EX-99.1 2 a06-17838_1ex99d1.htm EX-99

Exhibit 99.1

Plains All American Pipeline, L.P.

Unaudited Pro Forma Condensed Combined Financial Statements of Plains All American Pipeline, L.P. as of and for the six months ended June 30, 2006 and for the twelve months ended December 31, 2005.





PLAINS ALL AMERICAN PIPELINE, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements give effect to the proposed merger of Pacific Energy Partners, L.P. (“Pacific”) into Plains All American Pipeline, L.P. (“Plains”). The merger-related transactions include:

·       The acquisition from LB Pacific, LP and its affiliates (“LB Pacific”) of the general partner interest and incentive distribution rights of Pacific as well as 2,616,250 common units of Pacific and 7,848,750 subordinated units of Pacific for a total of $700 million in cash; and

·       The acquisition of the balance of Pacific’s equity through a unit-for-unit merger in which each Pacific unitholder (other than LB Pacific) will receive 0.77 newly issued Plains common units for each Pacific common unit.

Upon consummation of the merger-related transactions, the general partner and limited partner ownership interests in Pacific will be extinguished and Pacific will be merged with and into Plains. Pacific’s operating subsidiaries will be directly or indirectly owned by Plains. The proposed merger-related transactions will be accounted for using the purchase method of accounting. The estimates of fair value of the assets acquired and liabilities assumed are based on preliminary assumptions, pending the completion of an independent appraisal, with any excess of purchase price over the net fair value of assets acquired and liabilities assumed assigned to goodwill.

The following unaudited pro forma condensed statement of combined operations for the six months ended June 30, 2006 and the year ended December 31, 2005 have been prepared as if the transactions described above had taken place on January 1, 2005. The unaudited pro forma condensed combined balance sheet at June 30, 2006 assumes the transactions were consummated on that date.

The unaudited pro forma financial statements should be read in conjunction with and are qualified in their entirety by reference to the notes accompanying such unaudited pro forma financial statements as well as the notes included in the historical financial statements included in the following public filings:

(1)         Plains’ Annual Report on Form 10-K for the year ended December 31, 2005;

(2)         Plains’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2006;

(3)         Pacific’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2005; and

(4)         Pacific’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

The unaudited pro forma financial statements are based on assumptions that Plains believes are reasonable under the circumstances and are intended for informational purposes only. They are not necessarily indicative of the results of the actual or future operations or financial condition that would have been achieved had the transactions occurred at the dates assumed (as noted above).

The unaudited pro forma financial statements do not give effect to any anticipated cost savings or other financial benefits expected to result from the merger.

F-2



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 2006
(in millions)

 

 

Plains

 

Pacific

 

Pro Forma

 

Plains

 

 

 

Historical

 

Historical

 

Adjustments

 

Pro Forma

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

7.6

 

 

 

$

22.8

 

 

 

$

20.4

(b)

 

 

$

30.4

 

 

 

 

 

 

 

 

 

 

 

 

 

937.6

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(217.3

)(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(740.7

)(b)

 

 

 

 

 

Trade accounts receivable and other receivables, net

 

 

1,917.2

 

 

 

188.3

 

 

 

(9.2

)(c)

 

 

2,096.3

 

 

Inventory

 

 

1,155.9

 

 

 

36.2

 

 

 

3.1

(b)

 

 

1,195.2

 

 

Other current assets

 

 

95.7

 

 

 

7.4

 

 

 

—

 

 

 

103.1

 

 

Total current assets

 

 

3,176.4

 

 

 

254.7

 

 

 

(6.1

)

 

 

3,425.0

 

 

PROPERTY AND EQUIPMENT, net

 

 

2,147.5

 

 

 

1,237.8

 

 

 

(53.5

)(a)

 

 

3,567.5

 

 

 

 

 

 

 

 

 

 

 

 

 

235.7

(b)

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pipeline linefill in owned assets

 

 

200.4

 

 

