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TLP Transmontaigne Partners

Filed: 6 Nov 20, 4:30pm

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, 2020

OR

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

Commission File Number: 001-32505

TRANSMONTAIGNE PARTNERS LLC

(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, if any, every Interactive Data File required to be submitted 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 such files). Yes  No 

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

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

As of September 30, 2020, the registrant has no common units outstanding.

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.

DOCUMENTS INCORPORATED BY REFERENCE

None.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. When used in this Quarterly Report, the words “could,” “may,” “should,” “will,” “seek,” “believe,” “expect,” “anticipate,” “intend,” “continue,” “estimate,” “plan,” “target,” “predict,” “project,” “attempt,” “is scheduled,” “likely,” “forecast,” the negatives thereof and other similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. You are cautioned not to place undue reliance on any forward-looking statements.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in this Quarterly Report under the heading “Item 1A. Risk Factors”, and under the heading “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q filed on August 10, 2020 and the risk factors and other cautionary statements contained in our other filings with the United States Securities and Exchange Commission.

You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

our ability to successfully implement our business strategy;
competitive conditions in our industry;
actions taken by third-party customers, producers, operators, processors and transporters;
pending legal or environmental matters;
costs of conducting our operations;
our ability to complete internal growth projects on time and on budget;
general economic conditions;
the price of oil, natural gas, natural gas liquids and other commodities in the energy industry;
the price and availability of financing;
large customer defaults;
interest rates;
operating hazards, global health epidemics, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
uncertainty regarding our future operating results;
effects of existing and future laws and governmental regulations;
the effects of future litigation;
plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical; and
the ongoing pandemic involving COVID-19.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

3


Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

Part I. Financial Information

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financial statements of TransMontaigne Partners LLC as of and for the three and nine months ended September 30, 2020 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, 2019, 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 13, 2020 with the Securities and Exchange Commission (File No. 001-32505).

TransMontaigne Partners LLC is a holding company with the following 100% owned operating subsidiaries during the three and nine months ended September 30, 2020:

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.
TLP Management Services LLC

We do not have off-balance-sheet arrangements or special-purpose entities.

4


TransMontaigne Partners LLC and subsidiaries

Consolidated balance sheets (unaudited)

(In thousands)

    

September 30,

    

December 31,

 

2020

2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

2,412

$

1,090

Trade accounts receivable, net

 

11,670

 

16,500

Due from affiliates

 

2,339

 

2,882

Other current assets

 

6,834

 

6,346

Total current assets

 

23,255

 

26,818

Property, plant and equipment, net

 

730,710

 

727,220

Goodwill

 

9,428

 

9,428

Investments in unconsolidated affiliates

 

227,009

 

225,425

Right-of-use assets, operating leases

34,592

35,765

Other assets, net

 

44,643

 

47,397

$

1,069,637

$

1,072,053

LIABILITIES AND EQUITY

Current liabilities:

Trade accounts payable

$

14,664

$

24,650

Operating lease liabilities

3,253

3,001

Accrued liabilities

 

32,604

 

36,558

Total current liabilities

 

50,521

 

64,209

Other liabilities

 

6,073

 

4,990

Long-term operating lease liabilities

`

33,451

34,605

Long-term debt

 

649,029

 

644,162

Total liabilities

 

739,074

 

747,966

Commitments and contingencies (Note 13)

Equity:

Member interest

330,563

324,087

Total equity

 

330,563

 

324,087

$

1,069,637

$

1,072,053

See accompanying notes to consolidated financial statements.

5


TransMontaigne Partners LLC and subsidiaries

Consolidated statements of operations (unaudited)

(In thousands)

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

Revenue:

External customers

$

62,569

$

59,688

$

185,132

$

171,292

Affiliates

 

6,859

 

6,885

21,195

21,518

Total revenue

 

69,428

 

66,573

206,327

192,810

Costs and expenses:

Operating

 

(25,241)

 

(24,395)

(77,233)

(76,184)

General and administrative expenses

 

(4,820)

 

(4,603)

(16,387)

(17,979)

Insurance expenses

 

(1,258)

 

(1,240)

(3,746)

(3,819)

Deferred compensation expense

 

(309)

 

(376)

(1,574)

(1,469)

Depreciation and amortization

 

(14,674)

 

(13,362)

(42,557)

(39,121)

Total costs and expenses

 

(46,302)

 

(43,976)

(141,497)

(138,572)

Earnings from unconsolidated affiliates

 

1,789

 

1,476

5,792

3,841

Gain from insurance proceeds

3,351

Operating income

 

24,915

24,073

70,622

61,430

Other expenses:

Interest expense

 

(7,435)

 

(9,107)

(23,853)

(27,657)

Amortization of deferred debt issuance costs

 

(650)

 

(636)

(1,920)

(2,018)

Total other expenses

 

(8,085)

 

(9,743)

(25,773)

(29,675)

Net earnings

$

16,830

$

14,330

$

44,849

$

31,755

See accompanying notes to consolidated financial statements.

6


TransMontaigne Partners LLC and subsidiaries

Consolidated statements of equity (unaudited)

(In thousands)

    

    

General

    

    

 

Common

partner

Member

 

units

interest

interest

Total

 

Balance July 1, 2019

$

$

$

325,912

$

325,912

Distributions to TLP Finance

(13,514)

(13,514)

Net earnings for the three months ended September 30, 2019

 

 

 

14,330

 

14,330

Balance September 30, 2019

$

$

$

326,728

$

326,728

Balance July 1, 2020

$

$

$

325,878

$

325,878

Contribution from TLP Holdings

45

45

Distributions to TLP Finance

(12,190)

(12,190)

Net earnings for the three months ended September 30, 2020

 

 

 

16,830

 

16,830

Balance September 30, 2020

$

$

$

330,563

$

330,563

Balance January 1, 2019

$

285,095

$

53,490

$

$

338,585

Distributions to unitholders

 

(13,064)

 

(4,186)

 

 

(17,250)

Purchase of common units and conversion to member interest

(279,895)

(51,978)

331,873

Reclassification of equity-based awards to a liability

(3,346)

(3,346)

Contribution from TLP Holdings

4,829

4,829

Equity-based compensation

 

45

 

 

 

45

Distributions to TLP Finance

(27,890)

(27,890)

Net earnings for the nine months ended September 30, 2019

 

2,990

 

2,674

 

26,091

 

31,755

Balance September 30, 2019

$

$

$

326,728

$

326,728

Balance January 1, 2020

$

$

$

324,087

$

324,087

Contribution from TLP Holdings

268

268

Distributions to TLP Finance

(38,641)

(38,641)

Net earnings for the nine months ended September 30, 2020

 

 

 

44,849

 

44,849

Balance September 30, 2020

$

$

$

330,563

$

330,563

See accompanying notes to consolidated financial statements.

7


TransMontaigne Partners LLC and subsidiaries

Consolidated statements of cash flows (unaudited)

(In thousands)

    

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

    

2019

 

2020

    

2019

Cash flows from operating activities:

Net earnings

$

16,830

$

14,330

$

44,849

$

31,755

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

Depreciation and amortization

 

14,674

 

13,362

42,557

39,121

Earnings from unconsolidated affiliates

 

(1,789)

 

(1,476)

(5,792)

(3,841)

Distributions from unconsolidated affiliates

 

3,540

 

2,735

9,887

8,749

Equity-based compensation

 

45

Amortization of deferred debt issuance costs

 

650

 

636

1,920

2,018

Amortization of deferred revenue

 

239

 

178

1,434

(29)

Unrealized (gain) loss on derivative instruments

161

(480)

815

Gain from insurance proceeds

(3,351)

Changes in operating assets and liabilities:

Trade accounts receivable, net

 

(255)

 

1,414

4,830

(461)

Due from affiliates

 

151

 

(185)

543

(47)

Other current assets

 

1,331

 

1,471

(488)

265

Amounts due under long-term terminaling services agreements, net

 

(825)

 

220

(1,019)

807

Right-of-use assets, operating leases

707

655

2,104

1,903

Deposits

(6)

10

Other assets, net

(61)

(107)

382

328

Trade accounts payable

 

957

 

113

(685)

(4,125)

Accrued liabilities

 

(762)

 

(3,376)

(3,468)

(6,545)

Operating lease liabilities

(496)

(457)

(1,833)

(1,450)

Net cash provided by operating activities

 

34,885

 

29,674

94,741

65,967

Cash flows from investing activities:

Investments in unconsolidated affiliates

 

(2,508)

 

(1,504)

(5,679)

(2,805)

Capital expenditures

 

(24,802)

 

(18,120)

(53,567)

(65,417)

Proceeds from insurance claims

4,988

Net cash used in investing activities

 

(27,310)

 

(19,624)

(59,246)

(63,234)

Cash flows from financing activities:

Borrowings under revolving credit facility

 

19,200

 

36,800

92,200

134,000

Repayments under revolving credit facility

 

(13,200)

 

(33,600)

(87,900)

(97,100)

Senior notes repurchase

(100)

Distributions paid to unitholders

 

 

(17,250)

Distributions to TLP Finance

(12,190)

(13,514)

(38,641)

(27,890)

Contributions from TLP Holdings

45

268

4,829

Net cash used in financing activities

 

(6,145)

 

(10,314)

(34,173)

(3,411)

Increase (decrease) in cash and cash equivalents

 

1,430

 

(264)

1,322

(678)

Cash and cash equivalents at beginning of period

 

982

 

612

1,090

1,026

Cash and cash equivalents at end of period

$

2,412

$

348

$

2,412

$

348

Supplemental disclosures of cash flow information:

Cash paid for interest

$

12,036

$

13,564

$

29,065

$

31,526

Property, plant and equipment acquired with accounts payable

$

7,588

$

10,991

$

7,588

$

10,991

See accompanying notes to consolidated financial statements.

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Table of Contents

TransMontaigne Partners LLC and Subsidiaries

Notes to consolidated financial statements (unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of business

TransMontaigne Partners LLC (“we,” “us,” “our,” “the Company”) provides 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, in the Southeast and along the West Coast.

We were originally formed as TransMontaigne Partners L.P. (“the Partnership”) in February 2005 as a Delaware limited partnership. Through February 26, 2019, the Partnership’s common units were listed and publicly traded on the New York Stock Exchange under the symbol “TLP”. The Partnership was controlled by a general partner, TransMontaigne GP L.L.C. (“TransMontaigne GP”), which was an indirect, controlled subsidiary of ArcLight Energy Partners Fund VI, L.P. (“ArcLight”). TransMontaigne GP also held the Partnership’s incentive distribution rights, which were non-voting limited partner interests with the rights set forth in the First Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 27, 2005, as amended from time to time.

