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EX-31.1 - EX-31.1 - TransMontaigne Partners LLCtlp-20160930ex311ee2341.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10‑Q

 

 

(Mark One)

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 001‑32505

TRANSMONTAIGNE PARTNERS L.P.

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

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

 

1670 Broadway

Suite 3100

Denver, Colorado 80202

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

(303) 626‑8200

(Telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

As of October 31, 2016, there were 16,137,199 units of the registrant’s Common Limited Partner Units outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

    

Page No.

 

Part I. Financial Information

 

Item 1. 

 

Unaudited Consolidated Financial Statements

 

3 

 

 

 

Consolidated balance sheets as of September 30, 2016 and December 31, 2015

 

4 

 

 

 

Consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015

 

5 

 

 

 

Consolidated statements of partners’ equity for the year ended December 31, 2015 and nine months ended September 30, 2016

 

6 

 

 

 

Consolidated statements of cash flows for the three and nine months ended September 30, 2016 and 2015

 

7 

 

 

 

Notes to consolidated financial statements

 

8 

 

Item 2. 

 

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

 

29 

 

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

44 

 

Item 4. 

 

Controls and Procedures

 

44 

 

Part II. Other Information

 

Item 1. 

 

Legal Proceedings

 

45 

 

Item 1A. 

 

Risk Factors

 

45 

 

Item 6. 

 

Exhibits

 

48 

 

 

 

2


 

CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

This Quarterly Report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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 or our ability to pay distributions;

·

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

·

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

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

Part I. Financial Information

ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financial statements of TransMontaigne Partners L.P. as of and for the three and nine months ended September 30, 2016 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, 2015, 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 10, 2016 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 nine months ended September 30, 2016:

·

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)

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

441

 

$

681

 

Trade accounts receivable, net

 

 

8,995

 

 

5,973

 

Due from affiliates

 

 

1,156

 

 

1,080

 

Other current assets

 

 

3,203

 

 

2,410

 

Total current assets

 

 

13,795

 

 

10,144

 

Property, plant and equipment, net

 

 

408,334

 

 

388,423

 

Goodwill

 

 

8,485

 

 

8,485

 

Investments in unconsolidated affiliates

 

 

243,202

 

 

246,700

 

Other assets, net

 

 

2,975

 

 

2,935

 

 

 

$

676,791

 

$

656,687

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

 

$

12,631

 

$

10,874

 

Accrued liabilities

 

 

18,287

 

 

11,111

 

Total current liabilities

 

 

30,918

 

 

21,985

 

Other liabilities

 

 

2,878

 

 

2,731

 

Long-term debt

 

 

270,300

 

 

248,000

 

Total liabilities

 

 

304,096

 

 

272,716

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

Partners’ equity:

 

 

 

 

 

 

 

Common unitholders  (16,133,941 units issued and outstanding at September 30, 2016 and    

  16,124,566 units issued and outstanding at December 31, 2015)

 

 

320,150

 

 

326,224

 

General partner interest (2% interest with 329,264 equivalent units outstanding at  

   September 30, 2016 and 329,073 equivalent units outstanding at December 31, 2015)

 

 

52,545

 

 

57,747

 

Total partners’ equity

 

 

372,695

 

 

383,971

 

 

 

$

676,791

 

$

656,687

 

 

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 

 

Nine months ended 

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

39,328

 

$

27,143

 

$

115,570

 

$

79,196

 

Affiliates

 

 

1,310

 

 

10,126

 

 

6,830

 

 

33,004

 

Total revenue

 

 

40,638

 

 

37,269

 

 

122,400

 

 

112,200

 

Operating costs and expenses and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating costs and expenses

 

 

(17,048)

 

 

(16,655)

 

 

(50,657)

 

 

(47,481)

 

Direct general and administrative expenses

 

 

(764)

 

 

(1,117)

 

 

(2,925)

 

 

(2,810)

 

Allocated general and administrative expenses

 

 

(2,841)

 

 

(2,835)

 

 

(8,524)

 

 

(8,440)

 

Allocated insurance expense

 

 

(969)

 

 

(944)

 

 

(2,776)

 

 

(2,812)

 

Reimbursement of bonus awards expense

 

 

(251)

 

 

(121)

 

 

(2,144)

 

 

(1,185)

 

Depreciation and amortization

 

 

(8,169)

 

 

(7,711)

 

 

(24,168)

 

 

(22,524)

 

Earnings from unconsolidated affiliates

 

 

2,960

 

 

2,191

 

 

6,940

 

 

9,764

 

Total operating costs and expenses and other

 

 

(27,082)

 

 

(27,192)

 

 

(84,254)

 

 

(75,488)

 

Operating income

 

 

13,556

 

 

10,077

 

 

38,146

 

 

36,712

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,467)

 

 

(2,198)

 

 

(6,627)

 

 

(6,083)

 

Amortization of deferred financing costs

 

 

(204)

 

 

(167)

 

 

(614)

 

 

(607)

 

Total other expenses

 

 

(1,671)

 

 

(2,365)

 

 

(7,241)

 

 

(6,690)

 

Net earnings

 

 

11,885

 

 

7,712

 

 

30,905

 

 

30,022

 

Less—earnings allocable to general partner interest including  

    incentive distribution rights

 

 

(2,429)

 

 

(1,803)

 

 

(6,727)

 

 

(5,546)

 

Net earnings allocable to limited partners

 

$

9,456

 

$

5,909

 

$

24,178

 

$

24,476

 

Net earnings per limited partner unit—basic

 

$

0.58

 

$

0.37

 

$

1.49

 

$

1.52

 

Net earnings per limited partner unit—diluted

 

$

0.58

 

$

0.37

 

$

1.49

 

$

1.52

 

 

See accompanying notes to consolidated financial statements.

5


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of partners’ equity (unaudited)

Year ended December 31, 2015 and nine months ended September 30, 2016

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

General

 

 

 

 

 

 

Common

 

partner

 

 

 

 

 

 

units

 

interest

 

Total

 

Balance December 31, 2014

 

$

333,619

 

$

57,846

 

$

391,465

 

Distributions to unitholders

 

 

(42,897)

 

 

(7,605)

 

 

(50,502)

 

Equity-based compensation

 

 

1,411

 

 

 

 

1,411

 

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

 

 

(92)

 

 

 

 

(92)

 

Net earnings for year ended December 31, 2015

 

 

34,183

 

 

7,506

 

 

41,689

 

Balance December 31, 2015

 

 

326,224

 

 

57,747

 

 

383,971

 

Distributions to unitholders

 

 

(32,916)

 

 

(6,429)

 

 

(39,345)

 

Equity-based compensation

 

 

2,664

 

 

 

 

2,664

 

Issuance of 15,750 common units by our long-term incentive plan due to vesting of restricted phantom units

 

 

 —

 

 

 —

 

 

 —

 

TransMontaigne GP to maintain its 2% general partner interest

 

 

 —

 

 

6

 

 

6

 

Excess of $12.0 million purchase price of hydrant system from TransMontaigne LLC over the carryover basis of the net assets

 

 

 —

 

 

(5,506)

 

 

(5,506)

 

Net earnings for nine months ended September 30, 2016

 

 

24,178

 

 

6,727

 

 

30,905

 

Balance September 30, 2016

 

$

320,150

 

$

52,545

 

$

372,695

 

 

See accompanying notes to consolidated financial statements.

6


 

TransMontaigne Partners L.P. and subsidiaries

Consolidated statements of cash flows (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Nine months ended 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

Cash flows from operating activities:

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Net earnings

 

$

11,885

 

$

7,712

 

$

30,905

 

$

30,022

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,169

 

 

7,711

 

 

24,168

 

 

22,524

 

 

Earnings from unconsolidated affiliates

 

 

(2,960)

 

 

(2,191)

 

 

(6,940)

 

 

(9,764)

 

 

Distributions from unconsolidated affiliates

 

 

4,457

 

 

7,510

 

 

12,663

 

 

15,462

 

 

Equity-based compensation

 

 

251

 

 

145

 

 

2,664

 

 

1,255

 

 

Amortization of deferred financing costs

 

 

204

 

 

167

 

 

614

 

 

607

 

 

Amortization of deferred revenue

 

 

(108)

 

 

(437)

 

 

(428)

 

 

(1,004)

 

 

Unrealized loss (gain) on derivative instruments

 

 

(578)

 

 

461

 

 

557

 

 

551

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

(1,950)

 

 

1,881

 

 

(2,949)

 

 

1,193

 

 

Due from affiliates

 

 

(640)

 

 

(55)

 

 

(76)

 

 

409

 

 

Other current assets

 

 

(788)

 

 

270

 

 

(793)

 

 

956

 

 

Amounts due under long-term terminaling services agreements, net

 

 

(121)

 

 

388

 

 

(193)

 

 

727

 

 

Utility deposits

 

 

11

 

 

 —

 

 

11

 

 

 —

 

 

Trade accounts payable

 

 

266

 

 

2,274

 

 

(1,570)

 

 

283

 

 

Due to affiliates

 

 

(107)

 

 

105

 

 

 —

 

 

220

 

 

Accrued liabilities

 

 

3,926

 

 

2,833

 

 

7,176

 

 

4,529

 

 

Net cash provided by operating activities

 

 

21,917

 

 

28,774

 

 

65,809

 

 

67,970

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Acquisition of terminal assets

 

 

 —

 

 

 —

 

 

(12,000)

 

 

 —

 

 

Investments in unconsolidated affiliates

 

 

 —

 

 

(4,226)

 

 

(2,225)

 

 

(4,226)

 

 

Capital expenditures

 

 

(10,139)

 

 

(8,784)

 

 

(34,105)

 

 

(24,538)

 

 

Net cash used in investing activities

 

 

(10,139)

 

 

(13,010)

 

 

(48,330)

 

 

(28,764)

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings of debt under credit facility

 

 

35,400

 

 

26,000

 

 

140,200

 

 

64,000

 

 

Repayments of debt under credit facility

 

 

(33,100)

 

 

(33,400)

 

 

(117,900)

 

 

(66,400)

 

 

Deferred issuance costs

 

 

(228)

 

 

5

 

 

(680)

 

 

(1,356)

 

 

Distributions paid to unitholders

 

 

(13,438)

 

 

(12,624)

 

 

(39,345)

 

 

(37,871)

 

 

Purchase of common units by our long-term incentive plan

 

 

 —

 

 

 —

 

 

 —

 

 

(92)

 

 

Contribution of cash by TransMontaigne GP

 

 

1

 

 

 —

 

 

6

 

 

 —

 

 

Net cash used in financing activities

 

 

(11,365)

 

 

(20,019)

 

 

(17,719)

 

 

(41,719)

 

 

Increase (decrease) in cash and cash equivalents

 

 

413

 

 

(4,255)

 

 

(240)

 

 

(2,513)

 

 

Cash and cash equivalents at beginning of period

 

 

28

 

 

5,046

 

 

681

 

 

3,304

 

 

Cash and cash equivalents at end of period

 

$

441

 

$

791

 

$

441

 

$

791

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,049

 

$

1,760

 

$

6,048

 

$

5,285

 

 

Property, plant and equipment acquired with accounts payable

 

$

9,295

 

$

1,415

 

$

9,295

 

$

1,415

 

 

 

See accompanying notes to consolidated financial statements.

 

7


 

Table of Contents

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. (“we,” “us,” “our,” “the Partnership”) was formed in February 2005 as a Delaware limited partnership. 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 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 are controlled by our general partner, TransMontaigne GP L.L.C. (“TransMontaigne GP”), which as of February 1, 2016 is a wholly‑owned indirect subsidiary of ArcLight Energy Partners Fund VI, L.P. (“ArcLight”). Prior to February 1, 2016, TransMontaigne LLC, a wholly-owned subsidiary of NGL Energy Partners LP (“NGL”), owned all the issued and outstanding ownership interests of TransMontaigne GP.

(b) Basis of presentation and use of estimates

Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the accounts of TransMontaigne Partners L.P. and its controlled subsidiaries. Investments where we do not have the ability to exercise control, but do have the ability to exercise significant influence, are accounted for using the equity method of accounting. All inter‑company accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements. The accompanying consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015 and our results of operations for the three and nine months ended September 30, 2016 and 2015.

The preparation of financial statements in conformity with “GAAP” 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/or involve complex analyses: useful lives of our plant and equipment and accrued environmental obligations. 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.

