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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x      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

o         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 001-36647

JP ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)

600 East Las Colinas Blvd
Suite 2000

Irving, Texas 75039
(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code):  (972) 444-0300

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 o   NO x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x   NO o

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o   NO x

At November 5, 2014, there were 18,213,502 common units and 18,213,502 subordinated units outstanding.

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PART I      FINANCIAL INFORMATION

Item 1.       Financial Statements

JP ENERGY PARTNERS LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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JP ENERGY PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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JP ENERGY PARTNERS LP

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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JP ENERGY PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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JP ENERGY PARTNERS LP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Business.  The unaudited condensed consolidated financial statements presented herein contain the results of JP Energy Partners LP, a Delaware limited partnership, and its subsidiaries (“JPE” or the “Partnership”). The Partnership was formed in May 2010 by members of management and was further capitalized in June 2011 by ArcLight Capital Partners, LLC (“ArcLight”) to own, operate, develop and acquire a diversified portfolio of midstream energy assets. The Partnership’s operations currently consist of: (i) crude oil pipelines and storage; (ii) crude oil supply and logistics; (iii) refined products terminals and storage; and (iv) natural gas liquid (“NGL”) distribution and sales, which together provide midstream infrastructure solutions for the growing supply of crude oil, refined products and NGLs in the United States.  JP Energy GP II LLC (“GP II”) is the Partnership’s general partner. The Partnership completed its initial public offering (“IPO”) on October 7, 2014. See “Initial Public Offering” below for additional details about this subsequent event.

JP Development.  On July 12, 2012, ArcLight and the owners of JPE formed JP Energy Development LP, a Delaware limited partnership (“JP Development”), for the express purpose of supporting JPE’s growth.  Since its formation, JP Development has acquired a portfolio of midstream assets that have been developed for eventual sale to JPE.  JPE and JP Development are under common control because a majority of the equity interests in each entity and their general partners are owned by ArcLight. JP Development has made the following acquisitions since its formation in July 2012:

·                  On August 3, 2012, JP Development acquired Parnon Gathering LLC, a Delaware limited liability company (“Parnon Gathering”), which provides midstream gathering and transportation services to companies engaged in the production, distribution and marketing of crude oil. Subsequent to the acquisition, Parnon Gathering LLC was renamed JP Energy Marketing LLC (“JPEM”).

·                  On July 15, 2013, JP Development acquired substantially all of the retail propane assets of BMH Propane, LLC, an Arkansas limited liability company (“BMH”), which is engaged in the retail and wholesale propane and refined fuel distribution business.

·                  On August 30, 2013, JP Development, through JPEM, acquired substantially all the operating assets of Alexander Oil Field Service, Inc., a Texas Corporation (“AOFS”), which is engaged in the crude oil trucking business.

·                  On October 7, 2013, JP Development acquired Wildcat Permian Services LLC, a Texas limited liability (“Wildcat Permian”) that was later merged with and into JP Energy Permian, LLC, a Delaware limited liability company (“JP Permian”).  JP Permian is engaged in the transportation of crude oil by pipeline.

·                  On October 10, 2013, JP Liquids, LLC, a Delaware limited liability company and wholly owned subsidiary of JP Development (“JP Liquids”), acquired substantially all of the assets of Highway Pipeline, Inc., a Texas corporation (“Highway Pipeline”), which is engaged in the transportation of natural gas liquids and condensate via hard shell tank trucks.

Common Control Acquisition between JPE and JP Development.  On February 12, 2014, pursuant to a Membership Interest and Asset Purchase Agreement, the Partnership acquired (i) certain marketing and trucking businesses of JPEM (the “Parnon Gathering Assets”), (ii) the assets and liabilities associated with AOFS, (iii) the retail propane assets acquired from BMH and (iv) all of the issued and outstanding membership interests in JP Permian and JP Liquids (collectively, the “Dropdown Assets”) from JP Development for an aggregate purchase price of approximately $319.1 million (the “Common Control Acquisition”), which was comprised of 12,561,934 JPE Class A Common Units and $52.0 million cash. The Partnership financed the cash portion of the purchase price through borrowings under its revolving credit facility.

