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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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

 

Commission File Number: 001‑32505

TRANSMONTAIGNE PARTNERS L.P.

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

34‑2037221
(I.R.S. Employer
Identification No.)

 

1670 Broadway

Suite 3100

Denver, Colorado 80202

(Address, including zip code, of principal executive offices)

(303) 626‑8200

(Telephone number, including area code)

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 the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer 

Accelerated filer 

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 

As of October 31, 2014, there were 16,124,566 units of the registrants Common Limited Partner Units outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

    

Page No.

 

Part I. Financial Information

 

Item 1. 

 

Unaudited Consolidated Financial Statements

 

 

 

 

Consolidated balance sheets as of September 30, 2014 and December 31, 2013

 

 

 

 

Consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013

 

 

 

 

Consolidated statements of partners’ equity for the year ended December 31, 2013 and nine months ended September 30, 2014

 

 

 

 

Consolidated statements of cash flows for the three and nine months ended September 30, 2014 and 2013

 

 

 

 

Notes to consolidated financial statements

 

 

Item 2. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31 

 

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

46 

 

Item 4. 

 

Controls and Procedures

 

47 

 

Part II. Other Information

 

Item 1. 

 

Legal Proceedings

 

47 

 

Item 1A. 

 

Risk Factors

 

47 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49 

 

Item 6. 

 

Exhibits

 

51 

 

 

 

2


 

CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

This Quarterly Report contains forward‑looking statements, including the following:

·

certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

·

any statements contained herein regarding the prospects for our business or any of our services;

·

any statements preceded by, followed by or that include the words “may,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continues,” “estimates,” “plans,” “targets,” “predicts,” “attempts,” “is scheduled,” or similar expressions; and

·

other statements contained herein regarding matters that are not historical facts.

Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward‑looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof. Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to those risk factors set forth in this report in Part II. Other Information under the heading “Item 1A. Risk Factors.”

Part I. Financial Information

ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financial statements of TransMontaigne Partners L.P. as of and for the three and nine months ended September 30, 2014 are included herein beginning on the following page. The accompanying unaudited interim consolidated financial statements should be read in conjunction with our consolidated financial statements and related notes for the year ended December 31, 2013, together with our discussion and analysis of financial condition and results of operations, included in our Annual Report on Form 10‑K, filed on March 11, 2014 with the Securities and Exchange Commission (File No. 001‑32505).

TransMontaigne Partners L.P. is a holding company with the following active 100% owned operating subsidiaries during the three and nine months ended September 30, 2014:

·

TransMontaigne Operating GP L.L.C.

·

TransMontaigne Operating Company L.P.

·

TransMontaigne Terminals L.L.C.

·

Razorback L.L.C. (d/b/a Diamondback Pipeline L.L.C.)

·

TPSI Terminals L.L.C.

·

TLP Finance Corp.

·

TPME L.L.C.

The above omits non‑operating subsidiaries that, considered in the aggregate, do not constitute significant subsidiaries as of September 30, 2014. We do not have off‑balance‑sheet arrangements (other than operating leases) or special‑purpose entities.

 

3


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated balance sheets (unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

726 

 

$

3,263 

Trade accounts receivable, net

 

 

12,252 

 

 

6,427 

Due from affiliates

 

 

1,011 

 

 

2,257 

Other current assets

 

 

2,976 

 

 

3,478 

Total current assets

 

 

16,965 

 

 

15,425 

Property, plant and equipment, net

 

 

388,140 

 

 

407,045 

Goodwill

 

 

8,485 

 

 

8,485 

Investments in unconsolidated affiliates

 

 

252,679 

 

 

211,605 

Other assets, net

 

 

4,085 

 

 

5,872 

 

 

$

670,354 

 

$

648,432 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

4,010 

 

$

5,717 

Due to affiliates

 

 

52 

 

 

 —

Accrued liabilities

 

 

11,766 

 

 

16,189 

Total current liabilities

 

 

15,828 

 

 

21,906 

Other liabilities

 

 

4,247 

 

 

6,059 

Long-term debt

 

 

252,000 

 

 

212,000 

Total liabilities

 

 

272,075 

 

 

239,965 

Partners’ equity:

 

 

 

 

 

 

Common unitholders (16,124,566 units issued and outstanding at September 30, 2014 and December 31, 2013)

 

 

340,298 

 

 

350,505 

General partner interest (2% interest with 329,073 equivalent units outstanding at September 30, 2014 and December 31, 2013)

 

 

57,981 

 

 

57,962 

Total partners’ equity

 

 

398,279 

 

 

408,467 

 

 

$

670,354 

 

$

648,432 

 

See accompanying notes to consolidated financial statements.

4


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of comprehensive income (unaudited)

(In thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

22,130 

 

$

12,645 

 

$

51,227 

 

$

39,216 

Affiliates

 

 

13,573 

 

 

25,729 

 

 

61,888 

 

 

79,454 

Total revenue

 

 

35,703 

 

 

38,374 

 

 

113,115 

 

 

118,670 

Operating costs and expenses and other:

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating costs and expenses

 

 

(16,514)

 

 

(17,843)

 

 

(48,302)

 

 

(51,865)

Direct general and administrative expenses

 

 

(1,086)

 

 

(1,201)

 

 

(2,466)

 

 

(2,952)

Allocated general and administrative expenses

 

 

(2,782)

 

 

(2,741)

 

 

(8,346)

 

 

(8,222)

Allocated insurance expense

 

 

(942)

 

 

(935)

 

 

(2,769)

 

 

(2,828)

Reimbursement of bonus awards

 

 

(375)

 

 

(313)

 

 

(1,125)

 

 

(938)

Depreciation and amortization

 

 

(7,400)

 

 

(7,392)

 

 

(22,196)

 

 

(22,191)

Loss on disposition of assets

 

 

 —

 

 

(1,398)

 

 

 —

 

 

(1,398)

Earnings from unconsolidated affiliates

 

 

1,653 

 

 

234 

 

 

3,091 

 

 

270 

Total operating costs and expenses and other

 

 

(27,446)

 

 

(31,589)

 

 

(82,113)

 

 

(90,124)

Operating income

 

 

8,257 

 

 

6,785 

 

 

31,002 

 

 

28,546 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,493)

 

 

(532)

 

 

(3,672)

 

 

(2,035)

Foreign currency transaction loss

 

 

 —

 

 

(5)

 

 

 —

 

 

(13)

Amortization of deferred financing costs

 

 

(244)

 

 

(244)

 

 

(732)

 

 

(732)

Total other expenses, net

 

 

(1,737)

 

 

(781)

 

 

(4,404)

 

 

(2,780)

Net earnings

 

 

6,520 

 

 

6,004 

 

 

26,598 

 

 

25,766 

Other comprehensive income—foreign currency translation adjustments

 

 

 —

 

 

81 

 

 

 —

 

 

83 

Comprehensive income

 

$

6,520 

 

$

6,085 

 

$

26,598 

 

$

25,849 

Net earnings

 

$

6,520 

 

$

6,004 

 

$

26,598 

 

$

25,766 

Less—earnings allocable to general partner interest including incentive distribution rights

 

 

(1,779)

 

 

(1,536)

 

 

(5,400)

 

 

(4,333)

Net earnings allocable to limited partners

 

$

4,741 

 

$

4,468 

 

$

21,198 

 

$

21,433 

Net earnings per limited partner unit—basic and diluted

 

$

0.29 

 

$

0.28 

 

$

1.31 

 

$

1.44 

 

See accompanying notes to consolidated financial statements.