(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 September 30, 2016 and 2015, we recognized revenue of

8


 

Table of Contents

TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

approximately $1.6 million and $1.9 million, respectively, for net product gained. Within these amounts, approximately $nil and $0.5 million for the three months ended September 30, 2016 and 2015, respectively, were pursuant to terminaling services agreements with affiliate customers. For the nine months ended September 30, 2016 and 2015, we recognized revenue of approximately $4.2 million and $5.9 million, respectively, for net product gained. Within these amounts, approximately $0.3 million and $2.1 million for the nine months ended September 30, 2016 and 2015, 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 unconsolidated affiliates, which we do not control but do have the ability to exercise significant influence over, using the equity method of accounting. Under this method, the investment is recorded at acquisition cost, increased by our proportionate share of any earnings and additional capital contributions and decreased by our proportionate share of any losses, distributions received and amortization of any excess investment. Excess investment is the amount by which our total investment exceeds our proportionate share of the book value of the net assets of the investment entity. We evaluate our investments in unconsolidated affiliates for impairment whenever events or circumstances indicate there is a loss in value of the investment that is other than temporary. In the event of impairment, we would record a charge to earnings to adjust the carrying amount to fair value.

(g) Environmental obligations

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

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TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

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).

In connection with our previous acquisitions of certain terminals from TransMontaigne LLC, TransMontaigne LLC has agreed to indemnify us against certain potential environmental claims, losses and expenses at those terminals (see Note 2 of Notes to consolidated financial statements).

(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 (see Note 14 of Notes to consolidated financial statements).

(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.

At September 30, 2016 and December 31, 2015, our derivative instruments were limited to interest rate swap agreements with an aggregate notional amount of $125.0 million and $75.0 million, respectively. Our derivative instruments at September 30, 2016 expire between March 25, 2018 and March 11, 2019. Pursuant to the terms of the interest rate swap agreements, we pay a blended fixed rate of approximately 1.01% 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 we are treated as a partnership for federal income tax purposes. As a partnership, all income, gains, losses, expenses, deductions and tax credits generated by us flow through to our unitholders.

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TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

(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 our 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.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers - Principal Versus Agent Considerations, as further clarification on principal versus agent considerations. ASU 2016-08 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.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing as further clarification on identifying performance obligations and licensing implementation guidance. ASU 2016-10 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.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients, as clarifying guidance on specific narrow scope improvements and practical expedients. ASU 2016-12 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.

 

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of this update is to improve financial reporting about leasing transactions. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, 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.  

 

 

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TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

(2) TRANSACTIONS WITH AFFILIATES

Omnibus agreement.    On May 27, 2005 we entered into an omnibus agreement with TransMontaigne LLC and our general partner, which agreement has been subsequently amended from time to time. In connection with the ArcLight acquisition of our general partner, effective February 1, 2016, we entered into an amendment to the omnibus agreement to consent to the assignment of the omnibus agreement from TransMontaigne LLC to Gulf TLP Holdings LLC, an ArcLight subsidiary, and to waive the automatic termination that would have occurred at such time as TransMontaigne LLC ceased to control our general partner. The omnibus agreement will continue in effect until the earlier to occur of (i) the owner ceasing to control our general partner or (ii) the election of either us or the owner, following at least 24 months’ prior written notice to the other parties.

Under the omnibus agreement we pay the owner of TransMontaigne GP an administrative fee for the provision of various general and administrative services for our benefit. The administrative fee paid for both the three months ended September 30, 2016 and 2015 was approximately $2.8 million. For the nine months ended September 30, 2016 and 2015, the administrative fee paid was approximately $8.5 million and $8.4 million, respectively. If we acquire or construct additional facilities, the owner of TransMontaigne GP may propose a revised administrative fee covering the provision of services for such additional facilities, subject to approval by the conflicts committee of our general partner. 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, engineering and other corporate services.

The omnibus agreement further provides that we pay the owner of TransMontaigne GP an insurance reimbursement for insurance policies purchased on our behalf to cover our facilities and operations. For the three months ended September 30, 2016 and 2015, the insurance reimbursement paid was approximately $1.0 million and $0.9 million, respectively. For both the nine months ended September 30, 2016 and 2015, the insurance reimbursement paid was approximately $2.8 million. We also reimburse the owner of TransMontaigne GP 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.

Prior to March 1, 2016, under the omnibus agreement we agreed to reimburse the owner of TransMontaigne GP for a portion of the incentive bonus awards made to key employees under the owner’s savings and retention program, provided the compensation committee of our general partner determined that an adequate portion of the incentive bonus awards were 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 could be no less than $1.5 million. Effective April 13, 2015 and for the 2015 incentive bonus award, we have the option to provide the reimbursement in either a cash payment or the delivery of our common units to the owner of TransMontaigne GP or directly to the award recipients, with the reimbursement made in accordance with the underlying vesting and payment schedule of the savings and retention program. Prior to the 2015 incentive bonus award, we reimbursed our portion of the incentive bonus awards by making cash payments to the owner of TransMontaigne GP over the first year that each applicable award was granted. Under the amended and restated omnibus agreement entered into on March 1, 2016, we have agreed to satisfy the incentive bonus awards made to key employees under the savings and retention program, including awards granted in 2016, in either cash or in common units; provided the compensation committee and conflicts committee of our general partner approves the annual awards granted under the plan. For the three months ended September 30, 2016 and 2015, the expense associated with the reimbursement of incentive bonus awards was approximately $0.3 million and $0.1 million, respectively. For the nine months ended September 30, 2016 and 2015, the expense associated with the reimbursement of incentive bonus awards was approximately $2.1 million and $1.2 million, respectively.

Environmental indemnification.  In connection with our acquisition of the Florida and Midwest terminals on May 27, 2005, 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

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Notes to consolidated financial statements (unaudited) (continued)

environmental claims made as a result of additions to or modifications of environmental laws promulgated after May 27, 2005.

In connection with our acquisition of the Brownsville, Texas and River terminals on December 31, 2006, 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 on December 31, 2007, 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 on March 1, 2011, TransMontaigne LLC agreed to indemnify us against potential environmental claims, losses and expenses that were 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. 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.

The forgoing environmental indemnification obligations of TransMontaigne LLC to us remain in place and were not affected by ArcLight’s acquisition of our general partner.

Terminaling services agreement—Southeast terminals.  In connection with the ArcLight acquisition of our general partner, our Southeast terminaling services agreement with NGL was amended to extend the term of the agreement through July 31, 2040 at the prevailing contract rate terms contained within the agreement. Subsequent to January 31, 2023, NGL has the ability to terminate the agreement at any time upon at least 24 months’ prior notice of its intent to terminate the agreement. Subsequent to the ArcLight acquisition, effective February 1, 2016, revenue associated with the Southeast terminaling services agreement is recorded as revenue from external customers as opposed to revenue from affiliates.

Under this agreement, NGL was obligated to throughput a volume of refined product that, at the fee schedule contained in the agreement, resulted in minimum throughput payments to us of approximately $6.8 million and $6.7 million for the three months ended September 30, 2016 and 2015, respectively, and $20.3 million and $20.2 million for the nine months ended September 30, 2016 and 2015 respectively. The agreement contains stipulated annual increases in throughput payments 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. 

Under this agreement, we agreed to rebate NGL 50% of the proceeds we receive annually in excess of $4.2 million from the sale of product gains at our Southeast terminals. The proceeds from the sale of product gains at our Southeast terminals did not exceed $4.2 million for the year ended December 31, 2015, nor are they expected to exceed

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TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

this amount for the year ending December 31, 2016. Accordingly, we have not accrued a liability for a rebate at September 30, 2016 or December 31, 2015.

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.

Terminaling services agreement—Florida terminals. On October 31, 2014, NGL provided us the required 18 months’ prior notice that it would terminate its remaining obligations under the Florida 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. On April 30, 2016, NGL amended the agreement to retain approximately 0.1 million barrels of this capacity. As of July 15, 2016 we have re-contracted the remaining capacity to third party customers at similar rates charged to NGL.

Under this agreement, NGL was obligated to throughput a volume that, at the fee and tariff schedule contained in the agreement, resulted in minimum throughput payments to us of approximately $0.1 million and $1.0 million for the three months ended September 30, 2016 and 2015, respectively, and $0.6 million and $4.7 million for the nine months ended September 30, 2016 and 2015, respectively.

Operations and reimbursement agreement—Frontera.  We have a 50% ownership interest in Frontera Brownsville LLC joint venture, or “Frontera”. We have 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. We recognized revenue related to this operations and reimbursement agreement of approximately $1.2 million and $1.1 million for the three months ended September 30, 2016 and 2015, respectively, and $3.8 million and $3.3 million for the nine months ended September 30, 2016 and 2015, respectively.

(3) ACQUISITION OF TERMINAL ASSETS

Effective January 28, 2016, we acquired from TransMontaigne LLC its Port Everglades, Florida hydrant system for a cash payment of $12.0 million. The hydrant system encompasses a system for fueling cruise ships and is currently under contract with one of our existing terminal customers for approximately three more years. The acquisition of the hydrant system from TransMontaigne LLC has been recorded at the carryover basis in a manner similar to a reorganization of entities under common control. As TransMontaigne LLC controlled our general partner on the acquisition date, the difference between the consideration we paid to TransMontaigne LLC and the carryover basis of the net assets purchased has been reflected in the accompanying consolidated balance sheets and statement of partners’ equity as a decrease to the general partner’s interest. The accompanying consolidated financial statements include the assets, liabilities and results of operations of the hydrant system from January 28, 2016. As this transaction is not considered material to our consolidated financial statements we did not recast prior period consolidated financial statements.

(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

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Notes to consolidated financial statements (unaudited) (continued)

limits and monitoring procedures, and for certain transactions we may request letters of credit, prepayments or guarantees. We maintain allowances for potentially uncollectible accounts receivable.

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

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Trade accounts receivable

 

$

9,114

 

$

6,448

 

Less allowance for doubtful accounts

 

 

(119)

 

 

(475)

 

 

 

$

8,995

 

$

5,973

 

 

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 

 

 

 

September 30,

 

 

 

2016

 

2015

 

NGL Energy Partners LP

 

22

%  

24

%

Castleton Commodities International LLC

 

15

%  

 —

%

RaceTrac Petroleum Inc.

 

13

%  

13

%

Morgan Stanley Capital Group

 

 —

%  

13

 

 

On October 27, 2015, upon the sale of Morgan Stanley’s global physical oil merchanting business to Castleton Commodities International LLC, Morgan Stanley Capital Group, with our consent, assigned all its terminaling services agreements with us to Castleton Commodities International LLC.

 

 

 

 

(5) OTHER CURRENT ASSETS

Other current assets are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Amounts due from insurance companies

 

$

1,756

 

$

774

 

Additive detergent

 

 

1,262

 

 

1,411

 

Deposits and other assets

 

 

185

 

 

225

 

 

 

$

3,203

 

$

2,410

 

 

Amounts due from insurance companies.  We periodically file claims for recovery of environmental remediation costs with our insurance carriers under our comprehensive liability policies. We recognize our insurance recoveries in the period that we assess the likelihood of recovery as being probable (i.e., likely to occur). At September 30, 2016 and December 31, 2015, we have recognized amounts due from insurance companies of approximately $1.8 million and $0.8 million, respectively, representing our best estimate of our probable insurance recoveries. During the nine months ended September 30, 2016, we received reimbursements from insurance companies of approximately $0.3 million. During the nine months ended September 30, 2016, we increased our estimate of probable future insurance recoveries by approximately $1.3 million.

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Notes to consolidated financial statements (unaudited) (continued)

(6) PROPERTY, PLANT AND EQUIPMENT, NET

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

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Land

 

$

53,079

 

$

53,079

 

Terminals, pipelines and equipment

 

 

613,795

 

 

595,883

 

Furniture, fixtures and equipment

 

 

4,100

 

 

2,665

 

Construction in progress

 

 

33,127

 

 

8,704

 

 

 

 

704,101

 

 

660,331

 

Less accumulated depreciation

 

 

(295,767)

 

 

(271,908)

 

 

 

$

408,334

 

$

388,423

 

 

 

 

 

(7) GOODWILL

Goodwill is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

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 September 30, 2016 and December 31, 2015, our only reporting unit that contained goodwill was our Brownsville terminals. We did not recognize any goodwill impairment charges during the nine months ended September 30, 2016 or during the year ended December 31, 2015 for this reporting unit. However, a significant decline in the price of our common units with a resulting increase in the assumed market participants’ weighted average cost of capital, the loss of a significant customer, the disposition of significant assets, or an unforeseen increase in the costs to operate and maintain the Brownsville terminals, could result in the recognition of an impairment charge in the future.