Basis of Presentation.  Because JPE and JP Development are under common control, JPE is required under generally accepted accounting principles in the United States (“GAAP”) to account for this Common Control Acquisition in a manner similar to the pooling of interests method of accounting. Under this method of accounting, JPE reflected in its balance sheet the Dropdown Assets at JP Development’s historical carryover basis instead of reflecting the fair market value of assets and liabilities of the Dropdown Assets.  JPE also retrospectively adjusted its financial statements to include the operating results of

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the Dropdown Assets from the dates these assets were originally acquired by JP Development (the dates upon which common control began).

The historical assets and liabilities and the operating results of the Dropdown Assets have been “carved out” from JP Development’s consolidated financial statements using JP Development’s historical basis in the assets and liabilities of the businesses and reflects assumptions and allocations made by management to separate the Dropdown Assets on a stand-alone basis.  JPE’s historical consolidated financial statements include all revenues, costs, expenses, assets and liabilities directly attributable to the Dropdown Assets, as well as allocations that include certain expenses for services, including, but not limited to, general corporate expenses related to finance, legal, information technology, shared services, employee benefits and incentives and insurance. These expenses have been allocated based on the most relevant allocation method to the services provided, primarily on the relative percentage of revenue, relative percentage of headcount, or specific identification.  Management believes the assumptions underlying the consolidated financial statements are reasonable.  However, the combined financial statements do not fully reflect what the Partnership, including the Dropdown Assets’ balance sheets, results of operations and cash flows would have been, had the Dropdown Assets been under JPE management during the periods presented. As a result, historical financial information is not necessarily indicative of what the Partnership’s balance sheet, results of operations, and cash flows will be in the future.

JP Development has a centralized cash management that covers all of its subsidiaries.  The net amounts due from/to JP Development by the Dropdown Assets relate to a variety of intercompany transactions including the collection of trade receivables, payment of accounts payable and accrued liabilities, charges of allocated corporate expenses and payments by JP Development on behalf of the Dropdown Assets. Such amounts have been treated as deemed contributions from/deemed distributions to JP Development for the nine months ended September 30, 2014 and 2013.  The total net effect of the deemed contributions is reflected as contribution from the predecessor in the statements of cash flows as a financing activity.  The net balances due to JPE from the Dropdown Assets were settled in cash based on the outstanding balances at the effective date of Common Control Acquisition.

The total purchase price from the Common Control Acquisition exceeded the book value of the assets acquired. As a result, the excess of the total purchase price over the book value of the assets acquired of $12.7 million was considered a deemed distribution by the general partner and is included as a reduction in general partner interest in Partners’ Capital.

The “predecessor capital” included in Partners’ Capital represented JP Development’s net investment in the Dropdown Assets, which included the net income or loss allocated to the Dropdown Assets, and contributions from and distributions to JP Development.  Certain transactions between the Dropdown Assets and other related parties that are wholly-owned subsidiaries of JP Development were not cash settled and, as a result, were considered deemed contributions or distributions and are included in JP Development’s net investment.

Net income (loss) attributable to the Dropdown Assets prior to the Partnership’s acquisition of such assets was not available for distribution to the Partnership’s unitholders. Therefore, this income (loss) was not allocated to the limited partners for the purpose of calculating net income (loss) per common unit; instead, the income (loss) was allocated to predecessor capital.

Initial Public Offering. On October 7, 2014, the Partnership completed its IPO. Prior to the closing of the IPO, but subsequent to September 30, 2014, the following recapitalization transactions occurred:

·                  the Partnership distributed approximately $92.1 million of accounts receivable that comprise the Partnership’s working capital assets to the existing partners, pro rata in accordance with their ownership interests, of which $72.5 million, $6.0 million and $3.3 million was distributed to Lonestar, Truman Arnold Companies (“TAC”) and JP Development, respectively, all of which are related parties;

·                  each Class A common unit, Class B common unit and Class C common unit (collectively, the “Existing Common Units”) were split into approximately 0.89 common units, resulting in an aggregate of 22,677,004 outstanding Existing Common Units; and

·                  an aggregate of 18,213,502 Existing Common Units held by the existing partners were automatically converted into 18,213,502 subordinated units representing a 80.3% interest in the Partnership prior to the IPO, and a 50.0% interest in the Partnership after the closing of the IPO, with 4,463,502 Existing Common Units remaining representing a 19.7% interest in the Partnership (the “Remaining Existing Common Units”).