5


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of partners equity (unaudited)

Year ended December 31, 2013 and nine months ended September 30, 2014

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Accumulated

    

 

 

 

 

 

General

 

other

 

 

 

 

Common

 

partner

 

comprehensive

 

 

 

 

unitholders

 

interest

 

income (loss)

 

Total

Balance December 31, 2012

 

$

292,648 

 

$

56,564 

 

$

(475)

 

$

348,737 

Proceeds from offering of 1,667,500 common units, net of underwriters’ discounts and offering expenses of $3,462

 

 

68,774 

 

 

 —

 

 

 —

 

 

68,774 

Contribution of cash by TransMontaigne GP to maintain its 2% general partner interest

 

 

 —

 

 

1,474 

 

 

 —

 

 

1,474 

Distributions to unitholders

 

 

(39,466)

 

 

(6,005)

 

 

 —

 

 

(45,471)

Deferred equity-based compensation related to restricted phantom units

 

 

337 

 

 

 —

 

 

 —

 

 

337 

Purchase of 13,069 common units by our long-term incentive plan and from affiliate

 

 

(585)

 

 

 —

 

 

 —

 

 

(585)

Issuance of 10,608 common units by our long-term incentive plan due to vesting of restricted phantom units

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net earnings for year ended December 31, 2013

 

 

28,797 

 

 

5,929 

 

 

 —

 

 

34,726 

Other comprehensive income—foreign currency translation adjustments

 

 

 —

 

 

 —

 

 

83 

 

 

83 

Foreign currency translation adjustments reclassified into loss upon the sale of the Mexico operations

 

 

 —

 

 

 —

 

 

392 

 

 

392 

Balance December 31, 2013

 

 

350,505 

 

 

57,962 

 

 

 

 

408,467 

Distributions to unitholders

 

 

(31,838)

 

 

(5,381)

 

 

 —

 

 

(37,219)

Deferred equity-based compensation related to restricted phantom units

 

 

698 

 

 

 —

 

 

 —

 

 

698 

Purchase of 6,003 common units by our long-term incentive plan

 

 

(265)

 

 

 —

 

 

 —

 

 

(265)

Issuance of 20,500 common units by our long-term incentive plan due to vesting of restricted phantom units

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net earnings for nine months ended September 30, 2014

 

 

21,198 

 

 

5,400 

 

 

 —

 

 

26,598 

Balance September 30, 2014

 

$

340,298 

 

$

57,981 

 

$

 

$

398,279 

 

See accompanying notes to consolidated financial statements.

6


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of cash flows (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

6,520 

 

$

6,004 

 

$

26,598 

 

$

25,766 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,400 

 

 

7,392 

 

 

22,196 

 

 

22,191 

Loss on disposition of assets

 

 

 —

 

 

1,398 

 

 

 —

 

 

1,398 

Earnings from unconsolidated affiliates

 

 

(1,653)

 

 

(234)

 

 

(3,091)

 

 

(270)

Distributions from unconsolidated affiliates

 

 

3,259 

 

 

328 

 

 

5,697 

 

 

877 

Deferred equity-based compensation

 

 

584 

 

 

81 

 

 

698 

 

 

285 

Amortization of deferred financing costs

 

 

244 

 

 

244 

 

 

732 

 

 

732 

Utility deposits returned

 

 

 —

 

 

135 

 

 

 —

 

 

135 

Amortization of deferred revenue

 

 

(510)

 

 

(793)

 

 

(1,921)

 

 

(2,978)

Amounts due under long-term terminaling services agreements, net

 

 

306 

 

 

353 

 

 

919 

 

 

996 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

(3,614)

 

 

(812)

 

 

(5,733)

 

 

(1,824)

Due from affiliates

 

 

2,438 

 

 

890 

 

 

1,246 

 

 

1,275 

Other current assets

 

 

273 

 

 

112 

 

 

502 

 

 

(157)

Trade accounts payable

 

 

(1,302)

 

 

596 

 

 

(1,507)

 

 

(2,256)

Due to affiliates

 

 

52 

 

 

(387)

 

 

52 

 

 

(40)

Accrued liabilities

 

 

978 

 

 

(1,571)

 

 

(4,423)

 

 

88 

Net cash provided by operating activities

 

 

14,975 

 

 

13,736 

 

 

41,965 

 

 

46,218 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of assets

 

 

 —

 

 

2,109 

 

 

 —

 

 

2,109 

Investments in unconsolidated affiliates

 

 

(20,283)

 

 

(23,412)

 

 

(43,680)

 

 

(94,368)

Capital expenditures

 

 

(726)

 

 

(1,186)

 

 

(3,338)

 

 

(11,562)

Net cash used in investing activities

 

 

(21,009)

 

 

(22,489)

 

 

(47,018)

 

 

(103,821)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common units

 

 

 —

 

 

69,190 

 

 

 —

 

 

69,190 

Deferred issuance costs

 

 

 —

 

 

 —

 

 

 —

 

 

(398)

Contribution of cash by TransMontaigne GP

 

 

 —

 

 

1,474 

 

 

 —

 

 

1,474 

Borrowings of debt under credit facility

 

 

56,000 

 

 

26,500 

 

 

112,000 

 

 

146,000 

Repayments of debt under credit facility

 

 

(38,000)

 

 

(73,500)

 

 

(72,000)

 

 

(123,000)

Distributions paid to unitholders

 

 

(12,621)

 

 

(12,133)

 

 

(37,219)

 

 

(33,334)

Purchase of common units by our long-term incentive plan and from affiliate

 

 

(88)

 

 

(335)

 

 

(265)

 

 

(501)

Net cash provided by financing activities

 

 

5,291 

 

 

11,196 

 

 

2,516 

 

 

59,431 

Increase (decrease) in cash and cash equivalents

 

 

(743)

 

 

2,443 

 

 

(2,537)

 

 

1,828 

Foreign currency translation effect on cash

 

 

 —

 

 

 

 

 —

 

 

49 

Cash and cash equivalents at beginning of period

 

 

1,469 

 

 

6,176 

 

 

3,263 

 

 

6,745 

Cash and cash equivalents at end of period

 

$

726 

 

$

8,622 

 

$

726 

 

$

8,622 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,473 

 

$

579 

 

$

3,658 

 

$

1,933 

Property, plant and equipment acquired with accounts payable

 

$

518 

 

$

381 

 

$

518 

 

$

381 

See accompanying notes to consolidated financial statements.

7


 

 

TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Nature of business

TransMontaigne Partners L.P. (“Partners,” “we,” “us” or “our”) was formed in February 2005 as a Delaware limited partnership initially to own and operate refined petroleum products terminaling and transportation facilities. We conduct our operations in the United States along the Gulf Coast, in the Midwest, in Houston and Brownsville, Texas, along the Mississippi and Ohio rivers, and in the Southeast. We provide integrated terminaling, storage, transportation and related services for companies engaged in the trading, distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers and other liquid products.

We are controlled by our general partner, TransMontaigne GP L.L.C. (“TransMontaigne GP”), which is a wholly‑owned subsidiary of TransMontaigne Inc. At September 30, 2014, NGL Energy Partners LP (“NGL”) owned all of the issued and outstanding capital stock of TransMontaigne Inc., and, as a result, NGL is the indirect owner of our general partner. At September 30, 2014, TransMontaigne Inc. and NGL had a significant interest in our partnership through their indirect ownership of an approximate 20% limited partner interest, a 2% general partner interest and the incentive distribution rights.

