Note 3—Acquisitions

The following acquisitions were accounted for under the acquisition method of accounting whereby management utilized the services of third-party valuation consultants, along with estimates and assumptions provided by management, to estimate the fair value of the net assets acquired. The third-party valuation consultants utilized several appraisal methodologies including income, market and cost approaches to estimate the fair value of the identifiable assets acquired.

Gulf Oil Terminals Acquisition

In January 2016, the Partnership, through its wholly owned subsidiary Arc Terminals Holdings LLC (“Arc Terminals Holdings”), acquired four petroleum products terminals (the “Pennsylvania Terminals”) located in Altoona, Mechanicsburg, Pittston and South Williamsport, Pennsylvania from Gulf Oil Limited Partnership (“Gulf Oil”) for $8.0 million (the “Gulf Oil Terminals Acquisition”). In connection with this acquisition, the Partnership also acquired an option to purchase from Gulf Oil at an agreed upon purchase price additional land with storage tanks located adjacent to one of the Pennsylvania Terminals. At closing, the Partnership entered into a take-or-pay terminal services agreement with Gulf Oil with an initial term of two years. The throughput and related services provided by the Partnership to Gulf Oil under the terminal services agreement are provided at the Pennsylvania Terminals, as well as several of the Partnership’s other petroleum products terminals. The acquisition was financed with a combination of available cash and borrowings under the Credit Facility.

The Gulf Oil Terminals Acquisition was accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). The Gulf Oil Terminals Acquisition purchase price equaled the approximately $8.0 million fair value of the identifiable assets acquired and, accordingly the Partnership did not recognize any goodwill as a part of the Gulf Oil Terminals Acquisition. Transaction costs incurred by the Partnership in connection with the acquisition, consisting primarily of legal and other professional fees, totaled approximately $0.6 million and were expensed as incurred in accordance with ASC 805. Management has finalized the valuation of the net assets acquired in connection with the Gulf Oil Terminals Acquisition and the final purchase price allocation has been determined.

The total purchase price of $8.0 million was preliminarily allocated to the net assets acquired as follows (in thousands):

Consideration:
Cash paid to seller	$	8,000
Total consideration	$	8,000
Allocation of purchase price:
Inventories	$	163
Property and equipment		7,837
Net assets acquired	$	8,000

Since the Gulf Oil Terminals Acquisition closing date in January 2016 through December 31, 2016, the Pennsylvania Terminals have generated approximately $2.2 million in revenue and $0.5 million of operating income.

The unaudited pro forma results related to the Gulf Oil Terminals Acquisition have been excluded as the nature of the revenue-producing activities previously associated with the Pennsylvania Terminals has changed substantially post-acquisition from intercompany revenue to third-party generated revenue. In addition, historical financial information for the Pennsylvania Terminals prior to the acquisition is not indicative of how the Pennsylvania Terminals are being operated since the Partnership’s acquisition and would be of no comparative value in understanding the future operations of the Pennsylvania Terminals.

JBBR Acquisition

In May 2015, the Partnership and an affiliate of GE EFS, through Joliet Holdings, purchased all of the membership interests in the JBBR for a base cash purchase price of $216.0 million (“JBBR Purchase Price”). Joliet Holdings is also required to pay to CenterPoint earn-out payments for each barrel of crude oil that is either delivered to or received by the Joliet Terminal (as defined below) (without duplication) or for which JBBR receives payment under minimum volume commitments regardless of actual throughput activity. Joliet Holdings’ earn-out obligations to CenterPoint will terminate upon the payment, in the aggregate, of $27.0 million. JBBR among other things owns a petroleum products terminal and 4-mile crude oil pipeline located in Joliet, Illinois (“Joliet Terminal”). To finance the Partnership’s portion of the JBBR Purchase Price payable by it in connection with the JBBR Acquisition, the Partnership sold 4,520,795 common units at a price of $16.59 per unit in a private placement for proceeds totaling $72.7 million after placement agent commissions and expenses. In addition, the Partnership borrowed $61.0 million under its Credit Facility to partially finance the balance of the portion of the JBBR Purchase Price payable by it at the closing of the JBBR Acquisition.

Joliet Holdings is consolidated under the voting interest model in the Partnership’s operating results. The GE EFS ownership interest in Joliet Holdings is presented separately as a non-controlling interest.

