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Business Combinations
3 Months Ended
Mar. 31, 2013
Business Combinations  
Business Combinations

Note 2.                     Business Combinations

 

2013 Acquisitions

 

Acquisition of Basin Transload LLC

 

On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload, which operates two transloading facilities in Columbus and Beulah, North Dakota for crude oil and other products, with a combined rail loading capacity of 160,000 barrels per day.  The purchase price, including expenditures related to certain capital expansion projects, was approximately $91.1 million which the Partnership financed with borrowings under its credit facility.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of its membership interest in Basin Transload subsequent to the acquisition date.

 

The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASB’s guidance regarding business combinations.  The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.

 

The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Assets purchased:

 

 

 

Accounts receivable

 

$

 2,003

 

Prepaid expenses

 

68

 

Property and equipment

 

28,016

 

Intangibles

 

78,163

 

Total identifiable assets purchased

 

108,250

 

Liabilities assumed:

 

 

 

Accounts payable

 

(1,326

)

Total liabilities assumed

 

(1,326

)

Net identifiable assets acquired

 

106,924

 

Noncontrolling interest

 

(40,000

)

Goodwill

 

24,178

 

Net assets acquired

 

$

 91,102

 

 

Management is currently in the process of evaluating the purchase price accounting.  The Partnership has engaged a third-party valuation firm to assist in the valuation of the Partnership’s interest in Basin Transload’s property and equipment.  This valuation is in the early stages, and the fair value estimated for property and equipment in the table above of $28.0 million was developed by management based on their estimates, assumptions and acquisition history.  The fair value of $78.2 million assigned to the intangibles, primarily customer relationships, was estimated by management based on their estimates, assumptions and acquisition history and will be supported by a third-party valuation firm.

 

The fair value of the noncontrolling interest has been primarily developed by management based on the fair value of the acquired business as a whole, reduced by the consideration paid by management to obtain control.  This fair value of the business was estimated based on the fair value of Basin Transload’s net assets and applying a reasonable control premium.

 

The fair values of the remaining Basin Transload assets and liabilities noted above approximate their carrying values at February 1, 2013.  It is possible that once the Partnership receives the completed valuations on the property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.

 

The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values.  The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon on their estimates and assumptions.  Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.

 

The Partnership utilized accounting guidance related to intangible assets which lists the pertinent factors to be considered when estimating the useful life of an intangible asset.  These factors include, in part, a review of the expected use by the Partnership of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset.  The Partnership amortizes these intangible assets over their estimated useful lives which is consistent with the estimated undiscounted future cash flows of these assets.

 

As part of the purchase price allocation, identifiable intangible assets include customer relationships that are being amortized over five years.  For the three months ended March 31, 2013, amortization expense amounted to $2.6 million.  The estimated remaining amortization expense for intangible assets acquired in connection with the acquisition for each of the five succeeding years and thereafter is as follows (in thousands):

 

2013 (2/1/13 – 12/31/13)

 

$

 14,300

 

2014

 

15,600

 

2015

 

15,600

 

2016

 

15,600

 

2017

 

15,600

 

Thereafter

 

1,463

 

Total

 

$

 78,163

 

 

The $24.2 million of goodwill was assigned to the Wholesale reporting unit.  The goodwill recognized is attributed to the unique origin of the acquired locations through which the Partnership’s customers can efficiently supply cost-competitive crude oil to destinations on the East and West Coasts.  The goodwill is deductible for income tax purposes.

 

Acquisition of Cascade Kelly Holdings LLC

 

On February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly, which owns a West Coast crude oil and ethanol facility near Portland, Oregon.  The total cash purchase price was approximately $94.2 million which the Partnership funded with borrowings under its credit facility and with proceeds from the issuance of the Partnership’s unsecured 8.00% senior notes due 2018 (see Note 6).  The transaction includes a rail transloading facility serviced by the Burlington Northern Santa Fe Railway, 200,000 barrels of storage capacity, a deepwater marine terminal with access to a 1,200-foot leased dock and the largest ethanol plant on the West Coast.  Situated along the Columbia River in Clatskanie, Oregon, the site is located on land leased under a long-term agreement from the Port of St. Helens.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the FASB’s guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of Cascade Kelly subsequent to the acquisition date.

 

The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASB’s guidance regarding business combinations.  The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.

 

The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Assets purchased:

 

 

 

Accounts receivable

 

$

 296

 

Inventory

 

517

 

Prepaid expenses

 

96

 

Property and equipment

 

45,100

 

Total identifiable assets purchased

 

46,009

 

Liabilities assumed:

 

 

 

Accounts payable

 

(1,428

)

Other current liabilities

 

(1,479

)

Total liabilities assumed

 

(2,907

)

Net identifiable assets acquired

 

43,102

 

Goodwill

 

51,077

 

Net assets acquired

 

$

 94,179

 

 

Management is currently in the process of evaluating the purchase price accounting.  The Partnership has engaged a third-party valuation firm to assist in the valuation of Cascade Kelly’s property and equipment and possible intangible assets.  This valuation is in the early stages, and the fair value estimated for property and equipment in the table above of $45.1 million was developed by management based on their estimates, assumptions and acquisition history.

