Acquisitions

9 Months Ended

Dec. 31, 2012

Acquisitions

Acquisitions

Note 3 — Acquisitions

Third Coast Combination

On December 31, 2012, we completed a business combination transaction whereby we acquired all of the limited liability company membership interests in Third Coast for $43.0 million in cash. The business of Third Coast consists primarily of transporting crude oil via barge. The agreement contemplates a post-closing adjustment to the purchase price for certain working capital items. Also on December 31, 2012, we entered into a call agreement with the former owners of Third Coast pursuant to which the former owners of Third Coast agreed to purchase a minimum of $8.0 million or a maximum of $10.0 million of common units from us. On January 11, 2013, the former owners of Third Coast purchased 344,680 common units from us for $8.0 million pursuant to this agreement. We incurred and charged to general and administrative expense during the three months ended December 31, 2012 approximately $0.4 million of costs related to the Third Coast combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Third Coast. The estimates of fair value reflected as of December 31, 2012 are subject to change. We currently expect to complete this process prior to filing our Form 10-Q for the quarter ended December 31, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Cash	$	2
Accounts receivable	2,248
Other noncurrent assets	2,733
Property, plant and equipment:
Marine vessels (20 years)	12,883
Other	30
Customer relationships (15 years)	8,000
Trade names (indefinite life)	500
Goodwill	18,689
Assumed liabilities	(2,202		)
Equity (fair value of call agreement)	117
Cash paid	$	43,000

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

Pecos Combination

On November 1, 2012, we completed a business combination whereby we acquired Pecos.  The business of Pecos consists primarily of crude oil purchasing and logistics operations in Texas and New Mexico.  We paid cash of $134.6 million at closing, subject to customary post-closing adjustments, and assumed certain obligations with a value of $10.4 million under certain vehicle and related equipment financing facilities.  Also on November 1, 2012, we entered into a call agreement with the former owners of Pecos pursuant to which the former owners of Pecos agreed to purchase a minimum of $45.0 million or a maximum of $60.0 million of common units from us.  On November 12, 2012, the former owners purchased 1,834,414 common units from us for $45.0 million pursuant to this call agreement.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.5 million of costs related to the Pecos combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Pecos. The estimates of fair value reflected as of December 31, 2012 are subject to change, and such changes could be material. We expect to complete this process prior to filing our Form 10-Q for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Cash	$	2,180
Accounts receivable	73,704
Inventory	1,903
Other current assets	1,475
Property, plant and equipment:
Vehicles and related equipment (5 years)	19,193
Other	2,562
Customer relationships (15 years)	37,754
Trade names (indefinite life)	1,000
Goodwill	56,830
Accounts payable and accrued liabilities	(51,669		)
Long-term debt	(10,365		)
Total consideration paid	$	134,567

The consideration paid consists of the following (in thousands):

Cash paid, net of cash received pursuant to Call Agreement	$	89,624
Value of common units issued pursuant to Call Agreement	44,943
Total consideration paid	$	134,567

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

Other Crude Oil Logistics and Water Services Business Combinations

During the nine months ended December 31, 2012, we completed four separate acquisitions to expand the assets and operations of our crude oil logistics and water services businesses. On a combined basis, we paid $53.3 million in cash and assumed $1.3 million of long-term debt in the form of non-compete agreements. We also issued 516,978 common units, valued at $12.4 million, as partial consideration for one of these acquisitions. Certain of the agreements contemplate post-closing adjustments to the purchase price for certain specified working capital items. We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.3 million of costs related to these acquisitions.

We are currently in the process of identifying and determining the fair value of the assets and liabilities acquired in this combination. The estimates of fair value reflected as of December 31, 2012 are subject to change. We currently expect to complete this process prior to filing our Form 10-Q for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Cash	$	743
Accounts receivable	2,782
Inventory	169
Other current assets	759
Property, plant and equipment:
Disposal wells and related equipment (10-30 years)	13,322
Other (5-30 years)	5,672
Customer relationships (15 years)	12,900
Trade names (indefinite life)	500
Goodwill	37,527
Current liabilities	(4,972		)
Notes payable	(1,340		)
Noncontrolling interest	(2,333		)
Consideration paid	$	65,729

The consideration paid consists of the following (in thousands):

Cash paid	$	53,296
Value of common units issued	12,433
Total consideration paid	$	65,729

