Summary of Significant Accounting Policies | Note 2—Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements were prepared in accordance with GAAP and under the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Partnership has disclosed consolidated figures of the Partnership as if the Partnership had operated since the inception of Arc Terminals. The contribution of Arc Terminals to Arc Logistics in connection with the IPO was not considered a business combination accounted for under the purchase method as it was a transfer of assets under common control and, accordingly, balances have been transferred at their historical cost. The combined financial statements for the periods prior to the contribution on November 12, 2013 have been prepared using Arc Terminals’ historical basis in the assets and liabilities, and include all revenues, costs, assets and liabilities attributed to Arc Terminals. Use of Estimates The preparation of financial statements in conformity with GAAP requires management 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. The most significant estimates relate to the valuation of acquired businesses, goodwill and intangible assets, assessment for impairment of long-lived assets and the useful lives of intangible assets and property, plant and equipment. Actual results could differ from those estimates. Cash and Cash Equivalents The Partnership includes demand deposits with banks and all highly liquid investments with original maturities of three months or less in cash and cash equivalents. These balances are valued at cost, which approximates fair value. Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Partnership reserves for specific trade accounts receivable when it is probable that all or a part of an outstanding balance will not be collected. The Partnership regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered doubtful. There were no reserves for uncollectible amounts as of December 31, 2015 and 2014. During the years ended December 31, 2015 and 2013, the Partnership wrote off less than $0.1 million of uncollectible receivables. No other amounts have been deemed uncollectible in the periods presented in the consolidated statements of operations and comprehensive income. Inventories Inventories consist of additives which are sold to customers and mixed with the various customer-owned liquid products stored in the Partnership’s terminals. Inventories are stated at the lower of cost or estimated net realizable value. Inventory costs are determined using the first-in, first-out method. Other Current Assets Other current assets consist primarily of prepaid expenses and deposits. Property, Plant and Equipment Property, plant and equipment is recorded at cost, less accumulated depreciation. The Partnership owns a 50% undivided interest in the property, plant and equipment at two terminal locations. At the time of acquisition, these assets were recorded at 50% of the aggregate fair value of the related property, plant and equipment. Expenditures for routine maintenance and repairs are charged to expense as incurred. Major improvements or expenditures that extend the useful life or productive capacity of assets are capitalized. Depreciation is recorded over the estimated useful lives of the applicable assets, using the straight-line method. The estimated useful lives are as follows: Building and site improvements 1–40 years Tanks and trim 1–40 years Machinery and equipment 1–40 years Office furniture and equipment 1–15 years Capitalized costs incurred by the Partnership during the year for major improvements and capital projects that are not completed as of year-end are recorded as construction in progress. Construction in progress is not depreciated until the related assets or improvements are ready for intended use. Additionally, the Partnership capitalizes interest costs as a part of the historical cost of constructing certain assets and includes such interest in the property, plant and equipment line on the balance sheet. Capitalized interest for the years ended December 31, 2015 and 2014 was $0.3 million and $0.2 million, respectively. Intangible Assets Intangible assets primarily consist of customer relationships, acquired contracts and a covenant not to compete which are amortized on a straight-line basis over the expected life of each intangible asset. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. No impairment charges were recorded during the years ended December 31, 2015, 2014 and 2013 except as discussed in “Note 5—Property, Plant and Equipment”. Goodwill Goodwill represents the excess of consideration paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized but instead is assessed for impairment at least annually or when facts and circumstances warrant. Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The Partnership determines the fair value of its single reporting unit by blending two valuation approaches: the income approach and a market value approach. The inputs included assumptions related to the future performance of the Partnership and assumptions related to discount rates, long-term growth rates and control premiums. Based on the results of the first step of the quantitative impairment assessment of its goodwill as of December 31, 2015, the fair value of the Partnership’s reporting unit exceeded its carrying value by approximately 9% and management concluded that no impairment was necessary. In the event that market conditions were to remain weak for an extended period of time, the Partnership may be required to record an impairment of goodwill in the future, and such impairment could be material. No impairments were recorded against goodwill for the years ended December 31, 2015 and 2014. As of December 31, 2015 2014 Beginning Balance $ 15,162 $ 15,162 Goodwill acquired 24,709 - Impairment - - Ending Balance $ 39,871 $ 15,162 Other Assets Other assets consist primarily of debt issuance costs related to the Credit Facility amendment entered into in November 2013 (see “Note 7—Debt”). Debt issuance costs are capitalized and amortized over the term of the related debt using straight line amortization, which approximates the effective interest rate method. As of December 31, 2015 and 2014, the unamortized costs were approximately $3.9 million and $1.5 million, respectively. Investment in Unconsolidated Affiliate In connection with the IPO, the Partnership