Prior to July 1, 2014, Morgan Stanley Capital Group Inc. (“Morgan Stanley Capital Group”), a wholly‑owned subsidiary of Morgan Stanley and the principal commodities trading arm of Morgan Stanley, owned all of the issued and outstanding capital stock of TransMontaigne Inc., and, as a result, Morgan Stanley was the indirect owner of our general partner.  Effective July 1, 2014, Morgan Stanley consummated the sale of its 100% ownership interest in TransMontaigne Inc. to NGL. The sale resulted in a change in control of Partners, but did not result in a deemed termination of Partners for tax purposes.

In addition to the sale of our general partner to NGL, NGL acquired the common units owned by TransMontaigne Inc. and affiliates of Morgan Stanley, representing approximately 20% of our outstanding common units, and assumed Morgan Stanley Capital Group’s obligations under our light-oil terminaling service agreements in Florida and the Southeast regions, excluding the Collins/Purvis tankage (collectively, the “NGL Acquisition”). All other terminaling services agreements with Morgan Stanley Capital Group remained with Morgan Stanley Capital Group. The NGL Acquisition did not involve the sale or purchase of any of our common units held by the public and our common units continue to trade on the New York Stock Exchange.

 (b)Basis of presentation and use of estimates

Our accounting and financial reporting policies conform to accounting principles and practices generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of TransMontaigne Partners L.P., a Delaware limited partnership, and its controlled subsidiaries. Investments where we do not have the ability to exercise control, but do have the ability to exercise significant influence, are accounted for using the equity method of accounting. All inter‑company accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements. The accompanying consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly our financial position as of September 30, 2014 and December 31, 2013, our results of operations for the three and nine months ended September 30, 2014 and 2013 and our cash flows for the three and nine months ended September 30, 2014 and 2013.

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. The following estimates, in management’s opinion, are subjective in nature, require the exercise of judgment, and involve complex analyses: useful lives of our plant and equipment, accrued environmental obligations and determining the fair value of our reporting units when analyzing goodwill. Changes in these estimates and assumptions

8


 

will occur as a result of the passage of time and the occurrence of future events. Actual results could differ from these estimates.

The accompanying consolidated financial statements include allocated general and administrative charges from TransMontaigne Inc. for indirect corporate overhead to cover costs of functions such as legal, accounting, treasury, engineering, environmental safety, information technology, and other corporate services (see Note 2 of Notes to consolidated financial statements). The allocated general and administrative expenses were approximately $2.8 million and $2.7 million for the three months ended September 30, 2014 and 2013, respectively. The allocated general and administrative expenses were approximately $8.3 million and $8.2 million for the nine months ended September 30, 2014 and 2013, respectively. The accompanying consolidated financial statements also include allocated insurance charges from TransMontaigne Inc. for insurance premiums to cover costs of insuring activities such as property, casualty, pollution, automobile, directors’ and officers’ liability, and other insurable risks. The allocated insurance charges were approximately $0.9 million and $0.9 million for the three months ended September 30, 2014 and 2013, respectively. The allocated insurance charges were approximately $2.8 million and $2.8 million for the nine months ended September 30, 2014 and 2013, respectively. The accompanying consolidated financial statements also include reimbursement of bonus awards paid to TransMontaigne Services Inc. (a wholly‑ owned subsidiary of TransMontaigne Inc.) towards bonus awards granted by TransMontaigne Services Inc. to certain key officers and employees who provide services to Partners that vest over future periods. The reimbursement of bonus awards was approximately $0.4 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively. The reimbursement of bonus awards was approximately $1.1 million and $0.9 million for the nine months ended September 30, 2014 and 2013, respectively.

(c)Accounting for terminal and pipeline operations

In connection with our terminal and pipeline operations, we utilize the accrual method of accounting for revenue and expenses. We generate revenue in our terminal and pipeline operations from terminaling services fees, transportation fees, management fees and cost reimbursements, fees from other ancillary services and gains from the sale of refined products. Terminaling services revenue is recognized ratably over the term of the agreement for storage fees and minimum revenue commitments that are fixed at the inception of the agreement and when product is delivered to the customer for fees based on a rate per barrel throughput; transportation revenue is recognized when the product has been delivered to the customer at the specified delivery location; management fee revenue and cost reimbursements are recognized as the services are performed or as the costs are incurred; ancillary service revenue is recognized as the services are performed; and gains from the sale of refined products are recognized when the title to the product is transferred.

Pursuant to terminaling services agreements with certain of our throughput customers, we are entitled to the volume of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities. Consistent with recognized industry practices, measurement differentials occur as the result of the inherent variances in measurement devices and methodology. We recognize as revenue the net proceeds from the sale of the product gained. For the three months ended September 30, 2014 and 2013, we recognized revenue of approximately $3.1 million and $3.3 million, respectively, for net product gained. Within these amounts, approximately $1.2 million and $2.9 million for the three months ended September 30, 2014 and 2013, respectively, were pursuant to terminaling services agreements with affiliate customers. For the nine months ended September 30, 2014 and 2013, we recognized revenue of approximately $10.8 million and $11.0 million, respectively, for net product gained. Within these amounts, approximately $6.1 million and $9.8 million for the nine months ended September 30, 2014 and 2013, respectively, were pursuant to terminaling services agreements with affiliate customers.

(d)Cash and cash equivalents

We consider all short‑term investments with a remaining maturity of three months or less at the date of purchase to be cash equivalents.

(e)Property, plant and equipment

Depreciation is computed using the straight‑line method. Estimated useful lives are 15 to 25 years for terminals and pipelines and 3 to 25 years for furniture, fixtures and equipment. All items of property, plant and equipment are

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carried at cost. Expenditures that increase capacity or extend useful lives are capitalized. Repairs and maintenance are expensed as incurred.

We evaluate long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable based on expected undiscounted future cash flows attributable to that asset group. If an asset group is impaired, the impairment loss to be recognized is the excess of the carrying amount of the asset group over its estimated fair value.

(f)Investments in unconsolidated affiliates

We account for our investments in our unconsolidated affiliates, which we do not control but do have the ability to exercise significant influence over, using the equity method of accounting. Under this method, the investment is recorded at acquisition cost, increased by our proportionate share of any earnings and additional capital contributions and decreased by our proportionate share of any losses, distributions received and amortization of any excess investment. Excess investment is the amount by which our total investment exceeds our proportionate share of the book value of the net assets of the investment entity. We evaluate our investments in unconsolidated affiliates for impairment whenever events or circumstances indicate there is a loss in value of the investment that is other than temporary. In the event of impairment, we would record a charge to earnings to adjust the carrying amount to fair value.

(g)Environmental obligations

We accrue for environmental costs that relate to existing conditions caused by past operations when probable and reasonably estimable (see Note 10 of Notes to consolidated financial statements). Environmental costs include initial site surveys and environmental studies of potentially contaminated sites, costs for remediation and restoration of sites determined to be contaminated and ongoing monitoring costs, as well as fines, damages and other costs, including direct legal costs. Liabilities for environmental costs at a specific site are initially recorded, on an undiscounted basis, when it is probable that we will be liable for such costs, and a reasonable estimate of the associated costs can be made based on available information. Such an estimate includes our share of the liability for each specific site and the sharing of the amounts related to each site that will not be paid by other potentially responsible parties, based on enacted laws and adopted regulations and policies. Adjustments to initial estimates are recorded, from time to time, to reflect changing circumstances and estimates based upon additional information developed in subsequent periods. Estimates of our ultimate liabilities associated with environmental costs are difficult to make with certainty due to the number of variables involved, including the early stage of investigation at certain sites, the lengthy time frames required to complete remediation, technology changes, alternatives available and the evolving nature of environmental laws and regulations. We periodically file claims for insurance recoveries of certain environmental remediation costs with our insurance carriers under our comprehensive liability policies (see Note 5 of Notes to consolidated financial statements). We recognize our insurance recoveries as a credit to income in the period that we assess the likelihood of recovery as being probable (i.e., likely to occur).