(8) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

At September 30, 2016 and December 31, 2015, our investments in unconsolidated affiliates include a 42.5% Class A ownership interest in Battleground Oil Specialty Terminal Company LLC (“BOSTCO”) and a 50% ownership interest in Frontera Brownsville LLC (“Frontera”). BOSTCO is a terminal facility located on the Houston Ship Channel that encompasses approximately 7.1 million barrels of distillate, residual and other black oil product storage. Class A and Class B ownership interests share in cash distributions on a 96.5% and 3.5% basis, respectively. Class B ownership interests do not have voting rights and are not required to make capital investments. Frontera is a terminal facility located in Brownsville, Texas that encompasses approximately 1.5 million barrels of light petroleum product storage, as well as related ancillary facilities.

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Notes to consolidated financial statements (unaudited) (continued)

The following table summarizes our investments in unconsolidated affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of

 

 

Carrying value

 

 

 

ownership

 

 

(in thousands)

 

 

 

September 30,

 

December 31,

 

 

September 30,

 

December 31,

 

 

    

2016

    

2015

    

    

2016

    

2015

 

BOSTCO

    

42.5

%  

42.5

%  

 

$

219,646

 

$

223,214

 

Frontera

 

50

%  

50

%  

 

 

23,556

 

 

23,486

 

Total investments in unconsolidated affiliates

 

 

 

 

 

 

$

243,202

 

$

246,700

 

 

At September 30, 2016 and December 31, 2015, our investment in BOSTCO includes approximately $7.3 million and $7.4 million, respectively, of excess investment related to a one time buy-in fee to acquire our 42.5% interest and capitalization of interest on our investment during the construction of BOSTCO. Excess investment is the amount by which our investment exceeds our proportionate share of the book value of the net assets of BOSTCO.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Nine months ended 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

BOSTCO

 

$

1,885

 

$

1,670

 

$

4,794

 

$

8,244

 

 

Frontera

    

 

1,075

    

 

521

    

 

2,146

    

 

1,520

 

 

Total earnings from investments in unconsolidated affiliates

 

$

2,960

 

$

2,191

 

$

6,940

 

$

9,764

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Nine months ended 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2016

    

2015

 

2016

    

2015

 

 

BOSTCO

 

$

 —

 

$

4,226

 

$

2,125

 

$

4,226

 

 

Frontera

 

 

 —

 

 

 —

 

 

100

 

 

 —

 

 

Additional capital investments in unconsolidated affiliates

 

$

 —

 

$

4,226

 

$

2,225

 

$

4,226

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Nine months ended 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

BOSTCO

 

$

3,546

 

$

6,555

 

$

10,487

 

$

13,363

 

 

Frontera

    

 

911

    

 

955

    

 

2,176

    

 

2,099

 

 

Cash distributions received from unconsolidated affiliates

 

$

4,457

 

$

7,510

 

$

12,663

 

$

15,462

 

 

 

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Notes to consolidated financial statements (unaudited) (continued)

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

Balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

    

2016

    

2015

    

2016

    

2015

 

Current assets

    

$

21,634

 

$

21,079

 

$

6,089

 

$

4,156

 

Long-term assets

 

 

488,609

 

 

500,982

 

 

42,505

 

 

44,194

 

Current liabilities

 

 

(10,577)

 

 

(15,064)

 

 

(1,482)

 

 

(1,376)

 

Net assets

 

$

499,666

 

$

506,997

 

$

47,112

 

$

46,974

 

 

Statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

Three months ended 

 

Three months ended 

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Revenue

    

$

17,033

    

$

15,273

    

$

5,232

    

$

4,227

 

Expenses

 

 

(12,178)

 

 

(11,081)

 

 

(3,082)

 

 

(3,185)

 

Net earnings

 

$

4,855

 

$

4,192

 

$

2,150

 

$

1,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTCO

 

Frontera

 

 

 

Nine months ended 

 

Nine months ended 

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Revenue

    

$

49,907

    

$

54,127

    

$

13,608

    

$

12,118

 

Expenses

 

 

(36,668)

 

 

(33,705)

 

 

(9,316)

 

 

(9,078)

 

Net earnings

 

$

13,239

 

$

20,422

 

$

4,292

 

$

3,040

 

 

 

 

 

 

 

 

 

(9) OTHER ASSETS, NET

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

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Amounts due under long-term terminaling services agreements:

 

 

 

 

 

 

 

External customers

 

$

717

 

$

12

 

Affiliates

 

 

 —

 

 

567

 

 

 

 

717

 

 

579

 

Deferred financing costs, net of accumulated amortization of $4,666 and $4,052, respectively

 

 

1,501

 

 

1,721

 

Customer relationships, net of accumulated amortization of $2,042 and $1,890, respectively

 

 

388

 

 

540

 

Deposits and other assets

 

 

369

 

 

95

 

 

 

$

2,975

 

$

2,935

 

 

Amounts due under long‑term terminaling services agreements.  We have long‑term terminaling services agreements with certain of our customers that provide for minimum payments that increase over the terms of the respective agreements. We recognize as revenue the minimum payments under the long‑term terminaling services agreements on a straight‑line basis over the term of the respective agreements. At September 30, 2016 and December 31,

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Notes to consolidated financial statements (unaudited) (continued)

2015, we have recognized revenue in excess of the minimum payments that was due through those respective dates under the long‑term terminaling services agreements resulting in an asset of approximately $0.7 million and $0.6 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):

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Customer advances and deposits:

 

 

 

 

 

 

 

External customers

 

$

8,968

 

$

4,925

 

Affiliates

 

 

 —

 

 

2,352

 

 

 

 

8,968

 

 

7,277

 

Accrued property taxes

 

 

3,568

 

 

1,019

 

Accrued environmental obligations

 

 

2,998

 

 

1,047

 

Interest payable

 

 

185

 

 

141

 

Accrued expenses and other

 

 

2,568

 

 

1,627

 

 

 

$

18,287

 

$

11,111

 

 

Customer advances and deposits.  We bill certain of our customers one month in advance for terminaling services to be provided in the following month. At September 30, 2016 and December 31, 2015, we have billed and collected from certain of our customers approximately $9.0 million and $7.3 million, respectively, in advance of the terminaling services being provided.

Accrued environmental obligations.  At September 30, 2016 and December 31, 2015, we have accrued environmental obligations of approximately $3.0 million and $1.0 million, respectively, representing our best estimate of our remediation obligations. During the nine months ended September 30, 2016, we made payments of approximately $0.3 million towards our environmental remediation obligations. During the nine months ended September 30, 2016, we increased our estimate of our future environmental remediation costs by approximately $2.3 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.

(11) OTHER LIABILITIES

Other liabilities are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2016

 

2015

 

Advance payments received under long-term terminaling services agreements

 

$

525

 

$

580

 

Deferred revenue—ethanol blending fees and other projects

 

 

1,796

 

 

2,151

 

Unrealized loss on derivative instruments

 

 

557

 

 

 —

 

 

 

$

2,878

 

$

2,731

 

 

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Notes to consolidated financial statements (unaudited) (continued)

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 September 30, 2016 and December 31, 2015, we have received advance minimum payments in excess of revenue recognized under these long‑term terminaling services agreements resulting in a liability of approximately $0.5 million and $0.6 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 September 30, 2016 and December 31, 2015, we have unamortized deferred revenue of approximately $1.8 million and $2.2 million, respectively, for completed projects. During the three months ended September 30, 2016 and 2015, we recognized revenue on a straight‑line basis of approximately $0.1 million and $0.4 million, respectively, for completed projects. During the nine months ended September 30, 2016 and 2015, we recognized revenue on a straight‑line basis of approximately $0.4 million and $1.0 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. At September 30, 2016, 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: $447.1 million at September 30, 2016). At our request, 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. 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.

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. For the three months ended September 30, 2016 and 2015, the weighted average interest rate on borrowings under the credit facility was approximately 3.2% and 2.6%, respectively. For the nine months ended September 30, 2016 and 2015, the weighted average interest rate on borrowings under the credit facility was approximately 3.1% and 2.7%, respectively. At September 30, 2016 and December 31, 2015, our outstanding borrowings under the credit facility were $270.3 million and $248.0 million, respectively. At September 30, 2016 and December 31, 2015, our outstanding letters of credit were $0.4 million and $nil, respectively.

We have an effective universal shelf‑registration statement and prospectus on Form S‑3 with the Securities and Exchange Commission that expires in September 2019. TLP Finance Corp., our 100% owned subsidiary, may act as a co‑issuer of any debt securities issued pursuant to that registration statement. TransMontaigne Partners L.P. has no independent assets or operations. TLP Finance Corp. has no assets or operations. Our operations are conducted by subsidiaries of TransMontaigne Partners L.P. through our 100% owned operating company subsidiary, TransMontaigne Operating Company L.P. Each of TransMontaigne Operating Company L.P.s’ and our other 100% owned subsidiaries (other than TLP Finance Corp., whose sole purpose is to act as co‑issuer of any debt securities) may guarantee the debt securities. We expect that any guarantees will be full and unconditional and joint and several, subject to certain

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Notes to consolidated financial statements (unaudited) (continued)

automatic customary releases, including sale, disposition, or transfer of the capital stock or substantially all of the assets of a subsidiary guarantor, exercise of legal defeasance option or covenant defeasance option, and designation of a subsidiary guarantor as unrestricted in accordance with the indenture. There are no significant restrictions on the ability of TransMontaigne Partners L.P. or any guarantor to obtain funds from its subsidiaries by dividend or loan. None of the assets of TransMontaigne Partners L.P. or a guarantor represent restricted net assets pursuant to the guidelines established by the Securities and Exchange Commission.

(13) PARTNERS’ EQUITY

The number of units outstanding is as follows:

 

 

 

 

 

 

 

 

    

    

    

General

 

 

 

Common

 

partner

 

 

 

units

 

equivalent units

 

Units outstanding at December 31, 2015

 

16,124,566

 

329,073

 

Issuance of common units by our long-term incentive plan due to vesting of restricted

    phantom units

 

7,732

 

 —

 

Issuance of common units by our savings and retention program

 

1,643

 

 —

 

TransMontaigne GP to maintain its 2% general partner interest

 

 —

 

191

 

Units outstanding at September 30, 2016

 

16,133,941

 

329,264

 

 

At September 30, 2016 and December 31, 2015, common units outstanding include nil and 8,018 common units, respectively, held on behalf of TransMontaigne LLC’s long‑term incentive plan. In connection with the ArcLight acquisition of our general partner, effective February 1, 2016, 15,750 restricted phantom units previously granted to the independent directors vested and were satisfied via the delivery of our common units.

(14) EQUITY BASED COMPENSATION

TransMontaigne GP is our general partner and manages our operations and activities. Prior to February 1, 2016, TransMontaigne GP was a wholly owned subsidiary of TransMontaigne LLC, which is a wholly owned subsidiary of NGL. TransMontaigne Services LLC, which is a wholly owned subsidiary of TransMontaigne LLC, had a long‑term incentive plan and a savings and retention program to compensate through incentive bonus awards certain employees and independent directors of our general partner who provided services with respect to the business of our general partner.

Long-term incentive plan.    On February 26, 2016, the board of our general partner approved, subject to the approval of our unitholders, the TLP Management Services LLC 2016 long-term incentive plan and the TLP Management Services LLC savings and retention program (discussed further below) which constitutes a program under, and is subject to, the 2016 long-term incentive plan, which replaced the TransMontaigne Services LLC long-term incentive plan and the TransMontaigne Services savings and retention program. TLP Management Services LLC is a wholly owned indirect subsidiary of ArcLight. On July 12, 2016, we held a special meeting of unitholders at which time the 2016 long-term incentive plan was approved by our unitholders.

 

The 2016 long-term incentive plan operates in a manner similar to the TransMontaigne Services LLC long-term incentive plan used previously. The 2016 long-term incentive plan reserves 750,000 common units to be granted as awards under the plan, with such amount subject to adjustment as provided for under the terms of the plan if there is a change in our common units, such as a unit split or other reorganization. The common units authorized to be granted under the 2016 long-term incentive plan are registered pursuant to a registration statement on Form S-8.

The 2016 long‑term incentive plan is administered by the compensation committee of the board of directors of our general partner and is primarily used for grants of restricted phantom units to the independent directors of our general partner. The grants to the independent directors of our general partner have historically vested and were payable annually in equal tranches over a four-year period, subject to accelerated vesting upon a change in control of

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Notes to consolidated financial statements (unaudited) (continued)

TransMontaigne GP. Ownership in the awards is subject to forfeiture until the vesting date, but recipients have distribution and voting rights from the date of the grant. 