On February 26, 2019, an affiliate of ArcLight completed its acquisition of all of the Partnership’s outstanding publicly traded common units not already held by ArcLight and its affiliates by way of our merger (the “Merger”) with a wholly owned subsidiary of TLP Finance Holdings, LLC (“TLP Finance”), an indirect controlled subsidiary of Arclight. At the effective time of the Merger, each of the Partnership’s general partner units issued and outstanding immediately prior to the acquisition effective time was converted into (i)(a) one Partnership common unit, and (b) in aggregate, a non-economic general partner interest in the Partnership, (ii) each of the Partnership’s incentive distribution rights issued and outstanding immediately prior to the acquisition effective time was converted into 100 Partnership common units, (iii) our general partner distributed its common units in the Partnership (the “Transferred GP Units”) to TLP Acquisition Holdings, LLC, a Delaware limited liability company (“TLP Holdings”), and TLP Holdings contributed the Transferred GP Units to TLP Finance, (iv) the Partnership converted into the Company (a Delaware limited liability company) pursuant to Section 17-219 of the Delaware Limited Partnership Act and changed its name to “TransMontaigne Partners LLC”, and all of our common units owned by TLP Finance were converted into limited liability company interests (“member interest”), (v) the non-economic interest in the Company owned by our general partner was automatically cancelled and ceased to exist and our general partner merged with and into the Company with the Company surviving, and (vi) the Company became 100% owned by TLP Finance (the transactions described in the foregoing clauses (i) through (vi), collectively with the Merger, the “Take-Private Transaction”).

As a result of the Take-Private Transaction, our common units ceased to be publicly traded, and our common units are no longer listed on the New York Stock Exchange. Our 6.125% senior notes due in 2026 remain outstanding, and we are voluntarily filing with the Securities and Exchange Commission pursuant to the covenants contained in those notes.

Effective June 1, 2019, TLP Finance contributed all of the issued and outstanding equity of its wholly-owned subsidiary, TLP Management Services LLC (“TMS” and such interest, the “TMS Interest”) to the Company, and the Company immediately contributed the TMS Interest to its 100% owned operating company subsidiary TransMontaigne Operating Company L.P. (the “TMS Contribution”). Prior to the TMS Contribution, we had no employees and all of our management and operational activities were provided by TMS. Further, TMS provided all payroll programs and maintained all employee benefits programs on behalf of our Company with respect to applicable TMS employees (as well as on behalf of certain other Arclight affiliates). As a result of the TMS Contribution, we have assumed the employees and operational activities previously provided by TMS, except for our executive officers as further described below. The TMS Contribution has been recorded at carryover basis as a reorganization of entities under common control. As such, prior periods include the assets, liabilities, and results of operations of TMS for all periods presented.

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TransMontaigne Partners LLC and Subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

As a result of the TMS Contribution, the omnibus agreement in place in various forms since the inception of the Partnership, and immediately prior to the TMS Contribution between TMS and us, which, among other things, governed the provision of management and operational services provided for us by TMS, is no longer relevant and was terminated.

Following the TMS Contribution, the executive officers who provide services to the Company are employed by TransMontaigne Management Company, LLC (“TMC”), a wholly owned subsidiary of ArcLight, which also provides services to certain other ArcLight affiliates. As a result, we do not directly employ any of the persons responsible for the executive management of our business. Nonetheless, TMS continues to provide certain payroll functions and maintains all employee benefits programs on behalf of TMC, pursuant to a services agreement between TMC and TMS.

(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 LLC 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, 2020 and December 31, 2019 and our results of operations for the three and nine months ended September 30, 2020 and 2019. Certain reclassifications of previously reported amounts have been made to conform to the current year presentation.

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 operations

Effective January 1, 2019, we adopted Accounting Standards Codification (“ASC”) Topic 842, Leases and the series of related Accounting Standards Updates that followed (collectively referred to as “ASC 842”). The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a right-of-use asset and a lease liability for all qualifying leases in the consolidated balance sheet. Further, under ASC 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. We used the modified retrospective transition method applied at the effective date of the standard. By electing this optional transition method, information prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period (“ASC 840”) (See Notes 13 and 15 of Notes to consolidated financial statements).

Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), applying the modified retrospective transition method, which required us to apply the new standard to (i) all new revenue contracts entered into after January 1, 2018, and (ii) revenue contracts which were not completed as of January 1, 2018. ASC 606 replaces existing revenue recognition requirements in GAAP and requires entities to recognize revenue at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. ASC 606 also requires certain disclosures regarding qualitative and quantitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not result in a transition adjustment nor did it have

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TransMontaigne Partners LLC and Subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

an impact on the timing or amount of our revenue recognition (See Note 15 of Notes to consolidated financial statements).

The adoption of ASC 606 did not result in changes to our accounting for trade accounts receivable (see Note 3 of Notes to consolidated financial statements), contract assets or contract liabilities. We recognize contract assets in situations where revenue recognition under ASC 606 occurs prior to billing the customer based on our rights under the contract. Contract assets are transferred to accounts receivable when the rights become unconditional (See Note 3 of Notes to consolidated financial statements).

Contract liabilities primarily relate to consideration received from customers in advance of completing the performance obligation. A performance obligation is a promise in a contract to transfer goods or services to the customer. We recognize contract liabilities under these arrangements as revenue once all contingencies or potential performance obligations have been satisfied by the (i) performance of services or (ii) expiration of the customer’s rights under the contract. Short-term contract liabilities include customer advances and deposits (see Note 9 of Notes to consolidated financial statements). Long-term contract liabilities include deferred revenue (See Note 10 of Notes to consolidated financial statements).

We generate revenue from terminaling services fees, pipeline transportation fees and management fees. Under ASC 606 and ASC 842, we recognize revenue over time or at a point in time, depending on the nature of the performance obligations contained in the respective contract with our customer. The contract transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our revenue is recognized pursuant to ASC 842. The following is an overview of our significant revenue streams, including a description of the respective performance obligations and related method of revenue recognition.

Terminaling services fees. Our terminaling services agreements are structured as either throughput agreements or storage agreements. Our throughput agreements contain provisions that require our customers to make minimum payments, which are based on contractually established minimum volumes of throughput of the customer’s product at our facilities, over a stipulated period of time. Due to this minimum payment arrangement, we recognize a fixed amount of revenue from the customer over a certain period of time, even if the customer throughputs less than the minimum volume of product during that period. In addition, if a customer throughputs a volume of product exceeding the minimum volume, we would recognize additional revenue on this incremental volume. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity available to the customer under the agreement, which results in a fixed amount of recognized revenue. We refer to the fixed amount of revenue recognized pursuant to our terminaling services agreements as being “firm commitments.” Our terminaling services agreements include revenue recognized in accordance with ASC 606 and ASC 842. Upon adoption of these standards, we evaluated our contracts to determine whether the contract contained a lease. Significant assumptions used in this process include the determination of whether substantive substitution rights exist based on the terms of the contract and available capacity at the terminal at the time of contract inception. Our terminaling services agreements do not allow our customers to purchase the underlying asset and vary in terms and conditions with respect to extension or termination options. If a contract is accounted for as a lease under ASC 842, we recognize the minimum payments as lease revenue and revenue recognized in excess of firm commitments as a variable payment of the lease. All other components of the contracts accounted for as a lease are treated as non-lease components (ancillary revenue) and are accounted for in accordance with ASC 606. The majority of our firm commitments under our terminaling services agreements are accounted for in accordance with ASC 842 (“ASC 842 revenue”). The remainder is recognized in accordance with ASC 606 (“ASC 606 revenue”) where the minimum payment arrangement in each contract is a single performance obligation that is primarily satisfied over time through the contract term.

Revenue recognized in excess of firm commitments and revenue recognized based solely on the volume of product distributed or injected are referred to as ancillary. The ancillary revenue associated with terminaling services include volumes of product throughput that exceed the contractually established minimum volumes, injection fees based on the volume of product injected with additive compounds, heating and mixing of stored products, product transfer,

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Table of Contents

TransMontaigne Partners LLC and Subsidiaries

Notes to consolidated financial statements (unaudited) (continued)

railcar handling, butane blending, proceeds from the sale of product gains, wharfage and vapor recovery. The revenue generated by these services is required to be estimated under ASC 606 for any uncertainty that is not resolved in the period of the service. We account for the majority of ancillary revenue at individual points in time when the services are delivered to the customer. The majority of our ancillary revenue is recognized in accordance with ASC 606.

Pipeline transportation fees. We earn pipeline transportation fees at our Diamondback pipeline either based on the volume of product transported or under capacity reservation agreements. Revenue associated with the capacity reservation is recognized ratably over the respective term, regardless of whether the capacity is actually utilized. 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. Pipeline transportation revenue is primarily accounted for in accordance with ASC 842.

Management fees. We manage and operate certain tank capacity at our Port Everglades South terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate the Frontera joint venture and receive a management fee based on our costs incurred. We manage and operate terminals that are owned by affiliates of ArcLight, including for SeaPort Midstream Partners, LLC (“SMP”) in Seattle, Washington and Portland, Oregon and another terminal for SeaPort Sound Terminal, LLC (“SeaPort Sound”) in Tacoma, Washington and receive a management fee based on our costs incurred. We also manage additional terminal facilities that are owned by affiliates of ArcLight, including Lucknow-Highspire Terminals, LLC (“LHT”), which operates terminals throughout Pennsylvania encompassing approximately 9.9 million barrels of storage capacity, and prior to July 1, 2019, a terminal in Baltimore, Maryland for Pike Baltimore Terminals, LLC (the “Baltimore Terminal”), and receive a management fee based on our costs incurred. Our management of the Baltimore Terminal ended on July 1, 2019. We manage and operate rail sites at certain Southeast terminals on behalf of a major oil company and receive reimbursement for operating and maintenance costs. We lease land under operating leases as the lessor or sublessor with third parties and affiliates. Management fee revenue is recognized at individual points in time as the services are performed or as the costs are incurred and is primarily accounted for in accordance with ASC 606. Management fees related to lease revenue are accounted for in accordance with ASC 842.

(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

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Notes to consolidated financial statements (unaudited) (continued)

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 estimated 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 9 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 4 of Notes to consolidated financial statements).

In connection with our acquisition of the Florida (other than Pensacola), Midwest, Brownsville, Texas, River, Southeast, and Pensacola, Florida terminal and facilities, a third party agreed to indemnify us against certain potential environmental claims, losses and expenses. Based on our current knowledge, we expect that the active remediation projects subject to the benefit of this indemnification obligation are winding down and will not involve material additional claims, losses, and expenses. Nonetheless, the forgoing environmental indemnification obligations of a third party to us remain in place and were not affected by the Take-Private Transaction.

(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) Deferred compensation expense

We have a savings and retention program to compensate certain employees who provide services to the Company. Prior to the Take-Private Transaction, we had the ability to settle the awards in our common units, and

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Notes to consolidated financial statements (unaudited) (continued)

accordingly, we accounted for the awards as an equity award. Following the Take-Private Transaction, we index the awards to other forms of investments, and have the intent and ability to settle the awards in cash, and accordingly, we account for the awards as liability awards (see Note 12 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. Changes in the fair value of our derivative instruments are recognized in earnings.

