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TLP > SEC Filings for TLP > Form 10-Q on 5-Nov-2013All Recent SEC Filings

Show all filings for TRANSMONTAIGNE PARTNERS L.P.

Form 10-Q for TRANSMONTAIGNE PARTNERS L.P.


5-Nov-2013

Quarterly Report


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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies that we have adopted and followed in the preparation of our consolidated financial statements is detailed in our consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K, filed on March 12, 2013 (see Note 1 of Notes to consolidated financial statements). 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, accrued environmental obligations and determining the fair value of our reporting units when analyzing goodwill. 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.

DEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2013

On July 15, 2013, we announced a distribution of $0.65 per unit for the period from April 1, 2013 through June 30, 2013, payable on August 8, 2013 to unitholders of record on July 31, 2013.

On July 16, 2013, we entered into amendments to our terminaling services agreements with Morgan Stanley Capital Group covering our Southeast terminals and Florida and Midwest terminals. The termination date of the terminaling services agreement covering our Southeast terminals was extended from December 31, 2014, and will now continue in effect unless and until Morgan Stanley Capital Group provides us at least 24 months' prior notice of its intent to terminate the agreement. The Southeast terminaling services agreement was renewed at the same throughput rates and minimum throughput commitment as the existing agreement.

The terminaling services agreement covering our Florida and Midwest terminals was amended to extend the original termination date from May 31, 2014, and will now continue in effect unless and until Morgan Stanley Capital Group provides us at least 18 months' prior notice of its intent to terminate the agreement in its entirety or terminate the agreement with respect to one or more Florida terminals, subject to certain early termination rights granted to us. The portion of our existing agreement relating to the Florida tanks presently dedicated to bunker fuels and our Mount Vernon, Missouri and Rogers, Arkansas terminals, which we refer to as our Razorback terminals, will not be renewed and will terminate on May 31, 2014. For the year ended December 31, 2012, the revenues attributable to the Florida bunker fuels tanks as well as the Razorback terminals were approximately 14% of our total revenue. We are currently in discussions with various third parties to re-contract this capacity, however, at this time we are unsure what the outcome of these negotiations will be. See "Item 1A. Risk Factors," in our Annual Report on Form 10 K, filed with the SEC on March 12, 2013, which sets forth important factors that could adversely affect our business and results of operations. The Florida light oil terminaling capacity was renewed at the same throughput rates and minimum throughput commitment as our existing agreement. In addition, Morgan Stanley Capital Group and TransMontaigne Inc. agreed to surrender their rights of first refusal under the Florida and Midwest terminaling services agreement with respect to any storage capacity under the agreement that terminates or is not renewed following the effective date of the amendment.

On July 16, 2013, we entered into an amendment to our omnibus agreement with TransMontaigne Inc., our general partner and our subsidiaries, TransMontaigne Operating GP L.L.C. and TransMontaigne Operating Company L.P. The amendment extended the termination date of the omnibus agreement from December 31, 2014 to the earlier to occur of (i) TransMontaigne Inc. ceasing to control our general partner or (ii) at the election of either us or TransMontaigne Inc., following at


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least 24 months' prior written notice to the other parties. The amendment did not change the fee structure and reimbursement provisions payable by us under the omnibus agreement. Under the amendment, TransMontaigne Inc. agreed to waive its existing right of first refusal on Partners' assets and terminaling capacity such that in the event TransMontaigne Inc. or Morgan Stanley Capital Group elects to terminate any existing terminaling services agreement (or storage capacity therein) or in the event an existing agreement expires and is not renewed, then the right of first refusal with respect to the applicable storage capacity thereunder terminates.

On July 24, 2013, we issued, pursuant to an underwritten public offering, 1,450,000 common units representing limited partner interests at a public offering price of $43.32 per common unit. On July 30, 2013, the underwriters of our secondary offering exercised in full their over-allotment option to purchase an additional 217,500 common units representing limited partnership interests at a price of $43.32 per common unit. The net proceeds from the offering were approximately $68.8 million, after deducting underwriting discounts, commissions, and offering expenses. Additionally, TransMontaigne GP L.L.C., our general partner, made a cash contribution of approximately $1.5 million to us to maintain its 2% general partner interest. The net proceeds from the offering and cash contribution were used to repay outstanding borrowings under our credit facility.

