UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2014
NGL ENERGY PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware |
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001-35172 |
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27-3427920 |
(State or other jurisdiction of |
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(Commission File Number) |
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(I.R.S. Employer |
6120 South Yale Avenue
Suite 805
Tulsa, Oklahoma 74136
(Address of principal executive offices) (Zip Code)
(918) 481-1119
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240-14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))
This Current Report on Form 8-K/A amends and supplements the Current Report on Form 8-K of NGL Energy Partners LP, filed with the Securities and Exchange Commission on July 3, 2014 (the Form 8-K), which reported under Item 2.01 the completion of a business combination with TransMontaigne Inc. (TransMontaigne). This amendment is filed to provide the financial statements of TransMontaigne and the pro forma financial information of NGL Energy Partners LP for such transaction as required by Item 9.01. Except as set forth below, all Items of the previously filed Form 8-K are unchanged.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The audited combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of December 31, 2013 and 2012 and for the two years then ended are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and incorporated herein by reference.
The unaudited condensed combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of June 30, 2014 and for the six months ended June 30, 2014 and 2013 are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2014, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2014, and the unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2014 of NGL Energy Partners LP and the related notes are filed as Exhibit 99.3 to this Current Report on Form 8-K/A and incorporated herein by reference.
(d) Exhibits
Exhibit No. |
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Description |
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23.1 |
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Consent of Deloitte & Touche LLP, dated November 5, 2014 |
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99.1 |
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The audited combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of December 31, 2013 and 2012 and for the two years then ended |
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99.2 |
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The unaudited condensed combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of June 30, 2014 and for the six months ended June 30, 2014 and 2013 |
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99.3 |
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The unaudited pro forma condensed consolidated balance sheet as of June 30, 2014, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2014, and the unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2014 of NGL Energy Partners LP and the related notes |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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NGL ENERGY PARTNERS LP | ||
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By: |
NGL Energy Holdings LLC, | |
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its general partner | |
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Date: November 7, 2014 |
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By: |
/s/ H. Michael Krimbill |
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H. Michael Krimbill |
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Chief Executive Officer |
EXHIBIT INDEX
Exhibit No. |
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Description |
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23.1 |
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Consent of Deloitte & Touche LLP, dated November 5, 2014 |
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99.1 |
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The audited combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of December 31, 2013 and 2012 and for the two years then ended |
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99.2 |
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The unaudited condensed combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of June 30, 2014 and for the six months ended June 30, 2014 and 2013 |
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99.3 |
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The unaudited pro forma condensed consolidated balance sheet as of June 30, 2014, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2014, and the unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2014 of NGL Energy Partners LP and the related notes |
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference of Registration Statement
· No. 333-189842 on Form S-3
· No. 333-194035 on Form S-3
· No. 333-198276 on Form S-3
· No. 333-185068 on Form S-8
· No. 333-197341 on Form S-4
of our report dated November 5, 2014, relating to the financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of and for the years ended December 31, 2013 and 2012, appearing in this Current Report on Form 8-K/A Amendment No. 1 of NGL Energy Partners LP.
/s/ DELOITTE & TOUCHE LLP |
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Denver, Colorado |
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November 5, 2014 |
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Exhibit 99.1
INDEPENDENT AUDITORS REPORT
To NGL Energy Partners LP
We have audited the accompanying combined financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP (the Businesses), which comprise the combined balance sheets as of December 31, 2013 and 2012, and the related combined statements of comprehensive income (loss), equity, and cash flows for the years then ended, and the related notes to the combined financial statements.
Managements Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Businesses preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Businesses internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP |
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Denver, Colorado | |
November 5, 2014 |
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Combined Balance Sheets
(In thousands)
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December 31, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
74,762 |
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$ |
15,156 |
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Rack sales accounts receivable, net |
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243,520 |
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307,757 |
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Pipeline sales accounts receivable |
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684,881 |
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520,944 |
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Inventories in pipelines and terminals |
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629,567 |
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660,044 |
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Inventories in transit via truck and rail |
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53,216 |
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59,703 |
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Derivative contracts |
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47,372 |
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13,390 |
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Other pipeline accrued receivables |
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6,123 |
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2,808 |
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Other |
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17,548 |
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15,067 |
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1,756,989 |
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1,594,869 |
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Property, plant and equipment, net |
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445,495 |
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467,187 |
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Investment in unconsolidated affiliates |
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211,605 |
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105,164 |
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Other assets |
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18,357 |
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19,469 |
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$ |
2,432,446 |
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$ |
2,186,689 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
64,351 |
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$ |
100,651 |
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Product purchases accounts payable |
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785,112 |
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705,863 |
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Excise taxes payable |
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39,648 |
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55,139 |
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Inventories due under exchange agreements |
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31,280 |
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35,343 |
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Derivative contracts |
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30,066 |
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11,947 |
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Accrued environmental obligations |
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4,303 |
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6,215 |
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Variation margin payables |
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35,528 |
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30,633 |
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Other pipeline accrued payables |
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20,589 |
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18,953 |
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Other accrued liabilities |
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23,263 |
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27,935 |
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1,034,140 |
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992,679 |
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Bank debt |
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212,000 |
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184,000 |
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Other |
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9,362 |
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11,895 |
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Total liabilities |
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1,255,502 |
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1,188,574 |
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Equity: |
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Equity attributable to noncontrolling interests |
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359,418 |
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299,205 |
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Equity attributable to parent |
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817,526 |
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698,910 |
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1,176,944 |
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998,115 |
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$ |
2,432,446 |
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$ |
2,186,689 |
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See accompanying notes to combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Combined Statements of Comprehensive Income (Loss)
(In thousands)
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Year ended |
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Year ended |
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Marketing and distribution: |
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Revenues |
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$ |
8,579,362 |
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$ |
10,877,459 |
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Cost of product sold and other direct costs and expenses |
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(8,463,720 |
) |
(10,983,348 |
) | ||
Net operating margins (loss), exclusive of depreciation and amortization shown separately below |
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115,642 |
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(105,889 |
) | ||
Terminals and pipelines: |
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Revenues |
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59,844 |
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52,715 |
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Direct costs and expenses |
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29,414 |
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(21,234 |
) | ||
Net operating margins, exclusive of depreciation and amortization shown separately below |
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30,430 |
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31,481 |
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Total net operating margins (loss) |
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146,072 |
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(74,408 |
) | ||
Costs and expenses: |
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Selling, general and administrative |
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(65,019 |
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(67,971 |
) | ||
Depreciation and amortization |
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(34,261 |
) |
(32,267 |
) | ||
Gain (loss) on disposition of assets, net |
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(2,022 |
) |
856 |
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Earnings (loss) from unconsolidated affiliates |
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(321 |
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558 |
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Total costs and expenses |
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(101,623 |
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(98,824 |
) | ||
Operating income (loss) |
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44,449 |
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(173,232 |
) | ||
Other income (expenses): |
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Interest expense |
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(5,974 |
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(6,549 |
) | ||
Foreign currency transaction gain (loss) |
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(13 |
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51 |
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Total other expenses |
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(5,987 |
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(6,498 |
) | ||
Earnings (loss) before income taxes |
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38,462 |
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(179,730 |
) | ||
Income tax expense |
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(242 |
) |
(188 |
) | ||
Net income (loss) |
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38,220 |
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(179,918 |
) | ||
Noncontrolling interests share in earnings of TransMontaigne Partners |
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(23,590 |
) |
(27,086 |
) | ||
Net income (loss) attributable to parent |
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14,630 |
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(207,004 |
) | ||
Other comprehensive income foreign currency translation adjustments attributable to noncontrolling interests |
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56 |
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128 |
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Other comprehensive income foreign currency translation adjustments attributable to parent |
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27 |
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63 |
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Comprehensive income (loss) |
|
$ |
14,713 |
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$ |
(206,813 |
) |
See accompanying notes to combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Combined Statements of Equity
Years ended December 31, 2012 and 2013
(in thousands)
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Equity |
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Equity |
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Total |
| |||
Balance at December 31, 2011 |
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$ |
301,478 |
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$ |
1,280,928 |
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$ |
1,582,406 |
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Distributions paid to noncontrolling TransMontaigne Partners common units |
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(29,801 |
) |
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(29,801 |
) | |||
Purchase of common units by TransMontaigne Partners long-term incentive plan |
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(239 |
) |
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(239 |
) | |||
Deferred equity-based compensation related to restricted phantom units and other |
|
553 |
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553 |
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Net income (loss) |
|
27,086 |
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(207,004 |
) |
(179,918 |
) | |||
Net capital distributed to parent company |
|
|
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(375,077 |
) |
(375,077 |
) | |||
Other comprehensive income foreign currency translation adjustments |
|
128 |
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63 |
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191 |
| |||
Balance at December 31, 2012 |
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299,205 |
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698,910 |
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998,115 |
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Proceeds from offering of TransMontaigne Partners common units |
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68,774 |
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68,774 |
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Distributions paid to noncontrolling TransMontaigne Partners common units |
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(32,419 |
) |
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(32,419 |
) | |||
Purchase of common units by TransMontaigne Partners long-term incentive plan |
|
(335 |
) |
|
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(335 |
) | |||
Deferred equity-based compensation related to restricted phantom units and other |
|
289 |
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|
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289 |
| |||
Net income |
|
23,590 |
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14,630 |
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38,220 |
| |||
Net capital contributed by parent company |
|
|
|
103,825 |
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103,825 |
| |||
Other comprehensive income foreign currency translation adjustments |
|
56 |
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27 |
|
83 |
| |||
Foreign currency translation adjustments reclassified in entirety into loss on disposition of assets, net, upon the sale of TransMontaigne Partners Mexico operations |
|
258 |
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134 |
|
392 |
| |||
Balance at December 31, 2013 |
|
$ |
359,418 |
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$ |
817,526 |
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$ |
1,176,944 |
|
See accompanying notes to combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Combined Statements of Cash Flows
(In thousands)
|
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Year ended |
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Year ended |
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Cash flows from operating activities: |
|
|
|
|
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Net income (loss) |
|
$ |
38,220 |
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$ |
(179,918 |
) |
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
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Depreciation and amortization |
|
34,261 |
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32,267 |
| ||
Loss (gain) on disposition of assets, net |
|
2,022 |
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(856 |
) | ||
Amortization of financing costs |
|
1,373 |
|
1,165 |
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Loss (earnings) from unconsolidated affiliates |
|
321 |
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(558 |
) | ||
Distributions from unconsolidated affiliates |
|
1,467 |
|
1,435 |
| ||
Amortization of deferred revenue, utility deposits returned and other |
|
(6,060 |
) |
(3,430 |
) | ||
Changes in operating assets and liabilities: |
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|
|
|
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Rack sales accounts receivable, net |
|
64,111 |
|
61,962 |
| ||
Pipeline sales accounts receivable |
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(163,937 |
) |
(96,685 |
) | ||
Inventories in pipelines and terminals |
|
30,477 |
|
180,905 |
| ||
Inventories in transit via truck and rail |
|
6,487 |
|
10,457 |
| ||
Derivative contracts |
|
(15,864 |
) |
688 |
| ||
Other pipeline accrued receivables |
|
(3,315 |
) |
166 |
| ||
Other current assets |
|
(3,109 |
) |
(955 |
) | ||
Accounts payable |
|
(33,531 |
) |
30,194 |
| ||
Product purchases accounts payable |
|
79,249 |
|
308,006 |
| ||
Excise taxes payable |
|
(15,489 |
) |
(6,855 |
) | ||
Inventory due under exchange agreements |
|
(4,063 |
) |
15,435 |
| ||
Accrued environmental liabilities |
|
(1,912 |
) |
238 |
| ||
Variation margin payables |
|
4,895 |
|
11,688 |
| ||
Other pipeline accrued payables |
|
1,636 |
|
2,291 |
| ||
Other current liabilities |
|
(2,187 |
) |
(1,652 |
) | ||
Net cash provided by operating activities |
|
15,052 |
|
365,988 |
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Cash flows from investing activities: |
|
|
|
|
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Investments in unconsolidated affiliates |
|
(108,229 |
) |
(80,166 |
) | ||
Capital expenditures |
|
(17,405 |
) |
(31,178 |
) | ||
Proceeds from sale of assets |
|
2,294 |
|
19,085 |
| ||
Net cash used in investing activities |
|
(123,340 |
) |
(92,258 |
) | ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from issuance of TransMontaigne Partners common units |
|
68,774 |
|
|
| ||
Borrowings of bank debt |
|
168,500 |
|
147,000 |
| ||
Repayments of bank debt |
|
(140,500 |
) |
(83,000 |
) | ||
Deferred debt issuance costs |
|
|
|
(736 |
) | ||
Net capital contributed by (distributed to) parent company |
|
103,825 |
|
(375,077 |
) | ||
Distributions paid to noncontrolling TransMontaigne Partners common units |
|
(32,419 |
) |
(29,801 |
) | ||
Purchase of common units by TransMontaigne Partners long-term incentive plan |
|
(335 |
) |
(239 |
) | ||
Net cash provided by (used in) financing activities |
|
167,845 |
|
(341,853 |
) | ||
Increase (decrease) in cash and cash equivalents |
|
59,557 |
|
(68,123 |
) | ||
Foreign currency translation effect on cash |
|
49 |
|
63 |
| ||
Cash and cash equivalents at beginning of year |
|
15,156 |
|
83,216 |
| ||
Cash and cash equivalents at end of year |
|
$ |
74,762 |
|
$ |
15,156 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid for interest expense |
|
$ |
(4,443 |
) |
$ |
(5,430 |
) |
Property, plant and equipment acquired with accounts payable |
|
$ |
718 |
|
$ |
3,473 |
|
See accompanying notes to combined financial statements.