In connection with the ArcLight acquisition of our general partner, effective February 1, 2016, all of the restricted phantom units previously granted to the independent directors vested and were satisfied via the delivery of our common units.

TransMontaigne GP had historically acquired outstanding common units on the open market under a purchase program for purposes of delivering vested units to the independent directors of our general partner. The purchase program concluded with its final purchase of 667 units on the program’s scheduled termination date of April 1, 2015. Future grants of restricted phantom units under the 2016 long‑term incentive plan are expected to be settled by us through the issuance of common units pursuant to our registration statement on Form S-8.

Activity under the long-term incentive plan for the nine months ended September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

    

Restricted

    

NYSE

 

 

 

phantom

 

closing

 

 

 

units

 

price

 

Restricted phantom units outstanding at December 31, 2015

 

15,750

 

 

 

 

Vesting on February 1, 2016

 

(15,750)

 

$

30.41

 

Restricted phantom units outstanding at September 30, 2016

 

 —

 

 

 

 

 

Generally accepted accounting principles require us to measure the cost of board member services received in exchange for an award of equity instruments based on the grant‑date fair value of the award. That cost is recognized over the vesting period on a straight line basis during which a board member is required to provide services in exchange for the award with the costs being accelerated upon the occurrence of accelerated vesting events, such as a change in control of our general partner. In connection with the ArcLight acquisition of our general partner, effective February 1, 2016, 15,750 restricted phantom units previously granted to the independent directors vested and were satisfied via the delivery of our common units. For awards to the independent directors of our general partner, equity‑based compensation of approximately $520,000 and $70,000 is included in direct general and administrative expenses for the nine months ended September 30, 2016 and 2015, respectively

Savings and retention program.  On February 26, 2016, the board of our general partner unanimously approved the new TLP Management Services LLC savings and retention program, subject to the approval of our unitholders, for employees who provide services with respect to our business.  This plan is intended to constitute a program under, and be subject to, the TLP Management Services LLC 2016 long-term incentive plan described above. On July 12, 2016, we held a special meeting of unitholders at which time our unitholders approved the 2016 long-term incentive plan and savings and retention program.  The new savings and retention program was used for incentive bonus awards in March 2016 and is intended to be used for future awards to employees.  The new savings and retention program operates in a manner substantially similar to the TransMontaigne Services LLC savings and retention program used previously. 

Ownership in the restricted phantom units under the savings and retention program is subject to forfeiture until the vesting date, but recipients have distribution equivalent rights from the date of grant that accrue additional restricted phantom units equivalent to the value of quarterly distributions paid by us on each of our outstanding common units. Recipients of restricted phantom units under the savings and retention program do not have voting rights.

The purpose of the savings and retention program is to provide for the reward and retention of participants by providing them with bonus awards that vest over future service periods. Awards under the plan generally become vested and payable as to 50% of a participant’s annual award as of the first day of the month that falls closest to the second anniversary of the grant date, and the remaining 50% as of the first day of the month that falls closest to the third anniversary of the grant date, subject to earlier vesting upon a participant’s attainment of the age and length of service thresholds, retirement, death or disability, involuntary termination without cause, or termination of a participant’s

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Notes to consolidated financial statements (unaudited) (continued)

employment following a change in control of the Partnership, our general partner or TLP Management Services LLC, as specified in the plan. 

A person will satisfy the age and length of service thresholds of the plan upon the attainment of the earliest of (a) age sixty, (b) age fifty five and ten years of service as an officer of TLP Management Services LLC or any of its affiliates or predecessors, or (c) age fifty and twenty years of service as an employee of TLP Management Services LLC or any of its affiliates or predecessors.

Effective April 13, 2015 and beginning with the 2015 incentive bonus award and continuing under the new savings and retention program, under the omnibus agreement we have the option to provide the reimbursement in either a cash payment or the delivery of our common units to the savings and retention program or alternatively directly to the award recipients, with the reimbursement made in accordance with the underlying vesting and payment schedule of the savings and retention program. Our reimbursement for the 2015 and 2016 incentive bonus awards is reduced for forfeitures and is increased for the value of quarterly distributions accrued under the distribution equivalent rights. We have the intent and ability to settle our reimbursement for the 2015 and 2016 incentive bonus awards in our common units, and accordingly, effective April 13, 2015, we began accounting for the 2015 incentive bonus award as an equity award. Prior to the 2015 incentive bonus award, we reimbursed our portion of the incentive bonus awards through monthly cash payments to the savings and retention program over the first year that each applicable award was granted.

For certain senior level employees, including the executive officers of our general partner, all prior grants under the TransMontaigne Services LLC savings and retention program vested upon the change in control of our general partner as a result of the ArcLight acquisition that occurred on February 1, 2016.

Given that we do not have any employees to provide corporate and support services and instead we contract for such services under the omnibus agreement, generally accepted accounting principles require us to classify the savings and retention program awards as a non-employee award and measure the cost of services received in exchange for an award of equity instruments based on the vesting‑date fair value of the award. That cost, or an estimate of that cost in the case of unvested restricted phantom units, is recognized over the period during which services are provided in exchange for the award. For the three months ended September 30, 2016 and 2015, the expense associated with the reimbursement of incentive bonus awards was approximately $0.3 million and $0.1 million, respectively. For the nine months ended September 30, 2016 and 2015, the expense associated with the reimbursement of incentive bonus awards was approximately $2.1 million and $1.2 million, respectively.

Activity related to our equity based awards granted under the savings and retention program for services performed under the omnibus agreement for the nine months ended September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

NYSE

 

 

 

 

 

 

 

closing

 

 

 

Vested

 

Unvested

 

price

 

Restricted phantom units outstanding at December 31, 2015

 

30,203

 

30,616

 

 

 

 

Vesting of units on February 1, 2016

 

19,372

 

(19,372)

 

$

30.41

 

Unit accrual for distributions paid on February 8, 2016

 

1,132

 

257

 

$

29.34

 

Grant on March 2, 2016

 

31,022

 

28,945

 

$

34.23

 

Unit accrual for distributions paid on May 9, 2016

 

1,415

 

700

 

$

39.28

 

Vesting of units on June 13, 2016

 

582

 

(582)

 

$

38.68

 

Unit accrual for distributions paid on August 8, 2016

 

1,370

 

664

 

$

42.18

 

Issuance of units on September 6, 2016

 

(1,643)

 

 —

 

$

42.41

 

Restricted phantom units outstanding at September 30, 2016

 

83,453

 

41,228

 

 

 

 

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Notes to consolidated financial statements (unaudited) (continued)

 

(15) NET EARNINGS PER LIMITED PARTNER UNIT

 

The following table reconciles net earnings to net earnings allocable to limited partners and sets forth the computation of basic and diluted net earnings per limited partner unit (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

Nine months ended 

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net earnings

 

$

11,885

 

$

7,712

 

$

30,905

 

$

30,022

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions payable on behalf of incentive distribution rights

 

 

(2,236)

 

 

(1,682)

 

 

(6,234)

 

 

(5,046)

 

Distributions payable on behalf of general partner interest

 

 

(231)

 

 

(219)

 

 

(682)

 

 

(657)

 

Earnings allocable to general partner interest less than distributions payable to general partner interest

 

 

38

 

 

98

 

 

189

 

 

157

 

Earnings allocable to general partner interest including incentive distribution rights

 

 

(2,429)

 

 

(1,803)

 

 

(6,727)

 

 

(5,546)

 

Net earnings allocable to limited partners per the consolidated statements of operations

 

$

9,456

 

$

5,909

 

$

24,178

 

$

24,476

 

Less distributions payable for unvested long-term incentive plan grants

 

 

 —

 

 

(4)

 

 

 —

 

 

(16)

 

Net earnings allocable to limited partners for calculating net earnings per limited partner unit

 

$

9,456

 

$

5,905

 

$

24,178

 

$

24,460

 

Basic weighted average units

 

 

16,217

 

 

16,144

 

 

16,204

 

 

16,134

 

Diluted weighted average units

 

 

16,232

 

 

16,150

 

 

16,221

 

 

16,140

 

Net earnings per limited partner unit—basic

 

$

0.58

 

$

0.37

 

$

1.49

 

$

1.52

 

Net earnings per limited partner unit—diluted

 

$

0.58

 

$

0.37

 

$

1.49

 

$

1.52

 

 

Pursuant to our partnership agreement we are required to distribute available cash (as defined by our partnership agreement) as of the end of the reporting period. Such distributions are declared within 45 days after period end. The following table sets forth the distribution declared per common unit attributable to the periods indicated:

 

 

 

 

 

 

 

    

Distribution

 

January 1, 2015 through March 31, 2015

 

$

0.665

 

April 1, 2015 through June 30, 2015

 

$

0.665

 

July 1, 2015 through September 30, 2015

 

$

0.665

 

October 1, 2015 through December 31, 2015

 

$

0.670

 

January 1, 2016 through March 31, 2016

 

$

0.680

 

April 1, 2016 through June 30, 2016

 

$

0.690

 

July 1, 2016 through September 30, 2016

 

$

0.700

 

 

 

 

 

 

(16) COMMITMENTS AND CONTINGENCIES

Contract commitments.  At September 30, 2016, we have contractual commitments of approximately $23.0 million for the supply of services, labor and materials related to capital projects that currently are under development. We expect that these contractual commitments will be paid within the next twelve months.

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Notes to consolidated financial statements (unaudited) (continued)

Operating leases.  We lease property and equipment under non‑cancelable operating leases that extend through August 2030. At September 30, 2016, future minimum lease payments under these non‑cancelable operating leases are as follows (in thousands):

 

 

 

 

 

Years ending December 31:

    

    

 

 

2016 (remainder of the year)

 

$

973

 

2017

 

 

4,033

 

2018

 

 

1,653

 

2019

 

 

1,640

 

2020

 

 

1,487

 

Thereafter

 

 

5,010

 

 

 

$

14,796

 

 

Included in the above non‑cancelable operating lease commitments are amounts for property rentals that we have sublet under non‑cancelable sublease agreements, for which we expect to receive minimum rentals of approximately $2.8 million in future periods.

Rental expense under operating leases was approximately $0.9 million for both the three months ended September 30, 2016 and 2015. Rental expense under operating leases was approximately $2.6 million for both the nine months ended September 30, 2016 and 2015.

Legal proceedings. We are party to various legal, regulatory and other matters arising from the day-to-day operations of our business that may result in claims against us. While the ultimate impact of any proceedings cannot be predicted with certainty, our management believes that the resolution of any of our pending legal proceedings will not have a material adverse effect on our business, financial position, results of operations or cash flows. 

 

(17) DISCLOSURES ABOUT FAIR VALUE

“GAAP” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Generally accepted accounting principles also establishes a fair value hierarchy that prioritizes the use of higher‑level inputs for valuation techniques used to measure fair value. The three levels of the fair value hierarchy are: (1) Level 1 inputs, which are quoted prices (unadjusted) in active markets for identical assets or liabilities; (2) Level 2 inputs, which are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and (3) Level 3 inputs, which are unobservable inputs for the asset or liability.

The fair values of the following financial instruments represent our best estimate of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Our fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects our judgments about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The following methods and assumptions were used to estimate the fair value of financial instruments at September 30, 2016 and December 31, 2015.

Cash equivalents.  The carrying amount approximates fair value because of the short‑term maturity of these instruments. The fair value is categorized in Level 1 of the fair value hierarchy.

Derivative instruments.  The carrying amount of our interest rate swaps was determined using a pricing model based on the LIBOR swap rate and other observable market data. The fair value is categorized in Level 2 of the fair value hierarchy.

Debt.  The carrying amount of our credit facility debt approximates fair value since borrowings under the facility bear interest at current market interest rates. The fair value is categorized in Level 2 of the fair value hierarchy.

25


 

Table of Contents

TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

(18) BUSINESS SEGMENTS

We provide integrated terminaling, storage, transportation and related services to companies engaged in the trading, distribution and marketing of refined petroleum products, crude oil, chemicals, fertilizers and other liquid products. Our chief operating decision maker is our general partner’s chief executive officer. Our general partner’s chief executive officer reviews the financial performance of our business segments using disaggregated financial information about “net margins” for purposes of making operating decisions and assessing financial performance. “Net margins” is composed of revenue less direct operating costs and expenses. Accordingly, we present “net margins” for each of our business segments: (i) Gulf Coast terminals, (ii) Midwest terminals and pipeline system, (iii) Brownsville terminals, (iv) River terminals and (v) Southeast terminals.