 

—

 

 

 

52.6

(a)

 

 

281.0

 

 

 

 

 

 

 

 

 

 

 

 

 

28.0

(b)

 

 

 

 

 

Inventory in third party assets

 

 

80.4

 

 

 

—

 

 

 

0.9

(a)

 

 

83.3

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

(b)

 

 

 

 

 

Investments in unconsolidated affiliates

 

 

124.4

 

 

 

8.3

 

 

 

—

 

 

 

132.7

 

 

Goodwill

 

 

179.6

 

 

 

—

 

 

 

784.2

(b)

 

 

963.8

 

 

Other, net

 

 

109.6

 

 

 

87.2

 

 

 

27.5

(b)

 

 

224.3

 

 

Total assets

 

 

$

6,018.3

 

 

 

$

1,588.0

 

 

 

$

1,071.3

 

 

 

$

8,677.6

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

$

1,850.8

 

 

 

$

187.4

 

 

 

$

(9.2

)(c)

 

 

$

2,029.0

 

 

Due to related parties

 

 

0.2

 

 

 

—

 

 

 

—

 

 

 

0.2

 

 

Short-term debt

 

 

1,188.5

 

 

 

—

 

 

 

—

 

 

 

1,188.5

 

 

Other current liabilities

 

 

139.9

 

 

 

17.8

 

 

 

—

 

 

 

157.7

 

 

Total current liabilities

 

 

3,179.4

 

 

 

205.2

 

 

 

(9.2

)

 

 

3,375.4

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt under credit facilities and other

 

 

58.4

 

 

 

—

 

 

 

217.3

(a)

 

 

996.0

 

 

 

 

 

 

 

 

 

 

 

 

 

937.6

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(217.3

)(b)

 

 

 

 

 

Senior notes, net

 

 

1,196.7

 

 

 

—

 

 

 

418.1

(a)

 

 

1,636.5

 

 

 

 

 

 

 

 

 

 

 

 

 

21.7

(b)

 

 

 

 

 

Senior notes and credit facilities, net

 

 

—

 

 

 

635.4

 

 

 

(635.4

)(a)

 

 

—

 

 

Other long-term liabilities and deferred credits

 

 

57.7

 

 

 

55.4

 

 

 

7.9

(b)

 

 

121.0

 

 

Total liabilities

 

 

4,492.2

 

 

 

896.0

 

 

 

740.7

 

 

 

6,128.9

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders

 

 

1,485.6

 

 

 

635.7

 

 

 

1,002.2

(b)

 

 

2,487.8

 

 

 

 

 

 

 

 

 

 

 

 

 

(635.7

)(b)

 

 

 

 

 

Subordinated unitholders

 

 

—

 

 

 

22.5

 

 

 

(22.5

)(b)

 

 

—

 

 

General partner

 

 

40.5

 

 

 

12.3

 

 

 

20.4

(b)

 

 

60.9

 

 

 

 

 

 

 

 

 

 

 

 

 

(12.3

)(b)

 

 

 

 

 

Undistributed employee long-term incentive compensation

 

 

—

 

 

 

0.2

 

 

 

(0.2

)(b)

 

 

—

 

 

Accumulated other comprehensive income

 

 

—

 

 

 

21.3

 

 

 

(21.3

)(b)

 

 

—

 

 

Total partners’ capital

 

 

1,526.1

 

 

 

692.0

 

 

 

330.6

 

 

 

2,548.7

 

 

Total Liabilities and Partners’ Capital

 

 

$

6,018.3

 

 

 

$

1,588.0

 

 

 

$

1,071.3

 

 

 

$

8,677.6

 

 

 

See notes to unaudited pro forma condensed combined financial statements

F-3



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED OPERATIONS
For the Six Months Ended June 30, 2006
(in millions, except per unit data)

 

 

Plains
Historical

 

Pacific
Historical

 

Pro Forma
Adjustments

 

Plains
Pro Forma

 