Notes to Combined Financial Statements
Years ended December 31, 2013 and 2012
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of business
The accompanying combined financial statements include the accounts of all operations of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP (collectively, the Company, we, us or our). On July 1, 2014, Morgan Stanley consummated the sale of its indirect 100% ownership interest in the Business to NGL Energy Partners LP (NGL). TransMontaigne Inc. is the indirect parent and sole member of TransMontaigne GP L.L.C., which is the sole general partner (General Partner) of TransMontaigne Partners L.P. (TLP or the Partnership), a publicly traded master limited partnership. The sale also included Morgan Stanleys limited partnership interests in TLP, the assignment from an affiliate of Morgan Stanley to NGL of certain terminaling services agreements with TLP, and the transfer of certain inventory owned by Morgan Stanley (collectively, the Transaction). The Transaction does not involve the sale or purchase of any of the limited partnership units in TLP held by the public and the TLP limited partnership units continue to trade on the New York Stock Exchange.
TransMontaigne Inc., (TransMontaigne) is a Delaware corporation headquartered in Denver, Colorado, that was formed in 1995 as a refined petroleum products marketing and distribution company. TransMontaigne and its wholly-owned subsidiaries conduct operations in the United States primarily in the Southeast, Florida, and Midwest regions. TransMontaigne primarily provides integrated marketing and distribution services to end-users of refined petroleum products and, to a lesser extent, users of crude oil and renewable fuels.
TransMontaignes less than wholly-owned subsidiary includes the publicly traded master limited partnership of TLP. TLP was formed in February 2005 as a Delaware limited partnership to own and operate refined petroleum products terminaling and transportation facilities. TLP conducts its operations in the United States along the Gulf Coast, in the Midwest, in Houston and Brownsville, Texas, along the Mississippi and Ohio rivers, and in the Southeast. TLP provides integrated terminaling, storage, transportation and related services for companies engaged in the trading, distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers and other liquid products. TransMontaigne and NGL, subsequent to the Transaction, have an interest in TLP through the ownership of approximately 20% of the limited partner interests, a 2% general partner interest and the incentive distribution rights.
(b) Basis of presentation and use of estimates
In preparing the combined financial statements, we have followed the accounting policies of Morgan Stanley, a broker dealer, and TransMontaigne Inc., which are in accordance with United States generally accepted accounting principles or GAAP. The combined financial statements of the Company have been prepared from the separate records maintained by Morgan Stanley and TransMontaigne Inc. and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if the Company had been operated as an unaffiliated entity. Because a direct ownership relationship did not exist among all the various assets comprising the Company, Morgan Stanleys net investment in the business is shown as net parent equity, in lieu of owners equity, in the combined financial statements. All intercompany balances have been eliminated. Transactions between us and Morgan Stanley operations have been identified in the combined financial statements as transactions between affiliates. In the opinion of management, all adjustments have been reflected that are necessary for a fair presentation of the combined financial statements.
The preparation of financial statements in conformity with GAAP requires us 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 and the reported amounts of revenues and expenses during the reporting periods. The following estimates, in our opinion, are subjective in nature and require the exercise of judgment: allowance for doubtful accounts; fair value of inventories; fair value of derivative contracts; useful lives of our plant and equipment; and accrued environmental obligations. Changes in these estimates and assumptions will occur as a result of the passage of time and the occurrence of future events. Actual results could differ from these estimates.
(c) Accounting for marketing and distribution operations
In our marketing and distribution operations, we enter into contracts to purchase refined petroleum products, renewable fuel products and crude oil, schedule them for delivery to our terminals, as well as terminals owned by third parties, and then sell those products to our customers through rack spot sales, contract sales, and bulk sales. Revenue from our sales of physical inventory is recognized pursuant to the accrual method of accounting. Revenue from rack spot sales and contract sales is recognized when the product is delivered to the customer through a truck loading rack or marine fueling equipment. Revenue from bulk sales is recognized when the title to the product is transferred to the customer, which generally occurs upon delivery of the sale. Taxes collected from customers and remitted to taxing authorities are reported on a net basis in the combined statements of comprehensive income (loss).
Storage and transportation costs attributable to our marketing and distribution operations are included in cost of product sold in the accompanying combined statements of comprehensive income (loss). Storage costs at our terminals include the direct operating costs and expenses associated with our terminal operations, out of which we market and distribute our petroleum products. Such costs consist of directly related wages and employee benefits for employees working at the terminals, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies. Storage costs at terminals owned by third parties include contractual amounts agreed to between us and third parties under terminaling services agreements.
Gains and losses associated with hedging the value of petroleum products owned and included in inventory and trading around that inventory are recorded on a net basis within cost of product sold in the accompanying combined statements of comprehensive income (loss).
(d) Accounting for terminal and pipeline operations
In connection with our terminal and pipeline operations, we utilize the accrual method of accounting for revenue and expenses. We generate revenue in our terminal and pipeline operations from transactions with unaffiliated third parties primarily for terminaling services fees and pipeline transportation fees. Terminaling services revenue is recognized ratably over the term of the agreement for storage fees and minimum revenue commitments that are fixed at the inception of the agreement and when product is delivered to the customer for fees based on a rate per barrel of throughput; pipeline transportation revenue is recognized when the product has been delivered to the customer at the specified delivery location.
Direct operating costs and expenses for our terminal and pipeline operations consist of direct operating costs and expenses associated with our terminal operations under contract with unaffiliated third parties. Such costs consist of directly related wages and employee benefits for employees working at the terminals, utilities, communications, repairs and maintenance, rent, property taxes, vehicle expenses, environmental compliance costs, materials and supplies.
(e) Cash and cash equivalents
We consider all short-term investments with a remaining maturity of three months or less at the date of purchase to be cash equivalents.
Restricted cash represents cash deposits to help sustain the TransMontaigne credit facility committed amounts. Restricted cash amounts of approximately $1.0 million and $1.1 million at December 31, 2013 and 2012, respectively, are included in other current assets in the accompanying combined balance sheets.
(f) Inventories
Our inventories are composed of volumes held in pipelines and terminals and volumes in transit via truck and rail. Our inventories consist of refined petroleum products, primarily gasolines and distillates, ethanol and crude oil. As these inventories are directly held by Morgan Stanley, which is a broker/dealer, the inventories presented in the accompanying combined balance sheets are carried at fair value to follow the practices of broker/dealer accounting and to be consistent with Morgan Stanleys historical accounting policies. As noted in the Basis of Presentation, we have applied the parent entitys accounting policies. Historical cost was not reasonably available from Morgan Stanley.
(g) Derivative contracts and variation margin payables
Certain of our commodity contract purchases and sales with firmly committed pricing structures qualify as over-the-counter derivative instruments. Our over-the-counter derivative instruments are reported as assets and liabilities and are measured at fair value in the accompanying combined balance sheets in accordance with generally accepted accounting principles. The net changes in the fair value of our over-the-counter derivative contracts are included within cost of product sold in the accompanying combined statements of comprehensive income (loss).
We also enter into derivative risk management contracts, principally NYMEX futures contracts, which are measured at fair value to manage our exposure to changes in commodity prices that are intended to offset the changes in the values of our inventories. We evaluate our market risk exposure from an overall portfolio basis that considers changes in physical inventories. At December 31, 2013 and 2012, net unrealized losses on our unsettled futures derivative contracts were recorded as variation margin payables in the accompanying combined balance sheets and are included within cost of product sold in the accompanying combined statements of comprehensive income (loss).
(h) Inventories due under exchange agreements
We enter into refined product exchange agreements with major oil companies. Exchange agreements generally are fixed term agreements that involve our receipt of a specified volume of product at one location in exchange for delivery by us of a specified volume of product at a different location. The amount recorded represents the fair value of inventory due to others under exchange agreements. At December 31, 2013 and 2012, current liabilities include inventory due to others under exchange agreements of 271,429 barrels and 277,652 barrels, respectively, with a fair value of approximately $28.4 million and $28.3 million, respectively.
(i) Property, plant and equipment
Depreciation is computed using the straight-line method. Estimated useful lives are 15 to 25 years for terminals and pipelines and 3 to 25 years for furniture, fixtures and equipment. All items of property, plant and equipment are carried at cost. Expenditures that increase capacity or extend useful lives are capitalized. Repairs and maintenance are expensed as incurred.
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable based on expected undiscounted future cash flows attributable to that asset group. If an asset group is impaired, the impairment loss to be recognized is the excess of the carrying amount of the asset group over its estimated fair value.
(j) Investments in unconsolidated affiliates
We account for investments in unconsolidated affiliates, which we do not control but do have the ability to exercise significant influence over, using the equity method of accounting. Under this method, the investment is recorded at acquisition cost, increased by our proportionate share of any earnings and additional capital contributions and decreased by our proportionate share of any losses, distributions received, and amortization of any excess investment. Excess investment is the amount by which our total investment exceeds our proportionate share of the book value of the net assets of the investment entity. We evaluate our investments in unconsolidated affiliates for impairment whenever events or circumstances indicate there is a loss in value of the investment that is other than temporary. In the event of impairment, we would record a charge to earnings to adjust the carrying amount to fair value.
(k) Environmental obligations
We accrue for environmental costs that relate to existing conditions caused by past operations when estimable. Environmental costs include initial site surveys and environmental studies of potentially contaminated sites, costs for remediation and restoration of sites determined to be contaminated and ongoing monitoring costs. Liabilities for environmental costs at a specific site are initially recorded, on an undiscounted basis, when it is probable that we will be liable for such costs, and a reasonable estimate of the associated costs can be made based on available information. Such an estimate includes our share of the liability for each specific site and the sharing of the amounts related to each site that will not be paid by other potentially responsible parties, based on enacted laws and adopted/regulations and policies. Adjustments to initial estimates are recorded, from time to time, to reflect changing circumstances and estimates based upon additional information developed in subsequent periods. Estimates of our ultimate liabilities associated with environmental costs are particularly difficult to make with certainty due to the number of variables involved, including the early stage of investigation at certain sites, the lengthy time frames required to complete remediation, technology changes, alternatives available and the evolving nature of environmental laws and regulations.
We periodically file claims for insurance recoveries of certain environmental remediation costs with our insurance carriers under our comprehensive liability policies. We recognize our insurance recoveries in the period that we assess the likelihood of recovery as being probable (i.e., likely to occur).
