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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 June 30, 2015

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 July 31, 2015, 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 June 30, 2015 and December 31, 2014

 

 

 

 

Consolidated statements of operations for the three and six months ended June 30, 2015 and 2014

 

 

 

 

Consolidated statements of partners’ equity for the year ended December 31, 2014 and six months ended June 30, 2015

 

 

 

 

Consolidated statements of cash flows for the three and six months ended June 30, 2015 and 2014

 

 

 

 

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

 

45 

 

Item 4. 

 

Controls and Procedures

 

45 

 

Part II. Other Information

 

Item 1. 

 

Legal Proceedings

 

46 

 

Item 1A. 

 

Risk Factors

 

46 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48 

 

Item 6. 

 

Exhibits

 

48 

 

 

 

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 six months ended June 30, 2015 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, 2014, 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 12, 2015 with the Securities and Exchange Commission (File No. 001‑32505).

TransMontaigne Partners L.P. is a holding company with the following 100% owned operating subsidiaries during the three and six months ended June 30, 2015:

·

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.

·

TLP Operating Finance Corp.

·

TPME L.L.C.

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)

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,046

 

$

3,304

 

Trade accounts receivable, net

 

 

10,047

 

 

9,359

 

Due from affiliates

 

 

852

 

 

1,316

 

Other current assets

 

 

2,379

 

 

3,065

 

Total current assets

 

 

18,324

 

 

17,044

 

Property, plant and equipment, net

 

 

386,737

 

 

385,301

 

Goodwill

 

 

8,485

 

 

8,485

 

Investments in unconsolidated affiliates

 

 

249,297

 

 

249,676

 

Other assets, net

 

 

3,940

 

 

3,551

 

 

 

$

666,783

 

$

664,057

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

 

$

5,290

 

$

6,887

 

Due to affiliates

 

 

115

 

 

 —

 

Accrued liabilities

 

 

11,531

 

 

9,835

 

Total current liabilities

 

 

16,936

 

 

16,722

 

Other liabilities

 

 

3,301

 

 

3,870

 

Long-term debt

 

 

257,000

 

 

252,000

 

Total liabilities

 

 

277,237

 

 

272,592

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

Partners’ equity:

 

 

 

 

 

 

 

Common unitholders (16,124,566 units issued and outstanding at June 30, 2015 and December 31, 2014)

 

 

331,759

 

 

333,619

 

General partner interest (2% interest with 329,073 equivalent units outstanding at June 30, 2015 and December 31, 2014)

 

 

57,787

 

 

57,846

 

Total partners’ equity

 

 

389,546

 

 

391,465

 

 

 

$

666,783

 

$

664,057

 

 

See accompanying notes to consolidated financial statements.

4


 

 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of operations (unaudited)

(In thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

26,754

 

$

15,474

 

$

52,053

 

$

29,097

 

Affiliates

 

 

10,280

 

 

23,885

 

 

22,878

 

 

48,315

 

Total revenue

 

 

37,034

 

 

39,359

 

 

74,931

 

 

77,412

 

Operating costs and expenses and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating costs and expenses

 

 

(15,872)

 

 

(16,396)

 

 

(30,826)

 

 

(31,788)

 

Direct general and administrative expenses

 

 

(672)

 

 

(462)

 

 

(1,693)

 

 

(1,380)

 

Allocated general and administrative expenses

 

 

(2,802)

 

 

(2,782)

 

 

(5,605)

 

 

(5,564)

 

Allocated insurance expense

 

 

(934)

 

 

(913)

 

 

(1,868)

 

 

(1,827)

 

Reimbursement of bonus awards expense

 

 

(539)

 

 

(375)

 

 

(1,064)

 

 

(750)

 

Depreciation and amortization

 

 

(7,476)

 

 

(7,396)

 

 

(14,813)

 

 

(14,796)

 

Earnings from unconsolidated affiliates

 

 

5,517

 

 

1,275

 

 

7,573

 

 

1,438

 