TransMontaigne Inc. agreed to indemnify us against certain potential environmental claims, losses and expenses that were identified on or before May 27, 2010 and that were associated with the ownership or operation of the Florida and Midwest terminal facilities prior to May 27, 2005, up to a maximum liability not to exceed $15.0 million for this indemnification obligation (see Note 2 of Notes to consolidated financial statements). TransMontaigne Inc. agreed to indemnify us against certain potential environmental claims, losses and expenses that were identified on or before December 31, 2011 and that were associated with the ownership or operation of the Brownsville and River facilities prior to December 31, 2006, up to a maximum liability not to exceed $15.0 million for this indemnification obligation (see Note 2 of Notes to consolidated financial statements). TransMontaigne Inc. agreed to indemnify us against certain potential environmental claims, losses and expenses that were identified on or before December 31, 2012 and that were associated with the ownership or operation of the Southeast terminals prior to December 31, 2007, up to a maximum liability not to exceed $15.0 million for this indemnification obligation (see Note 2 of Notes to consolidated financial statements). TransMontaigne Inc. has agreed to indemnify us against certain potential environmental claims, losses and expenses that are identified on or before March 1, 2016 and that were associated with the ownership or operation of the Pensacola terminal prior to March 1, 2011, up to a maximum liability not to exceed $2.5 million for this indemnification obligation (see Note 2 of Notes to consolidated financial statements).

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(h)Asset retirement obligations

Asset retirement obligations are legal obligations associated with the retirement of long‑lived assets that result from the acquisition, construction, development or normal use of the asset. Generally accepted accounting principles require that the fair value of a liability related to the retirement of long‑lived assets be recorded at the time a legal obligation is incurred. Once an asset retirement obligation is identified and a liability is recorded, a corresponding asset is recorded, which is depreciated over the remaining useful life of the asset. After the initial measurement, the liability is adjusted to reflect changes in the asset retirement obligation. If and when it is determined that a legal obligation has been incurred, the fair value of any liability is determined based on estimates and assumptions related to retirement costs, future inflation rates and interest rates. Our long‑lived assets consist of above‑ground storage facilities and underground pipelines. We are unable to predict if and when these long‑lived assets will become completely obsolete and require dismantlement. We have not recorded an asset retirement obligation, or corresponding asset, because the future dismantlement and removal dates of our long‑lived assets is indeterminable and the amount of any associated costs are believed to be insignificant. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events.

(i)Equity‑based compensation plan

Generally accepted accounting principles require us to measure the cost of services received in exchange for an award of equity instruments based on the grant‑date fair value of the award. That cost will be recognized over the period during which a board member or employee is required to provide service in exchange for the award. We are required to estimate the number of equity instruments that are expected to vest in measuring the total compensation cost to be recognized over the related service period. Compensation cost is recognized over the service period on a straight‑line basis.

(j)Foreign currency translation and transactions

The functional currency of Partners and its U.S.‑based subsidiaries is the U.S. Dollar. The functional currency of our Mexico operations, which we sold effective August 8, 2013 (see Note 3 of Notes to consolidated financial statements), was the Mexican Peso. The assets and liabilities of our foreign subsidiaries were translated at period‑end rates of exchange, and revenue and expenses were translated at average exchange rates prevailing for the period. The resulting translation adjustments, net of related income taxes, were recorded as a component of other comprehensive income in the consolidated statements of comprehensive income. Gains and losses from the re‑measurement of foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) were included in other income (expenses) in the consolidated statements of comprehensive income.

(k)Income taxes

No provision for U.S. federal income taxes has been reflected in the accompanying consolidated financial statements because Partners is treated as a partnership for federal income taxes. As a partnership, all income, gains, losses, expenses, deductions and tax credits generated by Partners flow through to its unitholders.

Partners is a taxable entity under certain U.S. state jurisdictions, primarily Texas. Certain of our Mexican subsidiaries were corporations for Mexican tax purposes and, therefore, were subject to Mexican federal and provincial income taxes. Effective August 8, 2013, we sold our Mexico operations, including the Mexican corporations (see Note 3 of Notes to consolidated financial statements).

Partners accounts for U.S. state income taxes and Mexican federal and provincial income taxes under the asset and liability method pursuant to generally accepted accounting principles. Mexican federal and provincial income taxes and U.S. state income taxes are not material.

(l)Net earnings per limited partner unit

Net earnings allocable to the limited partners, for purposes of calculating net earnings per limited partner unit, are net of the earnings allocable to the general partner interest and distributions payable to any restricted phantom units granted under the long‑term incentive plan that participate in Partners distributions (see Note 16 of Notes to

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consolidated financial statements). The earnings allocable to the general partner interest include the distributions of available cash (as defined by our partnership agreement) attributable to the period to the general partner interest, net of adjustments for the general partner’s share of undistributed earnings, and the incentive distribution rights. Undistributed earnings are the difference between the earnings and the distributions attributable to the period. Undistributed earnings are allocated to the limited partners and general partner interest based on their respective sharing of earnings or losses specified in the partnership agreement, which is based on their ownership percentages of 98% and 2%, respectively. The incentive distribution rights are not allocated a portion of the undistributed earnings given they are not entitled to distributions other than from available cash. Further, the incentive distribution rights do not share in losses under our partnership agreement. Basic net earnings per limited partner unit is computed by dividing net earnings allocable to limited partners by the weighted average number of limited partnership units outstanding during the period. Diluted net earnings per limited partner unit is computed by dividing net earnings allocable to the limited partners by the weighted average number of limited partnership units outstanding during the period and any potential dilutive securities outstanding during the period. 

(m)Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The objective of this update is to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently evaluating the potential impact that the adoption will have on our disclosures and financial statements.

(2) TRANSACTIONS WITH AFFILIATES

Omnibus agreement.  We have an omnibus agreement with TransMontaigne Inc. that will continue in effect until the earlier to occur of (i) TransMontaigne Inc. ceasing to control our general partner or (ii) the election of either us or TransMontaigne Inc., following at least 24 months’ prior written notice to the other parties.

Under the omnibus agreement we pay TransMontaigne Inc. an administrative fee for the provision of various general and administrative services for our benefit. For the three months ended September 30, 2014 and 2013, the administrative fee paid to TransMontaigne Inc. was approximately $2.8 million and $2.7 million, respectively. For the nine months ended September 30, 2014 and 2013, the administrative fee paid to TransMontaigne Inc. was approximately $8.3 million and $8.2 million, respectively. If we acquire or construct additional facilities, TransMontaigne Inc. will propose a revised administrative fee covering the provision of services for such additional facilities. If the conflicts committee of our general partner agrees to the revised administrative fee, TransMontaigne Inc. will provide services for the additional facilities pursuant to the agreement. The administrative fee includes expenses incurred by TransMontaigne Inc. to perform centralized corporate functions, such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes and engineering and other corporate services, to the extent such services are not outsourced by TransMontaigne Inc.