At September 30, 2020 and December 31, 2019, our derivative instruments were limited to interest rate swap agreements with an aggregate notional amount of $nil and $300 million, respectively. The interest rate swap agreements expired in June 2020. Pursuant to the terms of the interest rate swap agreements, we paid a blended fixed rate of approximately 2.04% and received interest payments based on the one-month LIBOR. The net difference to be paid or received under the interest rate swap agreements was settled monthly and was recognized as an adjustment to interest expense. The fair value of our interest rate swap agreements was 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 up to our owners.

(l) Comprehensive income

Entities that report items of other comprehensive income have the option to present the components of net earnings and comprehensive income in either one continuous financial statement, or two consecutive financial statements. As the Company has no components of comprehensive income other than net earnings, no statement of comprehensive income has been presented.

(m) Recent accounting pronouncements

On March 12, 2020, the FASB issued ASU No. 2020-04, Reference Rate ReformFacilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to re-measure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently reviewing the effect of this ASU on our financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief, which provides transition relief and allows entities to elect the fair value option on certain financial instruments. ASU 2019-05 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. We adopted the new guidance as of January 1, 2020 using the modified retrospective approach related to our accounts receivables and contract assets, resulting in no cumulative adjustment to

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Notes to consolidated financial statements (unaudited) (continued)

retained earnings. The adoption of this guidance did not have an impact on our financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other: Simplifying the Test for Goodwill Impairment, to simplify the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. We adopted the new guidance as of January 1, 2020. The adoption of this guidance did not have an impact on our financial position, results of operations and cash flows.

(2) TRANSACTIONS WITH AFFILIATES

Operations and reimbursement agreement—Frontera. We have a 50% ownership interest in the Frontera Brownsville LLC joint venture (“Frontera”). We 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 $1.3 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $4.0 million and $4.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Terminaling services agreements—Brownsville terminals. We have two terminaling services agreements with Frontera relating to our Brownsville, Texas facility that will expire in June 2021, subject to automatic renewals unless terminated by either party upon 90 days’ to 180 days’ prior notice. In exchange for its minimum throughput commitments, we have agreed to provide Frontera with approximately 301,000 barrels of storage capacity. We recognized revenue related to these agreements of approximately $0.7 million for both the three months ended September 30, 2020 and 2019 and approximately $1.9 million and $2.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Terminaling services agreement—Gulf Coast terminals. Associated Asphalt Marketing, LLC is a wholly-owned indirect subsidiary of ArcLight. Effective January 1, 2018, a third party customer assigned their terminaling services agreement relating to our Gulf Coast terminals to Associated Asphalt Marketing, LLC. The agreement will expire in April 2021, subject to two, two-year automatic renewals unless terminated by either party upon 180 days’ prior notice. In exchange for its minimum throughput commitment, we have agreed to provide Associated Asphalt Marketing, LLC with approximately 750,000 barrels of storage capacity. We recognized revenue related to this agreement of approximately $2.2 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $6.4 million for both the nine months ended September 30, 2020 and 2019.

Operating and administrative agreement—SeaPort Midstream Partners, LLC (“SMP”)—Central services. We operate two refined products terminals in Seattle, Washington and Portland, Oregon, on behalf of SMP, in accordance with an operating and administrative agreement executed between us and SMP. SMP is a joint venture between SeaPort Midstream Holdings LLC, an ArcLight subsidiary, and BP West Coast Products LLC. SeaPort Midstream Holdings LLC owns 51% of SMP. The operating and administrative agreement will expire in November 2023, subject to two-year automatic renewals unless terminated by either party upon no less than twelve months’ notice prior to the end of the initial term or any successive term. Our agreement with SMP stipulates that we may resign as the operator at any time with the prior written consent of SMP, 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 operating and administrative agreement of approximately $0.7 million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $2.3 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively.

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Notes to consolidated financial statements (unaudited) (continued)

Services agreement—SeaPort Sound Terminal, LLC (“SeaPort Sound”)—Central services. Our subsidiary, TMS, operates a refined products terminal in Tacoma, Washington on behalf of SeaPort Midstream Holdings LLC, an ArcLight subsidiary. We recognized revenue related to this services agreement of approximately $1.7 million and $2.0 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $5.5 million and $5.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Other affiliates—Central services. We manage additional terminal facilities that are owned by affiliates of ArcLight, including LHT, and, prior to July 1, 2019, the Baltimore Terminal. We recognized revenue related to reimbursements from these affiliates of approximately $0.4 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $1.0 million for both the nine months ended September 30, 2020 and 2019. Our management of the Baltimore Terminal terminated on July 1, 2019.

Services agreement—TMC. Following the TMS Contribution, our executive officers who provide services to the Company are employed by TMC, a wholly owned subsidiary of ArcLight, which also provides services to certain other ArcLight affiliates. Pursuant to a services agreement, dated August 18, 2019, between TMS and TMC, TMS continues to provide certain payroll functions and maintains all employee benefits programs on behalf of TMC. TMC is reimbursed for the payroll and benefits expenses related to the executive officers, plus a 1% administration fee. Aggregate fees paid by us to TMC with respect to the services agreement was approximately $0.5 million and $nil for the three months ended September 30, 2020 and 2019, respectively, and approximately $2.2 million and $nil for the nine months ended September 30, 2020 and 2019, respectively.

See also Note 1(a), Nature of business, for information regarding the TMS Contribution.

(3) 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, in the Midwest and along the West Coast. We have a concentration of trade receivable balances due from companies engaged in the trading, distribution and marketing of refined products and crude oil. These concentrations of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Our customers’ historical financial and operating information is analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions we may request letters of credit, prepayments or guarantees. Amounts included in trade accounts receivable that are accounted for as revenue in accordance with ASC 606 approximate $3.1 million at September 30, 2020. We maintain allowances for potentially uncollectible accounts receivable.

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

    

September 30,

    

December 31,

 

2020

2019

 

Trade accounts receivable

$

11,670

$

16,627

Less allowance for doubtful accounts

 

 

(127)

$

11,670

$

16,500

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Notes to consolidated financial statements (unaudited) (continued)

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 

Nine months ended 

    

September 30,

September 30,

    

2020

    

2019

 

2020

2019

Pilot Flying J

14

%  

%

14

%  

%

Freepoint Commodities LLC

9

%  

9

%

10

%  

4

%

RaceTrac Petroleum Inc.

9

%  

10

%

 

9

%  

10

%

Castleton Commodities International LLC

6

%  

10

%

6

%  

10

%  

NGL Energy Partners LP

%  

19

%

1

%  

20

%

(4) OTHER CURRENT ASSETS

Other current assets were as follows (in thousands):

    

September 30,

    

December 31,

 

2020

2019

 

Prepaid insurance

$

3,401

$

2,595

Additive detergent

 

1,529

 

1,342

Amounts due from insurance companies

830

1,147

Deposits and other assets

 

1,074

 

1,262

$

6,834

$

6,346

Amounts due from insurance companies. We periodically file claims for recovery of environmental remediation costs and property claims 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. At September 30, 2020 and December 31, 2019, we have recognized amounts due from insurance companies of approximately $0.8 million and $1.1 million, respectively, representing our best estimate of our probable insurance recoveries. During the nine months ended September 30, 2020, we received reimbursements from insurance companies of approximately $0.3 million.

(5) PROPERTY, PLANT AND EQUIPMENT, NET

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

    

September 30,

    

December 31,

2020

2019

Land

$

83,657

$

83,451

Terminals, pipelines and equipment

 

1,080,220

 

995,666

Furniture, fixtures and equipment

 

10,841

 

9,788

Construction in progress

 

31,028

 

73,302

 

1,205,746

 

1,162,207

Less accumulated depreciation

 

(475,036)

 

(434,987)

$

730,710

$

727,220

At September 30, 2020 and December 31, 2019, property, plant and equipment, net utilized by our customers in operating lease arrangements consisted of approximately $568.6 million and approximately $523.9 million, respectively, of terminals, pipelines and equipment. The terminals, pipelines and equipment primarily relates to our storage tanks and associated internal piping.

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Notes to consolidated financial statements (unaudited) (continued)

(6) GOODWILL

Goodwill was as follows (in thousands):

    

September 30,

    

December 31,

 

2020

2019

 

Brownsville terminals

$

8,485

$

8,485

West Coast terminals

943

943

$

9,428

$

9,428

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 business segments (see Note 16 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, 2020 and December 31, 2019, our Brownsville and West Coast terminals contained goodwill. We did not recognize any goodwill impairment charges during the nine months ended September 30, 2020 or during the year ended December 31, 2019 for these reporting units. However, an 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 or West Coast terminals could result in the recognition of an impairment charge in the future.

(7) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

At September 30, 2020 and December 31, 2019, 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 1.7 million barrels of light petroleum product storage, as well as related ancillary facilities.

The following table summarizes our investments in unconsolidated affiliates:

Percentage of

Carrying value

ownership

(in thousands)

September 30,

December 31,

September 30,

December 31,

    

2020

    

2019

    

2020

    

2019

 

BOSTCO

42.5

%  

42.5

%  

$

203,110

$

201,743

Frontera

50

%  

50

%  

 

23,899

 

23,682

Total investments in unconsolidated affiliates

$

227,009

$

225,425

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Notes to consolidated financial statements (unaudited) (continued)

At September 30, 2020 and December 31, 2019, our investment in BOSTCO includes approximately $6.5 million and $6.6 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 amortized over the useful life of the assets. Excess investment is the amount by which our investment exceeds our proportionate share of the book value of the net assets of the BOSTCO entity.