Total operating costs and expenses and other

 

 

(22,778)

 

 

(27,049)

 

 

(48,296)

 

 

(54,667)

 

Operating income

 

 

14,256

 

 

12,310

 

 

26,635

 

 

22,745

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,943)

 

 

(1,226)

 

 

(3,885)

 

 

(2,179)

 

Amortization of deferred financing costs

 

 

(125)

 

 

(244)

 

 

(440)

 

 

(488)

 

Total other expenses

 

 

(2,068)

 

 

(1,470)

 

 

(4,325)

 

 

(2,667)

 

Net earnings

 

 

12,188

 

 

10,840

 

 

22,310

 

 

20,078

 

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

 

 

(1,893)

 

 

(1,865)

 

 

(3,743)

 

 

(3,621)

 

Net earnings allocable to limited partners

 

$

10,295

 

$

8,975

 

$

18,567

 

$

16,457

 

Net earnings per limited partner unit—basic

 

$

0.64

 

$

0.56

 

$

1.15

 

$

1.02

 

Net earnings per limited partner unit—diluted

 

$

0.64

 

$

0.56

 

$

1.15

 

$

1.02

 

 

See accompanying notes to consolidated financial statements.

5


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of partners equity (unaudited)

Year ended December 31, 2014 and six months ended June 30, 2015

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

General

 

 

 

 

 

 

Common

 

partner

 

 

 

 

 

 

units

 

interest

 

Total

 

Balance December 31, 2013

 

$

350,505

 

$

57,962

 

$

408,467

 

Distributions to unitholders

 

 

(42,561)

 

 

(7,283)

 

 

(49,844)

 

Equity-based compensation

 

 

721

 

 

 

 

721

 

Purchase of 8,004 common units by our long-term incentive plan

 

 

(342)

 

 

 

 

(342)

 

Issuance of 20,500 common units due to vesting of restricted phantom units

 

 

 

 

 

 

 —

 

Net earnings for year ended December 31, 2014

 

 

25,296

 

 

7,167

 

 

32,463

 

Balance December 31, 2014

 

 

333,619

 

 

57,846

 

 

391,465

 

Distributions to unitholders

 

 

(21,445)

 

 

(3,802)

 

 

(25,247)

 

Equity-based compensation

 

 

1,110

 

 

 

 

1,110

 

Purchase of 2,668 common units by our long-term incentive plan

 

 

(92)

 

 

 

 

(92)

 

Net earnings for six months ended June 30, 2015

 

 

18,567

 

 

3,743

 

 

22,310

 

Balance June 30, 2015

 

$

331,759

 

$

57,787

 

$

389,546

 

 

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 

    

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

12,188

 

$

10,840

 

$

22,310

 

$

20,078

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,476

 

 

7,396

 

 

14,813

 

 

14,796

 

Earnings from unconsolidated affiliates

 

 

(5,517)

 

 

(1,275)

 

 

(7,573)

 

 

(1,438)

 

Distributions from unconsolidated affiliates

 

 

4,310

 

 

1,688

 

 

7,952

 

 

2,438

 

Equity-based compensation

 

 

1,087

 

 

62

 

 

1,110

 

 

114

 

Amortization of deferred financing costs

 

 

125

 

 

244

 

 

440

 

 

488

 

Amortization of deferred revenue

 

 

(258)

 

 

(671)

 

 

(567)

 

 

(1,411)

 

Unrealized loss (gain) on derivative instruments

 

 

(59)

 

 

 —

 

 

90

 

 

 —

 

Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

(1,286)

 

 

(1,518)

 

 

(688)

 

 

(2,119)

 

Due from affiliates

 

 

342

 

 

(968)

 

 

464

 

 

(1,192)

 

Other current assets

 

 

393

 

 

38

 

 

686

 

 

229

 

Amounts due under long-term terminaling services agreements, net

 

 

298

 

 

336

 

 

339

 

 

613

 

Trade accounts payable

 

 

(588)

 

 

452

 

