for temporary relief from any modification or termination of any order.
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Appeals: An appeal may be filed by an operator to challenge judges decisions or orders to the Commission, including petitions for discretionary review and review by the Commission on its own motion.



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