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Subsequent to the closing of the IPO, the following recapitalization transactions occurred:

·                  the Remaining Existing Common Units were automatically converted on a one-to-one basis into 4,463,502 common units representing a 12.3% interest in the Partnership;

·                  the 45 general partner units in the Partnership held by the general partner were recharacterized as a non-economic general partner interest in the Partnership; and

·                  the Partnership issued 13,750,000 common units to the public representing a 37.7% interest in the Partnership.

The Partnership used the proceeds from its IPO of approximately $257.1 million, net of underwriting discounts and structuring fees, to:

·                  pay offering expenses of approximately $2.0 million;

·                  redeem 100% of the Partnership’s issued and outstanding Series D preferred units for approximately $42.4 million;

·                  repay $195.6 million of the debt outstanding under the Partnership’s revolving credit facility; and

·                  replenish $17.1 million of working capital that was distributed to the then existing partners immediately prior to the IPO.

Immediately following the repayment of the debt outstanding under the Partnership’s revolving credit facility, the Partnership borrowed approximately $75.0 million thereunder in order to replenish the remainder of working capital that was distributed to existing partners immediately prior to the IPO.

Partnership Agreement. In connection with its IPO, the Partnership executed the Third Amended and Restated Agreement of Limited Partnership (“Amended Partnership Agreement”) on October 7, 2014. The Amended Partnership Agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending December 31, 2014, the Partnership distribute all of its available cash to unitholders of record on the applicable record date, subject to certain terms and conditions. The Partnership anticipates declaring a prorated distribution for the period from October 7, 2014 to December 31, 2014 in early 2015.

Interim Results of Operations. The results of operations for the three and nine months ended September 30, 2014 and 2013 are not necessarily indicative of results expected for the full year. In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments consisting of normal recurring accruals necessary for fair presentation of the financial position and results of operations for such interim periods in accordance with GAAP. Although the Partnership believes the disclosures in these financial statements are adequate and make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated interim financial statements and the notes thereto should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2013 included in our final prospectus dated October 1, 2014 and filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on October 2, 2014.

2. Summary of Significant Accounting Policies

Principles of Consolidation. The unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with GAAP for interim financial information.  All intercompany accounts and transactions have been eliminated in the preparation of the accompanying unaudited condensed consolidated financial statements.

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

Fair value measurement.  The Partnership utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Partnership determines fair value based on assumptions that

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market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs—Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The fair value of the Partnership’s derivatives (see Note 8) was estimated using industry standard valuation models using market-based observable inputs, including commodity pricing and interest rate curves (Level 2). The Partnership does not have any other assets or liabilities measured at fair value on a recurring basis.

The Partnership’s other financial instruments consist primarily of cash and cash equivalents and long-term debt. The fair value of long-term debt approximates the carrying value as the underlying instruments are at rates similar to current rates offered to the Partnership for debt with the same remaining maturities.

Restricted Cash. Restricted cash consists of cash balances that are restricted as to withdrawal or usage and include cash to secure crude oil production taxes payable to the applicable taxing authorities.

Goodwill. The Partnership has recorded goodwill in connection with its historical acquisitions. Upon acquisition, these companies have been either combined into one of the Partnership’s existing operating units or managed on a stand-alone basis as an individual operating unit. Goodwill recorded in connection with these acquisitions is subject to an annual assessment for impairment, which the Partnership performs at the operating level for each operating unit that carries a balance of goodwill. Each of the Partnership’s operating units is organized into one of four business segments: Crude Oil Pipelines and Storage, Crude Oil Supply and Logistics, Refined Products Terminals and Storage, and NGL Distribution and Sales. Goodwill is required to be measured for impairment at the operating segment level or one level below the operating segment level for which discrete financial information is available, and the Partnership has determined the following reporting units for the purpose of assessing goodwill impairment.