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

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

    

2019

    

2020

2019

BOSTCO

$

1,132

$

594

$

3,942

$

1,733

Frontera

 

657

 

882

1,850

2,108

Total earnings from investments in unconsolidated affiliates

$

1,789

$

1,476

$

5,792

$

3,841

Additional capital investments in unconsolidated affiliates for the funding of growth projects was as follows (in thousands):

    

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

BOSTCO

$

2,508

$

1,504

$

5,679

$

2,580

Frontera

 

 

225

Additional capital investments in unconsolidated affiliates

$

2,508

$

1,504

$

5,679

$

2,805

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

    

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

BOSTCO

$

3,201

$

2,063

$

8,254

$

6,760

Frontera

 

339

 

672

1,633

1,989

Cash distributions received from unconsolidated affiliates

$

3,540

$

2,735

$

9,887

$

8,749

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,

    

2020

    

2019

    

2020

    

2019

Current assets

$

15,951

$

12,478

$

4,619

$

4,870

Long-term assets

 

463,536

 

464,085

 

44,579

 

44,344

Current liabilities

 

(14,643)

 

(13,607)

 

(1,400)

 

(1,850)

Long-term liabilities

(5,617)

(6,036)

Net assets

$

459,227

$

456,920

$

47,798

$

47,364

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Notes to consolidated financial statements (unaudited) (continued)

Statements of income:

BOSTCO

Frontera

Three months ended 

Three months ended 

    

September 30,

    

September 30,

2020

2019

2020

    

2019

Revenue

$

15,740

$

14,812

$

4,550

$

5,309

Expenses

 

(12,487)

 

(13,121)

 

(3,236)

 

(3,545)

Net income

$

3,253

$

1,691

$

1,314

$

1,764

BOSTCO

Frontera

Nine months ended 

Nine months ended 

September 30,

September 30,

2020

2019

2020

    

2019

Revenue

$

48,061

$

46,282

$

14,358

$

15,418

Expenses

 

(37,723)

 

(40,404)

 

(10,658)

 

(11,202)

Net income

$

10,338

$

5,878

$

3,700

$

4,216

(8) OTHER ASSETS, NET

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

    

September 30,

    

December 31,

 

2020

2019

 

Customer relationships, net of accumulated amortization of $9,000 and $7,237, respectively

$

40,430

$

42,193

Revolving credit facility unamortized deferred debt issuance costs, net of accumulated amortization of $10,630 and $9,353, respectively

2,541

3,818

Amounts due under long-term terminaling services agreements

883

215

Deposits and other assets

 

789

 

1,171

$

44,643

$

47,397

Customer relationships. Other assets, net include certain customer relationships primarily at our West Coast terminals. These customer relationships are being amortized on a straight-line basis over twenty years.

Revolving credit facility unamortized deferred debt issuance costs. Deferred debt issuance costs are amortized using the effective interest method over the term of the related revolving credit facility.

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 at stated amounts over the terms of the respective agreements. We recognize as revenue under ASC 842 and ASC 606 the minimum payments under the long-term terminaling services agreements on a straight-line basis over the terms of the respective agreements. At September 30, 2020 and December 31, 2019, 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 $0.9 million and $0.2 million, respectively.

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(9) ACCRUED LIABILITIES

Accrued liabilities were as follows (in thousands):

    

September 30,

    

December 31,

 

2020

2019

 

Customer advances and deposits

$

10,822

$

7,850

Accrued compensation expense

11,395

13,272

Interest payable

 

3,034

 

7,763

Accrued property taxes

 

6,198

 

3,149

Accrued environmental obligations

 

1,068

 

1,531

Unrealized loss on derivative instrument

480

Accrued expenses and other

 

87

 

2,513

$

32,604

$

36,558

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, 2020 and December 31, 2019, approximately $9.7 million and $7.0 million, respectively, of the customer advances and deposits balance is related to terminaling services agreements accounted for as operating leases under ASC 842. At September 30, 2020 and December 31, 2019, approximately $1.1 million and $0.9 million, respectively, of the customer advances and deposits balance is considered contract liabilities under ASC 606. Revenue recognized during the nine months ended September 30, 2020 and 2019 from amounts included in contract liabilities at the beginning of the period was approximately $0.9 million and $0.8 million, respectively. At September 30, 2020 and December 31, 2019, we have billed and collected from certain of our customers approximately $10.8 million and $7.9 million, respectively, in advance of the terminaling services being provided.

Accrued compensation expense. Accrued compensation expense includes our bonus, payroll, and savings and retention program awards accruals.

Accrued environmental obligations. At September 30, 2020 and December 31, 2019, we have accrued environmental obligations of approximately $1.1 million and $1.5 million, respectively, representing our best estimate of our remediation obligations. During the nine months ended September 30, 2020, we made payments of approximately $0.3 million towards our environmental remediation obligations. During the nine months ended September 30, 2020, we decreased our estimate of our future environmental remediation costs by approximately $0.1 million. Changes in our estimates of our future environmental remediation obligations may occur as a result of the passage of time and the occurrence of future events.

(10) OTHER LIABILITIES

Other liabilities were as follows (in thousands):

    

September 30,

    

December 31,

 

2020

2019

 

Advance payments received under long-term terminaling services agreements

$

3,431

$

3,782

Deferred revenue

2,642

1,208

$

6,073

$

4,990

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 under ASC 842 on a straight-line basis over the term of the respective agreements. At September 30, 2020 and December 31, 2019, we have received advance minimum payments

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Notes to consolidated financial statements (unaudited) (continued)

in excess of revenue recognized under these long-term terminaling services agreements resulting in a liability of approximately $3.4 million and $3.8 million, respectively.

Deferred revenue. Pursuant to agreements with our customers, we agreed to undertake certain capital projects. Upon completion of the projects, our customers have paid us amounts that will be recognized as revenue on a straight-line basis over the remaining term of the agreements. At September 30, 2020 and December 31, 2019, we have unamortized deferred revenue for completed projects of approximately $2.6 million and $1.2 million, respectively. During the nine months ended September 30, 2020, we billed customers approximately $2.1 million for completed projects and recognized revenue for completed projects on a straight-line basis of approximately $0.6 million. At both September 30, 2020 and December 31, 2019, $nil of the deferred revenue balance is considered contract liabilities under ASC 606. Revenue recognized during the nine months ended September 30, 2020 and 2019, from amounts included in contract liabilities under ASC 606 at the beginning of the period, was approximately $nil and $0.2 million, respectively.

(11) LONG-TERM DEBT

Long-term debt was as follows (in thousands):

    

September 30,

    

December 31,

 

2020

2019

Revolving credit facility due in 2022

$

355,000

$

350,700

6.125% senior notes due in 2026

299,900

300,000

Senior notes unamortized deferred issuance costs, net of accumulated amortization of $2,211 and $1,544, respectively

(5,871)

(6,538)

$

649,029

$

644,162

On February 12, 2018, the Company and TLP Finance Corp., our wholly owned subsidiary, issued at par $300 million of 6.125% senior notes. Net proceeds, after $8.1 million of issuance costs, were used to repay indebtedness under our revolving credit facility. The senior notes are due in 2026 and are guaranteed on a senior unsecured basis by each of our 100% owned domestic subsidiaries that guarantee obligations under our revolving credit facility. TransMontaigne Partners LLC has no independent assets or operations unrelated to its investments in its consolidated subsidiaries. TLP Finance Corp. has no assets or operations. Our operations are conducted by subsidiaries of TransMontaigne Partners LLC through our 100% owned operating company subsidiary, TransMontaigne Operating Company L.P. None of the assets of TransMontaigne Partners LLC or a guarantor represent restricted net assets pursuant to the guidelines established by the SEC.

Our revolving credit facility provides for a maximum borrowing line of credit equal to $850 million. The terms of our revolving 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 LLC 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 $175 million, which may include additional investments in BOSTCO. The primary financial covenants contained in our revolving credit facility are (i) a total leverage ratio test (not to exceed 5.25 to 1.0), (ii) a senior secured leverage ratio test (not to exceed 3.75 to 1.0), and (iii) a minimum interest coverage ratio test (not less than 2.75 to 1.0). The principal balance of loans and any accrued and unpaid interest are due and payable in full on the maturity date, March 13, 2022. We were in compliance with all financial covenants as of and during the nine months ended September 30, 2020 and the year ended December 31, 2019.  

We may elect to have loans under our revolving credit facility bear interest either (i) at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% depending on the total leverage ratio then in effect, or (ii) at the base rate plus a margin ranging from 0.75% to 1.75% 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

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Notes to consolidated financial statements (unaudited) (continued)

then in effect. Our obligations under our revolving 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 nine months ended September 30, 2020 and 2019, the weighted average interest rate on borrowings under our revolving credit facility was approximately 4.6% and 5.7%, respectively. At September 30, 2020 and December 31, 2019, our outstanding borrowings under our revolving credit facility were $355.0 million and $350.7 million, respectively. At both September 30, 2020 and December 31, 2019 our outstanding letters of credit were $1.3 million.

(12) DEFERRED COMPENSATION EXPENSE

We have a savings and retention program to compensate certain employees who provide services to the Company. The purpose of the savings and retention program is to provide for the reward and retention of participants by providing them with awards that vest over future service periods. Awards under the program with respect to individuals providing services to the Company generally become vested 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 employment following a change in control of the Company as specified in the program. The awards are increased for the value of any accrued growth based on underlying investments deemed made with respect to the awards. The awards (including any accrued growth relating thereto) are subject to forfeiture until the vesting date. The Take-Private Transaction did not accelerate the vesting of any of the awards.

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

Prior to the Take-Private Transaction, we had the ability to settle the savings and retention program awards in our common units, and accordingly, we accounted for the awards as an equity award. Following the Take-Private Transaction, we index the awards to other forms of investments, and have the intent and ability to settle the awards in cash, and accordingly, we account for the awards as accrued liabilities. For awards to employees, approximately $1.6 million and $1.5 million is included in deferred compensation expense for the nine months ended September 30, 2020 and 2019, respectively.

(13) COMMITMENTS AND CONTINGENCIES

Lease commitments.

Effective January 1, 2019, we adopted Accounting Standards Codification (“ASC”) Topic 842, Leases and the series of related Accounting Standards Updates that followed (collectively referred to as “ASC 842”), using the modified retrospective transition method applied at the effective date of the standard. By electing this optional transition method, information prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for that period (ASC 840).

The Company elected the following practical expedients permitted under the transition guidance within the new standard; 1) the option to carry forward the historical lease classifications and assessment of initial direct costs, 2) the option to not include leases with an initial term of less than twelve months in the lease assets and liabilities and 3) the option to account for lease and non-lease components as a single lease component.

We lease property including corporate offices, vehicles and land. We determine if an arrangement is a lease at inception and evaluate identified leases for operating or finance lease treatment at lease commencement. Operating or finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of

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Notes to consolidated financial statements (unaudited) (continued)

lease payments over the lease term. Our leases have remaining lease terms of less than one year to 41 years, some of which have options to extend or terminate the lease. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Beginning January 1, 2019, operating right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We determined our incremental borrowing rate using the borrowing rate of our revolving credit facility. The terms of our vehicle, office and land leases are in line with our revolving credit facility, our primary finance mechanism. We have certain land and vehicle lease agreements with lease and non-lease components, which are accounted for separately. Non-lease components include payments for taxes and other operating and maintenance expenses incurred by the lessor but payable by us in connection with the leasing arrangement. As of September 30, 2020, the Company was party to certain subleasing arrangements whereby the Company, as the primary obligor on the lease, has recognized sublease income for lease payments made by affiliates to the lessor.