 

(1,991)

 

 

(205)

 

Due to affiliates

 

 

115

 

 

(57)

 

 

115

 

 

 —

 

Accrued liabilities

 

 

521

 

 

(927)

 

 

1,696

 

 

(5,401)

 

Net cash provided by operating activities

 

 

19,147

 

 

15,640

 

 

39,196

 

 

26,990

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in unconsolidated affiliates

 

 

 —

 

 

(5,380)

 

 

 —

 

 

(23,397)

 

Capital expenditures

 

 

(9,010)

 

 

(889)

 

 

(15,754)

 

 

(2,612)

 

Net cash used in investing activities

 

 

(9,010)

 

 

(6,269)

 

 

(15,754)

 

 

(26,009)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings of debt under credit facility

 

 

17,200

 

 

17,000

 

 

38,000

 

 

56,000

 

Repayments of debt under credit facility

 

 

(10,200)

 

 

(17,000)

 

 

(33,000)

 

 

(34,000)

 

Deferred debt issuance costs

 

 

(364)

 

 

 —

 

 

(1,361)

 

 

 —

 

Distributions paid to unitholders

 

 

(12,623)

 

 

(12,462)

 

 

(25,247)

 

 

(24,598)

 

Purchase of common units by our long-term incentive plan

 

 

(22)

 

 

(92)

 

 

(92)

 

 

(177)

 

Net cash used in financing activities

 

 

(6,009)

 

 

(12,554)

 

 

(21,700)

 

 

(2,775)

 

Increase (decrease) in cash and cash equivalents

 

 

4,128

 

 

(3,183)

 

 

1,742

 

 

(1,794)

 

Cash and cash equivalents at beginning of period

 

 

918

 

 

4,652

 

 

3,304

 

 

3,263

 

Cash and cash equivalents at end of period

 

$

5,046

 

$

1,469

 

$

5,046

 

$

1,469

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,910

 

$

1,240

 

$

3,525

 

$

2,185

 

Property, plant and equipment acquired with accounts payable

 

$

1,669

 

$

75

 

$

1,669

 

$

75

 

 

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 an indirect wholly‑owned subsidiary of TransMontaigne LLC. At June 30, 2015,  NGL Energy Partners LP (“NGL”) owned all of the issued and outstanding capital stock of TransMontaigne LLC, and as a result NGL is the indirect owner of our general partner. At June 30, 2015, TransMontaigne LLC and NGL had a significant interest in our partnership through their indirect ownership of an approximate 19% 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 LLC, 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 LLC to NGL.

In addition to the sale of our general partner to NGL, NGL acquired the common units owned by TransMontaigne LLC and affiliates of Morgan Stanley and assumed Morgan Stanley Capital Group’s obligations under our light-oil terminaling services 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 June 30, 2015 and December 31, 2014 and our results of operations for the three and six months ended June 30, 2015 and 2014.

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

8


 

(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 of 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 June 30, 2015 and 2014, we recognized revenue of approximately $2.2 million and $4.1 million, respectively, for net product gained. Within these amounts, approximately $0.7 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively, were pursuant to terminaling services agreements with affiliate customers.    For the six months ended June 30, 2015 and 2014, we recognized revenue of approximately $4.0 million and $7.7 million, respectively, for net product gained. Within these amounts, approximately $1.6 million and $4.9 million for the six months ended June 30, 2015 and 2014, 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 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.

9


 

(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 LLC 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. TransMontaigne LLC 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. TransMontaigne LLC 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. TransMontaigne LLC 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.

(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

Generally accepted accounting principles require us to measure the cost of services received in exchange for an award of equity instruments based on the measurement‑date fair value of the award. That cost is recognized during the period services are provided  in exchange for the award.

10


 

(j)    Accounting for derivative instruments

Generally accepted accounting principles require us to recognize all derivative instruments at fair value in the consolidated balance sheets as assets or liabilities (see Note 11 of Notes to consolidated financial statements). Changes in the fair value of our derivative instruments are recognized in earnings.