REVENUES

 

 

$

13,527.8

 

 

 

$

149.3

 

 

 

$

(15.3

)(d)

 

 

$

13,661.8

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

 

13,087.4

 

 

 

—

 

 

 

(14.4

)(d)

 

 

13,073.0

 

 

Field operating costs

 

 

168.9

 

 

 

65.1

 

 

 

(0.9

)(d)

 

 

233.1

 

 

General and administrative expenses

 

 

59.2

 

 

 

12.6

 

 

 

—

 

 

 

71.8

 

 

Depreciation and amortization

 

 

42.9

 

 

 

20.3

 

 

 

1.2

(a)

 

 

66.3

 

 

 

 

 

 

 

 

 

 

 

 

 

(20.3

)(e)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22.2

(f)

 

 

 

 

 

Merger costs

 

 

—

 

 

 

3.4

 

 

 

—

 

 

 

3.4

 

 

Total costs and expenses

 

 

13,358.4

 

 

 

101.4

 

 

 

(12.2

)

 

 

13,447.6

 

 

Share of net income of Frontier

 

 

—

 

 

 

0.9

 

 

 

(0.9

)(a)

 

 

—

 

 

OPERATING INCOME

 

 

169.4

 

 

 

48.8

 

 

 

(4.0

)

 

 

214.2

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity earnings (loss) in unconsolidated affiliates

 

 

0.9

 

 

 

—

 

 

 

0.9

(a)

 

 

1.8

 

 

Interest expense

 

 

(33.3

)

 

 

(19.2

)

 

 

(21.2

)(g)

 

 

(72.5

)

 

 

 

 

 

 

 

 

 

 

 

 

1.2

(a)

 

 

 

 

 

Interest income and other income, net

 

 

0.4

 

 

 

0.8

 

 

 

—

 

 

 

1.2

 

 

Income from continuing operations before income taxes

 

 

137.4

 

 

 

30.4

 

 

 

(23.1

)

 

 

144.7

 

 

Income tax (expense) benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

—

 

 

 

(1.8

)

 

 

—

(h)

 

 

(1.8

)

 

Deferred

 

 

—

 

 

 

4.5

 

 

 

—

(h)

 

 

4.5

 

 

Income from continuing operations before cumulative effect of change in accounting principle

 

 

137.4

 

 

 

33.1

 

 

 

(23.1

)

 

 

147.4

 

 

Cumulative effect of change in accounting principle

 

 

6.3

 

 

 

—

 

 

 

—

 

 

 

6.3

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

$

143.7

 

 

 

$

33.1

 

 

 

$

(23.1

)

 

 

$

153.7

 

 

NET INCOME FROM CONTINUING OPERATIONS—LIMITED PARTNERS

 

 

$

128.2

 

 

 

 

 

 

 

 

 

 

 

$

147.8

 

 

NET INCOME FROM CONTINUING OPERATIONS—GENERAL PARTNER

 

 

$

15.5

 

 

 

 

 

 

 

 

 

 

 

$

5.9

 

 

BASIC NET INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit before cumulative effect of change in accounting principle

 

 

$

1.47

 

 

 

 

 

 

 

 

 

 

 

$

1.32

 

 

Cumulative effect of change in accounting principle per limited partner
unit

 

 

0.08

 

 

 

 

 

 

 

 

 

 

 

0.06

 

 

Basic net income from continuing operations per limited partner unit

 

 

$

1.55

 

 

 

 

 

 

 

 

 

 

 

$

1.38

 

 

DILUTED NET INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit before cumulative effect of change in accounting principle

 

 

$

1.45

 

 

 

 

 

 

 

 

 

 

 

$

1.31

 

 

Cumulative effect of change in accounting principle per limited partner
unit

 

 

0.08

 

 

 

 

 

 

 

 

 

 

 

0.06

 

 

Diluted net income from continuing operations per limited partner unit

 

 

$

1.53

 

 

 

 