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

High Sierra Combination

On June 19, 2012, we completed a business combination with High Sierra, whereby we acquired all of the ownership interests in High Sierra.  We paid $91.8 million of cash, net of $5.0 million of cash acquired, and issued 18,018,468 common units to acquire High Sierra Energy, LP.  These common units were valued at $406.8 million using the closing price of our common units on the New York Stock Exchange (the “NYSE”) on the merger date.  We also paid $97.4 million of High Sierra Energy, LP’s long-term debt and other obligations.  Our general partner acquired High Sierra Energy GP, LLC by paying $50.0 million of cash and issuing equity.  Our general partner then contributed its ownership interests in High Sierra Energy GP, LLC to us, in return for which we paid our general partner $50.0 million of cash and issued 2,685,042 common units to our general partner.  We recorded the value of the 2,685,042 common units issued to our general partner at $8.0 million, which represents an initial estimate, in accordance with GAAP, of the fair value of the equity issued by our general partner to the former owners of High Sierra’s general partner.  In accordance with the fair value model specified in the accounting standards, this fair value was estimated based on assumptions of future distributions and a discount rate that a hypothetical buyer might use.  Under this model, the potential for distribution growth resulting from the prospect of future acquisitions and capital expansion projects would not be considered in the fair value calculation.  We have not yet completed the accounting for the business combination, and this estimate of fair value is subject to change.  The difference between the estimated fair value of the general partner interests issued by our general partner of $8.0 million, calculated as described above, and the fair value of the common units issued to our general partner of $60.6 million, as calculated using the closing price of the common units on the NYSE, is reported as a reduction to equity.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $3.6 million of costs related to the High Sierra transaction.  We also incurred or accrued costs of approximately $0.6 million related to the equity issuance that we charged to equity.

We have included the results of High Sierra’s operations in our consolidated financial statements beginning on June 19, 2012. During the nine months ended December 31, 2012, our consolidated statement of operations includes operating income of approximately $47.8 million generated by the operations of High Sierra and by the operations of the subsequent acquisitions of crude oil logistics and water services businesses. The following table summarizes the revenues and cost of sales generated from High Sierra’s operations and by the operations of the subsequent acquisitions of crude oil logistics and water services businesses (in thousands):

	Revenues		Cost of Sales
Crude oil logistics	$	1,472,439	$	1,435,462
Natural gas liquids logistics	463,814		424,567
Water services	40,557		4,169
Other	2,842		—
Total	$	1,979,652	$	1,864,198

We are in the process of identifying, and obtaining an independent appraisal of the fair value of, the assets and liabilities acquired in the combination with High Sierra.  The estimates of fair value reflected as of December 31, 2012 are subject to change and such changes could be material.  We expect to complete this process prior to filing our Form 10-K for the fiscal year ending March 31, 2013.  We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Accounts receivable	$	395,351
Inventory	43,663
Receivables from affiliates	7,724
Derivative assets	10,646
Forward purchase and sale contracts	34,717
Other current assets	11,174
Property, plant and equipment:
Land	5,825
Transportation vehicles and equipment (5 years)	22,746
Facilities and equipment (20 years)	105,065
Buildings and improvements (20 years)	10,549
Software (5 years)	4,203
Construction in progress	11,213
Intangible assets:
Customer relationships (15 years)	242,000
Lease contracts (1-6 years)	10,500
Trade names (indefinite)	16,000
Goodwill	216,193
Assumed liabilities:
Accounts payable	(417,369		)
Accrued expenses and other current liabilities	(36,039		)
Payables to affiliates	(9,016		)
Advance payments received from customers	(1,237		)
Derivative liabilities	(5,726		)
Forward purchase and sale contracts	(18,680		)
Noncurrent liabilities	(3,057		)
Noncontrolling interest in consolidated subsidiary	(2,400		)
Consideration paid, net of cash acquired	$	654,045

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities.  Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce.  We estimate that all of the goodwill will be deductible for federal income tax purposes.

The fair value of accounts receivable is approximately $0.6 million lower than the contract value, to give effect to estimated uncollectable accounts.