We did not have any derivative instruments at December 31, 2014. At June 30, 2015, our derivative instruments were limited to interest rate swap agreements with an aggregate notional amount of $75.0 million that expire March 25, 2018. Pursuant to the terms of the interest rate swap agreements, we pay a blended fixed rate of approximately 1.05% and receive interest payments based on the one-month LIBOR. The net difference to be paid or received under the interest rate swap agreements is settled monthly and is recognized as an adjustment to interest expense. The fair value of our interest rate swap agreements are determined using a pricing model based on the LIBOR swap rate and other observable market data.

(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. Partners accounts for U.S. state income taxes under the asset and liability method pursuant to generally accepted accounting principles. 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 our equity based compensation plans that participate in Partners distributions (see Note 15 of Notes to 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 partner 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 partner 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, 2017, 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 LLC that will continue in effect until the earlier to occur of (i) TransMontaigne LLC ceasing to control our general partner or (ii) the election of either us or TransMontaigne LLC, following at least 24 months’ prior written notice to the other parties.

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Under the omnibus agreement we pay TransMontaigne LLC an administrative fee for the provision of various general and administrative services for our benefit. For the three months ended June 30, 2015 and 2014, the administrative fee paid to TransMontaigne LLC was approximately $2.8 million and $2.8 million, respectively. For the six months ended June 30, 2015 and 2014, the administrative fee paid to TransMontaigne LLC was approximately $5.6 million and $5.6 million, respectively.  If we acquire or construct additional facilities, TransMontaigne LLC 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 LLC will provide services for the additional facilities pursuant to the agreement. The administrative fee encompasses the reimbursement of services 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 LLC.

The omnibus agreement further provides that we pay TransMontaigne LLC an insurance reimbursement for premiums on insurance policies covering our facilities and operations. For the three months ended June 30, 2015 and 2014, the insurance reimbursement paid to TransMontaigne LLC was approximately $0.9 million and $0.9 million, respectively. For the six months ended June 30, 2015 and 2014, the insurance reimbursement paid to TransMontaigne LLC was approximately $1.9 million and $1.8 million, respectively.  We also reimburse TransMontaigne LLC for direct operating costs and expenses, 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.

Under the omnibus agreement we have agreed to reimburse TransMontaigne LLC for a portion of the incentive bonus awards made to key employees under the TransMontaigne Services LLC savings and retention plan, provided the compensation committee of our general partner determines that an adequate portion of the incentive bonus awards are indexed to the performance of our common units in the form of restricted phantom units.  The value of our incentive bonus award reimbursement for a single grant year may be no less than $1.5 million.  Effective April 13, 2015 and beginning with the 2015 incentive bonus award, we have the option to provide the reimbursement in either a cash payment to TransMontaigne LLC or the delivery of our common units to TransMontaigne LLC or to the award recipients, with the reimbursement made in accordance with the underlying vesting and payment schedule of the TransMontaigne Services LLC savings and retention plan. Prior to the 2015 incentive bonus award, we reimbursed our portion of the incentive bonus awards by making cash payments to TransMontaigne LLC over the first year that each applicable award was granted.  For the three months ended June 30, 2015 and 2014, the expense associated with the reimbursement of incentive bonus awards was approximately $0.5 million and $0.4 million respectively.  For the six months ended June 30, 2015 and 2014, the expense associated with the reimbursement of incentive bonus awards was approximately $1.1 million and $0.8 million respectively.

The omnibus agreement also provides TransMontaigne LLC a right of first refusal to purchase our assets, subject to certain exceptions discussed below and provided that TransMontaigne LLC 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 LLC. TransMontaigne LLC will then have the sole and exclusive option, for a period of 45 days following receipt of the notice. Subject to certain exceptions discussed below, TransMontaigne LLC 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 LLC 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 LLC, or an affiliate of TransMontaigne LLC, 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 LLC 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 LLC’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne LLC has no obligation to indemnify us for losses until such aggregate losses exceed $250,000. TransMontaigne LLC 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.