The omnibus agreement further provides that we pay TransMontaigne Inc. an insurance reimbursement for premiums on insurance policies covering our facilities and operations. For the three months ended September 30, 2014 and 2013, the insurance reimbursement paid to TransMontaigne Inc. was approximately $0.9 million and $0.9 million, respectively. For the nine months ended September 30, 2014 and 2013, the insurance reimbursement paid to TransMontaigne Inc. was approximately $2.8 million and $2.8 million, respectively. We also reimburse TransMontaigne Inc. for direct operating costs and expenses that TransMontaigne Inc. incurs on our behalf, such as salaries of operational personnel performing services on‑site at our terminals and pipelines and the cost of their employee benefits, including 401(k) and health insurance benefits.

We also agreed to reimburse TransMontaigne Inc. and its affiliates for a portion of the incentive payment grants to key employees of TransMontaigne Inc. and its affiliates under the TransMontaigne Services Inc. savings and retention plan, provided the compensation committee of our general partner determines that an adequate portion of the incentive payment grants are allocated to an investment fund indexed to the performance of our common units. For the three months ended September 30, 2014 and 2013, we reimbursed TransMontaigne Inc. and its affiliates approximately

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$0.4 million and $0.3 million, respectively. For the nine months ended September 30, 2014 and 2013, we reimbursed TransMontaigne Inc. and its affiliates approximately $1.1 million and $0.9 million, respectively.

The omnibus agreement also provides TransMontaigne Inc. a right of first refusal to purchase our assets, subject to certain exceptions discussed below and provided that TransMontaigne Inc. agrees to pay no less than 105% of the purchase price offered by the third party bidder. Before we enter into any contract to sell such terminal or pipeline facilities, we must give written notice of all material terms of such proposed sale to TransMontaigne Inc. TransMontaigne Inc. will then have the sole and exclusive option, for a period of 45 days following receipt of the notice, to purchase the subject facilities for no less than 105% of the purchase price on the terms specified in the notice. Subject to certain exceptions discussed below, TransMontaigne Inc. also has a right of first refusal to contract for the use of any petroleum product storage capacity that (i) is put into commercial service after January 1, 2008, or (ii) was subject to a terminaling services agreement that expires or is terminated (excluding a contract renewable solely at the option of our customer), provided that TransMontaigne Inc. agrees to pay no less than 105% of the fees offered by the third party customer.  The above rights of first refusal do not apply to any storage capacity or terminaling assets for which TransMontaigne Inc., or an affiliate of TransMontaigne Inc., has, subsequent to July 2013, elected to terminate (or not renew upon expiration) its existing terminaling services agreement relating thereto.

Environmental indemnification.  In connection with our acquisition of the Florida and Midwest terminals, TransMontaigne Inc. agreed to indemnify us against certain potential environmental claims, losses and expenses that were identified on or before May 27, 2010, and that were associated with the ownership or operation of the Florida and Midwest terminals prior to May 27, 2005. TransMontaigne Inc.’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne Inc. has no obligation to indemnify us for losses until such aggregate losses exceed $250,000. TransMontaigne Inc. has no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after May 27, 2005.

In connection with our acquisition of the Brownsville, Texas and River terminals, TransMontaigne Inc. agreed to indemnify us against potential environmental claims, losses and expenses that were identified on or before December 31, 2011, and that were associated with the ownership or operation of the Brownsville and River facilities prior to December 31, 2006. TransMontaigne Inc.’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne Inc. has no obligation to indemnify us for losses until such aggregate losses exceed $250,000. The deductible amount, cap amount and limitation of time for indemnification do not apply to any environmental liabilities known to exist as of December 31, 2006. TransMontaigne Inc. has no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after December 31, 2006.

In connection with our acquisition of the Southeast terminals, TransMontaigne Inc. agreed to indemnify us against potential environmental claims, losses and expenses that were identified on or before December 31, 2012, and that were associated with the ownership or operation of the Southeast terminals prior to December 31, 2007. TransMontaigne Inc.’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne Inc. has no obligation to indemnify us for losses until such aggregate losses exceed $250,000. The deductible amount, cap amount and limitation of time for indemnification do not apply to any environmental liabilities known to exist as of December 31, 2007. TransMontaigne Inc. has no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after December 31, 2007.

In connection with our acquisition of the Pensacola terminal, TransMontaigne Inc. has agreed to indemnify us against potential environmental claims, losses and expenses that are identified on or before March 1, 2016, and that are associated with the ownership or operation of the Pensacola terminal prior to March 1, 2011. Our environmental losses must first exceed $200,000 and TransMontaigne Inc.’s indemnification obligations are capped at $2.5 million. The deductible amount, cap amount and limitation of time for indemnification do not apply to any environmental liabilities known to exist as of March 1, 2011. TransMontaigne Inc. has no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after March 1, 2011.

Terminaling services agreement—Florida and Midwest terminals.    In connection with the NGL Acquisition, effective July 1, 2014, Morgan Stanley Capital Group assigned to NGL its obligations under our terminaling services agreement for light‑oil terminaling capacity at our Florida terminals. Effective September 16, 2014, we amended our

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long-term terminaling services agreement with Metroplex Energy, a wholly-owned subsidiary of RaceTrac Petroleum Inc. (“Metroplex”), to include the use of gasoline, ethanol and diesel tankage at our Cape Canaveral, Port Manatee and Port Everglades South terminals.  Simultaneous with the entry into the Metroplex agreement, we amended the Florida and Midwest terminaling services agreement to immediately terminate NGL’s obligations at our Cape Canaveral and Port Everglades South terminals, and to terminate NGL’s obligation at our Port Manatee terminal effective March 14, 2015The tankage at Cape Canaveral and Port Everglades South became available to Metroplex on September 16, 2014.  The tankage at Port Manatee is expected to become available to Metroplex by the fall of 2015, upon the completion of certain enhancements at this facility.

On October 31, 2014, NGL provided us the required 18 months’ prior notice that it will terminate its remaining obligations under the Florida and Midwest terminaling services agreement effective April 30, 2016, which constitutes NGL’s light‑oil terminaling capacity at our Port Everglades North terminal.

Effective May 31, 2014, the Florida tanks dedicated to bunker fuels were no longer subject to the Florida and Midwest terminaling services agreement. A large portion of this capacity has been re‑contracted to Glencore Ltd. effective June 1, 2014.

Under the Florida and Midwest terminaling services agreement, Morgan Stanley Capital Group had also contracted for our Mount Vernon, Missouri and Rogers, Arkansas terminals and the use of our Razorback Pipeline, which runs from Mount Vernon to Rogers. We refer to these terminals and the related pipeline as the Razorback system. This portion of the Florida and Midwest terminaling services agreement related to the Razorback system was terminated effective February 28, 2014. Effective March 1, 2014, we entered into a ten year capacity lease agreement with Magellan Pipeline Company, L.P., covering 100% of the capacity of our Razorback system.

Under the Florida and Midwest terminaling services agreement, and taking into consideration the amendments to the agreement, Morgan Stanley Capital Group, and NGL as the successor to the agreement, is obligated to throughput a volume that will, at the fee and tariff schedule contained in the agreement, result in minimum throughput payments to us of approximately $21.1 million for the year ending December 31, 2014. The minimum annual throughput payment is reduced proportionately for any decrease in storage capacity due to out‑of‑service tank capacity or for capacity that has been vacated.

If a force majeure event occurs that renders us unable to perform our obligations with respect to an asset, the obligations would be temporarily suspended with respect to that asset. If a force majeure event continues for 30 consecutive days or more and results in a diminution in the storage capacity we make available, then the counterparty may terminate its obligations with respect to the asset affected by the force majeure event and their minimum revenue commitment would be reduced proportionately for the duration of the agreement.