 

 

 

 

 

 

 

$

1.37

 

 

BASIC WEIGHTED AVERAGE UNITS OUTSTANDING

 

 

75.5

 

 

 

 

 

 

 

22.3

(b)

 

 

97.8

 

 

DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING

 

 

76.3

 

 

 

 

 

 

 

22.3

(b)

 

 

98.6

 

 

 

See notes to unaudited pro forma condensed combined financial statements

F-4



 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED OPERATIONS
For the Twelve Months Ended December 31, 2005
(in millions, except per unit data)

 

 

Plains
Historical

 

Pacific
Historical

 

Pro Forma
Adjustments

 

Plains
Pro Forma

 

REVENUES

 

$

31,177.3

 

 

$

224.3

 

 

 

$

(12.6

)(d)

 

$

31,389.0

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

30,442.5

 

 

—

 

 

 

(11.2

)(d)

 

30,431.3

 

Field operating costs

 

272.5

 

 

104.4

 

 

 

(1.4

)(d)

 

375.5

 

General and administrative expenses

 

103.2

 

 

18.5

 

 

 

—

 

 

121.7

 

Accelerated long-term incentive plan compensation expense

 

—

 

 

3.1

 

 

 

—

 

 

3.1

 

Line 63 oil release costs

 

—

 

 

2.0

 

 

 

—

 

 

2.0

 

Transaction costs

 

—

 

 

1.8

 

 

 

—

 

 

1.8

 

Depreciation and amortization

 

83.5

 

 

29.4

 

 

 

2.0

(a)

 

129.8

 

 

 

 

 

 

 

 

 

 

(29.4

)(e)

 

 

 

 

 

 

 

 

 

 

 

 

44.3

(f)

 

 

 

Total costs and expenses

 

30,901.7

 

 

159.2

 

 

 

4.3

 

 

31,065.2

 

Other, net

 

—

 

 

(0.5

)

 

 

—

 

 

(0.5

)

Share of net income of Frontier

 

—

 

 

1.8

 

 

 

(1.8

)(a)

 

—

 

OPERATING INCOME

 

275.6

 

 

66.4

 

 

 

(18.7

)

 

323.3

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity earnings in unconsolidated affiliates

 

1.0

 

 

—

 

 

 

1.8

(a)

 

2.8

 

Interest expense

 

(59.4

)

 

(26.7

)

 

 

(43.6

)(g)

 

(127.7

)

 

 

 

 

 

 

 

 

 

2.0

(a)

 

 

 

Interest income and other income, net

 

0.6

 

 

1.1

 

 

 

—

 

 

1.7

 

Income from continuing operations before income taxes

 

217.8

 

 

40.8

 

 

 

(58.5

)

 

200.1

 

Income tax (expense) benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

—

 

 

(1.3

)

 

 

—

(h)

 

(1.3

)

Deferred

 

—

 

 

0.1

 

 

 

—

(h)

 

0.1

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

 

$

217.8

 

 

$

39.6

 

 

 

$

(58.5

)

 

$

198.9

 

NET INCOME FROM CONTINUING OPERATIONS—LIMITED PARTNERS

 

$

198.8

 

 

 

 

 

 

 

 

 

$

194.9

 

NET INCOME FROM CONTINUING OPERATIONS—GENERAL PARTNER

 

$

19.0

 

 

 

 

 

 

 

 

 

$

4.0

 

BASIC NET INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT

 

$

2.77

 

 

 

 

 

 

 

 

 

$

2.07

 

DILUTED NET INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT

 

$

2.72

 

 

 

 

 

 

 

 

 

$

2.04

 

BASIC WEIGHTED AVERAGE UNITS OUTSTANDING

 

69.3

 

 

 

 

 

 

22.3

(b)

 

91.6

 

DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING

 

70.5

 

 

 

 

 

 

22.3

(b)

 

92.8

 

 

See notes to unaudited pro forma condensed combined financial statements

F-5



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

These unaudited pro forma condensed combined financial statements and underlying pro forma adjustments are based upon currently available information and certain estimates and assumptions made by the management of Plains and Pacific; therefore, actual results could differ materially from the pro forma information. However, we believe the assumptions provide a reasonable basis for presenting the significant effects of the transactions noted herein. Plains believes the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma information. Please read “Pro Forma Sensitivity Analysis” for assumptions related to fair value estimates.