12


 

In connection with our acquisition of the Brownsville, Texas and River terminals, TransMontaigne LLC 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 LLC’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne LLC 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 LLC 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 LLC 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 LLC’s maximum liability for this indemnification obligation is $15.0 million. TransMontaigne LLC 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 LLC 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 LLC 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 LLC’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 LLC 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 long-term terminaling services agreement with RaceTrac Petroleum Inc. 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 RaceTrac Petroleum Inc. 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, 2015.  The tankage at Cape Canaveral and Port Everglades South became available to RaceTrac Petroleum Inc. on September 16, 2014.  The tankage at Port Manatee became available to RaceTrac Petroleum Inc. in July 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 for approximately 1.1 million barrels at our Port Everglades North, Florida terminal.  NGL has agreed to allow us to re-contract some of this tankage prior to its effective contract termination date.  Accordingly, we have re-contracted approximately 0.5 million barrels of this capacity to World Fuel Services Corporation and RaceTrac Petroleum Inc. at similar rates charged to NGL.  The approximately 0.5 million barrels of tankage became available to these third party customers in May of 2015.

 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

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effective February 28, 2014. Effective March 1, 2014, we entered into a ten-year capacity agreement with Magellan Pipeline Company, L.P., covering 100% of the capacity of our Razorback system.

Under the Florida and Midwest terminaling services agreement, taking into consideration terminations, NGL is obligated to throughput a volume that, at the fee and tariff schedule contained in the agreement, will result in minimum throughput payments to us of approximately $5.7 million for the year ending December 31, 2015. 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—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 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 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, NGL 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 $27.0 million for the year ending December 31, 2015; 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.

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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.

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 June 30, 2015 and 2014, we recognized revenue of approximately $1.0 million and $1.0 million, respectively, related to this operations and reimbursement agreement.

(3) TERMINAL ACQUISITION

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, other black oils and distillates. The initial phase of BOSTCO involved the construction of 51 storage tanks with approximately 6.2 million barrels of storage capacity. The BOSTCO

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facility began initial commercial operations 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 for an additional 900,000 barrels of distillate tankage. Work on the expansion started in the second quarter of 2013, and was placed into service at the end of the third quarter of 2014.  With the addition of this expansion project, BOSTCO has capacity of approximately 7.1 million barrels at an overall construction cost of approximately $530 million. Our total payments for the initial and expansion projects are estimated to be approximately $234 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. 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.

(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. 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):

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Trade accounts receivable

 

$

10,511

 

$

9,823

 

Less allowance for doubtful accounts

 

 

(464)

 

 

(464)

 

 

 

$

10,047

 

$

9,359

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

    

Six months ended 

    

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

2014

 

 

2015

 

2014

 

NGL Energy Partners LP

 

25

%  

 —

%  

 

28

%  

 —

%  

Morgan Stanley Capital Group

 

12

%  

58

%  

 

13

%  

60

%  

RaceTrac Petroleum Inc.

 

11

%  

5

%  

 

10

%  

5

%  

 

 

 

 

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(5) OTHER CURRENT ASSETS

Other current assets are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Amounts due from insurance companies

 

$

844

 

$

1,233

 

Additive detergent

 

 

1,404

 

 

1,591

 

Deposits and other assets

 

 

131

 

 

241

 

 

 

$

2,379

 

$

3,065

 

 

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 June 30, 2015 and December 31, 2014, we have recognized amounts due from insurance companies of approximately $0.8 million and $1.2 million, respectively, representing our best estimate of our probable insurance recoveries. During the six months ended June 30, 2015, we received reimbursements from insurance companies of approximately $0.3 million. During the six months ended June 30, 2015, we decreased our estimate of probable future insurance recoveries by $0.1 million.