The financial performance of our business segments is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

Nine months ended 

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Gulf Coast Terminals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminaling services fees

 

$

11,259

 

$

10,844

 

$

33,958

 

$

31,305

 

Other

 

 

3,539

 

 

2,202

 

 

7,869

 

 

6,459

 

Revenue

 

 

14,798

 

 

13,046

 

 

41,827

 

 

37,764

 

Direct operating costs and expenses

 

 

(6,013)

 

 

(4,920)

 

 

(16,750)

 

 

(13,815)

 

Net margins

 

 

8,785

 

 

8,126

 

 

25,077

 

 

23,949

 

Midwest Terminals and Pipeline System:

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminaling services fees

 

 

2,207

 

 

2,206

 

 

6,427

 

 

6,299

 

Pipeline transportation fees

 

 

433

 

 

433

 

 

1,299

 

 

1,261

 

Other

 

 

200

 

 

585

 

 

697

 

 

1,098

 

Revenue

 

 

2,840

 

 

3,224

 

 

8,423

 

 

8,658

 

Direct operating costs and expenses

 

 

(858)

 

 

(871)

 

 

(2,422)

 

 

(2,351)

 

Net margins

 

 

1,982

 

 

2,353

 

 

6,001

 

 

6,307

 

Brownsville Terminals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminaling services fees

 

 

1,948

 

 

2,096

 

 

6,176

 

 

5,979

 

Pipeline transportation fees

 

 

1,223

 

 

1,183

 

 

3,691

 

 

3,687

 

Other

 

 

2,367

 

 

2,827

 

 

9,909

 

 

10,043

 

Revenue

 

 

5,538

 

 

6,106

 

 

19,776

 

 

19,709

 

Direct operating costs and expenses

 

 

(2,573)

 

 

(3,269)

 

 

(8,742)

 

 

(9,479)

 

Net margins

 

 

2,965

 

 

2,837

 

 

11,034

 

 

10,230

 

River Terminals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminaling services fees

 

 

2,591

 

 

2,346

 

 

7,053

 

 

6,899

 

Other

 

 

221

 

 

114

 

 

2,559

 

 

547

 

Revenue

 

 

2,812

 

 

2,460

 

 

9,612

 

 

7,446

 

Direct operating costs and expenses

 

 

(1,753)

 

 

(1,898)

 

 

(6,034)

 

 

(5,255)

 

Net margins

 

 

1,059

 

 

562

 

 

3,578

 

 

2,191

 

Southeast Terminals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminaling services fees

 

 

13,287

 

 

11,521

 

 

39,864

 

 

34,789

 

Other

 

 

1,363

 

 

912

 

 

2,898

 

 

3,834

 

Revenue

 

 

14,650

 

 

12,433

 

 

42,762

 

 

38,623

 

Direct operating costs and expenses

 

 

(5,851)

 

 

(5,697)

 

 

(16,709)

 

 

(16,581)

 

Net margins

 

 

8,799

 

 

6,736

 

 

26,053

 

 

22,042

 

Total net margins

 

 

23,590

 

 

20,614

 

 

71,743

 

 

64,719

 

Direct general and administrative expenses

 

 

(764)

 

 

(1,117)

 

 

(2,925)

 

 

(2,810)

 

Allocated general and administrative expenses

 

 

(2,841)

 

 

(2,835)

 

 

(8,524)

 

 

(8,440)

 

Allocated insurance expense

 

 

(969)

 

 

(944)

 

 

(2,776)

 

 

(2,812)

 

Reimbursement of bonus awards expense

 

 

(251)

 

 

(121)

 

 

(2,144)

 

 

(1,185)

 

Depreciation and amortization

 

 

(8,169)

 

 

(7,711)

 

 

(24,168)

 

 

(22,524)

 

Earnings from unconsolidated affiliates

 

 

2,960

 

 

2,191

 

 

6,940

 

 

9,764

 

Operating income

 

 

13,556

 

 

10,077

 

 

38,146

 

 

36,712

 

    Other expenses

 

 

(1,671)

 

 

(2,365)

 

 

(7,241)

 

 

(6,690)

 

Net earnings

 

$

11,885

 

$

7,712

 

$

30,905

 

$

30,022

 

 

26


 

Table of Contents

TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

Supplemental information about our business segments is summarized below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2016

 

 

    

    

 

    

Midwest

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

Terminals and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gulf Coast

 

Pipeline

 

Brownsville

 

River

 

Southeast

 

 

 

 

 

 

Terminals

 

System

 

Terminals

 

Terminals

 

Terminals

 

Total

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

    

$

14,798

 

$

2,840

 

$

4,228

 

$

2,812

 

$

14,650

 

$

39,328

 

Frontera

 

 

 —

 

 

 —

 

 

1,310

 

 

 —

 

 

 —

 

 

1,310

 

Revenue

 

$

14,798

 

$

2,840

 

$

5,538

 

$

2,812

 

$

14,650

 

$

40,638

 

Capital expenditures

 

$

1,465

 

$

145

 

$

126

 

$

209

 

$

8,194

 

$

10,139

 

Identifiable assets

 

$

127,031

 

$

21,911

 

$

43,630

 

$

52,589

 

$

185,001

 

$

430,162

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

441

 

Investments in unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

243,202

 

Deferred financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,501

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,485

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

676,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2015

 

 

    

    

 

    

Midwest

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

Terminals and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gulf Coast

 

Pipeline

 

Brownsville

 

River

 

Southeast

 

 

 

 

 

 

Terminals

 

System

 

Terminals

 

Terminals

 

Terminals

 

Total

 

Revenue:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

11,980

 

$

3,224

 

$

4,995

 

$

2,343

 

$

4,601

 

$

27,143

 

NGL Energy Partners LP

 

 

1,066

 

 

 —

 

 

 —

 

 

117

 

 

7,832

 

 

9,015

 

Frontera

 

 

 —

 

 

 —

 

 

1,111

 

 

 —

 

 

 —

 

 

1,111

 

Revenue

 

$

13,046

 

$

3,224

 

$

6,106

 

$

2,460

 

$

12,433

 

$

37,269

 

Capital expenditures

 

$

1,519

 

$

78

 

$

1,188

 

$

832

 

$

5,167

 

$

8,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016

 

 

    

    

 

    

Midwest

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

Terminals and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gulf Coast

 

Pipeline

 

Brownsville

 

River

 

Southeast

 

 

 

 

 

 

Terminals

 

System

 

Terminals

 

Terminals

 

Terminals

 

Total

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

    

$

41,703

 

$

8,423

 

$

15,907

 

$

9,612

 

$

39,925

 

$

115,570

 

NGL Energy Partners LP

 

 

124

 

 

 —

 

 

 —

 

 

 —

 

 

2,837

 

 

2,961

 

Frontera

 

 

 —

 

 

 —

 

 

3,869

 

 

 —

 

 

 —

 

 

3,869

 

Revenue

 

$

41,827

 

$

8,423

 

$

19,776

 

$

9,612

 

$

42,762

 

$

122,400

 

Capital expenditures

 

$

4,894

 

$

576

 

$

759

 

$

1,565

 

$

26,311

 

$

34,105

 

 

 

 

 

 

 

27


 

Table of Contents

TransMontaigne Partners L.P. and subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2015

 

 

    

    

 

    

Midwest

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

 

 

 

Terminals and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gulf Coast

 

Pipeline

 

Brownsville

 

River

 

Southeast

 

 

 

 

 

 

Terminals

 

System

 

Terminals

 

Terminals

 

Terminals

 

Total

 

Revenue:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

    

$

32,859

 

$

8,658

 

$

16,401

 

$

7,095

 

$

14,183

 

$

79,196

 

NGL Energy Partners LP

 

 

4,905

 

 

 —

 

 

10

 

 

351

 

 

24,440

 

 

29,706

 

Frontera

 

 

 —

 

 

 —

 

 

3,298

 

 

 —

 

 

 —

 

 

3,298

 

Revenue

 

$

37,764

 

$

8,658

 

$

19,709

 

$

7,446

 

$

38,623

 

$

112,200

 

Capital expenditures

 

$

8,503

 

$

775

 

$

3,455

 

$

3,875

 

$

7,930

 

$

24,538

 

 

 

 

 

r

(19) SUBSEQUENT EVENT

On October 17, 2016, we announced a distribution of $0.70 per unit for the period from July 1, 2016 through September 30, 2016. This distribution was paid on November 7, 2016 to unitholders of record on October 31, 2016. 

 

 

28


 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

Fourth consecutive increase in quarterly distribution.  On October  17, 2016, we announced a quarterly distribution of $0.70 per unit for the three months ended September 30, 2016. This $0.01 increase over the previous quarter reflects the fourth consecutive increase in our distribution and represents annual growth of 5.3% over the prior year. This distribution was paid on November 7, 2016 to unitholders of record on October 31, 2016.

Expansion of the Collins/Purvis bulk storage terminal.    We previously entered into long-term terminaling services agreements with various parties for approximately 2.0 million barrels of new storage capacity at our Collins/Purvis, Mississippi bulk storage terminal. The revenue associated with these agreements will come on-line upon completion of the construction of the new tank capacity, which remains on target for completion during the fourth quarter of 2016 through the second quarter of 2017. The anticipated cost of the new storage capacity is approximately $75 million, with expected annual cash returns in the high-teens. Construction of the Collins/Purvis expansion project commenced in the first quarter of 2016 and we have spent approximately $30.4 million as of September 30, 2016. Our Collins/Purvis terminal is strategically located for the bulk storage market and is the only independent terminal capable of receiving from, delivering to, and transferring refined petroleum products between the Colonial and Plantation pipeline systems. Our facility has current active storage capacity of approximately 3.4 million barrels and is expected to increase to 5.4 million barrels once the 2.0 million barrel expansion is completed. We have also begun the process of permitting an additional 5.0 million barrels of additional capacity at our at our Collins/Purvis terminal and are in active discussions with several potential customers regarding this potential future capacity.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies that we have adopted and followed in the preparation of our consolidated financial statements is detailed in our consolidated financial statements for the year ended December 31, 2015, included in our Annual Report on Form 10‑K, filed on March 10, 2016. Certain of these accounting policies require the use of estimates. 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 and accrued environmental obligations. These estimates are based on our knowledge and understanding of current conditions and actions we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations.

29


 

RESULTS OF OPERATIONS—THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying unaudited consolidated financial statements.

ANALYSIS OF REVENUE

Total revenue.  We derive revenue from our terminal and pipeline transportation operations by charging fees for providing integrated terminaling, transportation and related services. Our total revenue by category was as follows (in thousands):

Total Revenue by Category

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

Terminaling services fees

    

    

$

31,292

    

$

29,013

 

Pipeline transportation fees

 

 

 

1,656

 

 

1,616

 

Management fees and reimbursed costs

 

 

 

2,340

 

 

1,966

 

Other

 

 

 

5,350

 

 

4,674

 

Revenue

 

 

$

40,638

 

$

37,269

 

 

See discussion below for a detailed analysis of terminaling services fees, pipeline transportation fees, management fees and reimbursed costs, and other revenue included in the table above.

We operate our business and report our results of operations in five principal business segments: (i) Gulf Coast terminals, (ii) Midwest terminals and pipeline system, (iii) Brownsville terminals, (iv) River terminals and (v) Southeast terminals. The aggregate revenue of each of our business segments was as follows (in thousands):

Total Revenue by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

 

$

14,798

 

$

13,046

 

Midwest terminals and pipeline system

 

 

 

2,840

 

 

3,224

 

Brownsville terminals

 

 

 

5,538

 

 

6,106

 

River terminals

 

 

 

2,812

 

 

2,460

 

Southeast terminals

 

 

 

14,650

 

 

12,433

 

Revenue

 

 

$

40,638

 

$

37,269

 

 

Total revenue by business segment is presented and further analyzed below by category of revenue.

