Acquisition of Inergy Propane

12 Months Ended

Sep. 29, 2012

Acquisition of Inergy Propane [Abstract]

Acquisition of Inergy Propane

3. Acquisition of Inergy Propane

As described in Note 1, the Partnership completed the acquisition of Inergy Propane on August 1, 2012. The acquisition of Inergy Propane (the “Inergy Propane Acquisition”) was consummated pursuant to a definitive agreement dated April 25, 2012 with Inergy, Inergy GP, LLC and Inergy Sales, as amended (the “Contribution Agreement”). Prior to the Acquisition Date, Inergy Propane transferred its interest in certain subsidiaries, as well as all of its rights and interests in the assets and properties of its wholesale propane supply, marketing and distribution business, and its rights and interest in the assets and properties of its West Coast natural gas liquids business, to Inergy. These assets were not included as part of the Inergy Propane business at the time of the transfer of the membership interests in Inergy Propane to the Partnership and were not part of the Inergy Propane Acquisition. The results of operations of Inergy Propane are included in the Partnership’s results of operations beginning on the Acquisition Date.

Pursuant to the Contribution Agreement, the Partnership agreed to issue $600,000 in new Common Units in the aggregate to Inergy and Inergy Sales (the “Equity Consideration”). In accordance with the Contribution Agreement, the number of Common Units issued to Inergy and Inergy Sales in the aggregate was determined by dividing $600,000 by the average of the high and low sales prices of the Partnership’s Common Units for the twenty consecutive trading days ending on the day prior to the execution of the Contribution Agreement (April 24, 2012), which was determined to be $43.1885, resulting in 13,892,587 Common Units.

Also pursuant to the Contribution Agreement, the Partnership and its wholly-owned subsidiary Suburban Energy Finance Corp. commenced an offer to exchange (the “Exchange Offers”) any and all of the outstanding unsecured 7% senior notes due 2018 and 6 ⁷/₈% senior notes due 2021 issued by Inergy and Inergy Finance Corp., which had an aggregate principal amount outstanding of $1,200,000 (collectively, the “Inergy Notes”), for a combination of $1,000,000 in aggregate principal amount of new unsecured 7 ¹/₂% senior notes due 2018 and 7 ³/₈% senior notes due 2021 (collectively, the “SPH Notes”) issued by the Partnership and Suburban Energy Finance Corp. and up to $200,000 in cash to tendering noteholders (the “Exchange Offer Cash Consideration”). Pursuant to the Contribution Agreement, the Partnership was required to pay Inergy the difference, if any, between $200,000 and the actual Exchange Offer Cash Consideration paid in accordance with the terms of the Exchange Offers (such payment, the “Inergy Cash Consideration”). The Contribution Agreement provided that the Partnership would offer $65,000 in aggregate cash consent payments in connection with the Exchange Offers and that Inergy would pay $36,500 to the Partnership in cash on the Acquisition Date. The Exchange Offers expired and settled on August 1, 2012 (the “Settlement Date”). On the Settlement Date, the Partnership had received tenders and consents from holders representing approximately 98.09% of the total outstanding principal amount of the 2018 Inergy Notes, and tenders and consents from holders representing approximately 99.74% of the total outstanding principal amount of the 2021 Inergy Notes. Based on the results of the Exchange Offers, the Exchange Offer Cash Consideration due to tendering Inergy noteholders was $184,761. The Inergy Cash Consideration was satisfied by the issuance of 307,835 Common Units to Inergy and therefore, when combined with the Equity Consideration, the Partnership issued 14,200,422 Common Units in the aggregate to Inergy and Inergy Sales on August 1, 2012. Inergy distributed 14,058,418 of such Common Units to its unitholders on September 14, 2012.

On April 25, 2012, the Partnership received consents from the requisite lenders under the Amended Credit Agreement (as defined in Note 8) to enable it to incur additional indebtedness, make amendments to the Amended Credit Agreement to adjust certain covenants, and otherwise perform our obligations as contemplated by the Inergy Propane Acquisition. On August 1, 2012, the Operating Partnership executed an amendment to the Amended Credit Agreement to, among other things, provide for (i) a $250,000 senior secured 364-day incremental term loan facility (the “364-Day Facility”) and (ii) an increase in our revolving credit facility under the Amended Credit Agreement from $250,000 to $400,000. On the Acquisition Date, the Operating Partnership drew $225,000 on the 364-Day Facility, which, together with cash received from Inergy (pursuant to the Contribution Agreement) and cash on hand, was used to pay: (i) the consent fees and the Exchange Offer Cash Consideration, (ii) costs and fees related to the Exchange Offers, and (iii) costs and expenses related to the Inergy Propane Acquisition. On August 14, 2012 the Partnership repaid its borrowings of $225,000 under its 364-Day Facility with the proceeds from a public sale of 6,300,000 Common Units that closed on that date.