(l) Asset retirement obligations
Asset retirement obligations are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. Generally accepted accounting principles require that the fair value of a liability related to the retirement of long-lived assets be recorded at the time a legal obligation is incurred. Once an asset retirement obligation is identified and a liability is recorded, a corresponding asset is recorded, which is
depreciated over the remaining useful life of the asset. After the initial measurement, the liability is adjusted to reflect changes in the asset retirement obligation. If and when it is determined that a legal obligation has been incurred, the fair value of any liability is determined based on estimates and assumptions related to retirement costs, future inflation rates and interest rates. Our long-lived assets consist of above-ground storage facilities and underground pipelines. We are unable to predict if and when these long-lived assets will become obsolete and require dismantlement. We have not recorded an asset retirement obligation, or corresponding asset, because the future dismantlement and removal dates of our long-lived assets are indeterminable and the amount of any associated costs are believed to be insignificant. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events.
(m) Income taxes
Our income taxes are presented on a separate return basis, although our historical operations were included in the U.S. federal and state filings of Morgan Stanley or its subsidiaries. We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. Changes in tax rates are recognized in income in the period that includes the enactment date. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in our estimate to the valuation allowance, with an adjustment to earnings.
In assessing our need for a valuation allowance, we look to the future reversal of our taxable temporary differences, taxable income in carryback years, the feasibility of tax planning and estimated future taxable income. The valuation allowance may be affected by changes in tax law, statutory tax rates and estimated future income.
TLP is treated as a partnership for federal income taxes. As a partnership, all income, gains, losses, expenses, deductions and tax credits generated by TLP flow through to the unitholders of the partnership.
(2) CONCENTRATION OF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE
Our primary marketing and distribution areas are located in the Midwest, Florida and the Southeast regions of the United States. We have a concentration of trade receivable balances due from major integrated oil companies, independent oil companies and other wholesalers. These concentrations of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Our customers historical and future credit positions are analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions we may request letters of credit, prepayments or guarantees.
Pipeline sales accounts receivable consist of uncollected sales occurring while our inventory product is located in a pipeline, such as the Colonial and Plantation pipelines located in Southeast regions of the United States. Product sold in the pipeline never reaches our terminals. Whereas rack sales accounts receivable consist of uncollected sales sold out of our terminals, or third party terminals that we lease. Our pipeline sales tend to be to major integrated oil companies, for which our counterparty credit risk is deemed minimal, and thus we have not historically recorded any allowance for doubtful accounts related to these receivables. We maintain allowances for potentially uncollectible accounts receivable related to our rack sales. We write off accounts receivable against the allowance for doubtful accounts when collection efforts have been exhausted.
Rack sales accounts receivable, net consists of the following (in thousands):
|
|
December 31, |
|
December 31, |
| ||
Trade accounts receivable |
|
$ |
247,329 |
|
$ |
313,194 |
|
Less allowance for doubtful accounts |
|
(3,809 |
) |
(5,437 |
) | ||
|
|
$ |
243,520 |
|
$ |
307,757 |
|
The following table presents a rollforward of our allowance for doubtful accounts (in thousands):
|
|
Balance at |
|
Charged to |
|
Deductions |
|
Balance at |
| ||||
2013 |
|
$ |
5,437 |
|
$ |
|
|
$ |
(1,628 |
) |
$ |
3,809 |
|
2012 |
|
$ |
5,438 |
|
$ |
646 |
|
$ |
(647 |
) |
$ |
5,437 |
|
No single customer accounted for 10% or more of total revenues for the years ended December 31, 2013 or 2012.
On the December 31, 2013 combined balance sheet, approximately $75 million of accounts receivable are reported net of accounts payable to the same counterparty.
(3) INVENTORIES
Our inventories are carried at fair value (see Note 1 of Notes to consolidated financial statements), and the classes of inventories are as follows (amounts and volume of barrels in thousands):
Inventories in pipelines and terminals:
|
|
December 31, |
|
December 31, |
| ||||||
|
|
Amount |
|
Barrels |
|
Amount |
|
Barrels |
| ||
Gasoline |
|
$ |
400,120 |
|
3,618 |
|
$ |
438,820 |
|
3,978 |
|
Distillate |
|
220,702 |
|
1,736 |
|
155,828 |
|
1,200 |
| ||
Ethanol |
|
7,946 |
|
98 |
|
38,667 |
|
401 |
| ||
Crude oil |
|
799 |
|
8 |
|
19,480 |
|
211 |
| ||
Other |
|
|
|
|
|
7,249 |
|
1,139 |
| ||
|
|
$ |
629,567 |
|
5,460 |
|
$ |
660,044 |
|
6,929 |
|
Inventories in transit via truck and rail:
|
|
December 31, |
|
December 31, |
| ||||||
|
|
Amount |
|
Barrels |
|
Amount |
|
Barrels |
| ||
Gasoline |
|
$ |
16,725 |
|
176 |
|
$ |
25,898 |
|
256 |
|
Distillate |
|
13,516 |
|
111 |
|
3,501 |
|
30 |
| ||
Ethanol |
|
17,193 |
|
218 |
|
27,141 |
|
288 |
| ||
Crude oil |
|
5,782 |
|
59 |
|
1,019 |
|
11 |
| ||
Other |
|
|
|
|
|
2,144 |
|
57 |
| ||
|
|
$ |
53,216 |
|
564 |
|
$ |
59,703 |
|
642 |
|
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net is as follows (in thousands):
|
|
December 31, |
|
December 31, |
| ||
Land |
|
$ |
57,568 |
|
$ |
57,701 |
|
Terminals, pipelines and equipment |
|
601,921 |
|
591,788 |
| ||
Furniture, fixtures and equipment |
|
20,941 |
|
15,235 |
| ||
Construction in progress |
|
3,691 |
|
8,101 |
| ||
|
|
684,121 |
|
672,825 |
| ||
Less accumulated depreciation |
|
(238,626 |
) |
(205,638 |
) | ||
|
|
$ |
445,495 |
|
$ |
467,187 |
|
(5) INVESTMENT IN UNCONSOLIDATED AFFILIATES
At December 31, 2013 and 2012, our investments in unconsolidated affiliates include a 42.5% ownership interest in Battleground Oil Specialty Terminal Company LLC (BOSTCO) and a 50% interest in Frontera Brownsville LLC (Frontera). BOSTCO is a terminal facility construction project for approximately 7.1 million barrels of storage capacity at an estimated cost of approximately $535 million. BOSTCO is located on the Houston Ship Channel and began initial commercial operations in the fourth quarter of 2013. Frontera is a terminal facility located in Brownsville, Texas that includes approximately 1.5 million barrels of light petroleum product storage capacity, as well as related ancillary facilities.
The following table summarizes our investments in unconsolidated affiliates:
|
|
Percentage of |
|
Carrying value |
| ||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||
BOSTCO |
|
42.5 |
% |
42.5 |
% |
$ |
186,181 |
|
$ |
78,930 |
|
Frontera |
|
50 |
% |
50 |
% |
25,424 |
|
26,234 |
| ||
Total investments in unconsolidated affiliates |
|
|
|
|
|
$ |
211,605 |
|
$ |
105,164 |
|
At December 31, 2013 and 2012, our investment in BOSTCO includes approximately $6.4 million and $2.7 million, respectively, of excess investment related to a one time buy-in fee to acquire our 42.5% interest and capitalization of interest on our investment during the construction of BOSTCO. Excess investment is the amount by which our investment exceeds our proportionate share of the book value of the net assets of the BOSTCO entity.
Earnings (loss) from investments in unconsolidated affiliates were as follows (in thousands):
|
|
Year ended |
|
Year ended |
| ||
BOSTCO |
|
$ |
(826 |
) |
$ |
|
|
Frontera |
|
505 |
|
558 |
| ||
Total earnings from unconsolidated affiliates |
|
$ |
(321 |
) |
$ |
558 |
|
Additional capital investments in unconsolidated affiliates were as follows (in thousands):
|
|
Year ended |
|
Year ended |
| ||
BOSTCO |
|
$ |
108,077 |
|
$ |
78,930 |
|
Frontera |
|
152 |
|
1,236 |
| ||
Additional capital investments in unconsolidated affiliates |
|
$ |
108,229 |
|
$ |
80,166 |
|
Cash distributions received from unconsolidated affiliates were as follows (in thousands):
|
|
Year ended |
|
Year ended |
| ||
BOSTCO |
|
$ |
|
|
$ |
|
|
Frontera |
|
1,467 |
|
1,435 |
| ||
Cash distributions from unconsolidated affiliates |
|
$ |
1,467 |
|
$ |
1,435 |
|
The summarized financial information of our unconsolidated affiliates was as follows (in thousands):
Balance sheets:
|
|
BOSTCO |
|
Frontera |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Current assets |
|
$ |
30,776 |
|
$ |
21 |
|
$ |
4,465 |
|
$ |
4,209 |
|
Long-term assets |
|
458,707 |
|
231,537 |
|
47,691 |
|
50,013 |
| ||||
Current liabilities |
|
(66,469 |
) |
(52,233 |
) |
(1,308 |
) |
(1,754 |
) | ||||
Long-term liabilities |
|
|
|
|
|
|
|
|
| ||||
Net assets |
|
$ |
423,014 |
|
$ |
179,325 |
|
$ |
50,848 |
|
$ |
52,468 |
|
Statements of comprehensive income (loss):
|
|
BOSTCO |
|
Frontera |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Revenue |
|
$ |
3,917 |
|
$ |
|
|
$ |
12,388 |
|
$ |
11,539 |
|
Expenses |
|
(5,854 |
) |
(7 |
) |
(11,378 |
) |
(10,423 |
) | ||||
Net earnings and comprehensive income (loss) |
|
$ |
(1,937 |
) |
$ |
(7 |
) |
$ |
1,010 |
|
$ |
1,116 |
|
(6) DERIVATIVE CONTRACTS
The Company purchases and sells commodities, such as gasoline, distillate, ethanol and crude oil. The Company generally follows a policy of using over-the-counter commodity derivatives as components of market strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of commodity derivatives and the prices of the underlying commodities, counterparty contract defaults, and volatility of transportation markets.
The majority of the Companys commodity purchase and sales contracts qualify as over-the-counter derivative instruments and the change in fair value is reported in cost of product sold within the marketing and distribution section of the
accompanying combined statements of comprehensive income (loss). Changes in the fair value of our derivatives are recognized in earnings. The Company reports the fair value of its over-the-counter derivative assets and liabilities on the combined balance sheets as derivative contract assets and liabilities.
The Company has established guidelines to manage and mitigate credit risk within risk tolerances. The Company attempts to mitigate its credit exposure by setting tenor and credit limits commensurate with counterparty financial strength and obtaining master netting agreements. The use of master netting agreements is driven by industry practice, and anticipated volumes and complexity of the business relationship with the counterparty.
The following table provides information about our derivative asset contract positions, net at December 31, 2013 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
54,119 |
|
$ |
(6,747 |
) |
$ |
47,372 |
|
The following table provides information about our derivative asset contract positions, net at December 31, 2012 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
22,868 |
|
$ |
(9,478 |
) |
$ |
13,390 |
|
The following table provides information about our derivative liability contract positions, net at December 31, 2013 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
36,870 |
|
$ |
(6,804 |
) |
$ |
30,066 |
|
The following table provides information about our derivative liability contract positions, net at December 31, 2012 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
21,425 |
|
$ |
(9,478 |
) |
$ |
11,947 |
|
(7) BANK DEBT
TLP Credit Facility
On March 9, 2011, TLP entered into an amended and restated senior secured credit facility, or the TLP credit facility, which has been subsequently amended from time to time. The TLP credit facility provides for a maximum borrowing line of credit equal to the lesser of (i) $350 million and (ii) 4.75 times Consolidated EBITDA (as defined: $339.2 million at December 31, 2013). TLP may elect to have loans under the TLP credit facility that bear interest either (i) at a rate of LIBOR plus a margin ranging from 2% to 3% depending on the total leverage ratio then in effect, or (ii) at the base rate plus a margin ranging from 1% to 2% depending on the total leverage ratio then in effect. TLP also pays a commitment fee on the unused amount of commitments, ranging from 0.375% to 0.5% per annum, depending on the total leverage ratio then in effect. TLPs obligations under the TLP credit facility are secured by a first priority security interest in favor of the lenders in the majority of the TLP assets.