The Partnership’s goodwill impairment assessment is performed at year-end, or more frequently if events or circumstances arise which indicate that goodwill may be impaired.

The Partnership has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step fair value-based impairment test described below. The Partnership can choose to perform the qualitative assessment on none, some or all of its reporting units. The Partnership can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then resume performing the qualitative assessment in any subsequent period. Qualitative indicators including deterioration in macroeconomic conditions, declining financial performance that, among other things, may trigger the need for annual or interim impairment testing of goodwill associated with one or all of the reporting units. If the Partnership believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The first step of the two-step fair value-based test involves comparing the fair value of each of the Partnership’s reporting units with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the reporting unit’s goodwill to the implied fair value of its goodwill. If the implied fair

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value of goodwill is less than the carrying amount, an impairment loss would be recorded as a reduction to goodwill with a corresponding charge to operating expense.

The Partnership determines the fair value of its reporting units using a weighted combination of the discounted cash flow and market multiple valuation approaches, with heavier weighting on the discounted cash flow method, as in management’s opinion, this method currently results in the most accurate calculation of a reporting unit’s fair value. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, discount rates, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in its impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated.

Under the discounted cash flow method, the Partnership determines fair value based on estimated future cash flows of each reporting unit (including estimates for capital expenditures), discounted to present value using risk-adjusted industry rates, which reflect the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts and operating forecasts (typically a one-year model) plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur, along with a terminal value derived from the reporting unit’s earnings before interest, taxes, depreciation and amortization, as well as other non-cash items or one-time non-recurring items (Adjusted EBITDA) using the Gordon Growth Model.

Under the market multiple approach, the Partnership determines the estimated fair value of each of its reporting units by applying transaction multiples derived from observable market data to each reporting unit’s projected Adjusted EBITDA and then averaging that estimate with similar historical calculations using either a one, two or three year average. The Partnership adds a reasonable control premium, which is estimated as the premium that would be received in a sale of the reporting unit in an orderly transaction between market participants.

During the second quarter of 2014, due to the actual operating results for the six months period ended June 30, 2014 being significantly below management’s budget for certain reporting units, a two-step fair-value based goodwill impairment analysis was performed for five of seven of the Partnership’s reporting units, namely JP Permian, JPE Product Supply and Logistics, Pinnacle Propane, Pinnacle Propane Express and JP Liquids. Management engaged a third party valuation expert to assist performing the analysis using the valuation approaches described in the preceding paragraphs. The analysis indicated that the implied fair value of each of these reporting units was in excess for its carrying value. Based on the analysis, management concluded that no impairment was indicated at any reporting unit.

During the second quarter of 2014, immediately prior to the sale of the Bakken Business (defined in Note 3) within the JPE Product Supply and Logistics reporting unit, the Partnership allocated $1,984,000 of goodwill to the Bakken Business, which was based on the relative fair value of the disposed Bakken Business and the portion of the reporting unit that was retained by the Partnership. The $1,984,000 allocation contributed to the overall net loss from discontinued operations.

Comprehensive Income. For the three and nine months ended September 30, 2014 and 2013, comprehensive income (loss) was equal to net income (loss).

Recent Accounting Pronouncements. In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation - Stock Compensation, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 provides explicit guidance on accounting for share-based payments requiring a specific performance target to be achieved in order for employees to become eligible to vest in the awards when that performance target may be achieved after the requisite service period for the award. The ASU requires that such performance targets be treated as a performance condition, and should not be reflected in the estimate of the grant-date fair value of the award. Instead, compensation cost should be recognized in the period in which it becomes probable the performance target will be achieved. ASU 2014-12 is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. The adoption of ASU 2014-12 is not expected to have a material impact on the Partnership’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.