Following are components of our lease costs (in thousands):

Three months ended 

Nine months ended 

September 30,

September 30,

2020

2019

2020

2019

Operating leases

$

1,191

$

1,154

$

3,538

$

3,380

Variable lease costs (including insignificant short-term leases)

190

148

616

653

Sublease income as primary obligor

(256)

(247)

(751)

(740)

Total lease costs

$

1,125

$

1,055

$

3,403

$

3,293

Other information related to our operating leases was as follows (in thousands, except lease term and discount rate):

Three months ended 

Nine months ended 

September 30,

September 30,

2020

2019

2020

2019

Cash outflows for operating leases

$

980

$

957

$

3,267

$

2,927

Weighted average remaining lease term (years)

18.23

19.49

18.23

19.49

Weighted average discount rate

5.2%

5.2%

5.2%

5.2%

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Notes to consolidated financial statements (unaudited) (continued)

Undiscounted cash flows owed by the Company to lessors pursuant to contractual agreements in effect as of September 30, 2020 and related imputed interest was as follows (in thousands):

2020 (remainder of the year)

$

1,474

2021

 

4,758

2022

 

4,749

2023

 

4,151

2024

 

3,699

Thereafter

 

39,831

Total lease payments

58,662

Less imputed interest

(21,958)

Present value of operating lease liabilities

$

36,704

Contract commitments. At September 30, 2020, we have contractual commitments of approximately $30.0 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 primarily be paid within a year.

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.

(14) DISCLOSURES ABOUT FAIR VALUE

GAAP defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. GAAP 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, 2020 and December 31, 2019.

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 revolving credit facility debt approximates fair value since borrowings under the facility bear interest at current market interest rates. The estimated fair value of our $299.9 million publicly traded senior notes at September 30, 2020 was approximately $310.4 million based on observable market trades. The fair value of our debt is categorized in Level 2 of the fair value hierarchy.

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Notes to consolidated financial statements (unaudited) (continued)

(15) REVENUE FROM CONTRACTS WITH CUSTOMERS

The majority of our terminaling services agreements contain minimum payment arrangements, resulting in a fixed amount of revenue recognized, which we refer to as “firm commitments” and are accounted for in accordance with ASC 842, Leases (“ASC 842 revenue”). The remainder is recognized in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606 revenue”).

The following table provides details of our revenue disaggregated by category of revenue (in thousands):

Three months ended 

Nine months ended 

September 30,

September 30,

    

2020

2019

    

2020

2019

Terminaling services fees:

Firm commitments (ASC 842 revenue)

$

50,054

$

46,130

$

146,425

$

131,307

Firm commitments (ASC 606 revenue)

3,700

3,351

11,208

10,789

Total firm commitments revenue

53,754

49,481

157,633

142,096

Ancillary revenue (ASC 606 revenue)

 

10,141

 

10,430

 

30,484

 

30,577

Ancillary revenue (ASC 842 revenue)

 

411

 

1,168

 

1,994

 

3,645

Total ancillary revenue

 

10,552

 

11,598

 

32,478

 

34,222

Total terminaling services fees

 

64,306

 

61,079

 

190,111

 

176,318

Pipeline transportation fees (ASC 842 revenue)

 

887

 

877

 

2,631

 

2,579

Management fees (ASC 606 revenue)

 

3,926

 

4,317

 

12,675

 

12,611

Management fees (ASC 842 revenue)

 

309

 

300

 

910

 

1,302

Total management fees

 

4,235

 

4,617

 

13,585

 

13,913

Total revenue

$

69,428

$

66,573

$

206,327

$

192,810

The following table includes our estimated future revenue associated with our firm commitments under terminaling services fees which is expected to be recognized as ASC 606 revenue in the specified period related to our future performance obligations as of the end of the reporting period (in thousands):

Estimated Future ASC 606 Revenue by Segment

Gulf Coast

Midwest

Brownsville

River

Southeast

West Coast

Central

Terminals

    

Terminals

    

Terminals

    

Terminals

    

Terminals

    

Terminals

    

Services

    

Total

2020 (remainder of the year)

$

1,122

$

183

$

$

260

$

$

2,131

$

$

3,696

2021

4,487

118

520

5,704

10,829

2022

1,549

1,573

3,122

2023

223

223

2024

Thereafter

Total estimated future ASC 606 revenue

$

7,381

$

301

$

$

780

$

$

9,408

$

$

17,870

Our estimated future ASC 606 revenue, for purposes of the tabular presentation above, excludes estimates of future rate changes due to changes in indices or contractually negotiated rate escalations and is generally limited to contracts that have minimum payment arrangements. The balances disclosed include the full amount of our customer commitments accounted for as ASC 606 revenue as of September 30, 2020 through the expiration of the related contracts. The balances disclosed exclude all performance obligations for which the original expected term is one year or less, the term of the contract with the customer is open and cannot be estimated, the contract includes options for future purchases or the consideration is variable.

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Notes to consolidated financial statements (unaudited) (continued)

Estimated future ASC 606 revenue in the table above excludes revenue arrangements accounted for in accordance with ASC 842. The following table includes our estimated future revenue associated with our firm commitments under terminaling services fees which is expected to be recognized as ASC 842 revenue in the specified period (in thousands):

2020 (remainder of the year)

$

50,654

2021

 

153,090

2022

 

108,858

2023

 

88,991

2024

 

53,803

Thereafter

488,119

Total estimated future ASC 842 revenue

$

943,515

(16) 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 the Company’s chief executive officer. The Company’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 operating costs and expenses. Accordingly, we present “net margins” for each of our business segments: (i) Gulf Coast terminals, (ii) Midwest terminals, (iii) Brownsville terminals including management of the Frontera joint venture, (iv) River terminals, (v) Southeast terminals, (vi) West Coast terminals and (vii) Central services. Our Central services segment primarily represents the costs of employees performing operating oversight functions, engineering, health, safety and environmental services to our terminals and terminals that we operate or manage, including for affiliate terminals owned by ArcLight. In addition, Central services represent the cost of employees at affiliate terminals owned by ArcLight that we operate. We receive a fee from these affiliates based on our costs incurred.

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Notes to consolidated financial statements (unaudited) (continued)

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

Three months ended 

 

Nine months ended 

September 30,

 

September 30,

    

2020

    

2019

 

2020

2019

Gulf Coast Terminals:

Terminaling services fees

$

19,188

$

18,930

$

58,718

$

52,074

Management fees

 

6

 

16

 

18

 

30

Revenue

 

19,194

 

18,946

 

58,736

 

52,104

Operating costs and expenses

 

(5,201)

 

(5,182)

 

(16,373)

 

(16,089)

Net margins

 

13,993

 

13,764

 

42,363

 

36,015

Midwest Terminals:

Terminaling services fees

 

2,159

 

3,115

 

5,635

 

8,356

Pipeline transportation fees

 

482

 

472

 

1,426

 

1,378

Revenue

 

2,641

 

3,587

 

7,061

 

9,734

Operating costs and expenses

 

(720)

 

(1,293)

 

(1,996)

 

(2,699)

Net margins

 

1,921

 

2,294

 

5,065

 

7,035

Brownsville Terminals:

Terminaling services fees

 

3,568

 

2,954

 

11,232

 

7,817

Pipeline transportation fees

 

405

 

405

 

1,205

 

1,201

Management fees

 

1,233

 

1,283

 

4,002

 

4,381

Revenue

 

5,206

 

4,642

 

16,439

 

13,399

Operating costs and expenses

 

(2,312)

 

(2,056)

 

(7,449)

 

(6,546)

Net margins

 

2,894

 

2,586

 

8,990

 

6,853

River Terminals:

Terminaling services fees

 

3,255

 

2,457

 

8,588

 

7,211

Revenue

 

3,255

 

2,457

 

8,588

 

7,211

Operating costs and expenses

 

(1,529)

 

(1,318)

 

(4,188)

 

(4,327)

Net margins

 

1,726

 

1,139

 

4,400

 

2,884

Southeast Terminals:

Terminaling services fees

 

22,439

 

22,039

 

65,578

 

65,167

Management fees

 

178

 

233

 

710

 

711

Revenue

 

22,617

 

22,272

 

66,288

 

65,878

Operating costs and expenses

 

(6,428)

 

(5,174)

 

(17,330)

 

(17,266)

Net margins

 

16,189

 

17,098

 

48,958

 

48,612

West Coast Terminals:

Terminaling services fees

 

13,697

 

11,584

 

40,360

 

35,693

Management fees

 

9

 

8

 

27

 

25

Revenue

 

13,706

 

11,592

 

40,387

 

35,718

Operating costs and expenses

 

(4,016)

 

(3,703)

 

(14,014)

 

(12,207)

Net margins

 

9,690

 

7,889

 

26,373

 

23,511

Central Services:

Management fees

 

2,809

 

3,077

 

8,828

 

8,766

Revenue

2,809

3,077

8,828

8,766

Operating costs and expenses

 

(5,035)

 

(5,669)

 

(15,883)

 

(17,050)

Net margins

 

(2,226)

 

(2,592)

 

(7,055)

 

(8,284)

Total net margins

 

44,187

42,178

129,094

116,626

General and administrative expenses

 

(4,820)

 

(4,603)

 

(16,387)

 

(17,979)

Insurance expenses

 

(1,258)

 

(1,240)

 

(3,746)

 

(3,819)

Deferred compensation expense

 

(309)

 

(376)

 

(1,574)

 

(1,469)

Depreciation and amortization

(14,674)

(13,362)

(42,557)

(39,121)

Earnings from unconsolidated affiliates

 

1,789

 

1,476

 

5,792

 

3,841

Gain from insurance proceeds

3,351

Operating income

 

24,915

 

24,073

 

70,622

 

61,430

Other expenses

 

(8,085)

 

(9,743)

(25,773)

 

(29,675)

Net earnings

$

16,830

$

14,330

$

44,849

$

31,755

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Notes to consolidated financial statements (unaudited) (continued)

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

Three months ended September 30, 2020

 

Gulf Coast

Midwest

Brownsville

River

Southeast

West Coast

Central

 

Terminals

Terminals 

Terminals

Terminals

Terminals

Terminals

Services

Total

 

Revenue:

External customers

    

$

17,005

$

2,641

$

3,345

$

3,255

$

22,617

$

13,706

$

$

62,569

Affiliate customers

 

2,189

 

 

1,861

 

 

 

 

2,809

 

6,859

Revenue

$

19,194

$

2,641

$

5,206

$

3,255

$

22,617

$

13,706

$

2,809

$

69,428

Capital expenditures

$

2,370

$

567

$

4,550

$

3,782

$

11,933

$

1,486

$

114

$

24,802

Identifiable assets

$

122,361

$

19,153

$

104,118

$

48,841

$

255,246

$

271,338

$

12,356

$

833,413

Cash and cash equivalents

 

2,412

Investments in unconsolidated affiliates

 

227,009

Revolving credit facility unamortized deferred debt issuance costs, net

 

2,541

Other

 

4,262

Total assets

$

1,069,637

Three months ended September 30, 2019

 

Gulf Coast

Midwest

Brownsville

River

Southeast

West Coast

Central

 

Terminals

Terminals 

Terminals

Terminals

Terminals

Terminals

Services

Total

 

Revenue:

    