The Plains Pro Forma income before cumulative effect of change in accounting principle for the year ended December 31, 2005 includes, as required, the following pro forma adjustments related to the acquisition of the Valero assets that Pacific acquired effective September 30, 2005: (i) depreciation expense for the entire year of approximately $11 million associated with Plains' estimated purchase price allocated to the Valero assets; and (ii) interest expense of approximately $11 million for the entire year on the $175 million 6 1¤4% senior notes issued to fund the asset acquisition. However, since the Valero transaction was an asset acquisition, the Plains Pro Forma income before cumulative effect of change in accounting principle for the year ended December 31, 2005 does not include revenues and related operating expenses for the period prior to the asset acquisition by Pacific. In addition, the Plains Pro Forma income before cumulative effect of change in accounting principle for the year ended December 31, 2005 and the six months ended June 30, 2006 does not include any synergies that Plains expects to achieve as a result of the merger with Pacific.

The merger of Pacific into Plains presented in these pro forma statements has been accounted for using the purchase method of accounting and the purchase price allocation has been estimated in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations.” The total estimated consideration is summarized below (in millions):

Cash payment to LB Pacific

 

$

700.0

 

Estimated fair value of Plains common units to be issued in exchange for Pacific common units (see below)

 

1,002.2

 

Assumption of Pacific debt (at estimated fair value)

 

657.1

 

Estimated transaction costs

 

40.7

 

Total consideration

 

$

2,400.0

 

 

F-6



Plains will exchange 0.77 of its common units for each Pacific common unit remaining after Plains’ purchase of 2,616,250 common units owned by LB Pacific. Although cash will be paid for any fractional units as a result of the exchange, such amount is not estimable at this time. Plains currently estimates that the number of Plains common units to be issued in the exchange will be 22,262,030 calculated as follows:

Pacific units outstanding at June 30, 2006

 

 

 

Common units

 

31,457,782

 

Subordinated units

 

7,848,750

 

Total historical units outstanding at June 30, 2006

 

39,306,532

 

Pro forma adjustments to Pacific historical units outstanding:

 

 

 

Plains purchase of subordinated units held by LB Pacific

 

(7,848,750

)

Plains purchase of common units held by LB Pacific

 

(2,616,250

)

Issuance of common units for outstanding Pacific restricted unit awards

 

70,195

 

Pro forma Pacific common units subject to exchange offer by Plains

 

28,911,727

 

Exchange ratio (0.77 Plains common units for each Pacific common unit)

 

0.77

 

Pro forma Plains units to be issued to Pacific common unitholders in connection with merger

 

22,262,030

 

Average closing price of Plains common units (see below)

 

$

45.02

 

Estimated fair value of Plains common units to be issued in exchange for Pacific common units (in millions)

 

$

1,002.2

 

 

In accordance with purchase accounting rules, the pro forma value of the units issued in the exchange is based on the average closing price of Plains common units immediately prior to and after the merger was announced on June 12, 2006. The following table shows the closing prices of Plains common units for the two trading days prior to and after the proposed merger was announced.

June 8, 2006

 

$

46.30

 

June 9, 2006

 

46.10

 

June 13, 2006

 

43.88

 

June 14, 2006

 

43.81

 

Average closing price of Plains common units

 

$

45.02

 

 

Upon completion of the proposed merger or shortly thereafter, Plains will obtain a valuation of Pacific’s assets and liabilities in order to develop a definitive allocation of the purchase price. As a result, the final purchase price allocation may result in some amounts being assigned to tangible or amortizable intangible assets apart from goodwill.