The terms of the TLP credit facility include covenants that restrict TLPs ability to make cash distributions, acquisitions and investments, including investments in joint ventures. TLP may make distributions of cash to the extent of its available cash as defined in the TLP partnership agreement. TLP may make acquisitions and investments that meet the definition of permitted acquisitions; other investments which may not exceed 5% of consolidated net tangible assets; and permitted JV investments. Permitted JV investments include up to $225 million of investments in BOSTCO, the Specified BOSTCO Investment. In addition to the Specified BOSTCO Investment, under the terms of the TLP credit facility, TLP may make an additional $75 million of other permitted JV investments (including additional investments in BOSTCO). The principal balance of loans and any accrued and unpaid interest are due and payable in full on the maturity date, March 9, 2016.
The following table summarizes the assets and liabilities of TLP at December 31, 2013 (in thousands):
Cash and cash equivalents |
|
$ |
3,263 |
|
Trade accounts receivable, net |
|
6,427 |
| |
Receivables from affiliates |
|
2,257 |
| |
Other current assets |
|
3,478 |
| |
Property, plant and equipment, net |
|
407,045 |
| |
Investments in unconsolidated affiliates |
|
211,605 |
| |
Other assets, net |
|
14,357 |
| |
Total assets |
|
$ |
648,432 |
|
|
|
|
| |
Trade accounts payable |
|
$ |
5,717 |
|
Accrued liabilities |
|
16,189 |
| |
Long-term debt |
|
212,000 |
| |
Other noncurrent liabilities |
|
6,059 |
| |
Equity attributable to noncontrolling interests |
|
359,418 |
| |
Equity attributable to parent |
|
49,049 |
| |
Total liabilities and equity |
|
$ |
648,432 |
|
The TLP credit facility also contains customary representations and warranties (including those relating to organization and authorization, compliance with laws, absence of defaults, material agreements and litigation) and customary events of default (including those relating to monetary defaults, covenant defaults, cross defaults and bankruptcy events). The primary financial covenants contained in the credit facility are (i) a total leverage ratio test (not to exceed 4.75 times), (ii) a senior secured leverage ratio test (not to exceed 3.75 times) in the event TLP issues senior unsecured notes, and (iii) a minimum interest coverage ratio test (not less than 3.0 times). If TLP were to fail any financial performance covenant, or any other covenant contained in the TLP credit facility, TLP would seek a waiver from its lenders under such facility. If TLP were unable to obtain a waiver from its lenders and the default remained uncured after any applicable grace period, TLP would be in breach of the TLP credit facility, and the lenders would be entitled to declare all outstanding borrowings immediately due and payable. TLP was in compliance with all of the financial covenants under the credit facility as of December 31, 2013.
For the years ended December 31, 2013 and 2012, the weighted average interest rate on borrowings under the TLP credit facility was approximately 2.5% and 2.4%, respectively. At December 31, 2013 and 2012, TLPs outstanding borrowings under the TLP credit facility were $212 million and $184 million, respectively. At December 31, 2013 and 2012, TLP had no outstanding letters of credit.
TLP has an effective universal shelf registration statement on Form S-3 with the Securities and Exchange Commission that expires in June 2016. TLP Finance Corp., a 100% owned subsidiary of TLP, may act as a co-issuer of any debt securities issued pursuant to that registration statement. TLP and TLP Finance Corp. have no independent assets or operations. TLPs operations are conducted by its subsidiaries, including its 100% owned operating company subsidiary, TransMontaigne Operating Company L.P. Each of TransMontaigne Operating Company L.P. and TLPs other 100% owned subsidiaries (other than TLP Finance Corp., whose sole purpose is to act as co-issuer of any debt securities) may guarantee the debt securities. TLP expects that any guarantees will be full and unconditional and joint and several, subject to certain automatic customary releases, including sale, disposition, or transfer of the capital stock or substantially all of the assets of a subsidiary guarantor, exercise of legal defeasance option or covenant defeasance option, and designation of a subsidiary guarantor as unrestricted in accordance with the indenture. There are no significant restrictions on the ability of TLP or any guarantor to obtain funds from its subsidiaries by dividend or loan. None of the assets of TLP or a guarantor represent restricted net assets pursuant to the guidelines established by the Securities and Exchange Commission.
TransMontaigne Credit Facility
TransMontaigne has a senior secured working capital credit facility, or the TransMontaigne credit facility that provides for a maximum borrowing line of credit equal to the lesser of (i) $150 million or (ii) the borrowing base, which is a function of, among other things, restricted cash maintained in a specified account, accounts receivable, inventory and certain reserve adjustments as defined in the facility (as defined: $118.9 million at December 31, 2013). In addition, outstanding letters of credit are counted against the maximum borrowing capacity available at any time. Borrowings under the TransMontaigne credit facility bear interest (at TransMontaignes option) based on a base rate plus an applicable margin, or LIBOR plus an applicable margin; the applicable margins range from 2% to 3% and are a function of the average excess borrowing base availability. In addition, TransMontaigne pays a commitment fee ranging from 0.50% to 0.625% per annum on the total amount of the unused commitments. Borrowings under the TransMontaigne credit facility are secured by the majority of the TransMontaignes and its wholly-owned
subsidiaries assets, which excludes all TLP assets. The principal balance of loans and any accrued and unpaid interest is scheduled to be due and payable in full on the maturity date August 15, 2015. TransMontaigne primarily utilizes the facility to finance its crude oil marketing operations through the issuance of letters of credit to crude oil producers.
For the years ended December 31, 2013 and 2012, the weighted average interest rate on letters of credit under the TransMontaigne credit facility was approximately 2.6% and 2.7%, respectively. At December 31, 2013 and 2012, TransMontaigne had no outstanding borrowings under the TransMontaigne credit facility. At December 31, 2013 and 2012, TransMontaignes outstanding letters of credit were approximately $51.0 million and $52.5 million, respectively.
In connection with the July 1, 2014 sale to NGL, and immediately prior thereto, the TransMontaigne credit facility was terminated.
(8) INCOME TAXES
The Companys operating results have been included in the consolidated U.S. Federal and state income tax returns of Morgan Stanley. The amounts presented in the combined financial statements related to the Companys income taxes as determined as if the taxes were prepared on a separate tax return basis. Our separate return basis tax attributes may not reflect the tax positions taken or to be taken by Morgan Stanley. In many cases, the tax losses and other tax attributes of TransMontaigne have been utilized or are available to be utilized by Morgan Stanley, and may remain with Morgan Stanley after the separation of the Company from Morgan Stanley.
Income tax (expense) benefit from continuing operations on a separate return basis consists of the following (in thousands):
|
|
Years ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Current: |
|
|
|
|
| ||
Federal income taxes |
|
$ |
|
|
$ |
|
|
State income taxes |
|
|
(242 |
) |
(188 |
) | |
Current income taxes |
|
(242 |
) |
(188 |
) | ||
Deferred: |
|
|
|
|
| ||
Federal income taxes |
|
|
|
|
| ||
State income taxes |
|
|
|
|
| ||
Deferred income taxes |
|
|
|
|
| ||
Income tax benefit (expense) |
|
$ |
(242 |
) |
$ |
(188 |
) |
Income tax expense differs from the amount computed by applying the federal statutory corporate income tax rate of 35% to pretax earnings as a result of the following (in thousands):
|
|
Years ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Computed expected tax benefit (expense) |
|
$ |
(13,117 |
) |
$ |
62,864 |
|
Increase (reduction) in income taxes resulting from: |
|
|
|
|
| ||
Nontaxable portion of NCI in TLP |
|
8,247 |
|
9,480 |
| ||
Change in valuation allowance |
|
5,393 |
|
(80,754 |
) | ||
State income taxes, net of federal income tax benefit |
|
(619 |
) |
8,415 |
| ||
Other, net |
|
(146 |
) |
(193 |
) | ||
Income tax benefit (expense) |
|
$ |
(242 |
) |
$ |
(188 |
) |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):
|
|
December 31, |
|
December 31, |
| ||
Current deferred tax assets (liabilities): |
|
|
|
|
| ||
Accrued liabilities, principally due to differences in accounting methods |
|
$ |
5,184 |
|
$ |
6,608 |
|
Long-term deferred tax assets (liabilities): |
|
|
|
|
| ||
Intangible assets, principally due to differences in amortization methods |
|
$ |
(1,159 |
) |
$ |
(1,258 |
) |
Investment in TransMontaigne Partners |
|
(29,271 |
) |
(26,969 |
) | ||
Intangible assets, principally due to differences in amortization methods and impairment allowances |
|
2,117 |
|
2,800 |
| ||
Net operating losses |
|
85,019 |
|
84,776 |
| ||
Plant and equipment, principally due to differences in depreciation methods |
|
(5,989 |
) |
(4,663 |
) | ||
Total long-term deferred tax assets |
|
50,717 |
|
54,686 |
| ||
Valuation allowance |
|
(55,901 |
) |
(61,294 |
) | ||
Net deferred tax assets (liabilities) |
|
$ |
|
|
$ |
|
|
As of December 31, 2013 and 2012, TransMontaigne had no unrecognized tax benefits. There was no change in the amount of unrecognized tax benefits as a result of tax positions taken during the year or in prior periods or due to settlements with taxing authorities or lapses of applicable statutes of limitations. TransMontaigne is open to federal and state tax audits until the applicable statutes of limitations expire, including those applicable to Morgan Stanley. Tax audits are currently in process for several jurisdictions where TransMontaigne was part of the consolidated tax filings of Morgan Stanley. As a result, the statute of limitations is open for tax years since 2006. After consideration of tax losses made available to Morgan Stanley, TransMontaigne has state net operating loss carryforwards of $16.6 million and $9.6 million, respectively, which expire in the years 2015 to 2033, that will be available to offset future taxable income after the Transaction. Due to the change in ownership of TransMontaigne, the net operating losses could be subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the expected timing of the reversal of taxable temporary differences and the realizability of the deferred tax assets on a separate return basis over the periods in which the deferred tax assets are deductible, the Company believes the more likely than not criterion has not been satisfied as of December 31, 2013 and 2012, and the benefits of future deductible differences have been fully valued.
(9) FAIR VALUE MEASUREMENTS
Generally accepted accounting principles define fair value, establish a framework for measuring fair value and require disclosures about fair value measurements. Generally accepted accounting principles also establish a fair value hierarchy that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect their placement within the fair value hierarchy levels. The three levels of the fair value hierarchy are:
Level 1 Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. This level primarily consists of financial instruments such as exchange-traded securities and listed derivatives.
Level 2 Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs reflect managements best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The Companys inventory related assets and liabilities, its over-the-counter commodity purchase and sale derivative contracts and its variation margin payables are classified as Level 2 of the fair value hierarchy. The Company estimates fair values based on exchange quoted commodity prices, adjusted as appropriate for contract terms (including maturity) and differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, published indices and consumer pricing services. The determination of the fair values for the derivative contracts and variation margin payables also factor the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit, and priority interests), and also the impact of the Companys nonperformance risk on its liabilities. The Company is able to classify these fair value balances based on the observability of inputs.