purchased the LNG Interest from an affiliate of GE EFS for approximately $72.7 million. The Partnership accounts for the LNG Interest using the equity method of accounting. Deferred Rent The Lease Agreement (as defined in “Note 13—Related Party Transactions—Other Transactions with Related Persons—Operating Lease Agreement” below) contains certain rent escalation clauses, contingent rent provisions and lease termination payments. The Partnership recognizes rent expense for operating leases on a straight-line basis over the term of the lease, taking into consideration the items noted above. Contingent rental payments are generally recognized as rent expense as incurred. The deferred rent resulting from the recognition of rent expense on a straight-line basis related to the Lease Agreement is included within “Other non-current liabilities” in the accompanying consolidated balance sheets at December 31, 2015 and 2014 in the amount of $3.2 million and $2.7 million, respectively. Contingencies In the normal course of business, the Partnership may be subject to loss contingencies, such as legal proceedings and claims arising out of its business that cover a wide range of matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Partnership’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. If the estimate of a probable loss is a range and no amount within the range is more likely, the Partnership will accrue the minimum amount of the range. There are many uncertainties associated with any legal proceeding and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any. Revenue Recognition Revenues from leased tank storage and delivery services are recognized as the services are performed. Revenues also include the sale of excess products and additives which are mixed with customer-owned liquid products. Revenues for the sale of excess products and additives are recognized when title and risk of loss passes to the customer. Income Taxes Taxable income or loss of the Partnership generally is required to be reported on the income tax returns of the limited partners in accordance with the terms of the partnership agreement. Accordingly, no provision has been made in the accompanying consolidated financial statements for the limited partners’ federal income taxes. There are certain entity level state income taxes that are incurred at the Partnership level and have been recorded during the years ended December 31, 2015, 2014 and 2013. The Partnership is required under GAAP to evaluate uncertain tax positions taken by the Partnership. The financial statement effects of a tax position are recognized when the position is more likely than not, based on technical merits, to be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Partnership, and has concluded that there are no uncertain tax positions taken as of December 31, 2015 and 2014 or expected to be taken. The Partnership is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. Fair value measurements are derived using inputs and assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. GAAP establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This three-tier hierarchy classifies fair value amounts recognized or disclosed in the consolidated financial statements based on the observability of inputs used to estimate such fair values. The classification within the hierarchy of a financial asset or liability is determined based on the lowest level input that is significant to the fair value measurement. The hierarchy considers fair value amounts based on observable inputs (Level 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, the Partnership categorizes its financial assets and liabilities using this hierarchy. The amounts reported in the balance sheet for cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short-term maturities of these instruments (Level 1). Because the Credit Facility (as defined in “Note 7 – Debt – Credit Facility” below) has a market rate of interest, its carrying amount approximated fair value (Level 2). In connection with the Partnership’s acquisition, through a joint venture company formed with an affiliate of GE Energy Financial Services (“GE EFS”), of all of the memberships interests of Joliet Bulk, Barge & Rail LLC (“JBBR”) from CenterPoint Properties Trust (“CenterPoint”) for $216.0 million ( the “JBBR Acquisition”), Arc Terminals Joliet Holdings LLC (“Joliet Holdings”) has an earn-out obligation to CenterPoint which was valued at the time of the JBBR Acquisition, in connection with the purchase price allocation, at approximately $19.7 million. Refer to “Note 3—Acquisitions – JBBR Acquisition” for further discussion on the JBBR Acquisition. Joliet Holdings’ earn-out obligations to CenterPoint will terminate upon the payment, in the aggregate, of $27.0 million. The balance of the earn-out liability is included within “Other non-current liabilities” in the accompanying consolidated balance sheets at December 31, 2015. Since the fair value of the contingent consideration obligation is based primarily upon unobservable inputs it is classified as Level 3 in the fair value hierarchy. The contingent consideration obligation will be revalued at each reporting period and changes to the fair value will be recorded as a component of operating income. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in the assumed timing of revenue and expense estimates. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent reporting period. Accordingly, future business and economic conditions can materially impact the amount of contingent consideration expense we record in any given period. No revaluation adjustments were necessary during the year ended December 31, 2015. As of December 31, 2015, Joliet Holdings has paid $0.9 million related to the earn-out obligation. The following is a reconciliation of the beginning and ending amounts of the contingent consideration obligation related to the JBBR Acquisition (in thousands): Balance at Earn-out Balance at December 31 Initial Revaluation payments December 31, 2014 valuation Adjustments paid 2015 Liabilities at fair value: JBBR contingent consideration $ - $ 19,700 $ - $ (870 ) $ 18,830 Total liabilities at fair value $ - $ 19,700 $ - $ (870 ) $ 18,830 The Partnership believes that its valuation methods are appropriate and consistent with the values that would be determined by other market