(6) PROPERTY, PLANT AND EQUIPMENT, NET

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

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Land

 

$

52,519

 

$

52,519

 

Terminals, pipelines and equipment

 

 

578,386

 

 

566,677

 

Furniture, fixtures and equipment

 

 

2,184

 

 

2,122

 

Construction in progress

 

 

9,820

 

 

5,444

 

 

 

 

642,909

 

 

626,762

 

Less accumulated depreciation

 

 

(256,172)

 

 

(241,461)

 

 

 

$

386,737

 

$

385,301

 

 

 

 

(7) GOODWILL

Goodwill is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

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 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 June 30, 2015 and December 31, 2014, our only reporting unit that contained goodwill was our Brownsville terminals.  We did not recognize any goodwill impairment charges during the six months ended June 30, 2015 or during

17


 

the year ended December 31, 2014 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 June 30, 2015 and December 31, 2014, our investments in unconsolidated affiliates include a 42.5% interest in BOSTCO and a 50% interest in Frontera. BOSTCO is a newly constructed terminal facility located on the Houston Ship Channel.  BOSTCO began initial commercial operations in the fourth quarter of 2013; with completion of its approximately 7.1 million barrels of storage capacity and related infrastructure occurring at the end of the third quarter of 2014 (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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of

 

 

Carrying value

 

 

 

ownership

 

 

(in thousands)

 

 

 

June 30,

 

December 31,

 

 

June 30,

 

December 31,

 

 

    

2015

    

2014

    

    

2015

    

2014

 

BOSTCO

    

42.5

%  

42.5

%  

    

$

225,686

 

$

225,920

 

Frontera

 

50

%  

50

%  

 

 

23,611

 

 

23,756

 

Total investments in unconsolidated affiliates

 

 

 

 

 

 

$

249,297

 

$

249,676

 

 

At June 30, 2015 and December 31, 2014, our investment in BOSTCO includes approximately $7.5 million and $7.8 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 BOSTCO.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

BOSTCO

 

$

4,793

 

$

1,329

 

$

6,574

 

$

1,249

 

Frontera

    

 

724

    

 

(54)

    

 

999

    

 

189

 

Total earnings from investments in unconsolidated affiliates

 

$

5,517

 

$

1,275

 

$

7,573

 

$

1,438

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

BOSTCO

 

$

 —

 

$

5,380

 

$

 —

 

$

23,352

 

Frontera

 

 

 —

 

 

 —

 

 

 —

 

 

45

 

Additional capital investments in unconsolidated affiliates

 

$

 —

 

$

5,380

 

$

 —

 

$

23,397

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

BOSTCO

 

$

3,674

 

$

1,044

 

$

6,808

 

$

1,157

 

Frontera

    

 

636

    

 

644

    

 

1,144

    

 

1,281

 

Cash distributions received from unconsolidated affiliates

 

$

4,310

 

$

1,688

 

$

7,952

 

$

2,438

 

 

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

Balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

June 30,

 

December 31,

 

June 30,

 

December 31,

 

 

    

2015

    

2014

    

2015

    

2014

 

Current assets

    

$

18,723

 

$

19,400

 

$

5,233

 

$

4,222

 

Long-term assets

 

 

503,827

 

 

511,373

 

 

43,344

 

 

44,528

 

Current liabilities

 

 

(9,524)

 

 

(17,435)

 

 

(1,355)

 

 

(1,238)

 

Long-term liabilities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net assets

 

$

513,026

 

$

513,338

 

$

47,222

 

$

47,512

 

 

Statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

Three Months Ended 

 

Three Months Ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

    

$

22,967

    

$

12,406

    

$

4,251

    

$

3,415

 

Expenses

 

 

(11,157)

 

 

(9,203)

 

 

(2,803)

 

 

(3,523)

 

Net earnings (loss)

 

$

11,810

 

$

3,203

 

$

1,448

 

$

(108)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

Six months ended 

 

Six months ended 

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

    

$

38,854

    

$

20,743

    

$

7,891

    

$

6,460

 

Expenses

 

 

(22,624)

 

 

(17,658)

 

 