F-7



The following table shows Plains’ preliminary purchase price allocation (in millions):

Description

 

 

 

Amount

 

Average
Depreciable
Life

 

PP&E

 

$

1,420.0

 

 

5-40

 

 

Inventory

 

39.3

 

 

n/a

 

 

Pipeline linefill and inventory in third party assets

 

83.5

 

 

n/a

 

 

Intangible assets

 

96.8

 

 

30

 

 

Working capital, excluding inventory

 

13.4

 

 

n/a

 

 

Other long-term assets and liabilities, net

 

(37.2

)

 

n/a

 

 

Goodwill (see below)

 

784.2

 

 

n/a

 

 

Total

 

$

2,400.0

 

 

 

 

 

 

To the extent that any amount is assigned to a tangible or finite lived intangible asset, this amount may ultimately be depreciated or amortized (as appropriate) to earnings over the expected period of benefit of the asset. To the extent that any amount remains as goodwill or indefinite lived intangible assets, this amount would not be subject to depreciation or amortization, but would be subject to periodic impairment testing and, if necessary, would be written down to fair value should circumstances warrant.

The following table shows Plains’ preliminary calculation of the estimated pro forma goodwill amount (in millions):

Cash payment to LB Pacific

 

$

700.0

 

Estimated fair value of Plains common units to be issued in exchange for Pacific public units

 

1,002.2

 

Estimated transaction costs

 

40.7

 

Total consideration, excluding debt assumed

 

1,742.9

 

Estimated fair value of Pacific’s net assets

 

958.7

 

Excess of purchase price over net assets of Pacific preliminarily assigned to goodwill

 

$

784.2

 

 

For an analysis of the sensitivity of pro forma earnings to potential reclassifications of this preliminary goodwill amount to tangible or intangible assets, please read “Pro Forma Sensitivity Analysis” below.

The following table shows Plains’ preliminary calculation of the sources of funding for the acquisition (in millions):

Estimated fair value of Plains common units to be issued in exchange for Pacific common units

 

$

1,002.2

 

Plains general partner capital contribution

 

20.4

 

Assumption of Pacific debt (at estimated fair value)

 

657.1

 

Repayment of Pacific credit facility

 

(217.3

)

Plains new debt incurred

 

937.6

 

Total sources of funding

 

$

2,400.0

 

 

F-8



Pro Forma Adjustments

a.                 To reclassify certain line items on Pacific’s historical financial statements to conform to Plains’ historical presentation.

b.                Records the cash paid, equity exchanged, additional obligations assumed and adjustments to fair value of the assets purchased and liabilities assumed in the merger based on the purchase method of accounting.

c.                 Reflects the elimination of accounts receivable and accounts payable balances between Plains and Pacific.

d.                Reflects the elimination of purchases and sales between Plains and Pacific.

e.                 To reverse historical depreciation and amortization as recorded by Pacific.

f.                   Reflects depreciation and amortization on the acquired assets based on the straight-line method of depreciation over average useful lives ranging from 5 to 40 years.

g.                 Reflects the adjustment to interest expense for (i) the increase in long-term debt of approximately $938 million from a “bridge” credit facility using an average interest rate of 6.0%, (ii) the decrease in long-term debt of approximately $217 million from the repayment of the Pacific credit facility and (iii) the amortization of the premium on the senior notes. The impact to interest expense of a 1¤8% change in interest rates would be approximately $1.4 million per year.

h.                The pro forma adjustments to the statements of combined operations have not been tax-effected as the effect on income tax expense is not deemed to be material to the pro forma results of operations.