 

The fair values of the remaining Cascade Kelly assets and liabilities noted above approximate their carrying values at February 15, 2013.  It is possible that once the Partnership receives the completed valuations on the property and equipment, the final purchase price accounting may be different than what is presented above.

 

The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values.  The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, if any, based upon on their estimates and assumptions.  Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.

 

The $51.7 million of goodwill was assigned to the Wholesale reporting unit.  The goodwill recognized is primarily attributed to the crude oil facility and, to a lesser extent, the ethanol plant, which will strategically enhance the Partnership’s network of origin and destination assets and extend the Partnership’s virtual pipeline to the West Coast.  The goodwill is deductible for income tax purposes.

 

2012 Acquisition

 

Alliance Energy LLCOn March 1, 2012, pursuant to a Contribution Agreement between the Partnership and AE Holdings (the “Contribution Agreement”), the Partnership acquired from AE Holdings 100% of the outstanding membership interests in Alliance, a gasoline distributor and operator of gasoline stations and convenience stores.  The aggregate purchase price of the acquisition was approximately $312.4 million, consisting of both cash and non-cash components.  Alliance was an affiliate of the Partnership as Alliance was owned by AE Holdings which is approximately 95% owned by members of the Slifka family.  Both the Partnership and Alliance shared certain common directors.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the FASB’s guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of Alliance subsequent to the acquisition date.

 

The purchase price includes an initial cash payment of $184.5 million which was funded by the Partnership through additional borrowings under its revolving credit facility.  The consideration also includes the issuance of 5,850,000 common units representing limited partner interests in the Partnership which had a fair value of $22.31 per unit on March 1, 2012, resulting in equity consideration of $130.5 million.  Pursuant to the Contribution Agreement, there was a $1.9 million adjustment as a result of the timing of the transaction (March 1), the seller’s 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the issued 5,850,000 common units.  There were also $0.7 million in miscellaneous adjustments based on certain cash and non-cash changes in the Alliance operations from October 1, 2011 (when the acquisition was initially agreed to by the parties) to February 29, 2012 (collectively with the $1.9 million adjustment, the “Cash Adjustment”).  The Cash Adjustment was paid by Alliance to the Partnership on May 16, 2012.  The net cash paid after consideration of the Cash Adjustment was $181.9 million.

 

The purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values with the exception of environmental liabilities which were recorded on an undiscounted basis (see Note 11).  The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon a valuation from an independent third party.  Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill and assigned to the Gasoline Distribution and Station Operations reporting unit.

 

Goodwill — The following represents the changes in goodwill from the year ended December 31, 2012 to the current date (in thousands):

 

 

 

Goodwill at

 

 

 

Goodwill at

 

 

 

December 31,

 

2013

 

March 31,

 

 

 

2012

 

Additions

 

2013

 

Acquisition of Alliance (1)

 

$

 31,151

 

$

 —

 

$

 31,151

 

Acquisition of gasoline stations from Mutual Oil (1)

 

1,175

 

 

1,175

 

Acquisition of 60% interest in Basin Transload (2)

 

 

24,178

 

24,178

 

Acquisition of Cascade Kelly (2)

 

 

51,077

 

51,077

 

Total

 

$

 32,326

 

$

 75,255

 

$

 107,581

 

 

 

(1)                Goodwill allocated to the Gasoline Distribution and Station Operations reporting unit

(2)                Goodwill allocated to the Wholesale reporting unit

 

Supplemental Pro-Forma Information — Revenues and net income included in the Partnership’s consolidated operating results for Basin Transload from February 1, 2013, the acquisition date, and for Cascade Kelly from February 15, 2013, the acquisition date, through the period ended March 31, 2013 were immaterial.  Accordingly, the supplemental pro-forma information for the three months ended March 31, 2013 is consistent with the amounts reported in the accompanying statement of operations for the three months ended March 31, 2013.

 

The following unaudited pro-forma information for 2012 presents the consolidated results of operations of the Partnership as if the acquisitions of Basin Transload, Cascade Kelly and Alliance occurred at the beginning of the period presented, with pro-forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands, except per unit data):

 

 

 

Three Months
Ended
March
 31,

 

 

 

2012

 

Sales

 

$

 4,214,795

 

Net loss

 

$

 (16,973

)

Net loss per limited partner unit, basic and diluted

 

$

 (0.62

)