(5,893)

 

 

(6,082)

 

Net earnings

 

$

16,230

 

$

3,085

 

$

1,998

 

$

378

 

 

 

 

 

 

 

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(9) OTHER ASSETS, NET

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

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Amounts due under long-term terminaling services agreements:

 

 

 

 

 

 

 

External customers

 

$

431

 

$

649

 

Affiliates

 

 

732

 

 

945

 

 

 

 

1,163

 

 

1,594

 

Deferred financing costs, net of accumulated amortization of $3,612 and $3,278, respectively

 

 

2,059

 

 

1,138

 

Customer relationships, net of accumulated amortization of $1,789 and $1,687, respectively

 

 

641

 

 

743

 

Deposits and other assets

 

 

77

 

 

76

 

 

 

$

3,940

 

$

3,551

 

 

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 June 30, 2015 and December 31, 2014, 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 $1.2 million and $1.6 million, respectively.

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):

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Customer advances and deposits:

 

 

 

 

 

 

 

External customers

 

$

2,795

 

$

2,756

 

Affiliates

 

 

2,584

 

 

 —

 

 

 

 

5,379

 

 

2,756

 

Accrued property taxes

 

 

2,595

 

 

892

 

Accrued environmental obligations

 

 

1,122

 

 

1,524

 

Interest payable

 

 

135

 

 

159

 

Rebate due to affiliate

 

 

 —

 

 

1,795

 

Accrued expenses and other

 

 

2,300

 

 

2,709

 

 

 

$

11,531

 

$

9,835

 

 

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 June 30, 2015 and December 31, 2014, we have billed and collected from certain of our customers approximately $5.4 million and $2.8 million, respectively, in advance of the terminaling services being provided.

20


 

Accrued environmental obligations.  At June 30, 2015 and December 31, 2014, we have accrued environmental obligations of approximately $1.1 million and $1.5 million, respectively, representing our best estimate of our remediation obligations. During the six months ended June 30, 2015, we made payments of approximately $0.3 million towards our environmental remediation obligations. During the six months ended June 30, 2015, we decreased our estimate of our future environmental remediation costs by $0.1 million. 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 affiliate.  Pursuant to our terminaling services agreement related to the Southeast terminals, we agreed to rebate to our affiliate customer 50% of the proceeds we receive annually in excess of $4.2 million from the sale of product gains at our Southeast terminals. At June 30, 2015 and December 31, 2014, we have accrued a liability due to affiliate of approximately $nil and $1.8 million, respectively.  In January of 2015 we paid approximately $1.8 million to our affiliate customer for the rebate due for the year ended December 31, 2014.

(11) OTHER LIABILITIES

Other liabilities are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Advance payments received under long-term terminaling services agreements

 

$

359

 

$

451

 

Deferred revenue—ethanol blending fees and other projects

 

 

2,852

 

 

3,419

 

Unrealized loss on derivative instruments

 

 

90

 

 

 —

 

 

 

$

3,301

 

$

3,870

 

 

Advance payments received under long‑term terminaling services agreements.  We have long‑term terminaling services agreements with certain of our customers that provide for advance minimum payments. We recognize the advance minimum payments as revenue either on a straight‑line basis over the term of the respective agreements or when services have been provided based on volumes of product distributed. At June 30, 2015 and December 31, 2014, we have received advance minimum payments in excess of revenue recognized under these long‑term terminaling services agreements resulting in a liability of approximately $0.4 million and $0.5 million, respectively.

Deferred revenue—ethanol blending fees and other projects.  Pursuant to agreements with our customers, we agreed to undertake certain capital projects that primarily pertain to providing ethanol blending functionality at certain of our Southeast terminals. Upon completion of the projects, our customers have paid us lump‑sum amounts that will be recognized as revenue on a straight‑line basis over the remaining term of the agreements. At June 30, 2015 and December 31, 2014, we have unamortized deferred revenue of approximately $2.9 million and $3.4 million, respectively, for completed projects. During the three months ended June 30, 2015 and 2014, we recognized revenue on a straight‑line basis of approximately $0.3 million and $0.7 million, respectively, for completed projects.  During the six months ended June 30, 2015 and 2014, we recognized revenue on a straight‑line basis of approximately $0.6 million and $1.4 million, respectively, for completed projects.