Effective August 8, 2013, we sold our Mexico operations to an unaffiliated third party for cash proceeds of approximately $2.1 million, net of $0.2 million in bank accounts sold related to the Mexico operations. The Mexico operations consisted of a 7,000 barrel liquefied petroleum gas storage terminal in Matamoros, Mexico and a seven mile pipeline system connecting the Matamoros terminal to our Diamondback pipeline system at the U.S. border, which connects to our Brownville, Texas terminals. The net carrying amount of the Mexico operations was approximately $3.5 million, which was in excess of the net cash proceeds, resulting in an approximate $1.4 million loss on disposition of assets. We anticipate that the sale will allow the third party buyer to increase its operations in Northern Mexico, which will then enhance the volume throughputed at our Brownsville terminals and transported over our U.S. Diamondback pipeline system.

We have recently received communication from TransMontaigne Inc. that it will not renew its terminaling services agreement at our Fisher Island terminal that expires December 31, 2013. This agreement committed approximately 185,000 barrels of fuel oil capacity and resulted in minimum annual revenue to us of approximately $1.8 million. We are currently in the process of identifying other parties to re-contract this capacity, however, at this time we are unsure if we will be successful in re-contracting this capacity.

Effective September 17, 2013, we entered into a new five year terminaling services agreement with a third party customer for all 760,000 barrels of product storage capacity at our Tampa, Florida terminal. The agreement provides the third party customer the option to extend for two additional five year renewal terms. The agreement replaced Morgan Stanley Capital Group as the customer at our Tampa terminal, is anticipated to generate a similar amount of annual revenue, and diversifies our customer base in the Florida region.

RECENT DEVELOPMENTS

On October 7, 2013, we announced the commencement of commercial operations of BOSTCO. During October, approximately 20 of the 50 initial phase storage tanks were placed into service, and the remaining tanks are expected to come online during the next six months. A two-berth ship dock and 12 barge berths were also placed into service. Work on the 900,000 barrel ultra-low sulphur diesel expansion started in the second quarter of 2013, with commercial operations expected to begin in the fourth quarter of 2014. We expect to receive our first distribution from BOSTCO during the first quarter of 2014, and we expect our distributions from BOSTCO to increase throughout 2014 as tanks come on-line.


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On October 14, 2013, we announced a distribution of $0.65 per unit for the period from July 1, 2013 through September 30, 2013, payable on November 7, 2013 to unitholders of record on October 31, 2013.

RESULTS OF OPERATIONS-THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

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

                              ANALYSIS OF REVENUE

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


                           Total Revenue by Category

                                                     Three months ended
                                                       September 30,
                                                      2013         2012
            Terminaling services fees, net          $   28,682   $ 30,167
            Pipeline transportation fees                 2,077      1,268
            Management fees and reimbursed costs         1,506      1,531
            Other                                        6,109      5,908

            Revenue                                 $   38,374   $ 38,874

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

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

                       Total Revenue by Business Segment

                                                     Three months ended
                                                       September 30,
                                                      2013         2012
           Gulf Coast terminals                     $   13,488   $ 14,261
           Midwest terminals and pipeline system         3,048      3,015
           Brownsville terminals                         6,293      4,582
           River terminals                               2,300      3,465
           Southeast terminals                          13,245     13,551

           Revenue                                  $   38,374   $ 38,874

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

Terminaling Services Fees, Net. Pursuant to terminaling services agreements with our customers, which range from one month to ten years in duration, we generate fees by distributing and storing products for our customers. Terminaling services fees, net include throughput fees based on the volume of product distributed from the facility, injection fees based on the volume of product injected with


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additive compounds and storage fees based on a rate per barrel of storage capacity per month. The terminaling services fees, net by business segments were as follows (in thousands):