30


 

Terminaling services fees.  Pursuant to terminaling services agreements with our customers, which range from one month to approximately ten years in duration, we generate fees by distributing and storing products for our customers. Terminaling services fees include throughput fees based on the volume of product distributed from the facility, injection fees based on the volume of product injected with additive compounds and storage fees based on a rate per barrel of storage capacity per month. The terminaling services fees by business segments were as follows (in thousands):

Terminaling Services Fees by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

 

$

11,259

 

$

10,844

 

Midwest terminals and pipeline system

 

 

 

2,207

 

 

2,206

 

Brownsville terminals

 

 

 

1,948

 

 

2,096

 

River terminals

 

 

 

2,591

 

 

2,346

 

Southeast terminals

 

 

 

13,287

 

 

11,521

 

Terminaling services fees

 

 

$

31,292

 

$

29,013

 

 

The increase in terminaling services fees at our Southeast terminals includes an increase of approximately $1.2 million resulting from us entering into a new five year agreement with a third party customer for approximately 2.7 million barrels of existing capacity at our Collins/Purvis, Mississippi bulk storage terminal, commencing January 1, 2016. The new agreement replaced the previous agreement we had with the third party customer for this tankage and contains an increase to the minimum throughput fees. The new agreement is anticipated to generate additional minimum throughput revenue in excess of $4.1 million annually. 

Included in terminaling services fees for the three months ended September 30, 2016 and 2015 are fees charged to affiliates of approximately $0.1 million and $8.3 million, respectively.

Our terminaling services agreements are structured as either throughput agreements or storage agreements. Most of our throughput agreements contain provisions that require our customers to throughput a minimum volume of product at our facilities over a stipulated period of time, which results in a minimum amount of revenue. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity made available to the customer under the agreement, which results in a minimum amount of revenue. We refer to these minimum amounts of revenue recognized pursuant to our terminaling services agreements as being “firm commitments.” Revenue recognized in excess of firm commitments and revenue recognized based solely on the volume of product distributed or injected are referred to as “variable.” The “firm commitments” and “variable” revenue included in terminaling services fees were as follows (in thousands):

Firm Commitments and Variable Revenue

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

2016

 

2015

 

Firm commitments:

    

 

 

 

 

 

 

External customers

 

$

29,166

 

$

19,953

 

Affiliates

 

 

108

 

 

7,565

 

Total

 

 

29,274

 

 

27,518

 

Variable:

 

 

 

 

 

 

 

External customers

 

 

2,018

 

 

753

 

Affiliates

 

 

 —

 

 

742

 

Total

 

 

2,018

 

 

1,495

 

Terminaling services fees

 

$

31,292

 

$

29,013

 

 

31


 

The remaining terms on the terminaling services agreements that generated “firm commitments” for the three months ended September 30, 2016 are as follows (in thousands):

 

 

 

 

 

Less than 1 year remaining

 

$

3,785

 

1 year or more, but less than 3 years remaining

 

 

8,634

 

3 years or more, but less than 5 years remaining

 

 

8,319

 

5 years or more remaining

 

 

8,536

 

Total firm commitments for the three months ended September 30, 2016

 

$

29,274

 

 

Pipeline transportation fees.  We earn pipeline transportation fees at our Diamondback and Ella‑Brownsville pipelines based on the volume of product transported and the distance from the origin point to the delivery point. In Missouri and Arkansas we own and operate the Razorback pipeline and terminals in Mount Vernon, Missouri, at the origin of the pipeline and in Rogers, Arkansas, at the terminus of the pipeline. We refer to these terminals and the related pipeline as the Razorback system. We earn pipeline transportation fees at our Razorback pipeline based on an allocation of the aggregate fees charged under the capacity agreement with our customer who has contracted for 100% of our Razorback system. We own the Razorback and Diamondback pipelines, and we lease the Ella‑Brownsville pipeline from a third party. The Federal Energy Regulatory Commission regulates the tariff on our pipelines. The pipeline transportation fees by business segments were as follows (in thousands):

Pipeline Transportation Fees by Business Segment

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

 —

 

$

 

Midwest terminals and pipeline system

 

 

433

 

 

433

 

Brownsville terminals

 

 

1,223

 

 

1,183

 

River terminals

 

 

 —

 

 

 

Southeast terminals

 

 

 —

 

 

 

Pipeline transportation fees

 

$

1,656

 

$

1,616

 

 

Management fees and reimbursed costs.  We manage and operate for a major oil company certain tank capacity at our Port Everglades (South) terminal and receive reimbursement of their proportionate share of operating and maintenance costs. We manage and operate for an affiliate of Mexico’s state‑owned petroleum company a bi‑directional products pipeline connected to our Brownsville, Texas terminal facility and receive a management fee and reimbursement of costs. We manage and operate the Frontera terminal facility located in Brownsville, Texas for a management fee based on our costs incurred. Frontera is an unconsolidated affiliate for which we have a 50% ownership interest. The management fees and reimbursed costs by business segments were as follows (in thousands):

Management Fees and Reimbursed Costs by Business Segment

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

261

 

$

262

 

Midwest terminals and pipeline system

 

 

 —

 

 

 

Brownsville terminals

 

 

1,835

 

 

1,704

 

River terminals

 

 

 —

 

 

 

Southeast terminals

 

 

244

 

 

 

Management fees and reimbursed costs

 

$

2,340

 

$

1,966

 

 

Included in management fees and reimbursed costs for the three months ended September 30, 2016 and 2015 are fees charged to affiliates of approximately $1.2 million and $1.1 million, respectively.

32


 

Other revenue.  We provide ancillary services including heating and mixing of stored products, product transfer, railcar handling, butane blending, wharfage and vapor recovery. Pursuant to terminaling services agreements with certain 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. Other revenue is composed of the following (in thousands):

Principal Components of Other Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

Product gains

    

$

1,586

 

$

1,875

 

 

Steam heating fees

 

 

583

 

 

629

 

 

Product transfer services

 

 

336

 

 

340

 

 

Butane blending fees

 

 

583

 

 

264

 

 

Railcar handling

 

 

69

 

 

106

 

 

Other

 

 

2,193

 

 

1,460

 

 

Other revenue

 

$

5,350

 

$

4,674

 

 

 

For the three months ended September 30, 2016 and 2015, we sold approximately 26,950 and 30,750 barrels, respectively, of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities at average prices of approximately $59 and $61 per barrel, respectively.

The increase in other, included in other revenue, includes an approximately $0.9 million one-time payment to us at our Gulf Coast terminals related to property damage caused by a customer.

Included in other revenue for the three months ended September 30, 2016 and 2015 are amounts charged to affiliates of approximately $nil and $0.7 million, respectively.

The other revenue by business segments were as follows (in thousands):

Other Revenue by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

Gulf Coast terminals

    

$

3,278

 

$

1,940

 

 

Midwest terminals and pipeline system

 

 

200

 

 

585

 

 

Brownsville terminals

 

 

532

 

 

1,123

 

 

River terminals

 

 

221

 

 

114

 

 

Southeast terminals

 

 

1,119

 

 

912

 

 

Other revenue

 

$

5,350

 

$

4,674

 

 

 

33


 

ANALYSIS OF COSTS AND EXPENSES

The direct operating costs and expenses of our operations include the directly related wages and employee benefits, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies. The direct operating costs and expenses of our operations were as follows (in thousands):

Direct Operating Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

Wages and employee benefits

    

$

6,197

 

$

5,394

 

 

Utilities and communication charges

 

 

1,870

 

 

1,927

 

 

Repairs and maintenance

 

 

3,005

 

 

4,133

 

 

Office, rentals and property taxes

 

 

2,375

 

 

2,307

 

 

Vehicles and fuel costs

 

 

218

 

 

208

 

 

Environmental compliance costs

 

 

1,712

 

 

671

 

 

Other

 

 

1,671

 

 

2,015

 

 

Direct operating costs and expenses

 

$

17,048

 

$

16,655

 

 

 

The direct operating costs and expenses of our business segments were as follows (in thousands):

Direct Operating Costs and Expenses by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

Gulf Coast terminals

    

$

6,013

 

$

4,920

 

 

Midwest terminals and pipeline system

 

 

858

 

 

871

 

 

Brownsville terminals

 

 

2,573

 

 

3,269

 

 

River terminals

 

 

1,753

 

 

1,898

 

 

Southeast terminals

 

 

5,851

 

 

5,697

 

 

Direct operating costs and expenses

 

$

17,048

 

$

16,655

 

 

 

Direct general and administrative expenses of our operations primarily include accounting associated with annual and quarterly reports and tax return and Schedule K‑1 preparation and distribution, legal fees, independent director fees and equity‑based compensation expense under the long-term incentive plan. The direct general and administrative expenses were approximately $0.8 million and $1.1 million for the three months ended September 30, 2016 and 2015, respectively.

Allocated general and administrative expenses include charges for indirect corporate overhead to cover costs of centralized corporate functions such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes, engineering and other corporate services. The allocated general and administrative expenses were approximately $2.8 million for both the three months ended September 30, 2016 and 2015.

Allocated insurance expense includes charges for allocations of insurance premiums to cover costs of insuring activities such as property, casualty, pollution, automobile and other insurable risks. The allocated insurance expense was approximately $1.0 million and $0.9 million for the three months ended September 30, 2016 and 2015, respectively.

34


 

Reimbursement of bonus awards includes expense associated with us reimbursing an affiliate of TransMontaigne GP for awards granted by them to certain key officers and employees who provide service to us that vest over future service periods. We have the intent and ability to settle our reimbursement for the bonus awards by issuing additional common units, and accordingly, we account for the bonus awards as an equity award. The expense associated with these reimbursements was approximately $0.3 million and $0.1 million for the three months ended September 30, 2016 and 2015, respectively.

For the three months ended September 30, 2016 and 2015, depreciation and amortization expense was approximately $8.2 million and $7.7 million, respectively.

For the three months ended September 30, 2016 and 2015, interest expense was approximately $1.5 million and $2.2 million, respectively. The decrease in interest expense is primarily attributable to unrealized gains in determining the fair value of our interest rate swap agreements.

ANALYSIS OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Our investments in unconsolidated affiliates include a 42.5% interest in BOSTCO and a 50% interest in Frontera. BOSTCO is a terminal facility located on the Houston Ship Channel that encompasses approximately 7.1 million barrels of distillate, residual and other black oil product storage. Frontera is a terminal facility located in Brownsville, Texas that encompasses approximately 1.5 million barrels of light petroleum product storage, as well as related ancillary facilities.

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

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

1,885

 

$

1,670

 

 

Frontera

 

 

1,075

 

 

521

 

 

Total earnings from investments in unconsolidated affiliates

 

$

2,960

 

$

2,191

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

 —

 

$

4,226

 

 

Frontera

 

 

 —

 

 

 

 

Additional capital investments in unconsolidated affiliates

 

$

 —

 

$

4,226

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

3,546

 

$

6,555

 

 

Frontera

 

 

911

 

 

955

 

 

Cash distributions received from unconsolidated affiliates

 

$

4,457

 

$

7,510

 

 

The decrease in distributions received from our investment in BOSTCO is primarily attributable to a one-time gain resulting from a contract buy-out by one of the BOSTCO customers in April of 2015. Our share of the gain in the prior year was approximately $3.4 million, which we received in cash as a component of our third quarter 2015 distribution from BOSTCO.

35


 

RESULTS OF OPERATIONS—NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying unaudited consolidated financial statements.

ANALYSIS OF REVENUE

Total revenue.  We derive revenue from our terminal and pipeline transportation operations by charging fees for providing integrated terminaling, transportation and related services. Our total revenue by category was as follows (in thousands):

Total Revenue by Category

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

2015

 

Terminaling services fees

    

 

$

93,478

    

$

85,271

 

Pipeline transportation fees

 

 

 

4,990

 

 

4,948

 

Management fees and reimbursed costs

 

 

 

6,560

 

 

5,720

 

Other

 

 

 

17,372

 

 

16,261

 

Revenue

 

 

$

122,400

 

$

112,200

 

 

 

See discussion below for a detailed analysis of terminaling services fees, pipeline transportation fees, management fees and reimbursed costs, and other revenue included in the table above.

We operate our business and report our results of operations in five principal business segments: (i) Gulf Coast terminals, (ii) Midwest terminals and pipeline system, (iii) Brownsville terminals, (iv) River terminals and (v) Southeast terminals. The aggregate revenue of each of our business segments was as follows (in thousands):

Total Revenue by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

 

$

41,827

 

$

37,764

 

Midwest terminals and pipeline system

 

 

 

8,423

 

 

8,658

 

Brownsville terminals

 

 

 

19,776

 

 

19,709

 

River terminals

 

 

 

9,612

 

 

7,446

 

Southeast terminals

 

 

 

42,762

 

 

38,623

 

Revenue

 

 

$

122,400

 

$

112,200

 

Total revenue by business segment is presented and further analyzed below by category of revenue.