Retail Combinations During the Nine Months Ended December 31, 2012

During the nine months ended December 31, 2012, we entered into six separate business combination agreements to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States.  On a combined basis, we paid cash of $71.1 million and issued 850,676 common units, valued at $18.9 million, in exchange for these assets.  In addition, a combined amount of approximately $0.3 million will be payable as deferred payments on the purchase prices.  We also assumed $6.6 million of long-term debt in the form of non-compete agreements.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.3 million related to these acquisitions.  We are in the process of identifying the fair value of the assets and liabilities acquired in the combinations.  The estimates of fair value reflected as of December 31, 2012 are subject to change, and such changes could be material.  Our preliminary estimates of the fair value of the assets acquired and liabilities assumed in these six combinations are as follows (in thousands):

Accounts receivable	$	8,711
Inventory	5,155
Other current assets	1,227
Property, plant and equipment:
Land	4,474
Tanks and other retail propane equipment (5-20 years)	33,770
Vehicles (5 years)	10,742
Buildings (30 years)	10,175
Other equipment	1,132
Intangible assets:
Customer relationships (10-15 years)	17,590
Tradenames (indefinite)	824
Non-compete agreements (5 years)	1,174
Goodwill	13,589
Other non-current assets	784
Long-term debt, including current portion	(6,585		)
Other assumed liabilities	(12,514		)
Fair value of net assets acquired	$	90,248

Consideration paid consists of the following (in thousands):

Cash consideration paid through December 31, 2012	$	71,085
Deferred payments on purchase price	289
Value of common units issued	18,874
Total consideration	$	90,248

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities.  Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce.  We estimate that all of the goodwill will be deductible for federal income tax purposes.

The retail combinations completed during the nine months ended December 31, 2012 contributed approximately $65.0 million of revenue and approximately $44.2 million of cost of sales to our consolidated statement of operations for the nine months ended December 31, 2012.

Osterman Combination

As described in Note 1, we acquired the operations of Osterman in October 2011. During the three months ended September 30, 2012 we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values (in thousands):

				Estimated
				Allocation
				as of
	Final			March 31,
	Allocation			2012			Revision
Accounts receivable	$	9,350		$	5,584		$	3,766
Inventory	3,869			3,898			(29		)
Other current assets	215			212			3
Property, plant and equipment:
Land	2,349			4,500			(2,151		)
Tanks and other retail propane equipment (15-20 years)	47,160			55,000			(7,840		)
Vehicles (5-20 years)	7,699			12,000			(4,301		)
Buildings (30 years)	3,829			6,500			(2,671		)
Other equipment (3-5 years)	732			1,520			(788		)
Intangible assets:
Customer relationships (20 years)	54,500			62,479			(7,979		)
Tradenames (indefinite life)	8,500			5,000			3,500
Non-compete agreements (7 years)	700			—			700
Goodwill	52,267			30,405			21,862
Assumed liabilities	(9,654		)	(5,431		)	(4,223		)
Consideration paid, net of cash acquired	$	181,516		$	181,667		$	(151	)

Consideration paid consists of the following (in thousands):

			Estimated
			Allocation
			as of
	Final		March 31,
	Allocation		2012		Revision
Cash paid at closing, net of cash acquired	$	94,873	$	96,000	$	(1,127	)
Fair value of common units issued at closing	81,880		81,880		—
Working capital payment (paid in November 2012)	4,763		3,787		976
Consideration paid, net of cash acquired	$	181,516	$	181,667	$	(151	)

We have adjusted the March 31, 2012 balances reported in these condensed consolidated financial statements to reflect the final acquisition accounting. The impact of these revisions was not material to the condensed consolidated statements of operations.

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

We estimated the value of the customer relationship intangible asset using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. We estimated the useful life of the customer relationships by reference to historical customer retention data.

Pacer Combination

As described in Note 1, we acquired the operations of Pacer in January 2012. During the three months ended December 31, 2012, we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values (in thousands):

				Estimated
				Allocation
				as of
	Final			March 31,
	Allocation			2012			Revision
Accounts receivable	$	4,389		$	4,389		$	—
Inventory	965			965			—
Other current assets	43			43			—
Property, plant and equipment:
Land	1,967			1,400			567
Tanks and other retail propane equipment (15-20 years)	12,793			11,200			1,593
Vehicles (5 years)	3,090			5,000			(1,910		)
Buildings (30 years)	409			2,300			(1,891		)
Other equipment	59			200			(141		)
Intangible assets:
Customer relationships (15 years)	23,560			21,980			1,580
Tradenames (indefinite life)	2,410			1,000			1,410
Noncompete agreements	1,520			—			1,520
Goodwill	15,782			18,460			(2,678		)
Assumed liabilities	(4,399		)	(4,349		)	(50		)
Consideration paid	$	62,588		$	62,588		$	—

The consideration paid consists of the following (in thousands):

Cash paid	$	32,213
Fair value of common units issued	30,375
Total consideration paid	$	62,588

We have adjusted the March 31, 2012 balances reported in these condensed consolidated financial statements to reflect the final acquisition accounting. The impact of these revisions was not material to the condensed consolidated statements of operations.