The following tables set forth by level within the fair value hierarchy the Companys assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012.
|
|
December 31, 2013 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories in pipelines and terminals |
|
$ |
|
|
$ |
629,567 |
|
$ |
|
|
$ |
629,567 |
|
Inventories in transit via truck and rail |
|
|
|
53,216 |
|
|
|
53,216 |
| ||||
Derivative contracts |
|
|
|
47,372 |
|
|
|
47,372 |
| ||||
Liabilities carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories due under exchange agreements |
|
|
|
31,280 |
|
|
|
31,280 |
| ||||
Derivative contracts |
|
|
|
30,066 |
|
|
|
30,066 |
| ||||
Variation margin payables |
|
|
|
35,528 |
|
|
|
35,528 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
December 31, 2012 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories in pipelines and terminals |
|
$ |
|
|
$ |
660,044 |
|
$ |
|
|
$ |
660,044 |
|
Inventories in transit via truck and rail |
|
|
|
59,703 |
|
|
|
59,703 |
| ||||
Derivative contracts |
|
|
|
13,390 |
|
|
|
13,390 |
| ||||
Liabilities carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories due under exchange agreements |
|
|
|
35,343 |
|
|
|
35,343 |
| ||||
Derivative contracts |
|
|
|
11,947 |
|
|
|
11,947 |
| ||||
Variation margin payables |
|
|
|
30,633 |
|
|
|
30,633 |
| ||||
The Company also has financial instruments that are not accounted for at fair value, which generally accepted accounting principles require we disclose the fair value. The following tables set forth by level within the fair value hierarchy the Companys assets and liabilities that constitute financial instruments and were not accounted for at fair value as of December 31, 2013 and 2012. We believe the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature, and in the case of our bank debt due to the borrowings bearing interest at current market interest rates.
|
|
December 31, 2013 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
74,762 |
|
$ |
|
|
$ |
|
|
$ |
74,762 |
|
Rack sales accounts receivable, net |
|
|
|
243,520 |
|
|
|
243,520 |
| ||||
Pipeline sales accounts receivable |
|
|
|
684,881 |
|
|
|
684,881 |
| ||||
Other pipeline accrued receivables |
|
|
|
6,123 |
|
|
|
6,123 |
| ||||
Other current assets restricted cash |
|
1,000 |
|
|
|
|
|
1,000 |
| ||||
Liabilities for which the carrying value approximates fair value (in thousands) |
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
|
|
64,351 |
|
|
|
64,351 |
| ||||
Product purchases accounts payable |
|
|
|
785,112 |
|
|
|
785,112 |
| ||||
Excise taxes payable |
|
|
|
39,648 |
|
|
|
39,648 |
| ||||
Other pipeline accrued payables |
|
|
|
20,589 |
|
|
|
20,589 |
| ||||
Bank debt |
|
|
|
212,000 |
|
|
|
212,000 |
| ||||
|
|
December 31, 2012 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
15,156 |
|
$ |
|
|
$ |
|
|
$ |
15,156 |
|
Rack sales accounts receivable, net |
|
|
|
307,757 |
|
|
|
307,757 |
| ||||
Pipeline sales accounts receivable |
|
|
|
520,944 |
|
|
|
520,944 |
| ||||
Other pipeline accrued receivables |
|
|
|
2,808 |
|
|
|
2,808 |
| ||||
Other current assets restricted cash |
|
1,120 |
|
|
|
|
|
1,120 |
| ||||
Liabilities for which the carrying value approximates fair value (in thousands) |
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
|
|
100,651 |
|
|
|
100,651 |
| ||||
Product purchases accounts payable |
|
|
|
705,863 |
|
|
|
705,863 |
| ||||
Excise taxes payable |
|
|
|
55,139 |
|
|
|
55,139 |
| ||||
Other pipeline accrued payables |
|
|
|
18,953 |
|
|
|
18,953 |
| ||||
Bank debt |
|
|
|
184,000 |
|
|
|
184,000 |
| ||||
(10) COMMITMENTS AND CONTINGENCIES
At December 31, 2013, future minimum lease payments under our non-cancelable operating leases are as follows (in thousands):
Years ending December 31: |
|
Office |
|
Rail cars |
|
Property and |
|
Total |
| ||||
2014 |
|
$ |
2,049 |
|
$ |
1,960 |
|
$ |
3,753 |
|
$ |
7,762 |
|
2015 |
|
2,104 |
|
408 |
|
3,920 |
|
6,432 |
| ||||
2016 |
|
2,159 |
|
238 |
|
3,997 |
|
6,394 |
| ||||
2017 |
|
2,150 |
|
|
|
2,989 |
|
5,139 |
| ||||
2018 |
|
1,412 |
|
|
|
588 |
|
2,000 |
| ||||
Thereafter |
|
1,192 |
|
|
|
3,891 |
|
5,083 |
| ||||
|
|
$ |
11,066 |
|
$ |
2,606 |
|
$ |
19,138 |
|
$ |
32,810 |
|
Rental expense under operating leases is as follows (in thousands):
|
|
Years ended |
| ||||
|
|
2013 |
|
2012 |
| ||
Office space |
|
$ |
1,772 |
|
$ |
1,870 |
|
Rail cars |
|
6,887 |
|
2,288 |
| ||
Property and equipment |
|
3,573 |
|
1,471 |
| ||
|
|
$ |
12,232 |
|
$ |
5,629 |
|
(11) SUBSEQUENT EVENTS
We have evaluated subsequent events through November 5, 2014, which is the date the financial statements were available to be issued.
On July 1, 2014, Morgan Stanley consummated the sale of its indirect 100% ownership interest in TransMontaigne Inc. to NGL. TransMontaigne Inc. is the indirect parent and sole member of TransMontaigne GP L.L.C., which is the sole general partner of TLP, a publically traded master limited partnership. The sale also included Morgan Stanleys limited partnership interests in TLP, the assignment from an affiliate of Morgan Stanley to NGL of certain terminaling services agreements with TLP, and the transfer of certain inventory owned by Morgan Stanley.
In connection with the July 1, 2014 sale to NGL, and immediately prior thereto, the TransMontaigne credit facility was terminated.
Exhibit 99.2
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Condensed Combined Balance Sheets
(Unaudited and in thousands)
|
|
June 30, |
|
December 31, |
| ||
ASSETS |
| ||||||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
71,549 |
|
$ |
74,762 |
|
Rack sales accounts receivable, net |
|
198,702 |
|
243,520 |
| ||
Pipeline sales accounts receivable |
|
202,795 |
|
684,881 |
| ||
Inventories in pipelines and terminals |
|
542,187 |
|
629,567 |
| ||
Inventories in transit via truck and rail |
|
44,844 |
|
53,216 |
| ||
Derivative contracts |
|
6,375 |
|
47,372 |
| ||
Other pipeline accrued receivables |
|
3,803 |
|
6,123 |
| ||
Other |
|
38,551 |
|
17,548 |
| ||
|
|
1,108,806 |
|
1,756,989 |
| ||
Property, plant and equipment, net |
|
431,486 |
|
445,495 |
| ||
Investment in unconsolidated affiliates |
|
234,002 |
|
211,605 |
| ||
Other assets |
|
16,676 |
|
18,357 |
| ||
|
|
$ |
1,790,970 |
|
$ |
2,432,446 |
|
|
| ||||||
LIABILITIES AND EQUITY |
| ||||||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
120,656 |
|
$ |
64,351 |
|
Product purchases accounts payable |
|
229,363 |
|
785,112 |
| ||
Excise taxes payable |
|
28,324 |
|
39,648 |
| ||
Inventories due under exchange agreements |
|
5,788 |
|
31,280 |
| ||
Derivative contracts |
|
7,765 |
|
30,066 |
| ||
Accrued environmental obligations |
|
4,208 |
|
4,303 |
| ||
Variation margin payables |
|
16,888 |
|
35,528 |
| ||
Other pipeline accrued payables |
|
12,813 |
|
20,589 |
| ||
Other accrued liabilities |
|
35,320 |
|
23,263 |
| ||
|
|
461,125 |
|
1,034,140 |
| ||
Bank debt |
|
234,000 |
|
212,000 |
| ||
Other |
|
4,491 |
|
9,362 |
| ||
Total liabilities |
|
699,616 |
|
1,255,502 |
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
Equity attributable to noncontrolling interests |
|
355,624 |
|
359,418 |
| ||
Equity attributable to parent |
|
735,730 |
|
817,526 |
| ||
|
|
1,091,354 |
|
1,176,944 |
| ||
|
|
$ |
1,790,970 |
|
$ |
2,432,446 |
|
See accompanying notes to condensed combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Condensed Combined Statements of Comprehensive Loss
(Unaudited and in thousands)
|
|
Six months ended |
|
Six months ended |
| ||
Marketing and distribution: |
|
|
|
|
| ||
Revenues |
|
$ |
4,000,573 |
|
$ |
4,678,070 |
|
Cost of product sold and other direct costs and expenses |
|
(3,948,828 |
) |
(4,648,787 |
) | ||
Net operating margins, exclusive of depreciation and amortization shown separately below |
|
51,745 |
|
29,283 |
| ||
Terminals and pipelines: |
|
|
|
|
| ||
Revenues |
|
33,650 |
|
31,537 |
| ||
Direct costs and expenses |
|
(16,833 |
) |
(15,075 |
) | ||
Net operating margins, exclusive of depreciation and amortization shown separately below |
|
16,817 |
|
16,462 |
| ||
Total net operating margins |
|
68,562 |
|
45,745 |
| ||
Costs and expenses: |
|
|
|
|
| ||
Selling, general and administrative |
|
(41,166 |
) |
(32,060 |
) | ||
Depreciation and amortization |
|
(17,346 |
) |
(17,018 |
) | ||
Gain (loss) on disposition of assets, net |
|
98 |
|
(845 |
) | ||
Earnings from unconsolidated affiliates |
|
1,438 |
|
36 |
| ||
Total costs and expenses |
|
(56,976 |
) |
(49,887 |
) | ||
Operating income (loss) |
|
11,586 |
|
(4,142 |
) | ||
Other income (expenses): |
|
|
|
|
| ||
Interest expense |
|
(3,065 |
) |
(2,625 |
) | ||
Amortization of deferred financing costs |
|
(687 |
) |
(687 |
) | ||
Foreign currency transaction loss |
|
|
|
(8 |
) | ||
Total other expenses |
|
(3,752 |
) |
(3,320 |
) | ||
Earnings (loss) before income taxes |
|
7,834 |
|
(7,462 |
) | ||
Income tax expense |
|
(302 |
) |
(102 |
) | ||
Net income |
|
7,532 |
|
(7,564 |
) | ||
Noncontrolling interests share in earnings of TransMontaigne Partners |
|
(13,677 |
) |
(13,759 |
) | ||
Net loss attributable to parent |
|
(6,145 |
) |
(21,323 |
) | ||
Other comprehensive income foreign currency translation adjustments attributable to noncontrolling interests |
|
|
|
2 |
| ||
Comprehensive loss |
|
$ |
(6,145 |
) |
$ |
(21,321 |
) |
See accompanying notes to condensed combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Condensed Combined Statement of Equity
Six months ended June 30, 2014
(Unaudited and in thousands)
|
|
Equity |
|
Equity |
|
Total |
| |||
Balance at December 31, 2013 |
|
$ |
359,418 |
|
$ |
817,526 |
|
$ |
1,176,944 |
|
Distributions paid to non-controlling TransMontaigne Partners common units |
|
(17,408 |
) |
|
|
(17,408 |
) | |||
Purchase of common units by TransMontaigne Partners long-term incentive plan |
|
(177 |
) |
|
|
(177 |
) | |||
Deferred equity-based compensation related to restricted phantom units and other |
|
114 |
|
|
|
114 |
| |||
Net income (loss) |
|
13,677 |
|
(6,145 |
) |
7,532 |
| |||
Net capital distributed to parent company |
|
|
|
(75,651 |
) |
(75,651 |
) | |||
Balance at June 30, 2014 |
|
$ |
355,624 |
|
$ |
735,730 |
|
$ |
1,091,354 |
|
See accompanying notes to condensed combined financial statements.
Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP
Condensed Combined Statements of Cash Flows
(Unaudited and in thousands)
|
|
Six months ended |
|
Six months ended |
| ||
Net cash provided by (used in) operating activities |
|
$ |
94,190 |
|
$ |
(98,771 |
) |
Cash flows from investing activities: |
|
|
|
|
| ||
Investments in unconsolidated affiliates |
|
(23,397 |
) |
(70,956 |
) | ||
Capital expenditures |
|
(3,755 |
) |
(12,912 |
) | ||
Proceeds from sale of assets |
|
1 |
|
89 |
| ||
Net cash used in investing activities |
|
(27,151 |
) |
(83,779 |
) | ||
Cash flows from financing activities: |
|
|
|
|
| ||
Borrowings of bank debt |
|
56,000 |
|
119,500 |
| ||
Repayments of bank debt |
|
(34,000 |
) |
(49,500 |
) | ||
Net capital contributed by (distributed to) parent company |
|
(74,667 |
) |
185,059 |
| ||
Distributions paid to non-controlling TransMontaigne Partners common units |
|
(17,408 |
) |
(15,016 |
) | ||
Purchase of common units by TransMontaigne Partners long-term incentive plan |
|
(177 |
) |
(166 |
) | ||
Other |
|
|
|
(398 |
) | ||
Net cash provided by (used in) financing activities |
|
(70,252 |
) |
239,479 |
| ||
Increase (decrease) in cash and cash equivalents |
|
(3,213 |
) |
56,929 |
| ||
Foreign currency translation effect on cash |
|
|
|
46 |
| ||
Cash and cash equivalents at beginning of period |
|
74,762 |
|
15,156 |
| ||
Cash and cash equivalents at end of period |
|
$ |
71,549 |
|
$ |
72,131 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
3,140 |
|
$ |
2,426 |
|
Property, plant and equipment acquired with accounts payable |
|
$ |
75 |
|
$ |
246 |
|
See accompanying notes to condensed combined financial statements.
Notes to Condensed Combined Financial Statements
As of June 30, 2014 and December 31, 2013 and for the six months ended June 30, 2014 and 2013 (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of business
The accompanying combined interim financial statements include the accounts of all operations of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP (collectively, the Company, we, us or our). On July 1, 2014, Morgan Stanley consummated the sale of its indirect 100% ownership interest in the Business to NGL Energy Partners LP (NGL). TransMontaigne Inc. is the indirect parent and sole member of TransMontaigne GP L.L.C., which is the sole general partner (General Partner) of TransMontaigne Partners L.P. (TLP or the Partnership), a publicly traded master limited partnership. The sale also included Morgan Stanleys limited partnership interests in TLP, the assignment from an affiliate of Morgan Stanley to NGL of certain terminaling services agreements with TLP, and the transfer of certain inventory owned by Morgan Stanley (collectively, the Transaction). The Transaction does not involve the sale or purchase of any of the limited partnership units in TLP held by the public and the TLP limited partnership units continue to trade on the New York Stock Exchange.
TransMontaigne Inc., (TransMontaigne) is a Delaware corporation headquartered in Denver, Colorado, that was formed in 1995 as a refined petroleum products marketing and distribution company. TransMontaigne and its wholly-owned subsidiaries conduct operations in the United States primarily in the Southeast, Florida, and Midwest regions. TransMontaigne primarily provides integrated marketing and distribution services to end-users of refined petroleum products and, to a lesser extent, users of crude oil and renewable fuels.
TransMontaignes less than wholly-owned subsidiary includes the publicly traded master limited partnership of TLP. TLP was formed in February 2005 as a Delaware limited partnership to own and operate refined petroleum products terminaling and transportation facilities. TLP conducts its operations in the United States along the Gulf Coast, in the Midwest, in Houston and Brownsville, Texas, along the Mississippi and Ohio rivers and in the Southeast. TLP provides integrated terminaling, storage, transportation and related services for companies engaged in the trading, distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers and other liquid products. TransMontaigne and NGL, subsequent to the Transaction, have an interest in TLP through the ownership of approximately 20% of the limited partner interests, a 2% general partner interest and the incentive distribution rights.
(b) Basis of presentation and use of estimates
In preparing the accompanying unaudited condensed combined financial statements, we have followed the accounting policies of Morgan Stanley, a broker-dealer, and TransMontaigne Inc., which are in accordance with United States generally accepted accounting principles or GAAP for interim financial information. Accordingly, the unaudited condensed combined financial statements do not include all the information and notes required by GAAP for complete annual financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. The combined financial statements of the Company have been prepared from the separate records maintained by Morgan Stanley and TransMontaigne Inc. and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if the Company had been operated as an unaffiliated entity. Because a direct ownership relationship did not exist among all the various assets comprising the Company, Morgan Stanleys net investment in the Company is shown as net parent equity, in lieu of owners equity, in the combined financial statements. All intercompany balances have been eliminated. Transactions between us and Morgan Stanley operations have been identified in the combined financial statements as transactions between affiliates. In the opinion of management, all adjustments have been reflected that are necessary for a fair presentation of the combined financial statements.
The preparation of financial statements in conformity with GAAP requires us 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 and the reported amounts of revenues and expenses during the reporting periods. The following estimates, in our opinion, are subjective in nature and require the exercise of judgment: allowance for doubtful accounts; fair value of inventories; fair value of derivative contracts; useful lives of our plant and equipment; and accrued environmental obligations. Changes in these estimates and assumptions will occur as a result of the passage of time and the occurrence of future events. Actual results could differ from these estimates.
(c) Significant accounting policies
The Companys significant accounting policies are consistent with those disclosed in Note 1 of the Companys audited combined financial statements for the years ended December 31, 2013 and 2012.
(2) INVENTORIES
Our inventories are carried at fair value, and the classes of inventories are as follows (amounts and volume of barrels in thousands):
Inventories in pipelines and terminals:
|
|
June 30, |
|
December 31, |
| ||||||
|
|
Amount |
|
Barrels |
|
Amount |
|
Barrels |
| ||
Gasoline |
|
$ |
306,119 |
|
2,477 |
|
$ |
400,120 |
|
3,618 |
|
Distillate |
|
218,843 |
|
1,758 |
|
220,702 |
|
1,736 |
| ||
Ethanol |
|
17,196 |
|
228 |
|
7,946 |
|
98 |
| ||
Crude oil |
|
|
|
|
|
799 |
|
8 |
| ||
Other |
|
29 |
|
2 |
|
|
|
|
| ||
|
|
$ |
542,187 |
|
4,465 |
|
$ |
629,567 |
|
5,460 |
|
Inventories in transit via truck and rail:
|
|
June 30, |
|
December 31, |
| ||||||
|
|
Amount |
|
Barrels |
|
Amount |
|
Barrels |
| ||
Gasoline |
|
$ |
|
|
|
|
$ |
16,725 |
|
176 |
|
Distillate |
|
15,680 |
|
127 |
|
13,516 |
|
111 |
| ||
Ethanol |
|
7,554 |
|
87 |
|
17,193 |
|
218 |
| ||
Crude oil |
|
21,610 |
|
208 |
|
5,782 |
|
59 |
| ||
|
|
$ |
44,844 |
|
422 |
|
$ |
53,216 |
|
564 |
|
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net is as follows (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Land |
|
$ |
57,568 |
|
$ |
57,568 |
|
Terminals, pipelines and equipment |
|
603,812 |
|
601,921 |
| ||
Furniture, fixtures and equipment |
|
21,366 |
|
20,941 |
| ||
Construction in progress |
|
4,487 |
|
3,691 |
| ||
|
|
687,233 |
|
684,121 |
| ||
Less accumulated depreciation |
|
(255,747 |
) |
(238,626 |
) | ||
|
|
$ |
431,486 |
|
$ |
445,495 |
|
(4) DERIVATIVE CONTRACTS
The Company purchases and sells commodities, such as gasoline, distillate, ethanol and crude oil. The Company generally follows a policy of using over-the-counter commodity derivatives as components of market strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of commodity derivatives and the prices of the underlying commodities, counterparty contract defaults, and volatility of transportation markets.
The majority of the Companys commodity purchase and sales contracts qualify as over-the-counter derivative instruments and the change in fair value is reported in cost of product sold within the marketing and distribution section of the
accompanying combined interim statements of comprehensive income (loss). Changes in the fair value of our derivatives are recognized in earnings. The Company reports the fair value of its over-the-counter derivative assets and liabilities on the combined balance sheets as derivative contract assets and liabilities.
The Company has established guidelines to manage and mitigate credit risk within risk tolerances. The Company attempts to mitigate its credit exposure by setting tenor and credit limits commensurate with counterparty financial strength and obtaining master netting agreements. The use of master netting agreements is driven by industry practice, and anticipated volumes and complexity of the business relationship with the counterparty.
The following table provides information about our derivative asset contract positions, net at June 30, 2014 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
11,099 |
|
$ |
(4,724 |
) |
$ |
6,375 |
|
The following table provides information about our derivative asset contract positions, net at December 31, 2013 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
54,119 |
|
$ |
(6,747 |
) |
$ |
47,372 |
|
The following table provides information about our derivative liability contract positions, net at June 30, 2014 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
12,460 |
|
$ |
(4,695 |
) |
$ |
7,765 |
|
The following table provides information about our derivative liability contract positions, net at December 31, 2013 (in thousands):
Derivative type |
|
Gross derivative |
|
Counterparty |
|
Fair value of |
| |||
Bilateral over-the-counter contracts |
|
$ |
36,870 |
|
$ |
(6,804 |
) |
$ |
30,066 |
|
(5) BANK DEBT
TLP Credit Facility
On March 9, 2011, TLP entered into an amended and restated senior secured credit facility, or the TLP credit facility, which has been subsequently amended from time to time. The TLP credit facility provides for a maximum borrowing line of credit
equal to the lesser of (i) $350 million and (ii) 4.75 times Consolidated EBITDA (as defined $345.7 million at June 30, 2014). TLP may elect to have loans under the TLP credit facility that bear interest either (i) at a rate of LIBOR plus a margin ranging from 2% to 3% depending on the total leverage ratio then in effect, or (ii) at the base rate plus a margin ranging from 1% to 2% depending on the total leverage ratio then in effect. TLP also pays a commitment fee on the unused amount of commitments, ranging from 0.375% to 0.5% per annum, depending on the total leverage ratio then in effect. TLPs obligations under the TLP credit facility are secured by a first priority security interest in favor of the lenders in the majority of the TLP assets.
The terms of the TLP credit facility include covenants that restrict TLPs ability to make cash distributions, acquisitions and investments, including investments in joint ventures. TLP may make distributions of cash to the extent of its available cash as defined in the TLP partnership agreement. TLP may make acquisitions and investments that meet the definition of permitted acquisitions; other investments which may not exceed 5% of consolidated net tangible assets; and permitted JV investments. Permitted JV investments include up to $225 million of investments in Battleground Oil Specialty Terminal Company LLC (BOSTCO), the Specified BOSTCO Investment. In addition to the Specified BOSTCO Investment, under the terms of the TLP credit facility, TLP may make an additional $75 million of other permitted JV investments (including additional investments in BOSTCO). The principal balance of loans and any accrued and unpaid interest are due and payable in full on the maturity date, March 9, 2016.
The TLP credit facility also contains customary representations and warranties (including those relating to organization and authorization, compliance with laws, absence of defaults, material agreements and litigation) and customary events of default (including those relating to monetary defaults, covenant defaults, cross defaults and bankruptcy events). The primary financial covenants contained in the credit facility are (i) a total leverage ratio test (not to exceed 4.75 times), (ii) a senior secured leverage ratio test (not to exceed 3.75 times) in the event TLP issues senior unsecured notes, and (iii) a minimum interest coverage ratio test (not less than 3.0 times). If TLP were to fail any financial performance covenant, or any other covenant contained in the TLP credit facility, TLP would seek a waiver from its lenders under such facility. If TLP were unable to obtain a waiver from its lenders and the default remained uncured after any applicable grace period, TLP would be in breach of the TLP credit facility, and the lenders would be entitled to declare all outstanding borrowings immediately due and payable. TLP was in compliance with all of the financial covenants under the credit facility as of June 30, 2014.
At June 30, 2014 and December 31, 2013, TLPs outstanding borrowings under the TLP credit facility were $234 million and $212 million, respectively. At June 30, 2014 and December 31, 2013, TLP had no outstanding letters of credit.