Plains Earnings per Limited Partner Unit

Earnings per limited partner unit is determined by dividing net income after deducting the amount allocated to the general partner interest, including its incentive distribution in excess of its 2% interest, by the weighted average number of limited partner units outstanding during the period. Plains’ general partner is entitled to receive incentive distributions if the amount it distributes with respect to any quarter exceeds levels specified in its partnership agreement. Upon closing of the proposed merger, Plains’ general partner has agreed to reduce the amounts due it as incentive distributions commencing with the earlier to occur of (i) the payment date of the first quarterly distribution declared and paid after the closing date that equals or exceeds $0.80 per unit or (ii) the payment date of the second quarterly distribution declared and paid after the closing date. Such adjustment shall be as follows: (i) $5 million per quarter for the first four quarters, (ii) $3.75 million per quarter for the next eight quarters, (iii) $2.5 million per quarter for the next four quarters, and (iv) $1.25 million per quarter for the final four quarters. The total reduction in incentive distributions will be $65 million.

F-9



The following sets forth the computation of basic and diluted earnings per limited partner unit for Plains on a historical and pro forma basis. The net income available to limited partners and the weighted average limited partner units outstanding have been adjusted for instruments considered common unit equivalents.

 

 

Six Months ended
June 30, 2006

 

Year ended
December 31, 2005

 

 

 

Plains
Historical

 

Plains
Pro Forma

 

Plains
Historical

 

Plains
Pro Forma

 

 

 

(in millions, except per unit data)

 

Numerator for basic and diluted earnings per limited partner unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

143.7

 

 

 

$

153.7

 

 

 

$

217.8

 

 

 

$

198.9

 

 

Less: General partner's incentive distribution paid

 

 

(12.9

)

 

 

(12.9

)

 

 

(15.0

)

 

 

(15.0

)

 

Incentive distribution reduction

 

 

—

 

 

 

10.0

 

 

 

—

 

 

 

15.0

 

 

Subtotal

 

 

130.8

 

 

 

150.8

 

 

 

202.8

 

 

 

198.9

 

 

General partner 2% ownership

 

 

(2.6

)

 

 

(3.0

)

 

 

(4.1

)

 

 

(4.0

)

 

Net income available to limited partners

 

 

128.2

 

 

 

147.8

 

 

 

198.7

 

 

 

194.9

 

 

EITF 03-06 additional general partner's distribution

 

 

(11.2

)

 

 

(12.5

)

 

 

(7.1

)

 

 

(5.3

)

 

Net income available to limited partners under EITF 03-06

 

 

$

117.0

 

 

 

$

135.3

 

 

 

$

191.6

 

 

 

$

189.6

 

 

Less: Limited partner 98% portion of cumulative effect of change in accounting principle

 

 

6.2

 

 

 

6.2

 

 

 

—

 

 

 

—

 

 

Limted partner net income before cumulative effect of change in accounting principle

 

 

$

110.8

 

 

 

$

129.1

 

 

 

$

191.6

 

 

 

$

189.6

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical weighted average number of limited partner units outstanding

 

 

75.5

 

 

 

75.5

 

 

 

69.3

 

 

 

69.3

 

 

Common unit exchange

 

 

—

 

 

 

22.3

 

 

 

—

 

 

 

22.3

 

 

Denominator for basic earnings per limited partner unit

 

 

75.5

 

 

 

97.8

 

 

 

69.3

 

 

 

91.6

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average LTIP units outstanding

 

 

0.8

 

 

 

0.8

 

 

 

1.2

 

 

 

1.2

 

 

Denominator for diluted earnings per limited partner unit

 

 

76.3

 

 

 

98.6

 

 

 

70.5

 

 

 

92.8

 

 

Basic net income per limited partner unit before cumulative effect of change in accounting principle

 

 

$

1.47

 

 

 

$

1.32

 

 

 

$

2.77

 

 

 

$

2.07

 

 

Cumulative effect of change in accounting principle per limited partner unit

 

 

0.08

 

 

 

0.06

 

 

 

—

 

 

 

—

 

 

Basic net income per limited partner unit

 

 

$

1.55

 

 

 

$

1.38

 

 

 

$

2.77

 

 

 

$

2.07

 

