(1) Organization and Summary of Significant Accounting Policies

(a) Organization

Unless otherwise indicated, the terms “our”, “we”, “us”, “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its operating subsidiaries. We are a Delaware limited partnership. USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner”. Our General Partner was owned by USA Compression Holdings, LLC (“USA Compression Holdings”) until April 2, 2018. See Note 12 for a description of the April 2, 2018 transactions. Through our operating subsidiaries, we provide compression services under term contracts with customers in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate and maintain. We provide compression services in a number of shale plays throughout the United States, including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its operating subsidiaries, all of which are wholly owned by us.

Net income (loss) is allocated to our general and limited partners using the two-class income allocation method. All intercompany balances and transactions have been eliminated in consolidation. Our common units representing limited partner interests in the Partnership trade on the New York Stock Exchange under the ticker symbol “USAC”.

Our ownership structure was as follows:


	March 31, 2018
	USA
	Compression
	Holdings		Public		Total
General partner interest	1.2	%	—		1.2	%
Limited partner interest	39.7	%	59.1	%	98.8	%
Total (1)	40.9	%	59.1	%	100.0	%

(1)

See Note 12 for changes to the ownership structure on April 2, 2018.

(b) Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2017 filed on February 13, 2018 (our “2017 Annual Report”). In the opinion of our management, such financial information reflects all normal recurring adjustments necessary for a fair presentation of these interim unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2017 contained in our 2017 Annual Report.

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that existed at the date of the unaudited condensed consolidated financial statements. Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.

(d) Inventory

Inventory consists of serialized and non-serialized parts used primarily in the repair of compression units. All inventory is stated at the lower of cost or net realizable value. The cost of serialized parts inventory is determined using the specific identification cost method, while the cost of non-serialized parts inventory is determined using the weighted average cost method. Purchases of these assets are considered operating activities on the Unaudited Condensed Consolidated Statements of Cash Flows.

Components of inventory are as follows (in thousands):


	March 31, 2018		December 31, 2017
Serialized parts	$	16,270	$	16,413
Non-serialized parts		18,130		17,181
Total Inventory, gross		34,400		33,594
Less: obsolete and slow moving reserve		(150)		(150)
Total Inventory, net	$	34,250	$	33,444

(e) Identifiable Intangible Assets

Identifiable intangible assets, net consisted of the following (in thousands):


	Customer
	Relationships		Trade Names		Total
Net Balance at December 31, 2017	$	60,448	$	11,232	$	71,680
Amortization Expense		(683)		(156)		(839)
Net Balance at March 31, 2018	$	59,765	$	11,076	$	70,841

Identifiable intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The estimated useful lives range from 20 to 30 years. Accumulated amortization of intangible assets was $24.4 million and $23.5 million as of March 31, 2018 and December 31, 2017, respectively.

We assess identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We did not record any impairment of identifiable intangible assets for the three months ended March 31, 2018 or 2017.

(f) Property and Equipment

Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value on the last impairment evaluation date for which an adjustment was required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over 3 to 5 years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:


Compression equipment, acquired new		25 years
Compression equipment, acquired used		9 - 25 years
Furniture and fixtures		7 years
Vehicles and computer equipment		3 - 7 years
Leasehold improvements		5 years

When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded on our statements of operations in the period of sale or disposition.

See more information on property and equipment in Note 3 to our unaudited condensed consolidated financial statements.

(g) Impairment of Long-Lived Assets

Long-lived assets with recorded values that are not expected to be recovered through future cash flows are written-down to estimated fair value. We test long-lived assets for impairment when events or circumstances indicate that the assets’ carrying value may not be recoverable or will no longer be utilized in the operating fleet. The most common circumstance requiring compression units to be tested for impairment is when idle units do not meet the performance characteristics of our active revenue generating horsepower.

We did not record any impairment of long-lived assets during the three months ended March 31, 2018. During the three months ended March 31, 2017, we evaluated the future deployment of our idle fleet under then-current market conditions and determined to retire, sell or re-utilize key components of two compressor units, or 2,760 horsepower, that were previously used to provide services in our business. The primary cause of impairment was due to estimated significant repair costs from previous damage to the equipment. These compressor units were written down to their respective estimated salvage value, if any. As a result of our decision to retire, sell or re-utilize key components of these compressor units, management performed an impairment review and recorded $1.1 million of impairment of long-lived assets in the three months ended March 31, 2017.

(h) Fair Value Measurements

Accounting standards on fair value measurements establish a framework for measuring fair value and stipulate disclosures about fair value measurements. The standards apply to recurring and nonrecurring financial and non-financial assets and liabilities that require or permit fair value measurements. Among the required disclosures is the fair value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair value hierarchy are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

As of March 31, 2018 and December 31, 2017, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt. The book values of cash and cash equivalents, trade accounts receivable and trade accounts payable are representative of fair value due to their short-term maturities. The carrying amount of our revolving credit facility approximates fair value due to the floating interest rates associated with the debt. The carrying amount of our senior notes approximates fair value as the notes were issued on March 23, 2018. See Note 6 for additional information on the senior notes.

(i) Operating Segment

We operate in a single business segment, the compression services business.