The following table summarizes the assets and liabilities of TLP at June 30, 2014 (in thousands):
Cash and cash equivalents |
|
$ |
1,469 |
|
Trade accounts receivable, net |
|
8,638 |
| |
Receivables from affiliates |
|
3,449 |
| |
Other current assets |
|
3,249 |
| |
Property, plant and equipment, net |
|
394,319 |
| |
Investments in unconsolidated affiliates |
|
234,002 |
| |
Other assets, net |
|
13,167 |
| |
Total assets |
|
$ |
658,293 |
|
|
|
|
| |
Trade accounts payable |
|
$ |
4,868 |
|
Accrued liabilities |
|
10,788 |
| |
Long-term debt |
|
234,000 |
| |
Other noncurrent liabilities |
|
4,753 |
| |
Equity attributable to noncontrolling interests |
|
355,624 |
| |
Equity attributable to parent |
|
48,260 |
| |
Total liabilities and equity |
|
$ |
658,293 |
|
TransMontaigne Credit Facility
TransMontaigne has a senior secured working capital credit facility, or the TransMontaigne credit facility that provides for a maximum borrowing line of credit equal to the lesser of (i) $150 million or (ii) the borrowing base, which is a function of, among other things, restricted cash maintained in a specified account, accounts receivable, inventory and certain reserve adjustments as defined in the facility (as defined: $103.2 million at June 30, 2014). In addition, outstanding letters of credit are counted against the maximum borrowing capacity available at any time. Borrowings under the TransMontaigne credit facility bear interest (at
TransMontaignes option) based on a base rate plus an applicable margin, or LIBOR plus an applicable margin; the applicable margins range from 2% to 3% and are a function of the average excess borrowing base availability. In addition, TransMontaigne pays a commitment fee ranging from 0.50% to 0.625% per annum on the total amount of the unused commitments. Borrowings under the TransMontaigne credit facility are secured by the majority of the TransMontaignes and its wholly-owned subsidiaries assets, which excludes all TLP assets. The principal balance of loans and any accrued and unpaid interest is scheduled to be due and payable in full on the maturity date August 15, 2015. TransMontaigne primarily utilizes the facility to finance its crude oil marketing operations through the issuance of letters of credit to crude oil producers.
At June 30, 2014 and December 31, 2013, TransMontaigne had no outstanding borrowings under the TransMontaigne credit facility. At June 30, 2014 and December 31, 2013, TransMontaignes outstanding letters of credit were approximately $67.1 million and $51.0 million, respectively.
In connection with the July 1, 2014 sale to NGL, and immediately prior thereto, the TransMontaigne credit facility was terminated.
(6) INCOME TAXES
The difference between the income tax benefit reported in the accompanying combined statements of operations and the federal statutory tax rate of 35% relates primarily to the impact of state income taxes, valuation allowance against deferred tax assets, and to the fact that TLP is treated as a partnership for U.S. federal income tax purposes. Because of this, no provision for U.S. federal income taxes has been reflected in the accompanying combined financial statements related to TLP. As a partnership, all income, gains, losses, expenses, deductions and tax credits generated by TLP flow through to the unitholders of the partnership. Income tax expense recorded relates to current state taxes due from tax returns filed on a legal entity basis.
(7) FAIR VALUE MEASUREMENTS
Generally accepted accounting principles define fair value, establish a framework for measuring fair value and require disclosures about fair value measurements. Generally accepted accounting principles also establish a fair value hierarchy that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect their placement within the fair value hierarchy levels. The three levels of the fair value hierarchy are:
Level 1 Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. This level primarily consists of financial instruments such as exchange-traded securities and listed derivatives.
Level 2 Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs reflect managements best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The Companys inventory related assets and liabilities, its over-the-counter commodity purchase and sale derivative contracts and its variation margin payables are classified as Level 2 of the fair value hierarchy. The Company estimates fair values based on exchange quoted commodity prices, adjusted as appropriate for contract terms (including maturity) and differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, published indices and consumer pricing services. The determination of the fair values for the derivative contracts and variation margin payables also factor the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit, and priority interests), and also the impact of the Companys nonperformance risk on its liabilities. The Company is able to classify these fair value balances based on the observability of inputs.
The following tables set forth by level within the fair value hierarchy the Companys assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2014 and December 31, 2013.
|
|
June 30, 2014 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories in pipelines and terminals |
|
$ |
|
|
$ |
542,187 |
|
$ |
|
|
$ |
542,187 |
|
Inventories in transit via truck and rail |
|
|
|
44,844 |
|
|
|
44,844 |
| ||||
Derivative contracts |
|
|
|
6,375 |
|
|
|
6,375 |
| ||||
Liabilities carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories due under exchange agreements |
|
|
|
5,788 |
|
|
|
5,788 |
| ||||
Derivative contracts |
|
|
|
7,765 |
|
|
|
7,765 |
| ||||
Variation margin payables |
|
|
|
16,888 |
|
|
|
16,888 |
| ||||
|
|
December 31, 2013 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories in pipelines and terminals |
|
$ |
|
|
$ |
629,567 |
|
$ |
|
|
$ |
629,567 |
|
Inventories in transit via truck and rail |
|
|
|
53,216 |
|
|
|
53,216 |
| ||||
Derivative contracts |
|
|
|
47,372 |
|
|
|
47,372 |
| ||||
Liabilities carried at fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Inventories due under exchange agreements |
|
|
|
31,280 |
|
|
|
31,280 |
| ||||
Derivative contracts |
|
|
|
30,066 |
|
|
|
30,066 |
| ||||
Variation margin payables |
|
|
|
35,528 |
|
|
|
35,528 |
| ||||
The Company also has financial instruments that are not accounted for at fair value, which generally accepted accounting principles require we disclose the fair value. The following tables set forth by level within the fair value hierarchy the Companys assets and liabilities that constitute financial instruments and were not accounted for at fair value as of June 30, 2014 and December 31, 2013. We believe the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature, and in the case of our bank debt due to the borrowings bearing interest at current market interest rates.
|
|
June 30, 2014 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
71,549 |
|
$ |
|
|
$ |
|
|
$ |
71,549 |
|
Rack sales accounts receivable, net |
|
|
|
198,702 |
|
|
|
198,702 |
| ||||
Pipeline sales accounts receivable |
|
|
|
202,795 |
|
|
|
202,795 |
| ||||
Other pipeline accrued receivables |
|
|
|
3,803 |
|
|
|
3,803 |
| ||||
Other current assets-restricted cash |
|
28,526 |
|
|
|
|
|
28,526 |
| ||||
Liabilities for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
|
|
120,656 |
|
|
|
120,656 |
| ||||
Product purchases accounts payable |
|
|
|
229,363 |
|
|
|
229,363 |
| ||||
Excise taxes payable |
|
|
|
28,324 |
|
|
|
28,324 |
| ||||
Other pipeline accrued payables |
|
|
|
12,813 |
|
|
|
12,813 |
| ||||
Bank debt |
|
|
|
234,000 |
|
|
|
234,000 |
| ||||
|
|
December 31, 2013 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
74,762 |
|
$ |
|
|
$ |
|
|
$ |
74,762 |
|
Rack sales accounts receivable, net |
|
|
|
243,520 |
|
|
|
243,520 |
| ||||
Pipeline sales accounts receivable |
|
|
|
684,881 |
|
|
|
684,881 |
| ||||
Other pipeline accrued receivables |
|
|
|
6,123 |
|
|
|
6,123 |
| ||||
Other current assets-restricted cash |
|
1,000 |
|
|
|
|
|
1,000 |
| ||||
Liabilities for which the carrying value approximates fair value (in thousands): |
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
|
|
64,351 |
|
|
|
64,351 |
| ||||
Product purchases accounts payable |
|
|
|
785,112 |
|
|
|
785,112 |
| ||||
Excise taxes payable |
|
|
|
39,648 |
|
|
|
39,648 |
| ||||
Other pipeline accrued payables |
|
|
|
20,589 |
|
|
|
20,589 |
| ||||
Bank debt |
|
|
|
212,000 |
|
|
|
212,000 |
| ||||
Accounts receivable are reported net of an allowance for doubtful accounts. As of June 30, 2014 and December 31, 2013, the allowances for doubtful accounts were $3.4 million and $3.8 million, respectively.
(8) SUBSEQUENT EVENTS
We have evaluated subsequent events through November 5, 2014, which is the date the financial statements were available to be issued.
On July 1, 2014, Morgan Stanley consummated the sale of its indirect 100% ownership interest in TransMontaigne Inc. to NGL. TransMontaigne Inc. is the indirect parent and sole member of TransMontaigne GP L.L.C., which is the sole general partner of TLP, a publicly traded master limited partnership. The sale also included Morgan Stanleys limited partnership interests in TLP, the assignment from an affiliate of Morgan Stanley to NGL of certain terminaling services agreements with TLP, and the transfer of certain inventory owned by Morgan Stanley.
In connection with the July 1, 2014 sale to NGL, and immediately prior thereto, the TransMontaigne credit facility was terminated.
Exhibit 99.3
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Introduction
The following represents the unaudited pro forma condensed consolidated balance sheet of NGL Energy Partners LP (we, us, our, NGL or the Partnership) as of June 30, 2014 and the unaudited pro forma condensed consolidated statements of operations for the year ended March 31, 2014 and the three months ended June 30, 2014. The accompanying unaudited condensed consolidated financial statements give pro forma effect to a number of transactions, which are summarized below:
· On July 1, 2014, we completed a business combination with TransMontaigne Inc. (TransMontaigne) whereby we acquired TransMontaigne and certain affiliated operations. We paid $174.2 million of cash, net of cash acquired, in exchange for these assets and operations. The acquisition agreement contemplates a post-closing adjustment for certain working capital items. As part of this transaction, we also purchased $380.4 million of inventory from the previous owner of TransMontaigne. (including $346.9 million paid at closing and $33.5 million subsequently paid as the working capital settlement process progressed).
· On June 23, 2014, we completed a public offering of 8,000,000 common units. We received net proceeds of $338.0 million.
· During June 2014, we entered into an amendment to the credit agreement for our revolving credit facility to increase the total capacity on the facility to approximately $2.2 billion.
· On December 2, 2013, we completed a business combination with Gavilon, LLC whereby we acquired all of Gavilons energy businesses (Gavilon Energy). We paid $832.4 million of cash, net of cash acquired, in exchange for these assets and operations. The acquisition agreement also contemplates a post-closing adjustment to the purchase price for certain working capital items.
· On December 2, 2013, we issued and sold 8,110,848 common units in a private placement. We received net proceeds of approximately $235.1 million from the sale of these common units.
· On October 16, 2013, we issued $450.0 million of senior unsecured notes (the Notes Due 2021) in a private placement. We received net proceeds of approximately $438.4 million.
· On September 25, 2013, we completed a public offering of 4,100,000 common units. We received net proceeds of approximately $127.6 million.
· On August 1, 2013, we acquired all of the membership interests in seven entities (collectively, the OWL Entities) affiliated with Oilfield Water Lines, LP (OWL LP), whereby we acquired water disposal and transportation assets in Texas. We issued 2,463,287 common units, valued at $68.6 million, and paid $167.7 million of cash, net of cash acquired, in exchange for the assets and operations of the OWL Entities.
· On July 5, 2013, we completed a public offering of 10,350,000 common units. We received net proceeds of $287.5 million.
The accompanying pro forma condensed consolidated balance sheet gives pro forma effect to our business combination with TransMontaigne.
The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2014 gives pro forma effect to the following, as if such transactions had occurred on April 1, 2013:
· Our business combination with TransMontaigne;
· Our sale of common units in a public offering in June 2014;
· The amendment of the credit agreement for our revolving credit facility in June 2014;
· Our business combination with Gavilon Energy;
· Our sale of common units in a private placement in December 2013;
· Our issuance of senior unsecured notes in October 2013;
· Our sale of common units in a public offering in September 2013;
· Our business combination with the OWL Entities; and
· The sale of common units in a public offering in July 2013.