External customers

$

17,096

$

3,587

$

2,684

$

2,457

$

22,272

$

11,592

$

$

59,688

Affiliate customers

 

1,850

 

 

1,958

 

 

 

 

3,077

 

6,885

Revenue

$

18,946

$

3,587

$

4,642

$

2,457

$

22,272

$

11,592

$

3,077

$

66,573

Capital expenditures

$

1,305

$

234

$

6,667

$

641

$

6,864

$

2,349

$

60

$

18,120

Nine months ended September 30, 2020

    

Gulf Coast

Midwest

Brownsville

River

Southeast

West Coast

Central

    

Terminals

    

Terminals 

    

Terminals

    

Terminals

    

Terminals

    

Terminals

    

Services

Total

 

Revenue:

External customers

$

52,315

$

7,061

$

10,493

$

8,588

$

66,288

$

40,387

$

$

185,132

Affiliate customers

6,421

5,946

 

8,828

21,195

Revenue

$

58,736

$

7,061

$

16,439

$

8,588

$

66,288

$

40,387

$

8,828

$

206,327

Capital expenditures

$

6,330

$

924

$

15,036

$

5,794

$

18,940

$

5,545

$

998

$

53,567

Nine months ended September 30, 2019

Gulf Coast

Midwest

Brownsville

River

Southeast

West Coast

Central

    

Terminals

    

Terminals 

    

Terminals

    

Terminals

    

Terminals

    

Terminals

    

Services

Total

 

Revenue:

External customers

$

45,712

$

9,734

$

7,039

$

7,211

$

65,878

$

35,718

$

$

171,292

Affiliate customers

6,392

6,360

 

8,766

21,518

Revenue

$

52,104

$

9,734

$

13,399

$

7,211

$

65,878

$

35,718

$

8,766

$

192,810

Capital expenditures

$

4,373

$

621

$

18,118

$

1,807

$

31,301

$

8,817

$

380

$

65,417

(17) SUBSEQUENT EVENT

No subsequent transactions or events warranted recognition or disclosure in the accompanying financials or notes thereto.

29


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

RECENT DEVELOPMENTS

COVID-19. The ongoing pandemic involving COVID-19, a highly transmissible and pathogenic coronavirus, has resulted in restrictions on, and a public response with respect to, travel and economic activity that have reduced demand and pricing for crude oil, refined petroleum products, biofuels, and other products that we handle. The reduction in commodity price in 2020 and demand for products that we handle has, for the time being, resulted in a strong demand for storage capacity. For example, in late March 2020, we contracted approximately 1,000,000 barrels of capacity at our Cushing, Oklahoma terminal and approximately 705,000 barrels of available capacity at our Collins, Mississippi terminal that had recently become available. Currently, approximately 84% of our terminaling services revenue is derived from firm commitments pursuant to our multi-year agreements that require our customers to make minimum payments based on minimum volumes of throughput of the customer’s product or the volume of storage capacity available to the customer under the agreement. Further, the majority of our terminaling services agreements have a remaining term in excess of one year. As a result we expect the negative impacts to our business to continue to be primarily limited to delays in our capital expansion projects, which may be occurring, in part, due to state and local government responses to COVID-19.

We have taken proactive measures to deliver our services safely and reliably during the COVID-19 pandemic. At the outset of the pandemic, we activated an Incident Support Team to execute our Infectious Disease Control Policy, and to focus on a number of priorities, including: (i) implement basic infection prevention techniques and other workplace protections in our business operations; (ii) identify and isolate individuals suspected of being infected by COVID-19; (iii) identify risk factors in our workforce that may increase the possibility of exposure to COVID-19; and (iv) develop a contingency plan for the possibility that a serious outbreak does occur in the area of any of our terminals. We are following recommendations from public health authorities and have taken steps to help prevent our employees’ exposure to the spread of COVID-19, including, where practical, work-at-home plans enacted in March 2020 and the implementation of business continuity plans to enable the integrity of our operations and protect the health of our employees.

To date, our operations and employees have not been materially impacted by the COVID-19 pandemic, including the recent rise in caseload in the majority of the country; thereby allowing our customers continued access and utilization of our strategic terminal network. We continue to employ all safety processes and procedures in the normal course. We provide an essential service across our markets, which has been recognized in most relevant regulatory guidance regarding COVID-19. Further, we have not experienced any material instance of our customers failing to meet their contractual commitments to us as a result of these recent developments. There continue to be too many variables and uncertainties regarding COVID-19 — including the continued spread of the virus, the duration and severity of the

outbreak and the extent of travel restrictions and business closures, and medical advancements in treating and vaccinating against the disease — to reasonably predict the potential longer-term impact of COVID-19 on our business and operations. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business due to the global economic recession that could result from the measures taken to combat the virus. We continue to monitor the situation, have actively implemented policies and practices to address the situation and actively protect our employees, and may adjust our current policies and practices as more information and guidance become available.

Expansion of Assets

Expansion of our Brownsville operations.  Our Brownsville expansion project, which is underpinned by new long-term agreements, includes the construction of approximately 805,000 barrels of additional liquids storage capacity, the construction of gasoline railcar loading capabilities and the conversion of our Diamondback pipeline to transport diesel and gasoline across the U.S./Mexico border. The Diamondback pipeline is comprised of an 8” pipeline that previously transported propane, as well as a 6” pipeline, which runs parallel to the 8” pipeline, that has been idle and both can be used to transport refined products to Matamoros, Mexico. The majority of the additional liquids storage capacity was placed into commercial service during the first three quarters of 2019 with a remaining 175,000 barrels of capacity to be completed in the first quarter of 2021. We expect to recommission the Diamondback pipeline and resume

30


operations on both the 8” pipeline and the previously idle 6” pipeline in the first quarter of 2021. We expect the construction of the gasoline railcar loading capabilities to be completed in the first quarter 2021. The anticipated aggregate cost of these expansion efforts is estimated to be approximately $75 million.

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 Note 1 of Notes to consolidated financial statements as of and for the three and nine months ended September 30, 2020. 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.

RESULTS OF OPERATIONS—THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

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 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,

    

 

2020

2019

Terminaling services fees

$

64,306

$

61,079

Pipeline transportation fees

 

887

 

877

Management fees

 

4,235

 

4,617

Revenue

$

69,428

$

66,573

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

We operate our business and report our results of operations in seven principal business segments: (i) Gulf Coast terminals, (ii) Midwest terminals, (iii) Brownsville terminals including management of the Frontera joint venture, (iv) River terminals, (v) Southeast terminals, (vi) West Coast terminals and (vii) Central services. Our Central services segment primarily represents the costs of employees performing operating oversight functions, engineering, health, safety and environmental services to our terminals and terminals that we operate or manage, including for affiliate terminals owned by ArcLight. In addition, Central services represent the cost of employees at affiliate terminals owned by ArcLight that we operate. We receive a fee from these affiliates based on our costs incurred.

31


The aggregate revenue of each of our business segments was as follows (in thousands):

Total Revenue by Business Segment

Three months ended September 30,

    

2020

    

2019

Gulf Coast terminals

$

19,194

$

18,946

Midwest terminals

 

2,641

 

3,587

Brownsville terminals

 

5,206

 

4,642

River terminals

 

3,255

 

2,457

Southeast terminals

 

22,617

 

22,272

West Coast terminals

 

13,706

 

11,592

Central services

2,809

3,077

Revenue

$

69,428

$

66,573

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

Terminaling services fees. Our terminaling services agreements are structured as either throughput agreements or storage agreements. Our throughput agreements contain provisions that require our customers to make minimum payments, which are based on contractually established minimum volume of throughput of the customer’s product at our facilities over a stipulated period of time. Due to this minimum payment arrangement, we recognize a fixed amount of revenue from the customer over a certain period of time, even if the customer throughputs less than the minimum volume of product during that period. In addition, if a customer throughputs a volume of product exceeding the minimum volume, we would recognize additional revenue on this incremental volume. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity available to the customer under the agreement, which results in a fixed amount of recognized revenue.

We refer to the fixed amount 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 “ancillary.” In addition, “ancillary” revenue also includes fees received from ancillary services including heating and mixing of stored products, product transfer, railcar handling, butane blending, proceeds from the sale of product gains, wharfage and vapor recovery.

The terminaling services fees by business segments were as follows (in thousands):

Terminaling Services Fees by Business Segment

Three months ended September 30,

    

2020

2019

Gulf Coast terminals

$

19,188

$

18,930

Midwest terminals

 

2,159

 

3,115

Brownsville terminals

3,568

2,954

River terminals

3,255

2,457

Southeast terminals

22,439

22,039

West Coast terminals

13,697

11,584

Central services

Terminaling services fees

$

64,306

$

61,079

The increase in terminaling services fees at our West Coast terminals is primarily a result of contracting available capacity to third-party customers and placing into service new tank capacity.

32


Included in terminaling services fees for the three months ended September 30, 2020 and 2019, are fees charged to affiliates of approximately $2.9 million and $2.5 million, respectively.

The “firm commitments” and “ancillary” revenue included in terminaling services fees were as follows (in thousands):

Firm Commitments and Ancillary Revenue

Three months ended September 30,

 

    

2020

    

2019

 

Firm commitments

$

53,754

$

49,481

Ancillary

10,552

11,598

Terminaling services fees

$

64,306

$

61,079

The remaining terms on the terminaling services agreements that generated “firm commitments” for the three months ended September 30, 2020 are as follows (in thousands):

Less than 1 year remaining

    

$

17,018

    

32%

1 year or more, but less than 3 years remaining

 

16,710

31%

3 years or more, but less than 5 years remaining

 

11,410

21%

5 years or more remaining (1)

 

8,616

16%

Total firm commitments for the three months ended September 30, 2020

$

53,754

_____________________________

(1) We have a terminaling services agreement with a third party relating to our Southeast terminals that will continue in effect through February 1, 2023, after which it shall automatically continue unless and until the third party provides at least 24 months’ prior notice of its intent to terminate the agreement. Effective at any time from and after July 31, 2040, we have the right to terminate the agreement by providing at least 24 months’ prior notice of our intent to terminate the agreement. We do not believe the third party will terminate the agreement prior to July 31, 2040; therefore, we have presented the firm commitments related to this terminaling services agreement in the 5 years or more remaining category in the table above.