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ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016 using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Partnership is currently evaluating the impact of the adoption of ASU 2014-09, but do not anticipate a material impact to its consolidated financial statements.

In April 2014, the FASB issued No. ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business or a major equity method investment. Additionally, the update requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. ASU 2014-08 is effective for interim and annual periods beginning after December 15, 2014, with early adoption permitted. The adoption of ASU 2014-08 primarily involves presentation and disclosure and therefore is not expected to have a material impact on the Partnership’s consolidated financial statements.

3. Discontinued Operations

On June 30, 2014, the Partnership (“Seller”) entered into and simultaneously closed an Asset Purchase Agreement (the “Purchase Agreement”) with Gold Spur Trucking, LLC (“Buyer”), pursuant to which the Seller sold all the trucking and related assets and activities in North Dakota, Montana and Wyoming (the “Bakken Business”) to the Buyer for a purchase price of $9,100,000. As a result, the Partnership recognized a loss on this sale of approximately $7,288,000 during the second quarter of 2014, which primarily relates to the write-off of a customer contract intangible asset associated with the Bakken Business. In addition, immediately prior to the sale, the Partnership allocated $1,984,000 of goodwill to the Bakken Business, which was based on the relative fair value of the disposed Bakken Business and the portion of the crude oil supply and logistics reporting unit that was retained by the Partnership. The $1,984,000 allocation contributed to the overall net loss from discontinued operations.

The Bakken Business’s operations have been classified as discontinued operations for all periods in the condensed consolidated statements of operations. Prior to the classification as discontinued operations, the Partnership had reported the Bakken Business in its crude oil supply and logistics segment. The following table summarizes selected financial information related to the Bakken Business’s operations in the three and nine months ended September 30, 2014 and 2013.

4. Net Income (Loss) Per Unit

Income (loss) per limited partner unit is calculated in accordance with the two-class method for determining income per unit for master limited partnerships (“MLPs”) when incentive distribution rights (“IDRs”) and other participating securities are present. The two-class method requires that income per limited partner unit be calculated as if all earnings for the period were distributed as cash, and allocated by applying the provisions of the partnership agreement, and requires a separate calculation for each quarter and year-to-date period. Under the two-class method, any excess of distributions declared over net income is allocated to the partners based on their respective sharing of income specified in the partnership agreement. Prior to the closing of the IPO, but subsequent to September 30, 2014, the Existing Common Units where split into approximately 0.89 common units. As a result, income (loss) per unit was adjusted on a retroactive basis. For the three and nine months ended September 30, 2014 and 2013, diluted income (loss) per unit was equal to basic income (loss) per unit because all instruments were antidilutive.

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The following data show securities that could potentially dilute earnings per unit in the future that were not included in the computation of diluted earnings per unit because to do so would have been antidilutive for the periods presented.

The Series A, Series B and Series C preferred units earned cumulative distributions each quarter equal to the greater of (a) the amount of aggregate distributions in cash for such quarter that would be payable if the preferred units had been converted into common and (b) the minimum quarterly distribution of $0.50 per unit. The net income attributable to preferred units includes cumulative distributions declared and the Series A, Series B and Series C preferred units’ proportionate share of net income for the three and six months ended September 30, 2013. On August 1, 2013, all then-outstanding Series A, Series B and Series C preferred units were converted to common units on a one-for-one basis.

The Series D preferred units (see Note 9) earned cumulative distributions each quarter, commencing with the quarter ending June 30, 2014, equal to the greater of (a) the amount of aggregate distributions in cash for such quarter that would be payable if the preferred units had been converted into common and (b) $0.66 per unit. For the three and nine months ended September 30, 2014 the Partnership recorded a Paid-in-Kind (“PIK”) distribution of $1,235,998 and $2,435,998, respectively. The net loss attributable to preferred units includes the Series D preferred units’ proportionate share of net loss for the three and nine months ended September 30, 2014. As described in Note 1, on October 7, 2014, all then outstanding Series D preferred units were redeemed by the Partnership.