The JBBR Acquisition was accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). In accordance with ASC 805, the Partnership recorded approximately $19.7 million of additional consideration related to Joliet Holdings’ earn-out payments as contingent consideration. The $19.7 million is recorded on the balance sheet of the Partnership as a liability and will be reduced by future earn-out payments made to CenterPoint. This liability is subject to remeasurement each reporting period until the full amount of the earn-out has been satisfied. The JBBR Purchase Price exceeded the approximately $211.0 million fair value of the identifiable assets acquired and accordingly, the Partnership recognized goodwill of approximately $24.7 million. The Partnership believes the primary items that generated goodwill are the expected ability to grow the acquired business by leveraging its existing customer relationships and by attracting new customers based on the strategic location of the Joliet Terminal. Furthermore, the Partnership expects that the entire amount of its recorded goodwill will be deductible for tax purposes. Transaction costs incurred by the Partnership in connection with the acquisition, consisting primarily of legal and other professional fees, totaled approximately $1.3 million and were expensed as incurred in accordance with ASC 805 and included in the “Selling, general and administrative” line item in the accompanying consolidated statement of operations and comprehensive income. Management has finalized the valuation of the net assets acquired in connection with the JBBR Acquisition and the final purchase price allocation has been determined

The following table summarizes the consideration paid and the assets acquired at the JBBR Acquisition closing date (in thousands):

Consideration:
Cash paid to seller	$	216,000
Earn-out liability recognized		19,700
Total consideration	$	235,700
Allocation of purchase price:
Property and equipment	$	156,991
Intangible assets		54,000
Goodwill		24,709
Net assets acquired	$	235,700

The unaudited pro forma results pursuant to ASC 805 related to the JBBR Acquisition have been excluded as the Joliet Terminal was under construction prior to the consummation of the JBBR Acquisition and therefore there were no revenue-producing activities previously associated with the Joliet Terminal. The Joliet Terminal, post-acquisition, is now operating and is generating revenue. In addition, the historical financial information for the Joliet Terminal prior to the acquisition is not indicative of how the Joliet Terminal is being operated since the JBBR Acquisition and would be of no comparative value in understanding the future operations of the Joliet Terminal.

Pawnee Terminal Acquisition

In July 2015, the Partnership, through its wholly-owned subsidiary Arc Terminals Holdings, acquired all of the limited liability company interests of UET Midstream, LLC (“UET Midstream”) from United Energy Trading, LLC (“UET”) and Hawkeye Midstream, LLC (together with UET, the “Pawnee Sellers”) for total consideration (net of certain adjustments) of $76.6 million (the “Pawnee Purchase Price”), consisting of $44.3 million in cash and $32.3 million in common units of the Partnership (the “Pawnee Terminal Acquisition”). UET Midstream’s principal assets consist of a newly constructed crude oil terminal, construction of which was substantially completed at the closing date, and a nearby development property in northeastern Weld County, Colorado (“Pawnee Terminal”). The number of common units issued to the Pawnee Sellers at the closing of the Pawnee Terminal Acquisition was based upon an issuance price of $18.50 per unit, which resulted in the issuance of 1,745,669 of the Partnership’s common units (“Pawnee Transaction Units”). The fair value of the Pawnee Transaction Units on the closing date was $17.30 per unit (based upon the closing price of the Partnership’s common unit price on the closing date), which results in a further reduction of the Pawnee Purchase Price, recognized for accounting purposes, of approximately $2.1 million. In connection with the issuance of the common units to the Pawnee Sellers, the Partnership entered into an agreement with the Pawnee Sellers granting the Pawnee Sellers certain registration rights. Arc Terminals Holdings expended approximately $11.0 million to complete the portion of the Pawnee Terminal that remained to be constructed at the time of closing. The Partnership recorded approximately $4.5 million of liabilities related to the construction costs that had been completed, but not paid, as of the closing date. The $4.5 million was recorded on the balance sheet as a current liability and as of December 31, 2016, the Partnership has paid all amounts related to the construction liability acquired. The Partnership has completed the construction at the Pawnee Terminal as of December 31, 2016.

The Pawnee Terminal Acquisition was accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). The Pawnee Terminal Acquisition purchase price equaled the approximately $74.5 million fair value of the identifiable assets acquired and accordingly, the Partnership did not recognize any goodwill as a part of the Pawnee Terminal Acquisition. Transaction costs incurred by the Partnership in connection with the acquisition, consisting primarily of legal and other professional fees, totaled approximately $1.8 million and were expensed as incurred in accordance with ASC 805. Management has finalized the valuation of the net assets acquired in connection with the Pawnee Terminal Acquisition and the final purchase price allocation has been determined.

The following table summarizes the consideration paid and the assets acquired at the Pawnee Terminal Acquisition closing date (in thousands):

Consideration:
Cash paid to seller	$	44,332
Fair value of equity issued to seller		30,200
Total consideration	$	74,532
Allocation of purchase price:
Property and equipment	$	23,613
Intangible assets		55,442
Less: liabilities assumed		(4,523	)
Net assets acquired	$	74,532

The unaudited pro forma operating results pursuant to ASC 805 related to the Pawnee Terminal Acquisition have been excluded due to immateriality.