              Terminaling Services Fees, Net, by Business Segment

                                                     Three months ended
                                                       September 30,
                                                      2013         2012
           Gulf Coast terminals                     $   11,515   $ 11,959
           Midwest terminals and pipeline system         1,992      1,605
           Brownsville terminals                         1,631      1,576
           River terminals                               2,188      3,292
           Southeast terminals                          11,356     11,735

           Terminaling services fees, net           $   28,682   $ 30,167

Terminaling services fees, net includes a decrease in terminaling service fees, net of approximately $1.4 million at our River terminals resulting from a new terminaling services agreement with a third-party customer. Effective April 1, 2013 we entered into a new three-year terminaling services agreement with a third-party customer for minimum monthly throughput commitments of approximately 0.6 million barrels of light refined product storage capacity at certain of our River terminals. The new agreement provides for additional revenues to be earned for excess throughput amounts and for ancillary services. Our previous agreement with the same third-party customer, which expired March 31, 2013, committed to that customer approximately 1.1 million barrels of light refined product storage capacity.

Included in terminaling services fees, net for the three months ended September 30, 2013 and 2012 are amounts recognized from agreements with Morgan Stanley Capital Group of approximately $20.2 million and $20.5 million, respectively, and TransMontaigne Inc. of approximately $0.5 million and $0.8 million, respectively.

Our terminaling services agreements are structured as either throughput agreements or storage agreements. Most of our throughput agreements contain provisions that require our customers to throughput a minimum volume of product at our facilities over a stipulated period of time, which results in a fixed amount of revenue to be recognized by us. 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 revenue to be recognized by us. 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 "variable." The "firm


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commitments" and "variable" revenue included in terminaling services fees, net were as follows (in thousands):

                     Firm Commitments and Variable Revenue

                                                  Three months ended
                                                    September 30,
                                                   2013         2012
               Firm commitments:
               External customers                $    7,142   $  8,300
               Affiliates                            20,709     21,345

               Total                                 27,851     29,645

               Variable:
               External customers                       803        562
               Affiliates                                28        (40 )

               Total                                    831        522

               Terminaling services fees, net    $   28,682   $ 30,167

At September 30, 2013, the remaining minimum terms on the terminaling services agreements that generated "firm commitments" for the three months ended September 30, 2013 were as follows (in thousands):

                                                                         At
                                                                    September 30,
                                                                        2013
Remaining minimum terms on terminaling services agreements that
generated "firm commitments":
Less than 1 year remaining                                          $        5,700
1 year or more, but less than 3 years remaining                             18,259
3 years or more, but less than 5 years remaining                             2,590
5 years or more remaining                                                    1,302

Total firm commitments for the three months ended September 30,
2013                                                                $       27,851

Pipeline Transportation Fees. We earn pipeline transportation fees at our Razorback, Diamondback and Ella-Brownsville pipelines based on the volume of product transported and the distance from the origin point to the delivery point. We own the Razorback and Diamondback pipelines, and we began leasing the Ella-Brownsville pipeline from a third party in January 2013. The Federal Energy


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Regulatory Commission regulates the tariff on our pipelines. The pipeline transportation fees by business segments were as follows (in thousands):

                Pipeline Transportation Fees by Business Segment

                                                        Three months
                                                            ended
                                                        September 30,
                                                       2013      2012
              Gulf Coast terminals                    $     -   $     -
              Midwest terminals and pipeline system       365       463
              Brownsville terminals                     1,712       805
              River terminals                               -         -
              Southeast terminals                           -         -

              Pipeline transportation fees            $ 2,077   $ 1,268

Included in pipeline transportation fees for the three months ended September 30, 2013 and 2012 are fees charged to Morgan Stanley Capital Group of approximately $0.4 million and $0.5 million, respectively, and TransMontaigne Inc. of $nil and approximately $0.8 million, respectively.

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

            Management Fees and Reimbursed Costs by Business Segment

                                                        Three months
                                                            ended
                                                        September 30,
                                                       2013      2012
              Gulf Coast terminals                    $    64   $    65
              Midwest terminals and pipeline system         -         -
              Brownsville terminals                     1,442     1,466
              River terminals                               -         -
              Southeast terminals                           -         -

              Management fees and reimbursed costs    $ 1,506   $ 1,531

Included in management fees and reimbursed costs for the three months ended September 30, 2013 and 2012 are fees charged to Frontera of approximately $1.0 million and $0.9 million, respectively.