5. Inventory

Inventory consists of the following as of September 30, 2014 and December 31, 2013:

6. Goodwill and Intangible Assets

Intangible assets consist of the following at December 31, 2013 and September 30, 2014:

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The estimated future amortization expense for amortizable intangible assets to be recognized is as follows (in thousands):

Goodwill activity in the nine months ended September 30, 2014 consists of the following:

7. Long-Term Debt

Long-term debt consists of the following at September 30, 2014 and December 31, 2013:

Wells Fargo Credit Agreement.  The Partnership had a $20,000,000 working capital revolving credit facility and a $180,000,000 acquisition revolving credit facility with Wells Fargo Bank, N.A. (the “WFB Credit Agreement”). The Partnership’s outstanding borrowings under the WFB Credit Agreement were collateralized by substantially all of the Partnership’s assets.

On February 12, 2014, the Partnership entered into a credit agreement with Bank of America and used the borrowings under the Bank of America credit facility to repay all outstanding balances under the WFB Credit Agreement. As a result of the termination of the WFB Credit Agreement, the Partnership wrote off $1,634,000 of deferred financing costs during the nine months ended September 30, 2014.

Bank of America Credit Agreement. On February 12, 2014, the Partnership entered into a credit agreement with Bank of America, N.A. (the “BOA Credit Agreement”), which is available for refinancing and repayment of certain existing indebtedness, working capital, capital expenditures, permitted acquisitions and general partnership purposes, including distributions, not in contravention of law of the loan documents and to pay off its existing WFB commitments and F&M Loans (as described below). The BOA Credit Agreement consists of a $275,000,000 revolving loan, which includes a sub-limit of up to

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$100,000,000 for letters of credit, and contains an accordion feature that will allow the Partnership to increase the borrowing capacity thereunder from $275,000,000 up to $425,000,000, subject to obtaining additional or increased lender commitments. The BOA Credit Agreement will mature on February 12, 2019. The Partnership’s obligations under the BOA Credit Agreement are collateralized by substantially all of the Partnership’s assets.

Borrowings under the BOA Credit Agreement bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the prime rate of Bank of America, and (3) LIBOR, subject to certain adjustments, plus 1.00% or (b) LIBOR, in each case plus an applicable margin. The initial applicable margin is (a) 2.00% for prime rate borrowings and 3.00% for LIBOR borrowings. The applicable margin is subject to an adjustment each quarter based on (i) prior to the IPO, the Consolidated Total Leverage Ratio, as defined in the BOA Credit Agreement (ii) on or after the IPO, the Consolidated Net Total Leverage Ratio, as defined in the BOA Credit Agreement.

As of September 30, 2014, the unused balance of the BOA Credit Agreement was $44,870,000. Issued and outstanding letters of credit, which reduced available borrowings under the BOA Credit Agreement, totaled $34,530,000 at September 30, 2014. The Partnership is required to pay a commitment fee on the unused commitments under the BOA Credit Agreement, which initially is 0.50% per annum. The commitment fee is subject to adjustment each quarter based on (i) prior to the IPO, the Consolidated Total Leverage Ratio, as defined in the BOA Credit Agreement and (ii) on or after the IPO, the Consolidated Net Total Leverage Ratio, as defined in the BOA Credit Agreement.

The BOA Credit Agreement contains various restrictive covenants and compliance requirements including:

Prior to the IPO

·                  Maintenance of certain financial covenants including a consolidated total leverage ratio of not more than 4.50 to 1.00 prior to the issuance of certain unsecured notes (which will be increased to 4.75 to 1.00 for certain measurement periods following the consummation of certain acquisitions), a consolidated total leverage ratio of not more than 4.75 to 1.00 from and after the issuance of certain unsecured notes, a consolidated senior secured leverage ratio of not more than 3.00 to 1.00 from and after the issuance of certain unsecured notes and a consolidated interest coverage ratio of not less than 2.50 to 1.00.

·                  Financial statement reporting requirements, including quarterly unaudited financial statement reporting and annual audited financial statement reporting.