Terminaling services agreement—Fisher Island terminal.  We had a terminaling services agreement with TransMontaigne Inc. that expired on December 31, 2013. Under this agreement, TransMontaigne Inc. had agreed to throughput at our Fisher Island terminal in the Gulf Coast region a volume of fuel oils that, at the fee schedule contained in the agreement, resulted in revenue to us of approximately $1.8 million for the contract year ended December 31, 2013. In exchange for its minimum throughput commitment, we had agreed to provide TransMontaigne Inc. with approximately 185,000 barrels of fuel oil capacity.

Terminaling services agreement—Cushing terminal.  In July 2011, we entered into a terminaling services agreement with Morgan Stanley Capital Group relating to our Cushing, Oklahoma facility that will expire in July 2019, subject to a five‑year automatic renewal unless terminated by either party upon 180 days’ prior notice. In exchange for its minimum revenue commitment, we agreed to construct storage tanks and associated infrastructure to provide approximately 1.0 million barrels of crude oil capacity. These capital projects were completed and placed into service on August 1, 2012. Under this agreement, Morgan Stanley Capital Group agreed to throughput a volume of crude oil at our terminal that will, at the fee schedule contained in the agreement, result in minimum throughput payments to us of approximately $4.3 million for each one‑year period following the in‑service date of August 1, 2012.  Subsequent to the NGL Acquisition,  effective July 1, 2014, revenue associated with the Cushing tankage is recorded as revenue from external customers as opposed to revenue from affiliates.

If a force majeure event occurs that renders us unable to perform our obligations with respect to an asset, Morgan Stanley Capital Group’s obligations would be temporarily suspended with respect to that asset. If a force

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majeure event continues for 120 consecutive days or more and results in a diminution in the storage capacity we make available to Morgan Stanley Capital Group, Morgan Stanley Capital Group may terminate its obligations with respect to the asset affected by the force majeure event and their minimum revenue commitment would be reduced proportionately for the duration of the agreement.

Terminaling services agreement—Southeast terminals.    In connection with the NGL Acquisition, effective July 1, 2014, Morgan Stanley Capital Group assigned to NGL its obligations under our terminaling services agreement relating to our Southeast terminals, excluding the Collins/Purvis tankage.  The terminaling services agreement provisions pertaining to the Collins/Purvis tankage remained with Morgan Stanley Capital Group, and subsequent to the NGL Acquisition, effective July 1, 2014, the revenue associated with the Collins/Purvis tankage is recorded as revenue from external customers as opposed to revenue from affiliates.  The Southeast terminaling services agreement, excluding the Collins/Purvis tankage, will continue in effect unless and until NGL provides us at least 24 months’ prior notice of its intent to terminate the agreement. We have the right to terminate the terminaling services agreement effective at any time after July 31, 2023 by providing at least 24 months’ prior notice to NGL.

Under this agreement, Morgan Stanley Capital Group, and NGL as the successor to the majority of the agreement, is obligated to throughput a volume of refined product at our Southeast terminals that will, at the fee schedule contained in the agreement, result in minimum throughput payments to us of approximately $36.8 million for the year ending December 31, 2014; with stipulated annual increases in throughput payments through July 31, 2015, and for each contract year thereafter the throughput payments will adjust based on increases in the United States Consumer Price Index. The minimum annual throughput payment is reduced proportionately for any decrease in storage capacity due to out‑of‑service tank capacity.

If a force majeure event occurs that renders us unable to perform our obligations with respect to an asset, the obligations would be temporarily suspended with respect to that asset. If a force majeure event continues for 30 consecutive days or more and results in a diminution in the storage capacity we make available, the counterparty may terminate its obligations with respect to the asset affected by the force majeure event and their minimum revenue commitment would be reduced proportionately for the duration of the agreement.

On December 20, 2013, Morgan Stanley Capital Group provided us 24 months’ prior notice that it will terminate its obligations under the Southeast terminaling services agreement relating to our Collins/Purvis terminal on December 31, 2015. This termination notice does not encompass the Collins/Purvis additional light oil tankage, which is part of a separate terminaling services agreement. Our firmly committed annual revenues under the Southeast terminaling services agreement with respect to the Collins/Purvis terminal are approximately $9.2 million.

Terminaling services agreement—Collins/Purvis additional light oil tankage.  In January 2010, we entered into a terminaling services agreement with Morgan Stanley Capital Group for additional light oil tankage relating to our Collins/Purvis, Mississippi facility that will expire in July 2018, after which the terminaling services agreement will continue in effect unless and until Morgan Stanley Capital Group provides us at least 24 months’ prior notice of its intent to terminate the agreement. In exchange for its minimum revenue commitment, we agreed to undertake certain capital projects to provide approximately 700,000 barrels of additional light oil capacity and other improvements at the Collins/Purvis terminal. These capital projects were completed and placed into service in July 2011. Under this agreement, Morgan Stanley Capital Group has agreed to throughput a volume of light oil products at our terminal that will, at the fee schedule contained in the agreement, result in minimum throughput payments to us of approximately $4.1 million for the one‑year period following the in‑service date of July 2011 for the aforementioned capital projects, and for each contract year thereafter, subject to increases based on increases in the United States Consumer Price Index beginning July 1, 2018.    Subsequent to the NGL Acquisition, effective July 1, 2014, revenue associated with the Collins/Purvis additional light oil tankage is recorded as revenue from external customers as opposed to revenue from affiliates.

If a force majeure event occurs that renders us unable to perform our obligations with respect to an asset, Morgan Stanley Capital Group’s obligations would be temporarily suspended with respect to that asset. If a force majeure event continues for 30 consecutive days or more and results in a diminution in the storage capacity we make available to Morgan Stanley Capital Group, Morgan Stanley Capital Group may terminate its obligations with respect to the asset affected by the force majeure event and their minimum revenue commitment would be reduced proportionately for the duration of the agreement.

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Barge dock services agreement—Baton Rouge dock.  Effective May 2013, we entered into a barge dock services agreement with Morgan Stanley Capital Group relating to our Baton Rouge, LA dock facility that will expire in May 2023, subject to a five‑year automatic renewal unless terminated by either party upon 180 days’ prior notice. Under this agreement, Morgan Stanley Capital Group agreed to throughput a volume of refined product at our Baton Rouge dock facility that will, at the fee schedule contained in the agreement, result in minimum throughput payments to us of approximately $1.2 million for each of the first three years ending May 12, 2016 and approximately $0.9 million for each of the remaining seven years ending May 12, 2023. In exchange for its minimum throughput commitment, we agreed to provide Morgan Stanley Capital Group with exclusive access to our dock facility.    Effective September 1, 2014, Morgan Stanley Capital Group assigned its rights and obligations under the Baton Rouge barge dock services agreement to Colonial Pipeline Company.  Subsequent to the NGL Acquisition, effective July 1, 2014, revenue associated with the Baton Rouge barge dock services agreement is recorded as revenue from external customers as opposed to revenue from affiliates.

If a force majeure event occurs that renders us unable to perform our obligations, Morgan Stanley Capital Group’s obligations would be temporarily suspended. If a force majeure event continues for 120 consecutive days, Morgan Stanley Capital Group may terminate its obligations under this agreement.