participants. However, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Unit-Based Compensation The Partnership recognizes all unit-based compensation to directors, officers, employees and other service providers in the consolidated financial statements based on the fair value of the awards. Fair value for unit-based awards classified as equity awards is determined on the grant date of the award and this value is recognized as compensation expense ratably over the requisite service or performance period of the equity award. Fair value for equity awards is calculated at the closing price of the common units on the grant date. Fair value for unit-based awards classified as liability awards is calculated at the closing price of the common units on the grant date and is remeasured at each reporting period until the award is settled. Compensation expense related to unit-based awards is included in the “Selling, general and administrative” line item in the accompanying consolidated statements of operations and comprehensive income. For awards with performance conditions, the expense is accrued over the service period only if the performance condition is considered to be probable of occurring. When awards with performance conditions that were previously considered improbable become probable, the Partnership incurs additional expense in the period that the probability assessment changes (see “Note 10—Equity Plans”). Net Income Per Unit The Partnership uses the two-class method in the computation of earnings per unit since there is more than one participating class of securities. Earnings per common and subordinated unit are determined by dividing net income allocated to the common units and subordinated units, respectively, after deducting the amount allocated to the phantom and preferred unitholders, if any, by the weighted average number of outstanding common and subordinated units, respectively, during the period. The overall computation, presentation and disclosure of the Partnership’s limited partners’ net income per unit are made in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260 “Earnings per Share.” Segment Reporting The Partnership derives revenue from operating its terminal and transloading facilities. These facilities have been aggregated into one reportable segment because the facilities have similar long-term economic characteristics, products and types of customers. Non-controlling Interests The Partnership applies the provisions of ASC 810 Consolidations Recently Issued Accounting Pronouncements In May 2014, the FASB issued updated guidance on the reporting and disclosure of revenue recognition. The update requires that an entity recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires new qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, information about contract balances and performance obligations, and assets recognized from costs incurred to obtain or fulfill a contract. The Partnership is currently evaluating the potential impact of this authoritative guidance on its financial condition, results of operations, cash flows and related disclosures. In April 2015, the FASB proposed a one-year deferral of the effective date, and therefore, this guidance will be effective for the Partnership beginning in the first quarter of 2018, with early adoption optional but not before the original effective date of December 15, 2016. In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures. This guidance will be effective for the Partnership beginning in the first quarter of 2016. In February 2015, the FASB issued new guidance related to evaluating entities for inclusion in consolidations for both the variable interest model and for the voting model for limited partnerships and similar entities. The update requires that all reporting entities reevaluate whether they should consolidate certain legal entities. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures. This guidance will be effective for the Partnership in the first quarter of 2016. In April 2015, the FASB issued new guidance related to presentation of debt issuance costs. The update requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures. This guidance will be effective for the Partnership in the first quarter of 2016. In April 2015, the FASB issued new guidance related to the accounting for fees paid in a cloud computing arrangement. The standard clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software under ASC 350-40. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures. This guidance will be effective for the Partnership in the first quarter of 2016. In April 2015, the FASB issued new guidance specifying that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the drop down transaction. In addition, the standard requires additional qualitative disclosures about how the rights to the earnings (losses) differ before and after the drop down transaction occurs for purposes of computing earnings per unit under the two-class method. The new accounting guidance is effective for the Partnership beginning in the first quarter of 2016, and should be applied retrospectively. The Partnership is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures, but does not anticipate that adoption will have a material impact on its financial position, results of operations or cash flows. In August 2015, the FASB issued new guidance which adds comments from the SEC related to the presentation of debt issuance costs, as discussed above, and debt issuance costs related to line-of-credit arrangements. The SEC commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures. In September 2015, the FASB issued new guidance In January 2016, the FASB issued new guidance which requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes In February 2016, the FASB issued new guidance which amends various aspects of existing guidance for leases. The new guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between previous GAAP and the amended standard is the recognition of lease assets and lease liabilities by lessees on the balance sheet for those leases classified as operating leases under previous GAAP. As a result, the Partnership will have to recognize a liability representing its lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The new guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect this standard will have on our consolidated financial position or results of operations. |