Note 2—Summary of Significant Accounting Policies

The Partnership has provided a discussion of significant accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Partnership 10-K”). Certain items from that discussion are repeated or updated below as necessary to assist in the understanding of these interim statements.

Basis of Presentation

The accompanying interim statements of the Partnership have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other period. These interim statements should be read in conjunction with the Partnership’s consolidated financial statements for the year ended December 31, 2016, which are included in the 2016 Partnership 10-K, as filed with the SEC. The year-end balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP.

Revision of Financial Statements

During the fourth quarter of 2016, the Partnership identified errors in the determination of the fair value of the earn-out liability related to the Joliet terminal acquisition for the first, second and third quarters of 2016. Such liabilities should have been revalued at each reporting period to estimated fair value with the offset to current earnings. The Partnership evaluated the materiality of the errors from qualitative and quantitative perspectives and concluded that the errors were not material, either individually or in the aggregate, to the Partnership’s previously issued interim financial statements. The Partnership has, however, revised its interim statements for the affected periods.

The following table details the impact of these revisions for the three and nine months ended September 30, 2016, on the Condensed Consolidated Statement of Operations:

	Quarter to date September 30, 2016

	As previously
	reported		Adjustments (a)			As revised
Gain (loss) on revaluation of contingent consideration	$	-	$	(545	)	$	(545	)
Operating income		6,353		(545	)		5,808
Net income		6,336		(545	)		5,791
Net income attributable to partners' capital		4,458		(326	)		4,132

Basic and diluted earnings per unit - common	$	0.22	$	(0.02	)	$	0.20
Basic and diluted earnings per unit - subordinated	$	0.22	$	(0.02	)	$	0.20

	Year to date September 30, 2016

	As previously
	reported		Adjustments (a)		As revised
Gain (loss) on revaluation of contingent consideration	$	-	$	303	$	303
Operating income		17,356		303		17,659
Net income		17,462		303		17,765
Net income attributable to partners' capital		12,029		183		12,212

Basic and diluted earnings per unit - common	$	0.58	$	0.01	$	0.59
Basic and diluted earnings per unit - subordinated	$	0.58	$	0.01	$	0.59

(a)

The corresponding amounts have been revised within the statement of cash flows for the nine months ended September 30, 2016, with no net impact to operating cash flow.

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, valuation of contingent consideration, 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.

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 nine months ended September 30, 2017 and 2016.

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, 2016, the fair value of the Partnership’s reporting unit exceeded its carrying value by approximately 11% 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.

A summary of the changes in the carrying amount of goodwill is as follows (in thousands):

	As of
	September 30,		December 31,
	2017		2016
Beginning Balance	$	39,871	$	39,871
Goodwill acquired		-		-
Ending Balance	$	39,871	$	39,871

Deferred Rent

The Portland Lease Agreement (as defined in “Note 11—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 Portland Lease Agreement is included within “Other non-current liabilities” in the accompanying unaudited condensed consolidated balance sheets at September 30, 2017 and December 31, 2016.

Contingent Consideration

The Partnership records an estimate of the fair value of contingent consideration related to the earn-out obligations to CenterPoint Properties Trust (“CenterPoint”) as a part of the Joliet terminal acquisition, within “Other Liabilities” and “Other non-current liabilities” in the accompanying consolidated balance sheets at September 30, 2017 and December 31, 2016. On a quarterly basis, the Partnership revalues the liability and records increases or decreases in the fair value of the recorded liability as an adjustment to earnings. Changes to the contingent consideration liability can result from adjustments to the discount rate or the estimated amount and timing of the future throughput activity at the Joliet terminal. The assumptions used to estimate fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value. The key inputs in determining fair value of the Partnership’s contingent consideration obligations of $17.6 million and $18.0 million at September 30, 2017 and December 31, 2016, respectively, include discount rates ranging from 7.1% to 7.7% and changes in the assumed amount and timing of the future throughput activity which affects the amount and timing of payments on the earn-out obligation. For further information, see Note 2, “Summary of Significant Accounting Policies – Fair Value of Financial Instruments,” to the unaudited condensed consolidated financial statements included in this report for additional information about the Partnership’s contingent consideration obligations.

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 the Partnership may cause the Partnership to incur costly litigation and/or substantial settlement charges. As a result, the Partnership’s 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 the Partnership’s estimates, if any.