Other Revenue. We provide ancillary services including heating and mixing of stored products, product transfer services, railcar handling, wharfage fees and vapor recovery fees. Pursuant to terminaling services agreements with certain throughput customers, we are entitled to the volume of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities. Consistent with recognized industry practices, measurement differentials occur as the result of the inherent variances in measurement devices and methodology. We


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recognize as revenue the net proceeds from the sale of the product gained. Other revenue is composed of the following (in thousands):

                     Principal Components of Other Revenue

                                                  Three months
                                                      ended
                                                  September 30,
                                                 2013      2012
                    Product gains, net          $ 3,328   $ 4,053
                    Steam heating fees              719       700
                    Product transfer services       491       233
                    Railcar handling                213       152
                    Other                         1,358       770

                    Other revenue               $ 6,109   $ 5,908

For the three months ended September 30, 2013 and 2012, we sold approximately 32,600 and 37,700 barrels, respectively, of product gained resulting from differences in the measurement of product volumes received and distributed at our terminaling facilities at average prices of approximately $120 and $125 per barrel, respectively. Pursuant to our terminaling services agreement related to the Southeast terminals, we agreed to rebate to Morgan Stanley Capital Group 50% of the proceeds we receive annually in excess of $4.2 million from the sale of product gains at our Southeast terminals. For the three months ended September 30, 2013 and 2012, we accrued a liability due to Morgan Stanley Capital Group of approximately $0.6 million and $0.7 million, respectively.

Included in other revenue for the three months ended September 30, 2013 and 2012 are amounts charged to Morgan Stanley Capital Group of approximately $3.7 million and $4.0 million, respectively.

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

Other Revenue by Business Segment

                                                        Three months
                                                            ended
                                                        September 30,
                                                       2013      2012
              Gulf Coast terminals                    $ 1,909   $ 2,237
              Midwest terminals and pipeline system       691       947
              Brownsville terminals                     1,508       735
              River terminals                             112       173
              Southeast terminals                       1,889     1,816

              Other revenue                           $ 6,109   $ 5,908


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ANALYSIS OF COSTS AND EXPENSES

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

                      Direct Operating Costs and Expenses

                                                       Three months
                                                           ended
                                                       September 30,
                                                      2013       2012
              Wages and employee benefits           $  5,770   $  5,818
              Utilities and communication charges      1,838      1,582
              Repairs and maintenance                  5,425      4,156
              Office, rentals and property taxes       2,237      1,700
              Vehicles and fuel costs                    329        302
              Environmental compliance costs             882        926
              Other                                    1,362      1,686

              Direct operating costs and expenses   $ 17,843   $ 16,170

Office, rentals and property taxes includes an increase in rental expense of approximately $0.5 million at our Brownsville terminals due to a new lease for the Ella Brownsville pipeline beginning in January 2013.

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

            Direct Operating Costs and Expenses by Business Segment

                                                        Three months
                                                            ended
                                                        September 30,
                                                       2013       2012
             Gulf Coast terminals                    $  5,180   $  5,407
             Midwest terminals and pipeline system        841        551
             Brownsville terminals                      4,303      3,232
             River terminals                            2,121      2,113
             Southeast terminals                        5,398      4,867

             Direct operating costs and expenses     $ 17,843   $ 16,170

Direct general and administrative expenses of our operations primarily include accounting and legal costs associated with annual and quarterly reports and tax return and Schedule K-1 preparation and distribution, independent director fees and deferred equity-based compensation. The direct general and administrative expenses were approximately $1.2 million and $1.2 million for the three months ended September 30, 2013 and 2012, respectively.

Allocated general and administrative expenses include charges from TransMontaigne Inc. for indirect corporate overhead to cover costs of centralized corporate functions such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes, engineering and other corporate services. The allocated general and administrative expenses were approximately $2.7 million and $2.7 million for the three months ended September 30, 2013 and 2012, respectively.

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