 

Terminaling services fees.  Pursuant to terminaling services agreements with our customers, which range from one month to approximately ten years in duration, we generate fees by distributing and storing products for our customers. Terminaling services fees include throughput fees based on the volume of product distributed from the facility, injection fees based on the volume of product injected with additive compounds and storage fees based on a rate per barrel of storage capacity per month. The terminaling services fees by business segments were as follows (in thousands):

Terminaling Services Fees by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

 

2015

 

Gulf Coast terminals

    

 

$

33,958

 

$

31,305

 

Midwest terminals and pipeline system

 

 

 

6,427

 

 

6,299

 

Brownsville terminals

 

 

 

6,176

 

 

5,979

 

River terminals

 

 

 

7,053

 

 

6,899

 

Southeast terminals

 

 

 

39,864

 

 

34,789

 

Terminaling services fees

 

 

$

93,478

 

$

85,271

 

36


 

The increase in terminaling services fees at our Gulf Coast terminals includes an increase of approximately $1.4 million resulting from the majority of the light oil tankage at our Port Manatee, Florida terminal being offline for approximately four months during the nine months ended September 30, 2015 in order to complete enhancements for a new customer at this facility. The enhanced tankage at Port Manatee became available to the third party customer in July of 2015. The increase in terminaling services fees at our Gulf Coast terminals also includes an increase of approximately $0.9 million resulting from the acquisition of the Port Everglades, Florida hydrant system on January 28, 2016.

The increase in terminaling services fees at our Southeast terminals includes an increase of approximately $3.5 million resulting from us entering into a new five year agreement with a third party customer for approximately 2.7 million barrels of existing capacity at our Collins/Purvis, Mississippi bulk storage terminal, commencing January 1, 2016. The new agreement replaced the previous agreement we had with the third party customer for this tankage and contains an increase to the minimum throughput fees. The new agreement is anticipated to generate additional minimum throughput revenue in excess of $4.1 million annually. 

Included in terminaling services fees for the nine months ended September 30, 2016 and 2015 are fees charged to affiliates of approximately $2.7 million and $27.0 million, respectively.

Our terminaling services agreements are structured as either throughput agreements or storage agreements. Most of our throughput agreements contain provisions that require our customers to throughput a minimum volume of product at our facilities over a stipulated period of time, which results in a minimum amount of revenue. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity made available to the customer under the agreement, which results in a minimum amount of revenue. We refer to these minimum amounts of revenue recognized pursuant to our terminaling services agreements as being “firm commitments.” Revenue recognized in excess of firm commitments and revenue recognized based solely on the volume of product distributed or injected are referred to as “variable.” The “firm commitments” and “variable” revenue included in terminaling services fees were as follows (in thousands):

Firm Commitments and Variable Revenue

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Firm commitments:

    

 

 

 

 

 

 

External customers

 

$

83,603

 

$

55,043

 

Affiliates

 

 

2,531

 

 

24,741

 

Total

 

 

86,134

 

 

79,784

 

Variable:

 

 

 

 

 

 

 

External customers

 

 

7,084

 

 

3,250

 

Affiliates

 

 

260

 

 

2,237

 

Total

 

 

7,344

 

 

5,487

 

Terminaling services fees

 

$

93,478

 

$

85,271

 

 

The remaining terms on the terminaling services agreements that generated “firm commitments” for the nine months ended September 30, 2016 are as follows (in thousands):

 

 

 

 

 

Less than 1 year remaining

 

$

11,018

 

1 year or more, but less than 3 years remaining

 

 

25,780

 

3 years or more, but less than 5 years remaining

 

 

24,049

 

5 years or more remaining

 

 

25,287

 

Total firm commitments for the nine months ended September 30, 2016

 

$

86,134

 

 

37


 

Pipeline transportation fees.  We earn pipeline transportation fees at our Diamondback and Ella‑Brownsville pipelines based on the volume of product transported and the distance from the origin point to the delivery point. We earn pipeline transportation fees at our Razorback pipeline based on an allocation of the aggregate fees charged under the capacity agreement with our customer who has contracted for 100% of our Razorback system. We own the Razorback and Diamondback pipelines, and we lease the Ella‑Brownsville pipeline from a third party. The Federal Energy Regulatory Commission regulates the tariff on our pipelines. The pipeline transportation fees by business segments were as follows (in thousands):

Pipeline Transportation Fees by Business Segment

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

 —

 

$

 —

 

Midwest terminals and pipeline system

 

 

1,299

 

 

1,261

 

Brownsville terminals

 

 

3,691

 

 

3,687

 

River terminals

 

 

 —

 

 

 

Southeast terminals

 

 

 —

 

 

 

Pipeline transportation fees

 

$

4,990

 

$

4,948

 

 

Management fees and reimbursed costs.  We manage and operate for a major oil company certain tank capacity at our Port Everglades (South) terminal and receive reimbursement of their proportionate share of operating and maintenance costs. We manage and operate for an affiliate of Mexico’s state‑owned petroleum company a bi‑directional products pipeline connected to our Brownsville, Texas terminal facility and receive a management fee and reimbursement of costs. We manage and operate the Frontera terminal facility located in Brownsville, Texas for a management fee based on our costs incurred. Frontera is an unconsolidated affiliate for which we have a 50% ownership interest. The management fees and reimbursed costs by business segments were as follows (in thousands):

 

Management Fees and Reimbursed Costs by Business Segment

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

861

 

$

661

 

Midwest terminals and pipeline system

 

 

 —

 

 

             —

 

Brownsville terminals

 

 

5,455

 

 

5,059

 

River terminals

 

 

 —

 

 

 

Southeast terminals

 

 

244

 

 

 

Management fees and reimbursed costs

 

$

6,560

 

$

5,720

 

 

Included in management fees and reimbursed costs for the nine months ended September 30, 2016 and 2015 are fees charged to affiliates of approximately $3.8 million and $3.3 million, respectively.

38


 

Other revenue.  We provide ancillary services including heating and mixing of stored products, product transfer, railcar handling, butane blending, wharfage and vapor recovery. Pursuant to terminaling services agreements with certain 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. Other revenue is composed of the following (in thousands):

Principal Components of Other Revenue

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Product gains

    

$

4,173

 

$

5,853

 

Steam heating fees

 

 

2,030

 

 

3,289

 

Product transfer services

 

 

880

 

 

1,082

 

Butane blending fees

 

 

940

 

 

651

 

Railcar handling

 

 

229

 

 

455

 

Other

 

 

9,120

 

 

4,931

 

Other revenue

 

$

17,372

 

$

16,261

 

 

 

For the nine months ended September 30, 2016 and 2015, we sold approximately 77,650 and 86,000 barrels, respectively, of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities at average prices of approximately $54 and $68 per barrel, respectively.

The change in steam heating fees, product transfer services and railcar handling, includes a decrease of approximately $2.1 million at our Brownsville terminals resulting from a third party customer terminating its agreement at the Brownsville terminals effective February 6, 2016. We are in the process of recontracting the associated storage capacity, but do not expect to earn as much in ancillary services under a new agreement.

The increase in other, included in other revenue, includes an approximately $1.9 million one-time payment to us at our Brownsville terminals related to the settlement of litigation with our LPG customer, an approximately $1.7 million one-time payment to us at our River terminals related to property damage caused by a customer and an approximately $0.9 million one-time payment to us at our Gulf Coast terminals related to property damage caused by a customer.

Included in other revenue for the nine months ended September 30, 2016 and 2015 are amounts charged to affiliates of approximately $0.3 million and $2.7 million, respectively.

The other revenue by business segments were as follows (in thousands):

Other Revenue by Business Segment

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

7,008

 

$

5,798

 

Midwest terminals and pipeline system

 

 

697

 

 

1,098

 

Brownsville terminals

 

 

4,454

 

 

4,984

 

River terminals

 

 

2,559

 

 

547

 

Southeast terminals

 

 

2,654

 

 

3,834

 

Other revenue

 

$

17,372

 

$

16,261

 

 

39


 

ANALYSIS OF COSTS AND EXPENSES

The direct operating costs and expenses of our operations include the directly related wages and employee benefits, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies. The direct operating costs and expenses of our operations were as follows (in thousands):

Direct Operating Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Wages and employee benefits

    

$

17,877

 

$

16,681

 

Utilities and communication charges

 

 

5,719

 

 

5,852

 

Repairs and maintenance

 

 

11,118

 

 

10,176

 

Office, rentals and property taxes

 

 

7,093

 

 

7,006

 

Vehicles and fuel costs

 

 

610

 

 

724

 

Environmental compliance costs

 

 

2,951

 

 

1,854

 

Other

 

 

5,289

 

 

5,188

 

Direct operating costs and expenses

 

$

50,657

 

$

47,481

 

 

 

The direct operating costs and expenses of our business segments were as follows (in thousands):

 

Direct Operating Costs and Expenses by Business Segment

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Gulf Coast terminals

    

$

16,750

 

$

13,815

 

Midwest terminals and pipeline system

 

 

2,422

 

 

2,351

 

Brownsville terminals

 

 

8,742

 

 

9,479

 

River terminals

 

 

6,034

 

 

5,255

 

Southeast terminals

 

 

16,709

 

 

16,581

 

Direct operating costs and expenses

 

$

50,657

 

$

47,481

 

 

Direct general and administrative expenses of our operations primarily include accounting associated with annual and quarterly reports and tax return and Schedule K‑1 preparation and distribution, legal fees, independent director fees and equity‑based compensation expense under the long-term incentive plan. The direct general and administrative expenses were approximately $2.9 million and $2.8 million for the nine months ended September 30, 2016 and 2015, respectively. 

Allocated general and administrative expenses include charges for indirect corporate overhead to cover costs of centralized corporate functions such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes, engineering and other corporate services. The allocated general and administrative expenses were approximately $8.5 million and $8.4 million for the nine months ended September 30, 2016 and 2015, respectively.

Allocated insurance expense includes charges for allocations of insurance premiums to cover costs of insuring activities such as property, casualty, pollution, automobile and other insurable risks. The allocated insurance expense was approximately $2.8 million for both the nine months ended September 30, 2016 and 2015.

40


 

Reimbursement of bonus awards includes expense associated with us reimbursing an affiliate of TransMontaigne GP for awards granted by them to certain key officers and employees who provide services to us that vest over future service periods. We have the intent and ability to settle our reimbursement for the bonus awards by issuing additional common units, and accordingly, we account for the bonus awards as an equity award. The expense associated with these reimbursements was approximately $2.1 million and $1.2 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in reimbursement of bonus awards expense is primarily attributable to a portion of the 2015 grants vesting upon the change in control of our general partner as a result of the ArcLight acquisition, effective February 1, 2016.

For the nine months ended September 30, 2016 and 2015, depreciation and amortization expense was approximately $24.2 million and $22.5 million, respectively.

For the nine months ended September 30, 2016 and 2015, interest expense was approximately $6.6 million and $6.1 million, respectively.

ANALYSIS OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Our investments in unconsolidated affiliates include a 42.5% interest in BOSTCO and a 50% interest in Frontera. BOSTCO is a terminal facility located on the Houston Ship Channel that encompasses approximately 7.1 million barrels of distillate, residual and other black oil product storage. Frontera is a terminal facility located in Brownsville, Texas that encompasses approximately 1.5 million barrels of light petroleum product storage, as well as related ancillary facilities.

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

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

4,794

 

$

8,244

 

 

Frontera

 

 

2,146

 

 

1,520

 

 

Total earnings from investments in unconsolidated affiliates

 

$

6,940

 

$

9,764

 

 

 

The decrease in earnings from our investment in BOSTCO is primarily attributable to a one-time gain resulting from a contract buy-out by one of the BOSTCO customers in April of 2015. Our share of the gain in the prior year was approximately $3.4 million.

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

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

2,125

 

$

4,226

 

 

Frontera

 

 

100

 

 

 —

 

 

Additional capital investments in unconsolidated affiliates

 

$

2,225

 

$

4,226

 

 

 

 

 

 

 

 

41


 

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

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2016

 

2015

 

 

BOSTCO

    

$

10,487

 

$

13,363

 

 

Frontera

 

 

2,176

 

 

2,099

 

 

Cash distributions received from unconsolidated affiliates

 

$

12,663

 

$

15,462

 

 

The decrease in distributions received from our investment in BOSTCO is primarily attributable to a one-time gain resulting from a contract buy-out by one of the BOSTCO customers in April of 2015. Our share of the gain in the prior year was approximately $3.4 million, which we received in cash as a component of our third quarter 2015 distribution from BOSTCO.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund our working capital requirements, distributions to unitholders, approved investments, approved capital projects and approved future expansion, development and acquisition opportunities. We expect to initially fund any investments, capital projects and future expansion, development and acquisition opportunities with undistributed cash flows from operations and additional borrowings under our credit facility. After initially funding expenditures with borrowings under our credit facility, we may raise funds through additional equity offerings and debt financings. The proceeds of such equity offerings and debt financings may then be used to reduce our outstanding borrowings under our credit facility.