·                  Restrictions on cash distributions, including cash distributions to holders of equity units, unless certain leverage and coverage ratios are maintained before and after the cash distribution.

After the IPO

·                  Maintenance of certain financial covenants including a consolidated net total leverage ratio of not more than 4.50 to 1.00 prior to the issuance of certain unsecured notes (which will be increased to 5.00 to 1.00 for certain measurement periods following the consummation of certain acquisitions), a consolidated net total leverage ratio of not more than 5.00 to 1.00 from and after the issuance of certain unsecured notes (which will be increased to 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions), a consolidated senior secured net leverage ratio of not more than 3:50 to 1:00 from and after the issuance of certain unsecured notes and a consolidated interest coverage ratio of not less than 2.50 to 1.00.

·                  Financial statement reporting requirements, including quarterly unaudited financial statement reporting and annual audited financial statement reporting.

·                  Restrictions on cash distributions, including cash distributions to holders of equity units, unless certain leverage and coverage ratios are maintained before and after the cash distribution.

The Partnership was not in compliance with the leverage ratio covenant as of June 30, 2014, which noncompliance was waived pursuant to a waiver received by the Partnership on August 5, 2014. The Partnership was in compliance with all covenants as of September 30, 2014.

F&M Bank Loans.  The F&M Bank loans had a credit commitment of $9,000,000.  The F&M Bank loans were paid in full on February 12, 2014, with the proceeds from the BOA Credit Agreement.

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Related Party Note Payable. On November 5, 2013, the Partnership issued a $1,000,000 promissory note to JP Development for working capital requirements. The note was to mature on November 5, 2016 and bore interest at 4.75%. On March 20, 2014, the Partnership repaid the promissory note in full.

8. Derivative Instruments

The Partnership is exposed to certain market risks related to the volatility of commodity prices and changes in interest rates.  To monitor and manage these market risks, the Partnership has established comprehensive risk management policies and procedures. The Partnership does not enter into derivative instruments for any purpose other than hedging commodity price risk and interest rate risk. That is, the Partnership does not speculate using derivative instruments.

Commodity Price Risk. The Partnership’s NGL distribution and sales segment is exposed to market risks related to the volatility of propane prices. Management believes it is prudent to limit the variability of a portion of the Partnership’s propane purchases. To meet this objective, the Partnership uses swap contracts to manage its exposure to market fluctuations in propane prices. As of September 30, 2014, the Partnership’s outstanding swap contracts contained a notional amount of 22,849,000 gallons of propane with maturity dates ranging from October 2014 through December 2016.

Interest Rate Risk. The Partnership is exposed to variable interest rate risk as a result of variable-rate borrowings under its revolving credit facility. Management believes it is prudent to limit the variability of a portion of the Partnership’s interest payments. To meet this objective, the Partnership entered into interest rate swap agreements to manage the fluctuation in cash flows resulting from interest rate risk on a portion of its debt with a variable-rate component. These swaps ultimately change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Partnership receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the portion of debt that is swapped. As of September 30, 2014, the Partnership’s outstanding interest rate swap contracts contained a notional amount of $75,000,000 with maturity dates ranging from July 2015 through September 2015.

Credit Risk. By using derivative instruments to economically hedge exposure to changes in commodity prices and interest rates, the Partnership exposes itself to counterparty credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Partnership, which creates credit risk for the Partnership. When the fair value of a derivative is negative, the Partnership owes the counterparty and, therefore, it does not possess credit risk. The Partnership minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties. The Partnership has entered into Master International Swap Dealers Association (“IDSA”) Agreements that allow for netting of swap contract receivables and payables in the event of default by either party.

Fair Value of Derivative Instruments. The Partnership measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations utilize primarily observable (“level 2”) inputs, including contractual terms, commodity prices, interest rates and yield curves observable at commonly quoted intervals. None of the Partnership’s derivative contracts are designated as hedging instruments for accounting purposes. The following table summarizes the fair values of the Partnership’s derivative contracts included in the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013.