Operations and reimbursement agreement—Frontera.  Effective as of April 1, 2011, we entered into the Frontera Brownsville LLC joint venture, or “Frontera”, in which we have a 50% ownership interest. In conjunction with us entering into the joint venture, we agreed to operate Frontera, in accordance with an operations and reimbursement agreement executed between us and Frontera, for a management fee that is based on our costs incurred. Our agreement with Frontera stipulates that we may resign as the operator at any time with the prior written consent of Frontera, or that we may be removed as the operator for good cause, which includes material noncompliance with laws and material failure to adhere to good industry practice regarding health, safety or environmental matters. For the three months ended September 30, 2014 and 2013, we recognized revenue of approximately $1.2 million and $1.0 million, respectively, related to this operations and reimbursement agreement. For the nine months ended September 30, 2014 and 2013, we recognized revenue of approximately $3.0 million and $2.8 million, respectively, related to this operations and reimbursement agreement.

(3) TERMINAL ACQUISITIONS AND DISPOSITIONS

Investment in BOSTCO.  On December 20, 2012, we acquired a 42.5%, general voting, Class A Member (“ownership”) interest in BOSTCO, for approximately $79 million, from Kinder Morgan Battleground Oil, LLC, a wholly owned subsidiary of Kinder Morgan Energy Partners, L.P. (“Kinder Morgan”). BOSTCO is a new terminal facility on the Houston Ship Channel designed to handle residual fuel, feedstocks, distillates and other black oils. The initial phase of BOSTCO involved the construction of 51 storage tanks with approximately 6.2 million barrels of storage capacity at a cost of approximately $480 million. The BOSTCO facility began initial commercial operation in the fourth quarter of 2013. Completion of the full 6.2 million barrels of storage capacity and related infrastructure occurred in the second quarter of 2014.

On June 5, 2013, we announced an expansion of BOSTCO that is estimated to cost approximately $55 million. The expansion is supported by a long‑term leased storage and handling services contract with Morgan Stanley Capital Group and includes six, 150,000 barrel, ultra‑low sulphur diesel tanks, additional pipeline and deepwater vessel dock access and high‑speed loading at a rate of 25,000 barrels per hour. Work on the 900,000 barrel expansion started in the second quarter of 2013, and was placed into service by the end of the third quarter of 2014. With the addition of this expansion project, BOSTCO has fully subscribed capacity of approximately 7.1 million barrels at an estimated overall construction cost of approximately $535 million. We expect our total payments for the initial and the expansion projects to be approximately $235 million, which includes our proportionate share of the BOSTCO project costs and necessary start‑up working capital, a one‑time buy‑in fee paid to Kinder Morgan to acquire our 42.5% interest and the capitalization of interest on our investment during the construction of BOSTCO. We have funded our payments for BOSTCO utilizing borrowings under our credit facility.

Our investment in BOSTCO entitles us to appoint a member to the Board of Managers of BOSTCO to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, BOSTCO’s business. Kinder Morgan is responsible for managing BOSTCO’s day‑to‑day operations.

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Our 42.5% ownership interest does not allow us to control BOSTCO, but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in BOSTCO under the equity method of accounting.

Disposition of Mexico operations.  Effective August 8, 2013, we sold our Mexico operations to an unaffiliated third party for cash proceeds of approximately $2.1 million, net of $0.2 million in bank accounts sold related to the Mexico operations. The Mexico operations consisted of a 7,000 barrel liquefied petroleum gas storage terminal in Matamoros, Mexico and a seven mile pipeline system connecting the Matamoros terminal to our Diamondback pipeline system at the U.S. border, which connects to our Brownville, Texas terminals. The net carrying amount of the Mexico operations was approximately $3.4 million, which was in excess of the net cash proceeds, resulting in an approximate $1.3 million loss on disposition of assets. The accompanying consolidated financial statements exclude the assets, liabilities and results of the Mexico operations subsequent to August 8, 2013.

(4) CONCENTRATION OF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE

Our primary market areas are located in the United States along the Gulf Coast, in the Southeast, in Brownsville, Texas, along the Mississippi and Ohio Rivers, and in the Midwest. We have a concentration of trade receivable balances due from companies engaged in the trading, distribution and marketing of refined products and crude oil and the United States government. These concentrations of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Our customers’ historical financial and operating information is analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions we may request letters of credit, prepayments or guarantees. We maintain allowances for potentially uncollectible accounts receivable.

Trade accounts receivable, net consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Trade accounts receivable

 

$

12,716 

 

$

6,527 

Less allowance for doubtful accounts

 

 

(464)

 

 

(100)

 

 

$

12,252 

 

$

6,427 

 

The following customer accounted for at least 10% of our consolidated revenue in at least one of the periods presented in the accompanying consolidated statements of comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

 

Nine months

 

 

 

ended 

 

 

ended

 

 

 

September 30,

 

 

September 30,

 

 

    

2014

    

2013

 

 

2014

 

2013

 

NGL Energy Partners LP

 

35 

%  

 —

%  

 

11 

%  

 —

%  

Morgan Stanley Capital Group

 

13 

%  

63 

%  

 

45 

%  

63 

%  

 

 

 

 

17


 

(5) OTHER CURRENT ASSETS

Other current assets are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Amounts due from insurance companies

 

$

1,300 

 

$

1,722 

Additive detergent

 

 

1,613 

 

 

1,718 

Deposits and other assets

 

 

63 

 

 

38 

 

 

$

2,976 

 

$

3,478 

 

Amounts due from insurance companies.  We periodically file claims for recovery of environmental remediation costs with our insurance carriers under our comprehensive liability policies. We recognize our insurance recoveries in the period that we assess the likelihood of recovery as being probable (i.e., likely to occur). At September 30, 2014 and December 31, 2013, we have recognized amounts due from insurance companies of approximately $1.3 million and $1.7 million, respectively, representing our best estimate of our probable insurance recoveries. During the three and nine months ended September 30, 2014, we received reimbursements from insurance companies of approximately $0.1 million and $0.4 million, respectively. During the nine months ended September 30, 2014, we did not adjust our estimate of probable insurance recoveries.

(6) PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net is as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Land

 

$

52,519 

 

$

52,519 

Terminals, pipelines and equipment

 

 

565,065 

 

 

562,077 

Furniture, fixtures and equipment

 

 

2,101 

 

 

1,861 

Construction in progress

 

 

2,642 

 

 

2,730 

 

 

 

622,327 

 

 

619,187 

Less accumulated depreciation

 

 

(234,187)

 

 

(212,142)

 

 

$

388,140 

 

$

407,045 

 

 

 

 

 

 

(7) GOODWILL

Goodwill is as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Brownsville terminals

 

$

8,485 

 

$

8,485 

 

Goodwill is required to be tested for impairment annually unless events or changes in circumstances indicate it is more likely than not that an impairment loss has been incurred at an interim date. Our annual test for the impairment of

18


 

goodwill is performed as of December 31. The impairment test is performed at the reporting unit level. Our reporting units are our operating segments (see Note 18 of Notes to consolidated financial statements). The fair value of each reporting unit is determined on a stand‑alone basis from the perspective of a market participant and represents an estimate of the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.

At September 30, 2014 and December 31, 2013, our only reporting unit that contained goodwill was our Brownsville terminals. Our estimate of the fair value of our Brownsville terminals at December 31, 2013 exceeded its carrying amount. Accordingly, we did not recognize any goodwill impairment charges during the year ended December 31, 2013 for this reporting unit. However, a significant decline in the price of our common units with a resulting increase in the assumed market participants’ weighted average cost of capital, the loss of a significant customer, the disposition of significant assets, or an unforeseen increase in the costs to operate and maintain the Brownsville terminals, could result in the recognition of an impairment charge in the future.