Pipeline transportation fees. We earned pipeline transportation fees at our Diamondback pipeline under a capacity reservation agreement. Revenue associated with the capacity reservation agreement is recognized ratably over the respective term, regardless of whether the capacity is actually utilized. Once our Brownsville terminal expansion efforts are complete, including the conversion of our Diamondback pipeline to transport diesel and gasoline, we then expect to earn pipeline transportation fees at our Diamondback pipeline based on the volume of product transported subject to minimum volume commitments. 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. The pipeline transportation fees by business segments were as follows (in thousands):

Pipeline Transportation Fees by Business Segment

Three months ended September 30,

 

    

2020

    

2019

 

Gulf Coast terminals

$

$

Midwest terminals

 

482

 

472

Brownsville terminals

 

405

 

405

River terminals

 

 

Southeast terminals

 

 

West Coast terminals

 

 

Central services

Pipeline transportation fees

$

887

$

877

33


Management fees. We manage and operate certain tank capacity at our Port Everglades South terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate the Frontera joint venture and receive a management fee based on our costs incurred. We manage and operate terminals that are owned by affiliates of ArcLight, including for SeaPort Midstream Partners in Seattle, Washington and Portland, Oregon and another terminal for SeaPort Sound in Tacoma, Washington and receive a management fee based on our costs incurred. We also manage additional terminal facilities that are owned by affiliates of ArcLight, including Lucknow-Highspire Terminals, and, prior to July 1, 2019, the Baltimore Terminal. We manage and operate rail sites at certain Southeast terminals on behalf of a major oil company and receive reimbursement for operating and maintenance costs. We lease land under operating leases as the lessor or sublessor with third parties and affiliates.

The management fees by business segments were as follows (in thousands):

Management Fees by Business Segment

Three months ended September 30,

    

2020

    

2019

Gulf Coast terminals

$

6

$

16

Midwest terminals

 

 

Brownsville terminals

 

1,233

 

1,283

River terminals

 

 

Southeast terminals

 

178

 

233

West Coast terminals

 

9

 

8

Central services

2,809

3,077

Management fees

$

4,235

$

4,617

Included in management fees for the three months ended September 30, 2020 and 2019, are fees charged to affiliates of approximately $4.0 million and $4.4 million, respectively.

ANALYSIS OF COSTS AND EXPENSES

The operating costs and expenses of our operations include wages and employee benefits, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies. Consistent with historical trends across our terminaling and transportation facilities, repairs and maintenance expenses can vary from period to period based on project maintenance schedules and other factors such as weather. The operating costs and expenses of our operations were as follows (in thousands):

Operating Costs and Expenses

Three months ended September 30,

 

    

2020

    

2019

 

Wages and employee benefits

$

12,210

$

11,118

Utilities and communication charges

 

2,043

 

2,209

Repairs and maintenance

 

3,912

 

3,838

Office, rentals and property taxes

 

3,435

 

3,786

Vehicles and fuel costs

 

267

 

286

Environmental compliance costs

 

982

 

624

Other

 

2,392

 

2,534

Operating costs and expenses

$

25,241

$

24,395

34


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

Operating Costs and Expenses by Business Segment

Three months ended September 30,

 

    

2020

    

2019

 

Gulf Coast terminals

$

5,201

$

5,182

Midwest terminals

 

720

 

1,293

Brownsville terminals

 

2,312

 

2,056

River terminals

 

1,529

 

1,318

Southeast terminals

 

6,428

 

5,174

West Coast terminals

 

4,016

 

3,703

Central services

5,035

5,669

Operating costs and expenses

$

25,241

$

24,395

General and administrative expenses cover the costs of corporate functions such as legal, accounting, treasury, insurance administration and claims processing, information technology, human resources, credit, payroll, taxes and other corporate services. General and administrative expenses also include third party accounting costs associated with annual and quarterly reports and tax return preparation and distribution, and legal fees. The general and administrative expenses were approximately $4.8 million and $4.6 million for the three months ended September 30, 2020 and 2019, respectively.

Insurance expenses include charges for insurance premiums to cover costs of insuring activities such as property, casualty, pollution, automobile, directors’ and officers’ liability, and other insurable risks. For the three months ended September 30, 2020 and 2019, the expense associated with insurance was approximately $1.3 million and $1.2 million, respectively.

Deferred compensation expense includes expense associated with awards granted to certain key officers and employees who provide service to us that vest over future service periods. The expenses associated with these deferred compensation awards were approximately $0.3 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively.

For the three months ended September 30, 2020 and 2019, depreciation and amortization expense was approximately $14.7 million and $13.4 million, respectively. The increase in depreciation and amortization expense for the three months ended September 30, 2020 is attributable to placing expansion projects in service throughout the past year.

For the three months ended September 30, 2020 and 2019, interest expense was approximately $7.4 million and $9.1 million, respectively. The decrease in interest expense for the three months ended September 30, 2020 is attributable to decreases in LIBOR based interest rates.

ANALYSIS OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Our investments in unconsolidated affiliates include a 42.5% Class A ownership interest in BOSTCO and a 50% ownership 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. 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 1.7 million barrels of light petroleum product storage, as well as related ancillary facilities.

35


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

Three months ended September 30,

2020

    

2019

BOSTCO

    

$

1,132

$

594

Frontera

 

657

 

882

Total earnings from investments in unconsolidated affiliates

$

1,789

$

1,476

Additional capital investments in unconsolidated affiliates for the funding of growth projects was as follows (in thousands):

Three months ended September 30,

    

2020

    

2019

BOSTCO

$

2,508

$

1,504

Frontera

 

 

Additional capital investments in unconsolidated affiliates

$

2,508

$

1,504

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

Three months ended September 30,

 

    

2020

    

2019

 

BOSTCO

$

3,201

$

2,063

Frontera

 

339

 

672

Cash distributions received from unconsolidated affiliates

$

3,540

$

2,735

RESULTS OF OPERATIONS—NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

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 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,

2020

2019

Terminaling services fees

    

$

190,111

    

$

176,318

Pipeline transportation fees

 

2,631

 

2,579

Management fees

 

13,585

 

13,913

Revenue

$

206,327

$

192,810

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

We operate our business and report our results of operations in seven principal business segments: (i) Gulf Coast terminals, (ii) Midwest terminals, (iii) Brownsville terminals including management of the Frontera joint venture, (iv) River terminals, (v) Southeast terminals, (vi) West Coast terminals and (vii) Central services. Our Central services segment primarily represents the costs of employees performing operating oversight functions, engineering, health, safety and environmental services to our terminals and terminals that we operate or manage, including for affiliate terminals owned by ArcLight. In addition, Central services represent the cost of employees at affiliate terminals owned by ArcLight that we operate. We receive a fee from these affiliates based on our costs incurred.

36


The aggregate revenue of each of our business segments was as follows (in thousands):

Total Revenue by Business Segment

Nine months ended September 30,

2020

2019

Gulf Coast terminals

    

$

58,736

$

52,104

Midwest terminals

 

7,061

 

9,734

Brownsville terminals

 

16,439

 

13,399

River terminals

 

8,588

 

7,211

Southeast terminals

 

66,288

 

65,878

West Coast terminals

 

40,387

 

35,718

Central services

8,828

8,766

Revenue

$

206,327

$

192,810

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

Terminaling services fees. Our terminaling services agreements are structured as either throughput agreements or storage agreements. Our throughput agreements contain provisions that require our customers to make minimum payments, which are based on contractually established minimum volume of throughput of the customer’s product at our facilities over a stipulated period of time. Due to this minimum payment arrangement, we recognize a fixed amount of revenue from the customer over a certain period of time, even if the customer throughputs less than the minimum volume of product during that period. In addition, if a customer throughputs a volume of product exceeding the minimum volume, we would recognize additional revenue on this incremental volume. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity available to the customer under the agreement, which results in a fixed amount of recognized revenue.

We refer to the fixed amount 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 “ancillary.” In addition, “ancillary” revenue also includes fees received from ancillary services including heating and mixing of stored products, product transfer, railcar handling, butane blending, proceeds from the sale of product gains, wharfage and vapor recovery.

The terminaling services fees by business segments were as follows (in thousands):

Terminaling Services Fees by Business Segment

Nine months ended September 30,

2020

2019

Gulf Coast terminals

    

$

58,718

$

52,074

Midwest terminals

5,635

8,356

Brownsville terminals

11,232

7,817

River terminals

8,588

7,211

Southeast terminals

65,578

65,167

West Coast terminals

40,360

35,693

Central services

Terminaling services fees

$

190,111

$

176,318

37


The increase in terminaling services fees at our Gulf Coast terminals is primarily a result of recontracting capacity to third-party customers at higher rates. The decrease in terminaling services fees at our Midwest terminals is primarily a result of our capacity in Cushing, Oklahoma being off-contract in the first quarter of 2020. The increase in terminaling services fees at our Brownsville terminals is primarily a result of placing into service new tank capacity. The increase in terminaling services fees at our River terminals is primarily a result of contracting available capacity to third-party customers. The increase in terminaling services fees at our West Coast terminals is primarily a result of contracting available capacity to third-party customers and placing into service new tank capacity.

Included in terminaling services fees for the nine months ended September 30, 2020 and 2019, are fees charged to affiliates of approximately $8.3 million and $8.4 million, respectively.

The “firm commitments” and “ancillary” revenue included in terminaling services fees were as follows (in thousands):

Firm Commitments and Ancillary Revenue

Nine months ended September 30,

 

2020

2019

 

Firm commitments

    

$

157,633

$

142,096

Ancillary

32,478

34,222

Terminaling services fees

$

190,111

$

176,318

Pipeline transportation fees. We earned pipeline transportation fees at our Diamondback pipeline under a capacity reservation agreement. Revenue associated with the capacity reservation agreement is recognized ratably over the respective term, regardless of whether the capacity is actually utilized. Once our Brownsville terminal expansion efforts are complete, including the conversion of our Diamondback pipeline to transport diesel and gasoline, we then expect to earn pipeline transportation fees at our Diamondback pipeline based on the volume of product transported subject to minimum volume commitments. 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. The pipeline transportation fees by business segments were as follows (in thousands):

Pipeline Transportation Fees by Business Segment

Nine months ended September 30,

 

2020

2019

 

Gulf Coast terminals

    

$

$

Midwest terminals

 

1,426

 

1,378

Brownsville terminals

 

1,205

 

1,201

River terminals

 

 

Southeast terminals

 

 

West Coast terminals

 

 

Central services

Pipeline transportation fees

$

2,631

$

2,579

Management fees. We manage and operate certain tank capacity at our Port Everglades South terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate the Frontera joint venture and receive a management fee based on our costs incurred. We manage and operate terminals that are owned by affiliates of ArcLight, including for SeaPort Midstream Partners in Seattle, Washington and Portland, Oregon and another terminal for SeaPort Sound in Tacoma, Washington and receive a management fee based on our costs incurred. We also manage additional terminal facilities that are owned by affiliates of ArcLight, including Lucknow-Highspire Terminals, and, prior to July 1, 2019, the Baltimore Terminal. We manage and operate rail sites at certain Southeast terminals on behalf of a major oil company and receive reimbursement for operating and maintenance costs. We lease land under operating leases as the lessor or sublessor with third parties and affiliates.