 

Diluted net income per limited partner unit before cumulative effect of change in accounting principle

 

 

$

1.45

 

 

 

$

1.31

 

 

 

$

2.72

 

 

 

$

2.04

 

 

Cumulative effect of change in accounting principle per limited partner unit

 

 

0.08

 

 

 

0.06

 

 

 

—

 

 

 

—

 

 

Diluted net income per limited partner unit

 

 

$

1.53

 

 

 

$

1.37

 

 

 

$

2.72

 

 

 

$

2.04

 

 

 

F-10



PRO FORMA SENSITIVITY ANALYSIS

Certain of the pro forma adjustments incorporate Plains’ preliminary estimate of the fair value of the business that Plains is acquiring. Preliminary estimates are that the excess of the purchase price over the preliminary fair values (“excess cost”) may be assigned to non-amortizable other intangible assets or goodwill as opposed to depreciable fixed assets or amortizable intangible assets. Upon completion of the proposed merger or shortly thereafter, Plains will obtain a valuation of Pacific’s assets and liabilities in order to develop a definitive allocation of the purchase price. As a result, the final purchase price allocation may result in some amounts being assigned to tangible or amortizable intangible assets, and this amount may ultimately be depreciated or amortized (as appropriate) to earnings over the expected benefit period of the asset. To the extent that any amount remains as goodwill or indefinite lived intangible assets, this amount would not be subject to depreciation or amortization, but would be subject to periodic impairment testing and, if necessary, would be written down to a lower fair value should circumstances warrant.

The table below shows the potential increase in pro forma depreciation or amortization expense if certain amounts of the goodwill were ultimately assigned to tangible or amortizable intangible assets. For purposes of calculating this sensitivity, Plains has applied the straight-line method of cost allocation over an estimated useful life of 34 years to various fair values. The decrease in annual basic earnings per unit is predicated on the basic earnings per unit determined using the pro forma income from continuing operations amount. The resulting pro forma adjustments are as follows (in millions, except per unit amounts):

For the Six Months Ended June 30, 2006

Estimated
Goodwill

 

 

 

Change in
Allocation

 

Average
Depreciable Life
of Assets

 

Decrease in Net
Income from
Continuing
Operations

 

Decrease in Net
Income from
Continuing
Operations
per Limited
Partner Unit

 

$784.2

 

20

%

$

156.8

 

 

34

 

 

 

$

(2.3

)

 

 

$

(0.01

)

 

$784.2

 

40

%

$

313.7

 

 

34

 

 

 

$

(4.6

)

 

 

$

(0.02

)

 

$784.2

 

60

%

$

470.5

 

 

34

 

 

 

$

(6.9

)

 

 

$

(0.04

)

 

$784.2

 

80

%

$

627.4

 

 

34

 

 

 

$

(9.2

)

 

 

$

(0.05

)

 

$784.2

 

100

%

$

784.2

 

 

34

 

 

 

$

(11.5

)

 

 

$

(0.07

)

 

 

Estimated
Goodwill

 

 

 

Change in
Allocation

 

Average
Depreciable Life
of Assets

 

Decrease in Net
Income from
Continuing
Operations

 

Decrease in Net
Income from 
Continuing 
Operations
per Limited
Partner Unit

 

$784.2

 

20

%

$

156.8

 

 

34

 

 

 

$

(4.6

)

 

 

$

(0.04

)

 

$784.2

 

40

%

$

313.7

 

 

34

 

 

 

$

(9.2

)

 

 

$

(0.08

)

 

$784.2

 

60

%

$

470.5

 

 

34

 

 

 

$

(13.8

)

 

 

$

(0.11

)

 

$784.2

 

80

%

$

627.4

 

 

34

 

 

 

$

(18.5

)

 

 

$

(0.14

)

 

$784.2

 

100

%

$

784.2

 

 

34

 

 

 

$

(23.1

)

 

 

$

(0.19

)

 

 

 

F-11