Net cash provided by (used in) operating activities, investing activities and financing activities were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2016

 

2015

 

Net cash provided by operating activities

 

$

65,809

 

$

67,970

 

Net cash used in investing activities

 

$

(48,330)

 

$

(28,764)

 

Net cash used in financing activities

 

$

(17,719)

 

$

(41,719)

 

The decrease in net cash provided by operating activities includes a decrease of approximately $3.4 million related to a decrease in distributions received from our investment in BOSTCO, which is primarily attributable to a one-time gain resulting from a contract buy-out by one of the BOSTCO customers in April of 2015. Our share of the gain in the prior year was approximately $3.4 million, which we received in cash as a component of our third quarter 2015 distribution from BOSTCO. The change in net cash provided by operating activities was also impacted by the timing of working capital requirements and increased net margins.    

The increase in net cash used in investing activities includes an increase of $12.0 million for the acquisition of the Port Everglades, Florida hydrant system and an increase of approximately $9.6 million in capital expenditures, primarily related to construction of approximately 2.0 million barrels of new storage capacity at our Collins/Purvis, Mississippi bulk storage terminal. Management and the board of directors of our general partner have approved additional investments and expansion capital projects at our terminals that currently are, or will be, under construction with estimated completion dates that extend through the fourth quarter of 2017. At September 30, 2016, the remaining expenditures to complete the approved projects are estimated to be approximately $50 million, which primarily relates to the remaining construction costs associated with the approximately 2.0 million barrels of new storage capacity at our Collins/Purvis bulk storage terminal. 

The decrease in net cash used in financing activities includes an increase of $24.7 million in net borrowings under our credit facility to help fund the increase in investing activities.

42


 

Amended and restated senior secured credit facility.  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 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: $447.1 million at September 30, 2016). At our request, 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. 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.

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. At September 30, 2016, our outstanding borrowings under the credit facility were $270.3 million.

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). These financial covenants are based on a defined financial performance measure within the credit facility known as “Consolidated EBITDA.” The calculation of the “total leverage ratio” and “interest coverage ratio” contained in the credit facility is as follows (in thousands, except ratios): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve months

 

 

 

Three months ended

 

ended

 

 

    

December 31,

    

March 31,

    

June 30,

    

September 30,

    

September 30,

 

 

 

2015

 

2016

 

2016

 

2016

 

2016

 

Financial performance debt covenant test:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated EBITDA for the total leverage ratio, as stipulated in the credit facility

 

$

23,432

 

$

24,082

 

$

23,146

 

$

23,473

 

$

94,133

 

Consolidated funded indebtedness

 

 

 

 

 

 

 

 

 

 

 

 

 

$

270,300

 

Total leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.87

x

Consolidated EBITDA for the interest coverage ratio

 

$

23,432

 

$

24,082

 

$

23,146

 

$

23,473

 

$

94,133

 

Consolidated interest expense, as stipulated in the credit facility (1)

 

$

1,864

 

$

1,998

 

$

2,027

 

$

2,045

 

$

7,934

 

Interest coverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.86

x

Reconciliation of consolidated EBITDA to cash flows provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated EBITDA

 

$

23,432

 

$

24,082

 

$

23,146

 

$

23,473

 

$

94,133

 

Consolidated interest expense

 

 

(1,313)

 

 

(2,792)

 

 

(2,368)

 

 

(1,467)

 

 

(7,940)

 

Unrealized loss (gain) on derivative instruments

 

 

(551)

 

 

794

 

 

341

 

 

(578)

 

 

6

 

Amortization of deferred revenue

 

 

(264)

 

 

(198)

 

 

(122)

 

 

(108)

 

 

(692)

 

Change in operating assets and liabilities

 

 

(1,794)

 

 

(1,643)

 

 

2,652

 

 

597

 

 

(188)

 

Cash flows provided by operating activities

 

$

19,510

 

$

20,243

 

$

23,649

 

$

21,917

 

$

85,319

 

 

(1)Consolidated interest expense, used in the calculation of the interest coverage ratio, excludes unrealized gains and losses recognized on our derivative instruments.

43


 

If we were to fail either 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.

Common unit offering program.  On September 2, 2016, the Securities and Exchange Commission declared effective a new shelf registration statement, which replaced our prior shelf registration statement that previously expired. As with the prior shelf registration statement, the new shelf registration statement allows us to issue common units and debt securities.  In connection with the shelf registration statement, we established a common unit offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $50 million.  We intend to use the net proceeds from any equity sales pursuant to the common unit offering program, after deducting the agent’s commissions and the Partnership’s offering expenses, for general partnership purposes, which may include, among other things, repayment of indebtedness, capital expenditures, working capital or acquisitions.  To date we have issued no common units or debt securities under the common unit offering program or the registration statement.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in this Item 3 updates, and should be read in conjunction with, information set forth in Part II, Item 7A of our Annual Report on Form 10‑K, filed on March 10, 2016, in addition to the interim unaudited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in Part 1, Items 1 and 2 of this Quarterly Report on Form 10‑Q. There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10‑K for the year ended December 31, 2015.

Market risk is the risk of loss arising from adverse changes in market rates and prices. A principal market risk to which we are exposed is interest rate risk associated with borrowings under our credit facility. Borrowings under our credit facility bear interest at a variable rate based on LIBOR or the lender’s base rate.  We manage a portion of our interest rate risk with interest rate swaps, which reduce our exposure to changes in interest rates by converting variable interest rates to fixed interest rates. At September 30, 2016, we are party to interest rate swap agreements with an aggregate notional amount of $125.0 million that expire between March 25, 2018 and March 11, 2019. Pursuant to the terms of the interest rate swap agreements, we pay a blended fixed rate of approximately 1.01% 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. At September 30, 2016, we had outstanding borrowings of $270.3 million under our credit facility. Based on the outstanding balance of our variable‑interest‑rate debt at September 30, 2016, the terms of our interest rate swap agreements and assuming market interest rates increase or decrease by 100 basis points, the potential annual increase or decrease in interest expense is approximately $1.5 million.

We do not purchase or market products that we handle or transport and, therefore, we do not have material direct exposure to changes in commodity prices, except for the value of product gains arising from certain of our terminaling services agreements with our customers. We do not use derivative commodity instruments to manage the commodity risk associated with the product we may own at any given time. Generally, to the extent we are entitled to retain product pursuant to terminaling services agreements with our customers, we sell the product to our customers on a contractually established periodic basis; the sales price is based on industry indices. For the nine months ended September 30, 2016 and 2015, we sold approximately 77,650 and 86,000 barrels, respectively, of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities at average prices of approximately $54 and $68 per barrel, respectively.

ITEM 4.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to the management of our general partner, including our general partner’s principal executive and principal financial officer (whom we refer to as

44


 

the Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. The management of our general partner evaluated, with the participation of the Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2016, pursuant to Rule 13a‑15(b) under the Exchange Act. Based upon that evaluation, the Certifying Officers concluded that, as of September 30, 2016, our disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

ITEM 1.  LEGAL PROCEEDINGS

See Part I, Item 1 Note 16 to our consolidated financial statements entitled “Legal Proceedings” which is incorporated into this item by reference.  

 

ITEM 1A.  RISK FACTORS

The following risk factors, discussed in more detail below and in “Item 1A. Risk Factors,” in our Annual Report on Form 10‑K, filed on March 10, 2016, are expressly incorporated into this report by reference, are 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:

·

whether we are able to generate sufficient cash from operations to enable us to maintain or grow the amount of the quarterly distribution to our unitholders;

·

Gulf TLP Holdings, LLC, a wholly-owned subsidiary of ArcLight Energy Partners Fund VI, L.P., controls our general partner, which has sole responsibility for conducting our business and managing our operations. ArcLight and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to our detriment;

·

affiliates of our general partner, including Gulf TLP Holdings, LLC and ArcLight, may compete with us and do not have any obligation to present business opportunities to us;

·

failure by any of our significant customers to continue to engage us to provide services after the expiration of existing terminaling services agreements or our failure to secure comparable alternative arrangements;

·

a reduction in revenue from any of our significant customers upon which we rely for a substantial majority of our revenue;

·

a material portion of our operations are conducted through joint ventures, over which we do not maintain full control and which have unique risks;

·

competition from other terminals and pipelines that may be able to supply our significant customers with terminaling services on a more competitive basis;

·

the continued creditworthiness of, and performance by, our significant customers;

·

the expiration of the omnibus agreement occurs on the earlier to occur of ArcLight ceasing to control our general partner or following at least 24 months prior written notice;

·

we are exposed to the credit risks of our significant customers which could affect our creditworthiness. Any material nonpayment or nonperformance by such customers could also adversely affect our financial condition and results of operations;

·

a lack of access to new capital would impair our ability to expand our operations;

45


 

·

the lack of availability of acquisition opportunities, constraints on our ability to make acquisitions, failure to successfully integrate acquired facilities and future performance of acquired facilities, could limit our ability to grow our business successfully and could adversely affect the price of our common units;

·

a decrease in demand for products due to high prices, alternative fuel sources, new technologies or adverse economic conditions;

·

our debt levels and restrictions in our debt agreements that may limit our operational flexibility;

·

the ability of our significant customers to secure financing arrangements adequate to purchase their desired volume of product;

·

the impact on our facilities or operations of extreme weather conditions, such as hurricanes, and other events, such as terrorist attacks or war and costs associated with environmental compliance and remediation;

·

the control of our general partner being transferred to a third party without our consent or unitholder consent;

·

we may have to refinance our existing debt in unfavorable market conditions;

·

the failure of our existing and future insurance policies to fully cover all risks incident to our business;

·

cyber attacks or other breaches of our information security measures could disrupt our operations and result in increased costs;

·

timing, cost and other economic uncertainties related to the construction of new tank capacity or facilities;

·

the impact of current and future laws and governmental regulations, general economic, market or business conditions;

·

the age and condition of many of our pipeline and storage assets may result in increased maintenance and remediation expenditures;

·

cost reimbursements, which are determined by our general partner, and fees paid to our general partner and its affiliates for services will continue to be substantial;

·

our general partner’s limited call right may require unitholders to sell their common units at an undesirable time or price;

·

our ability to issue additional units without unitholders’ approval would dilute unitholders’ existing ownership interest;

·

the possibility that our unitholders could be held liable under some circumstances for our obligations to the same extent as a general partner;

·

our failure to avoid federal income taxation as a corporation or the imposition of state level taxation;

·

our inability to make acquisitions and investments to increase our capital asset base may result in future declines in our tax depreciation;

·

the impact of new IRS regulations or a challenge of our current allocation of income, gain, loss and deductions among our unitholders;

46


 

·

unitholders will be required to pay taxes on their respective share of our taxable income regardless of the amount of cash distributions;

·

investment in common partnership units by tax‑exempt entities and non‑United States persons raises tax issues unique to them;

·

unitholders will likely be subject to state and local taxes and return filing requirements in states where they do not live as a result of investing in our units; and

·

the sale or exchange of 50% or more of our capital and profits interests within a 12‑month period would result in a deemed technical termination of our partnership for income tax purposes.

There have been no material changes from risk factors as previously disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2015, filed on March 10, 2016.

47


 

ITEM 6.  EXHIBITS

 

 

 

Exhibit
number

    

Description of exhibits

 

 

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

101

The following financial information from the Quarterly Report on Form 10‑Q of TransMontaigne Partners L.P. and subsidiaries for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of partners’ equity, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.

 

adr

 

 

 

 

48


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 


Chief Executive Officer

 

Date: November 8, 2016

TransMontaigne Partners L.P.
(Registrant)

 

 

 

TransMontaigne GP L.L.C., its General Partner

 

 

 

 

 

By:

/s/ Frederick W. Boutin

Frederick W. Boutin
Chief Executive Officer

 

 

 

 

 

 

 

By:

/s/ Robert T. Fuller

Robert T. Fuller
Chief Financial Officer

 

 

49


 

 

EXHIBIT INDEX

 

 

 

 

Exhibit
number

    

Description of exhibits

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

 

101

 

The following financial information from the Quarterly Report on Form 10‑Q of TransMontaigne Partners L.P. and subsidiaries for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of partners’ equity, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.

 

 

 

 

50