(8) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

At September 30, 2014 and December 31, 2013, our investments in unconsolidated affiliates include a 42.5% interest in BOSTCO and a 50% interest in Frontera. BOSTCO is a terminal facility construction project for approximately 7.1 million barrels of storage capacity at an estimated cost of approximately $535 million. BOSTCO is located on the Houston Ship Channel and began initial commercial operations in the fourth quarter of 2013 (see Note 3 of Notes to consolidated financial statements). Frontera is a terminal facility located in Brownsville, Texas that encompasses approximately 1.5 million barrels of light petroleum product storage capacity, as well as related ancillary facilities.

The following table summarizes our investments in unconsolidated affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

Percentage of ownership

 

(in thousands)

 

    

September 30,

    

December 31,

    

September 30,

    

December 31,

 

 

2014

 

2013

 

2014

 

2013

BOSTCO

 

42.5 

%  

42.5 

%  

$

228,361 

 

$

186,181 

Frontera

 

50 

%  

50 

%  

 

24,318 

 

 

25,424 

Total investments in unconsolidated affiliates

 

 

 

 

 

$

252,679 

 

$

211,605 

 

At September 30, 2014 and December 31, 2013, our investment in BOSTCO includes approximately $7.7 million and $6.4 million, respectively, of excess investment related to a one time buy-in fee to acquire our 42.5% interest and capitalization of interest on our investment during the construction of BOSTCO. Excess investment is the amount by which our investment exceeds our proportionate share of the book value of the net assets of the BOSTCO entity.

19


 

Earnings from investments in unconsolidated affiliates were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Nine months

 

 

ended 

 

ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

BOSTCO

 

$

1,368 

 

$

 —

 

$

2,617 

 

$

 —

Frontera

 

 

285 

 

 

234 

 

 

474 

 

 

270 

Total earnings from unconsolidated affiliates

 

$

1,653 

 

$

234 

 

$

3,091 

 

$

270 

 

Additional capital investments in unconsolidated affiliates were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Nine months

 

 

ended 

 

ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

BOSTCO

 

$

20,283 

 

$

23,412 

 

$

43,635 

 

$

94,216 

Frontera

 

 

 —

 

 

 —

 

 

45 

 

 

152 

Total additional capital investments in unconsolidated affiliates

 

$

20,283 

 

$

23,412 

 

$

43,680 

 

$

94,368 

 

Cash distributions received from unconsolidated affiliates were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Nine months

 

 

ended 

 

ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

BOSTCO

 

$

2,915 

 

$

 —

 

$

4,072 

 

$

 —

Frontera

 

 

344 

 

 

328 

 

 

1,625 

 

 

877 

Total cash distributions received from unconsolidated affiliates

 

$

3,259 

 

$

328 

 

$

5,697 

 

$

877 

 

The summarized financial information of our unconsolidated affiliates was as follows (in thousands):

Balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

    

September 30,

    

December 31,

    

September 30,

    

December 31,

 

 

2014

 

2013

 

2014

 

2013

Current assets

 

$

52,164 

 

$

30,776 

 

$

4,662 

 

$

4,465 

Long‑term assets

 

 

514,301 

 

 

458,707 

 

 

45,311 

 

 

47,691 

Current liabilities

 

 

(47,264)

 

 

(66,469)

 

 

(1,337)

 

 

(1,308)

Long‑term liabilities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net assets

 

$

519,201 

 

$

423,014 

 

$

48,636 

 

$

50,848 

 

20


 

Statements of comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

Three months

 

Three months

 

 

ended 

 

ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

Operating revenue

 

$

14,708 

 

$

 —

 

$

3,474 

 

$

3,231 

Operating expenses

 

 

(11,119)

 

 

 —

 

 

(2,904)

 

 

(2,763)

Net earnings and comprehensive income

 

$

3,589 

 

$

 —

 

$

570 

 

$

468 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

Nine months

 

Nine months

 

 

ended 

 

ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

Operating revenue

 

$

35,451 

 

$

 —

 

$

9,934 

 

$

8,946 

Operating expenses

 

 

(28,812)

 

 

 —

 

 

(8,986)

 

 

(8,406)

Net earnings and comprehensive income

 

$

6,639 

 

$

 —

 

$

948 

 

$

540 

 

 

 

 

 

(9) OTHER ASSETS, NET

Other assets, net are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Amounts due under long-term terminaling services agreements:

 

 

 

 

 

 

External customers

 

$

760 

 

$

592 

Affiliates

 

 

1,074 

 

 

2,146 

 

 

 

1,834 

 

 

2,738 

Deferred financing costs, net of accumulated amortization of $3,034 and $2,303, respectively

 

 

1,382 

 

 

2,113 

Customer relationships, net of accumulated amortization of $1,637 and $1,485, respectively

 

 

793 

 

 

945 

Deposits and other assets

 

 

76 

 

 

76 

 

 

$

4,085 

 

$

5,872 

 

Amounts due under long‑term terminaling services agreements.  We have long‑term terminaling services agreements with certain of our customers that provide for minimum payments that increase over the terms of the respective agreements. We recognize as revenue the minimum payments under the long‑term terminaling services agreements on a straight‑line basis over the term of the respective agreements. At September 30, 2014 and December 31, 2013, we have recognized revenue in excess of the minimum payments that are due through those respective dates under the long‑term terminaling services agreements resulting in an asset of approximately $1.8 million and $2.7 million, respectively.

21


 

Deferred financing costs.  Deferred financing costs are amortized using the effective interest method over the term of the related credit facility (see Note 12 of Notes to consolidated financial statements).

Customer relationships.  Other assets, net include certain customer relationships at our River terminals. These customer relationships are being amortized on a straight‑line basis over twelve years.

(10) ACCRUED LIABILITIES

Accrued liabilities are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Customer advances and deposits:

 

 

 

 

 

 

External customers

 

$

1,882 

 

$

475 

Affiliates

 

 

96 

 

 

6,264 

 

 

 

1,978 

 

 

6,739 

Accrued property taxes

 

 

3,584 

 

 

767 

Accrued environmental obligations

 

 

1,603 

 

 

1,966 

Interest payable

 

 

179 

 

 

163 

Rebate due to customers

 

 

1,780 

 

 

3,793 

Accrued expenses and other

 

 

2,642 

 

 

2,761 

 

 

$

11,766 

 

$

16,189 

 

Customer advances and deposits.  We bill certain of our customers one month in advance for terminaling services to be provided in the following month. At September 30, 2014 and December 31, 2013, we have billed and collected from certain of our customers approximately $2.0 million and $6.7 million, respectively, in advance of the terminaling services being provided.

Accrued environmental obligations.  At September 30, 2014 and December 31, 2013, we have accrued environmental obligations of approximately $1.6 million and $2.0 million, respectively, representing our best estimate of our remediation obligations. During the three and nine months ended September 30, 2014, we made payments of approximately $0.1 million and $0.5 million, respectively, towards our environmental remediation obligations. During the three and nine months ended September 30, 2014, we increased our remediation obligations by approximately $nil and $0.1 million, respectively, to reflect a change in our estimate of our future environmental remediation costs. Changes in our estimates of our future environmental remediation obligations may occur as a result of the passage of time and the occurrence of future events.

Rebate due to customers.  Pursuant to our terminaling services agreement related to the Southeast terminals, we agreed to rebate to our customers 50% of the proceeds we receive annually in excess of $4.2 million from the sale of product gains at our Southeast terminals. At September 30, 2014 and December 31, 2013, we have accrued a liability due to these customers of approximately $1.8 million and $3.8 million, respectively. During the three months ended March 31, 2014, we paid approximately $3.8 million to our customers for the rebate due for the year ended December 31, 2013.

22


 

(11) OTHER LIABILITIES

Other liabilities are as follows (in thousands):