The fair value of the purchase price for Inergy Propane as determined on the Acquisition Date was $1,890,915, consisting of: (i) $1,075,043 of newly issued senior notes (with an aggregate par value of $1,000,000) and $184,761 in cash to tendering Inergy noteholders pursuant to the Exchange Offers; (ii) $65,000 in cash paid to the Inergy noteholders for the consent payments pursuant to the consent solicitations; (iii) $590,027 of new Suburban Common Units (consisting of 14,200,422 Common Units), which were distributed to Inergy and Inergy Sales, all but $5,942 (consisting of 142,004 Common Units) of which were subsequently distributed by Inergy to its unitholders; reduced by (iv) $23,916 of cash from Inergy pursuant to the Contribution Agreement (the cash consideration from Inergy includes the $36,500 discussed above and is net of amounts owed to Inergy by the Partnership at the Acquisition Date). The fair value of the newly issued senior notes was determined using Level 2 inputs and the fair value of the equity issued to Inergy and Inergy Sales was determined using Level 1 inputs.

The consolidated balance sheet at September 29, 2012 reflects a preliminary allocation of the purchase price to the assets acquired and liabilities assumed. The Partnership is in the process of obtaining information required to determine the fair values of certain assets and liabilities acquired, principally non-current tangible and intangible assets. The Partnership expects to finalize the determination of the Acquisition Date fair value amounts by July 31, 2013. The preliminary purchase price allocation as of August 1, 2012 is as follows:

Assets acquired:
Cash and cash equivalents	$	7,964
Accounts receivable		36,076
Inventories		30,457
Other current assets		2,832
Current assets acquired		77,329
Property, plant & equipment		651,156
Customer relationships (estimated useful life of 10 years)		402,950
Tradenames (estimated useful life of 4 years)		3,100
Non-compete agreements (estimated useful life of 6 years)		24,909
Goodwill		814,648
Other assets		2,151
Total assets acquired	$	1,976,243
Liabilities assumed:
Accounts payable	$	(16	)
Accrued employment and benefit costs		(2,149	)
Customer deposits and advances		(48,469	)
Other current liabilities		(18,613	)
Other noncurrent liabilities		(16,081	)
Total liabilities assumed		(85,328	)
Total	$	1,890,915

Goodwill associated with the Inergy Propane Acquisition principally results from synergies expected from combining the operations and from assembled workforce.

Acquisition-related expenses associated with the Inergy Propane Acquisition, as shown in the Consolidated Statements of Operations, totaled $17,916 for the year ended September 29, 2012.

The Inergy Propane Acquisition is consistent with key elements of the Partnership’s strategy for operational growth, which is to focus on businesses with a relatively steady cash flow that will extend the Partnership’s presence in strategically attractive markets and complement its existing business segments. For the year ended September 30, 2011, Inergy Propane sold approximately 325,600 gallons of propane and 39,000 gallons of fuel oil and refined fuels to its retail customers in 33 states. As a result of achieving planned strategic integration milestones, it is impracticable to determine the impact of the Inergy Propane Acquisition operations on the revenues and earnings of the Partnership.

The following presents unaudited pro forma combined financial information as if the Inergy Propane Acquisition had occurred on September 26, 2010, the first day of the Partnership’s 2011 fiscal year. The unaudited pro forma combined financial information was prepared under the assumption that the net proceeds from the issuance of the 6,300,000 Common Units on August 14, 2012 (described in Note. 14) were used to fund the portion of the Inergy Propane Acquisition that was originally financed through the 364-Day Facility (which, as described above, was repaid two weeks after the acquisition date) As a result, the common units were assumed to have been issued on September 26, 2010, and, in turn, the pro forma results for the fiscal year ended September 29, 2012 do not include any interest costs associated with the 364-Day Facility.

	Year Ended
	September 29, 2012		September 24, 2011
Revenues	$	1,842,698	$	2,242,876
Net income	$	20,288	$	123,751
Income per common unit
Basic	$	0.36	$	2.21
Diluted	$	0.36	$	2.20

The unaudited pro forma combined financial information is not necessarily indicative of the results that would have occurred had the Inergy Propane Acquisition occurred on the date indicated nor is it necessarily indicative of future operating results.

If the fair values of the tangible and intangible assets acquired increased by 10% from the provisional fair values as of August 1, 2012, goodwill would decrease by 10%, annual depreciation expense would increase by $4,359 and amortization expense would increase by $4,791. If the fair values of the tangible and intangible assets acquired decreased by 10% from the provisional fair values as of August 1, 2012, goodwill would increase by 10%, annual depreciation expense would decrease by $3,293 and amortization expense would decrease by $4,279, respectively.

In accordance with the Contribution Agreement, the Partnership and Inergy entered into a transition services agreement (the “TSA”) whereby Inergy will provide certain services to the Partnership. The principal services include general business continuity, information technology, accounting, tax and administrative services. Services under the TSA will be provided through the expiration of the term relating to each service or until such time as mutually agreed by the parties. Amounts associated with the services were not material.