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

We estimated the value of the customer relationship intangible asset using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. We estimated the useful life of the customer relationships by reference to historical customer retention data.

North American Combination

As described in Note 1, we acquired the operations of North American in February 2012. During the three months ended December 31, 2012, we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their fair values (in thousands):

				Estimated
				Allocation
				as of
	Final			March 31,
	Allocation			2012			Revision
Accounts receivable	$	10,338		$	10,338		$	—
Inventory	3,437			3,437			—
Other current assets	282			282			—
Property, plant and equipment:
Land	2,251			2,600			(349		)
Tanks and other retail propane equipment (15-20 years)	24,790			27,100			(2,310		)
Terminal assets (15-20 years)	1,044			—			1,044
Vehicles (5-15 years)	5,819			9,000			(3,181		)
Buildings (30 years)	2,386			2,200			186
Other equipment (3-5 years)	634			500			134
Intangible assets:
Customer relationships (10 years)	12,600			9,800			2,800
Tradenames (10 years)	2,700			1,000			1,700
Noncompete agreements (3 years)	700			—			700
Goodwill	13,978			14,702			(724		)
Assumed liabilities	(11,129		)	(11,129		)	—
Consideration paid	$	69,830		$	69,830		$	—

We have adjusted the March 31, 2012 balances reported in these condensed consolidated financial statements to reflect the final acquisition accounting. The impact of these revisions was not material to the condensed consolidated statements of operations.

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

We estimated the value of the customer relationship intangible asset using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. We estimated the useful life of the customer relationships by reference to historical customer retention data.

Pro Forma Results of Operations

The operations of High Sierra have been included in our statements of operations since High Sierra was acquired on June 19, 2012.  The operations of Pecos have been included in our statements of operations since Pecos was acquired on November 1, 2012.  The Third Coast acquisition was completed on December 31, 2012.  The following unaudited pro forma consolidated data below are presented as if the High Sierra, Pecos, and Third Coast acquisitions had been completed on April 1, 2011.  The pro forma earnings per unit are based on the common and subordinated units outstanding as of December 31, 2012.

	Three Months				Nine Months
	Ended				Ended
	December 31,				December 31,
	2012		2011		2012		2011
			(in thousands, except per unit amounts)
Revenues	$	1,342,315	$	1,430,836	$	3,812,836	$	3,543,423
Net income (loss) from continuing operations	39,982		9,113		37,796		17,061
Limited partners’ interest in net income (loss) from continuing operations	39,942		9,104		37,758		17,044
Basic and diluted earnings (loss) from continuing operations per common unit	0.75		0.17		0.71		0.32
Basic and diluted earnings (loss) from continuing operations per subordinated unit	0.75		0.17		0.71		0.32

The pro forma consolidated data in the table above was prepared by adding the historical results of operations of High Sierra, Pecos, and Third Coast to our historical results of operations and making certain pro forma adjustments. The pro forma adjustments include: (i) replacing the historical depreciation and amortization expense of High Sierra, Pecos, and Third Coast with pro forma depreciation and amortization expense, calculated using the estimated fair values of long-lived assets recorded in the acquisition accounting; (ii) replacing the historical interest expense of High Sierra, Pecos, and Third Coast with pro forma interest expense; and (iii) excluding approximately $8.4 million of professional fees and other expenses incurred by us and by the acquirees that were directly related to the acquisitions. In order to calculate pro forma earnings per unit in the table above, we assumed that: (i) the same number of limited partner units outstanding at December 31, 2012 had been outstanding throughout the periods shown in the table, (ii) no incentive distributions (described in Note 10) were paid to the general partner related to the periods shown in the table, and (iii) all of the common units were eligible for a distribution related to the periods shown in the table. The pro forma information is not necessarily indicative of the results of operations that would have occurred if the acquisitions had been completed on April 1, 2011, nor is it necessarily indicative of the future results of the combined operations.