(12) LONG‑TERM DEBT

On March 9, 2011, we entered into an amended and restated senior secured credit facility, or “credit facility”, which has been subsequently amended from time to time.  The most recent amendment to our credit facility was the Fifth Amendment, which was completed on February 26, 2015.  This amendment extended the maturity date of the credit facility from March 9, 2016 to July 31, 2018, increased the maximum borrowing line of credit from $350 million to $400 million, and allowed for up to $125 million in additional future “permitted JV investments”, which may include additional investments in BOSTCO.  In addition, the amendment allowed for, at our request, the maximum borrowing line of credit to be increased by an additional $100 million, subject to the approval of the administrative agent and the receipt of additional commitments from one or more lenders.

At June 30, 2015, the credit facility provides for a maximum borrowing line of credit equal to the lesser of (i) $400 million and (ii) 4.75 times Consolidated EBITDA (as defined: $375.5 million at June 30, 2015). At our request,

21


 

the maximum borrowing line of credit may be increased by an additional $100 million, subject to the approval of the administrative agent and the receipt of additional commitments from one or more lenders. We may elect to have loans under the credit facility bear interest either (i) at a rate of LIBOR plus a margin ranging from 2% to 3% depending on the total leverage ratio then in effect, or (ii) at the base rate plus a margin ranging from 1% to 2% depending on the total leverage ratio then in effect. We also pay a commitment fee on the unused amount of commitments, ranging from 0.375% to 0.5% per annum, depending on the total leverage ratio then in effect. Our obligations under the credit facility are secured by a first priority security interest in favor of the lenders in the majority of our assets, including our investments in unconsolidated affiliates.

The terms of the credit facility include covenants that restrict our ability to make cash distributions, acquisitions and investments, including investments in joint ventures. We may make distributions of cash to the extent of our “available cash” as defined in our partnership agreement. We may make acquisitions and investments that meet the definition of “permitted acquisitions”; “other investments” which may not exceed 5% of “consolidated net tangible assets”; and additional future “permitted JV investments” up to $125 million, which may include additional investments in BOSTCO. The principal balance of loans and any accrued and unpaid interest are due and payable in full on the maturity date, July 31, 2018.

The credit facility also contains customary representations and warranties (including those relating to organization and authorization, compliance with laws, absence of defaults, material agreements and litigation) and customary events of default (including those relating to monetary defaults, covenant defaults, cross defaults and bankruptcy events). The primary financial covenants contained in the credit facility are (i) a total leverage ratio test (not to exceed 4.75 times), (ii) a senior secured leverage ratio test (not to exceed 3.75 times) in the event we issue senior unsecured notes, and (iii) a minimum interest coverage ratio test (not less than 3.0 times).

If we were to fail any financial performance covenant, or any other covenant contained in the credit facility, we would seek a waiver from our lenders under such facility. If we were unable to obtain a waiver from our lenders and the default remained uncured after any applicable grace period, we would be in breach of the credit facility, and the lenders would be entitled to declare all outstanding borrowings immediately due and payable. We were in compliance with all of the financial covenants under the credit facility as of June 30, 2015.

For the three months ended June 30, 2015 and 2014, the weighted average interest rate on borrowings under the credit facility was approximately 2.9% and 2.6%, respectively.  For the six months ended June 30, 2015 and 2014, the weighted average interest rate on borrowings under the credit facility was approximately 2.8% and 2.6%, respectively.  At June 30, 2015 and December 31, 2014, our outstanding borrowings under the credit facility were $257 million and $252 million, respectively. At June 30, 2015 and December 31, 2014, our outstanding letters of credit were $nil at both dates.

We have an effective universal