Revenue Recognition

Revenues from leased tank storage and delivery services are recognized as the services are performed, evidence of a contractual arrangement exists and collectability is reasonably assured. 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 pass to the customer.

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 condensed 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 (Levels 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 Joliet Holdings, 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 for $216.0 million (the “JBBR Acquisition”), Joliet Holdings has an earn-out obligation to CenterPoint which was valued at the time of the JBBR Acquisition at $19.7 million. 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 September 30, 2017 and December 31, 2016. 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 throughput (contracted or uncontracted) and the long-term interest rates. 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 the Partnership records in any given period. The key inputs in determining fair value of the Partnership’s contingent consideration obligations of $17.6 million and $18.0 million at September 30, 2017 and December 31, 2016, respectively, include discount rates ranging from 7.1% to 7.7% and changes in the estimated amount and timing of the future throughput activity which affects the timing of payments on the earn-out obligation. The Partnership recorded a $0.5 million non-cash loss on the revaluation of the earn-out liability for each of the three months ended September 30, 2017 and 2016. The Partnership recorded a $1.5 million non-cash loss and a $0.3 million non-cash gain on the revaluation of the earn-out liability during the nine months ended September 30, 2017 and 2016, respectively. For the three and nine months ended September 30, 2017, Joliet Holdings reported earn-out payments of $0.6 million and $1.9 million, respectively, to Centerpoint related to the earn-out obligation. For the three and nine months ended September 30, 2016, Joliet Holdings reported earn-out payments of $0.3 million and $1.0 million, respectively, to Centerpoint related to the earn-out obligation. Since the closing of the JBBR Acquisition in May 2015 through September 30, 2017, Joliet Holdings has reported earn-out payments of $4.6 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							Balance at
	December 31		Revaluation		Earn-out			September 30,
	2016		Adjustments		payments			2017
Liabilities at fair value:
JBBR contingent consideration	$	18,000	$	1,465	$	(1,865	)	$	17,600
Total liabilities at fair value	$	18,000	$	1,465	$	(1,865	)	$	17,600

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 unaudited condensed 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 9—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 units, if any, by the weighted average number of outstanding common and subordinated units, respectively, during the period. Following payment of the cash distribution for the third quarter of 2016, the requirements for the conversion of all subordinated units were satisfied under the partnership agreement. As a result, effective November 16, 2016, the 6,081,081 subordinated units, of which 5,146,264 were owned by Lightfoot, converted on a one-for-one basis into common units and thereafter participate on terms equal with all other common units in distributions of available cash. 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, which were amended on January 1, 2009 by ASC 810-10-65 and ASC 810-10-45 (“ASC 810”). As required by ASC 810, the Partnership’s non-controlling ownership interests in consolidated subsidiaries are presented in the consolidated balance sheet within capital as a separate component from partners’ capital. In addition, consolidated net income includes earnings attributable to both the partners and the non-controlling interests. For the nine months ended September 30, 2017 and 2016, $7.2 million and $8.0 million, respectively, of distributions have been made to non-controlling interest holders of consolidated subsidiaries. For the nine months ended September 30, 2017 and 2016, $1.6 million and $0 million, respectively, of contributions have been made by non-controlling interest holders of consolidated subsidiaries.

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. 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 May and December 2016, the FASB issued certain narrow-scope improvements and practical expedients to the guidance. The Partnership plans to adopt this guidance effective January 1, 2018 using the modified retrospective method applied to contracts that are not completed as of that date. To date, the Partnership has not identified changes to its revenue recognition policies that would result in a material adjustment to the opening balance of partnership capital on January 1, 2018; however, it is continuing to evaluate the effect, if any, adopting this guidance will have on its financial position, results of operations, cash flows and related disclosures. Adopting this guidance will result in increased disclosures related to revenue recognition policies and disaggregation of revenue.

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. The Partnership is currently evaluating the effect this standard will have on its consolidated financial position or results of operations.

In August 2016, the FASB issued new guidance which makes eight targeted changes to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update provides specific guidance on cash flow classification issues that are not currently addressed by GAAP and thereby reduces the current diversity in practice. The standard is effective for the Partnership’s financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. 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 January 2017, the FASB issued new guidance which provides clarifications to evaluating when a set of transferred assets and activities (collectively, the "set") is a business and provides a screen to determine when a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the financial statements have not been issued. 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 January 2017, the FASB issued new guidance which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendment, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Partnership does not expect this requirement to have a significant impact on its financial condition, results of operations, cash flows and related disclosures.