38


The management fees by business segments were as follows (in thousands):

Management Fees by Business Segment

Nine months ended September 30,

 

2020

2019

 

Gulf Coast terminals

    

$

18

$

30

Midwest terminals

 

 

Brownsville terminals

 

4,002

 

4,381

River terminals

 

 

Southeast terminals

 

710

 

711

West Coast terminals

 

27

 

25

Central services

8,828

8,766

Management fees

$

13,585

$

13,913

Included in management fees for the nine months ended September 30, 2020 and 2019, are fees charged to affiliates of approximately $12.8 million and $13.1 million, respectively.

ANALYSIS OF COSTS AND EXPENSES

The operating costs and expenses of our operations include wages and employee benefits, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies. Consistent with historical trends across our terminaling and transportation facilities, repairs and maintenance expenses can vary from period to period based on project maintenance schedules and other factors such as weather. The operating costs and expenses of our operations were as follows (in thousands):

Operating Costs and Expenses

Nine months ended September 30,

 

2020

2019

 

Wages and employee benefits

    

$

36,828

$

36,084

Utilities and communication charges

 

6,652

 

7,594

Repairs and maintenance

 

11,117

 

10,385

Office, rentals and property taxes

 

10,309

 

10,850

Vehicles and fuel costs

 

801

 

828

Environmental compliance costs

 

2,772

 

2,574

Other

 

8,754

 

7,869

Operating costs and expenses

$

77,233

$

76,184

39


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

Operating Costs and Expenses by Business Segment

Nine months ended September 30,

 

2020

2019

 

Gulf Coast terminals

    

$

16,373

$

16,089

Midwest terminals

 

1,996

 

2,699

Brownsville terminals

 

7,449

 

6,546

River terminals

 

4,188

 

4,327

Southeast terminals

 

17,330

 

17,266

West Coast terminals

 

14,014

 

12,207

Central services

15,883

17,050

Operating costs and expenses

$

77,233

$

76,184

General and administrative expenses cover the costs of corporate functions such as legal, accounting, treasury, insurance administration and claims processing, information technology, human resources, credit, payroll, taxes and other corporate services. General and administrative expenses also include third party accounting costs associated with annual and quarterly reports and tax return preparation and distribution, and legal fees. The general and administrative expenses were approximately $16.4 million and $18.0 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in general and administrative expenses for the nine months ended September 30, 2020 is primarily attributable to one-time costs associated with the Take-Private Transaction during the nine months ended September 30, 2019.

Insurance expenses include charges for insurance premiums to cover costs of insuring activities such as property, casualty, pollution, automobile, directors’ and officers’ liability, and other insurable risks. For the nine months ended September 30, 2020 and 2019, the expense associated with insurance was approximately $3.7 million and $3.8 million, respectively.

Deferred compensation expense includes expense associated with awards granted to certain key officers and employees who provide service to us that vest over future service periods and, prior to the Take-Private Transaction, grants to the independent directors of our general partner under our long-term incentive plan (which was terminated in connection with the Take-Private Transaction). Prior to the Take-Private Transaction, we had the intent and ability to settle the deferred compensation awards in our common units, and accordingly, we accounted for the awards as an equity award; following the Take-Private Transaction, we have the intent and ability to settle the awards in cash. The expenses associated with these deferred compensation awards were approximately $1.6 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020 and 2019, depreciation and amortization expense was approximately $42.6 million and $39.1 million, respectively. The increase in depreciation and amortization expense for the nine months ended September 30, 2020 is attributable to placing expansion projects in service throughout the past year.

For the nine months ended September 30, 2020 and 2019, interest expense was approximately $23.9 million and $27.7 million, respectively. The decrease in interest expense for the nine months ended September 30, 2020 is attributable to decreases in LIBOR based interest rates.

40


ANALYSIS OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Our investments in unconsolidated affiliates include a 42.5% Class A ownership interest in BOSTCO and a 50% ownership 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. 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 1.7 million barrels of light petroleum product storage, as well as related ancillary facilities.

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

Nine months ended September 30,

2020

2019

BOSTCO

    

$

3,942

$

1,733

Frontera

 

1,850

 

2,108

Total earnings from investments in unconsolidated affiliates

$

5,792

$

3,841

Additional capital investments in unconsolidated affiliates for the funding of growth projects was as follows (in thousands):

Nine months ended September 30,

2020

2019

BOSTCO

    

$

5,679

$

2,580

Frontera

 

 

225

Additional capital investments in unconsolidated affiliates

$

5,679

$

2,805

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

Nine months ended September 30,

2020

2019

BOSTCO

    

$

8,254

$

6,760

Frontera

 

1,633

 

1,989

Cash distributions received from unconsolidated affiliates

$

9,887

$

8,749

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund our debt service obligations, distributions to our parent company TLP Finance, working capital requirements and capital projects, including additional investments and expansion, development and acquisition opportunities. We expect to fund any additional investments, capital projects and future expansion, development and acquisition opportunities with cash flows from operations and additional borrowings under our revolving credit facility. The Take-Private Transaction in February 2019 was partially financed by debt placed at TLP Finance. While the Company and its subsidiaries are not party thereto, distributions of available cash from the Company to TLP Finance may be utilized by TLP Finance to service and/or reduce the TLP Finance debt. 

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

Nine months ended September 30,

2020

2019

Net cash provided by operating activities

$

94,741

$

65,967

Net cash used in investing activities

$

(59,246)

$

(63,234)

Net cash used in financing activities

$

(34,173)

$

(3,411)

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The increase in net cash provided by operating activities is primarily related to increased revenue from recontracting activity, placing into service new tank capacity at our Brownsville and West Coast terminals and the timing of working capital requirements.

The decrease in net cash used in investing activities is primarily related to less construction spend in 2020.

Additional investments and expansion capital projects at our terminals have been approved and currently are, or will be, under construction with estimated completion dates throughout 2021. At September 30, 2020, the remaining expenditures to complete the approved projects are estimated to be approximately $47 million. These expenditures primarily relate to the construction costs associated with our expansion of the Brownsville operations.

The increase in net cash used in financing activities includes a decrease of approximately $32.6 million in net borrowings under our revolving credit facility primarily due to increased cash flows from operations and less spend on growth capital projects in 2020.

Third amended and restated senior secured credit facility. Our revolving credit facility provides for a maximum borrowing line of credit equal to $850 million. At our request, the maximum borrowing line of credit may be increased by an additional $250 million, subject to the approval of the administrative agent and the receipt of additional commitments from one or more lenders. The terms of our revolving 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 LLC 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 $175 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, March 13, 2022.

We may elect to have loans under our revolving credit facility bear interest either (i) at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% depending on the total leverage ratio then in effect, or (ii) at the base rate plus a margin ranging from 0.75% to 1.75% 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 our revolving 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, 2020, our outstanding borrowings under our revolving credit facility were $355.0 million.

Our revolving 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 our revolving credit facility are (i) a total leverage ratio test (not to exceed 5.25 to 1.0), (ii) a senior secured leverage ratio test (not to exceed 3.75 to 1.0), and (iii) a minimum interest coverage ratio test (not less than 2.75 to 1.0). These financial covenants are based on a non-GAAP, defined financial performance measure within our revolving credit facility known as “Consolidated EBITDA.” We were in compliance with all financial covenants as of and during the nine months ended September 30, 2020 and the year ended December 31, 2019.

If we were to fail a financial performance covenant, or any other covenant contained in our revolving 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 our revolving credit facility, and the lenders would be entitled to declare all outstanding borrowings immediately due and payable.

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Three months ended

Twelve months ending

    

December 31,

    

March 31,

    

June 30,

    

September 30,

    

September 30,

2019

2019

2020

2020

2020

Financial performance covenant tests:

    

Consolidated EBITDA (1)

$

38,379

$

35,659

$

40,275

$

41,340

$

155,653

Material Project credit (2)

3,233

3,233

Consolidated EBITDA for the leverage ratios (1)

$

41,612

$

35,659

$

40,275

$

41,340

$

158,886

Revolving credit facility debt

355,000

6.125% senior notes due in 2026

299,900

Consolidated funded indebtedness

$

654,900

Senior secured leverage ratio

2.23

Total leverage ratio

4.12

Consolidated EBITDA for the interest coverage ratio (1)

$

38,379

$

35,659

$

40,275

$

41,340

$

155,653

Consolidated interest expense (1) (3)

$

8,731

$

8,942

$

7,956

$

7,435

$

33,064

Interest coverage ratio

 

4.71

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

Consolidated EBITDA for the total leverage ratio (1)

$

41,612

$

35,659

$

40,275

$

41,340

$

158,886

Material Project credit (2)

(3,233)

(3,233)

Interest expense

 

(8,539)

 

(9,214)

 

(7,204)

 

(7,435)

 

(32,392)

Unrealized (gain) loss on derivative instruments

(192)

272

(752)

(672)

Amortization of deferred revenue

 

(685)

 

(33)

 

1,228

 

239

 

749

Change in operating assets and liabilities

 

3,155

 

(7,872)

 

7,497

 

741

 

3,521

Cash flows provided by operating activities

$

32,118

$

18,812

$

41,044

$

34,885

$

126,859

___________________________________

(1)Reflects the calculation of Consolidated EBITDA and Consolidated interest expense in accordance with the definition for such financial metrics in our revolving credit facility.
(2)Reflects percentage of completion pro forma credit for the Brownsville operations expansion that qualifies as a “Material Project” under the terms of our revolving credit facility.
(3)Consolidated interest expense, used in the calculation of the interest coverage ratio, excludes unrealized gains and losses recognized on our derivative instruments.

Senior notes. On February 12, 2018, the Company and TLP Finance Corp., our wholly owned subsidiary, issued at par $300 million of 6.125% senior notes, due in 2026. We may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases, open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

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 13, 2020, 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, 2019.

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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 revolving credit facility. Borrowings under our revolving credit facility bear interest at a variable rate based on LIBOR or the lender’s base rate. At September 30, 2020, we had outstanding borrowings of $355.0 million under our revolving credit facility. Based on the outstanding balance of our variable-interest-rate debt at September 30, 2020, assuming market interest rates increase or decrease by 100 basis points, the potential annual increase or decrease in interest expense is approximately $3.6 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.

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 the Company, including the Company’s principal executive and principal financial officer (whom we refer to as the Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. The management of the Company evaluated, with the participation of the Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, the Certifying Officers concluded that, as of September 30, 2020, 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 13 to our unaudited consolidated financial statements entitled “Legal proceedings” which is incorporated into this item by reference.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our Annual Report on Form 10-K filed on March 13, 2020 and in our Quarterly Report on Form 10-Q filed on August 10, 2020, which could materially affect our business, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

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, 2019, filed on March 13, 2020 and our Quarterly Report on Form 10-Q filed on August 10, 2020.

44


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 LLC and subsidiaries for the quarter ended September 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of equity, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.

45


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 6, 2020

TransMontaigne Partners LLC

By:

/s/ Frederick W. Boutin

Frederick W. Boutin
Chief Executive Officer

By:

/s/ Robert T. Fuller

Robert T. Fuller
Chief Financial Officer

46