The accompanying unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2014 gives pro forma effect to the following, as if such transactions had occurred on April 1, 2013:
· Our business combination with TransMontaigne; and
· Our sale of common units in a public offering in June 2014; and
· The amendment of the credit agreement for our revolving credit facility in June 2014.
The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and should be read in conjunction with the following:
· The audited historical financial statements of NGL Energy Partners LP included in our Annual Report on Form 10-K for the year ended March 31, 2014;
· The unaudited historical financial statements of NGL Energy Partners LP included in our Quarterly Report on Form 10-Q for the three months ended June 30, 2014;
· The audited and unaudited financial statements of the Businesses Associated with TransMontaigne Inc. Acquired by NGL Energy Partners LP included in this Form 8-K/A;
· The audited and unaudited financial statements of Gavilon Energy included in our Current Report on Form 8-K/A filed on February 18, 2014; and
· The audited and unaudited consolidated financial statements of Oilfield Water Lines, LP included in our Current Report on Form 8-K/A filed on October 17, 2013.
The following unaudited pro forma condensed consolidated statements of operations are based on certain assumptions and do not purport to be indicative of the results that actually would have been achieved if the events described above had occurred on the dates indicated. Moreover, they do not project NGLs results of operations for any future date or period.
Gavilon Energy and TransMontaigne historically conducted trading operations, whereas NGL operates as a logistics business. The historical results of operations of Gavilon Energy and TransMontaigne were subject to more volatility as a result of the trading operations than we would expect future results of operations to have under NGLs business model. In the accompanying pro forma condensed consolidated statements of operations, no pro forma effect was given to the change in business model from a trading business to a logistics business.
The historical financial statements of the Businesses Associated with TransMontaigne Acquired by NGL Energy Partners LP include certain marketing activities that were retained by the previous owner of TransMontaigne (and therefore not transferred to NGL). No pro forma effect was given to this in the accompanying pro forma financial statements, as it is not possible to separate these activities from the other marketing activities of the acquired business for historical periods. In the historical financial statements of the Businesses Associated with TransMontaigne Acquired by NGL Energy Partners LP, inventory is reported at fair value, consistent with the accounting policy applied by the previous owner. Subsequent to the acquisition of the business, NGL accounts for the inventory at the lower of cost or market. In the accompanying pro forma financial statements, no pro forma effect is given to this difference in accounting policy, as it is not practicable to determine the impact of such a change on historical periods.
The accompanying unaudited pro forma condensed consolidated statements of operations reflect depreciation and amortization estimates which are preliminary, as our identification of the assets and liabilities acquired, and the fair value determinations thereof, for the business combinations with TransMontaigne and Gavilon Energy have not been completed. The fair value estimates reflected in the accompanying unaudited pro forma condensed consolidated statements of operations are based on the best estimates available at this time. There is no guarantee that the preliminary fair value estimates, and consequently the unaudited pro forma condensed consolidated statements of operations, will not change. To the extent that the final acquisition accounting results in an increased allocation of goodwill recorded, this amount would not be subject to amortization, but would be subject to annual impairment testing. To the extent the final acquisition accounting results in an increase to the preliminary computation of depreciable property, plant and equipment or amortizable intangible assets, the amount would be subject to depreciation or amortization, which would result in a decrease to the estimated pro forma income reflected in the accompanying unaudited pro forma condensed consolidated statements of operations. We expect to complete the final acquisition accounting for the Gavilon Energy combination prior to filing our Form 10-Q for the quarter ending September 30, 2014. We expect to complete the final acquisition accounting for the combination with TransMontaigne prior to filing our Form 10-Q for the quarter ending June 30, 2015.
NGL ENERGY PARTNERS LP
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2014
(Amounts in Thousands)
|
|
Historical |
|
|
|
|
|
|
| ||||||
|
|
|
|
Trans |
|
|
|
|
|
|
| ||||
|
|
NGL |
|
Montaigne |
|
|
|
|
|
NGL Pro Forma |
| ||||
|
|
As Of |
|
As Of |
|
Pro Forma Adjustments |
|
As Of |
| ||||||
|
|
June 30, |
|
June 30, |
|
Trans |
|
Note |
|
June 30, |
| ||||
|
|
2014 |
|
2014 |
|
Montaigne |
|
2 |
|
2014 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| ||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
39,679 |
|
$ |
71,549 |
|
$ |
(70,080 |
) |
(a) |
|
$ |
41,148 |
|
Accounts receivable |
|
903,011 |
|
400,969 |
|
(203,620 |
) |
(a) |
|
1,100,360 |
| ||||
Accounts receivable - affiliates |
|
1,110 |
|
528 |
|
|
|
|
|
1,638 |
| ||||
Inventories |
|
373,633 |
|
587,031 |
|
(160,118 |
) |
(a) |
|
800,546 |
| ||||
Prepaid expenses and other current assets |
|
58,613 |
|
48,729 |
|
(33,356 |
) |
(a) |
|
73,986 |
| ||||
Total current assets |
|
1,376,046 |
|
1,108,806 |
|
(467,174 |
) |
|
|
2,017,678 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
PROPERTY, PLANT AND EQUIPMENT, net |
|
863,457 |
|
431,486 |
|
108,514 |
|
(a) |
|
1,403,457 |
| ||||
GOODWILL |
|
1,101,471 |
|
|
|
29,118 |
|
(a) |
|
1,130,589 |
| ||||
INTANGIBLE ASSETS, net |
|
699,315 |
|
|
|
142,000 |
|
(a) |
|
841,315 |
| ||||
INVESTMENTS IN UNCONSOLIDATED ENTITIES |
|
211,480 |
|
234,002 |
|
15,998 |
|
(a) |
|
461,480 |
| ||||
OTHER NONCURRENT ASSETS |
|
13,733 |
|
16,676 |
|
(12,765 |
) |
(a) |
|
17,644 |
| ||||
Total assets |
|
$ |
4,265,502 |
|
$ |
1,790,970 |
|
$ |
(184,309 |
) |
|
|
$ |
5,872,163 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND PARTNERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
| ||||
Trade accounts payable |
|
$ |
810,149 |
|
$ |
350,019 |
|
$ |
(209,422 |
) |
(a) |
|
$ |
950,746 |
|
Accrued expenses and other payables |
|
123,939 |
|
109,118 |
|
(35,553 |
) |
(a) |
|
197,504 |
| ||||
Advance payments received from customers |
|
56,373 |
|
1,919 |
|
|
|
|
|
58,292 |
| ||||
Accounts payable - affiliates |
|
37,706 |
|
69 |
|
|
|
|
|
37,775 |
| ||||
Current maturities of long-term debt |
|
6,168 |
|
|
|
|
|
|
|
6,168 |
| ||||
Total current liabilities |
|
1,034,335 |
|
461,125 |
|
(244,975 |
) |
|
|
1,250,485 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
LONG-TERM DEBT, net of current maturities |
|
1,441,875 |
|
234,000 |
|
554,535 |
|
(a) |
|
2,230,410 |
| ||||
OTHER NONCURRENT LIABILITIES |
|
8,000 |
|
4,491 |
|
30,365 |
|
(a) |
|
42,856 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
EQUITY: |
|
|
|
|
|
|
|
|
|
|
| ||||
General Partner |
|
(41,308 |
) |
|
|
|
|
|
|
(41,308 |
) | ||||
Limited Partners - |
|
|
|
|
|
|
|
|
|
|
| ||||
Common units |
|
1,822,572 |
|
|
|
|
|
|
|
1,822,572 |
| ||||
Subordinated units |
|
(5,248 |
) |
|
|
|
|
|
|
(5,248 |
) | ||||
Accumulated other comprehensive income (loss) |
|
(51 |
) |
|
|
|
|
|
|
(51 |
) | ||||
Noncontrolling interests |
|
5,327 |
|
|
|
567,120 |
|
(a) |
|
572,447 |
| ||||
Total equity |
|
1,781,292 |
|
|
|
567,120 |
|
|
|
2,348,412 |
| ||||
Equity of acquired businesses |
|
|
|
1,091,354 |
|
(1,091,354 |
) |
(b) |
|
|
| ||||
Total liabilities and equity |
|
$ |
4,265,502 |
|
$ |
1,790,970 |
|
$ |
(184,309 |
) |
|
|
$ |
5,872,163 |
|
See accompanying notes.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended March 31, 2014
(Amounts in Thousands, Except Unit and Per Unit Amounts)
(Page 1 of 2)
|
|
Historical |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
Trans |
|
Gavilon |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
NGL |
|
Montaigne |
|
Six Months |
|
Pro Forma Adjustments |
|
|
| ||||||||||||
|
|
Year ended |
|
Year Ended |
|
Ended |
|
Trans |
|
Note |
|
|
|
Note |
|
|
| ||||||
|
|
March 31, 2014 |
|
Dec. 31, 2013 |
|
Sept. 30, 2013 |
|
Montaigne |
|
2 |
|
Gavilon |
|
2 |
|
To Page 2 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
REVENUES |
|
$ |
9,699,274 |
|
$ |
8,639,206 |
|
$ |
89,082 |
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
18,427,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
COST OF SALES |
|
9,132,699 |
|
8,463,720 |
|
97,269 |
|
|
|
|
|
|
|
|
|
17,693,688 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OPERATING COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating and general and administrative |
|
339,256 |
|
96,455 |
|
19,903 |
|
|
|
|
|
(5,258 |
) |
(f) |
|
450,356 |
| ||||||
Depreciation and amortization |
|
120,754 |
|
34,261 |
|
6,234 |
|
15,998 |
|
(c) |
|
4,425 |
|
(g) |
|
181,672 |
| ||||||
Operating income (loss) |
|
106,565 |
|
44,770 |
|
(34,324 |
) |
(15,998 |
) |
|
|
833 |
|
|
|
101,846 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings (loss) of unconsolidated entities |
|
1,898 |
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
1,577 |
| ||||||
Interest expense |
|
(58,854 |
) |
(5,974 |
) |
(16,044 |
) |
(12,174 |
) |
(d) |
|
4,995 |
|
(h) |
|
(88,051 |
) | ||||||
Other, net |
|
86 |
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
73 |
| ||||||
Income (Loss) Before Income Taxes |
|
49,695 |
|
38,462 |
|
(50,368 |
) |
(28,172 |
) |
|
|
5,828 |
|
|
|
15,445 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INCOME TAX (PROVISION) BENEFIT |
|
(937 |
) |
(242 |
) |
1 |
|
|
|
|
|
|
|
|
|
(1,178 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from continuing operations |
|
48,758 |
|
38,220 |
|
(50,367 |
) |
(28,172 |
) |
|
|
5,828 |
|
|
|
14,267 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER |
|
(14,148 |
) |
|
|
|
|
9 |
|
(e) |
|
45 |
|
(i) |
|
(14,094 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
(1,103 |
) |
(23,590 |
) |
|
|
4,169 |
|
(c) |
|
|
|
|
|
(20,524 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS |
|
$ |
33,507 |
|
$ |
14,630 |
|
$ |
(50,367 |
) |
$ |
(23,994 |
) |
|
|
$ |
5,873 |
|
|
|
$ |
(20,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic and diluted earnings per unit from continuing operations (Note 3) - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common |
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Subordinated |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average units outstanding - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common |
|
61,970,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subordinated |
|
5,919,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes and continuation on Page 2.
NGL ENERGY PARTNERS LP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended March 31, 2014
(Amounts in Thousands, Except Unit and Per Unit Amounts)
(Page 2 of 2)
|
|
|
|
Historical |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
OWL LP |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
| ||||||
|
|
|
|
Three Months |
|
Pro Forma Adjustments |
|
NGL |
| ||||||||||||||||
|
|
|
|
Ended |
|
|
|
Note |
|
Equity |
|
Note |
|
Debt |
|
Note |
|
Year Ended |
| ||||||
|
|
From Page 1 |
|
June 30, 2013 |
|
OWL LP |
|
2 |
|
Issuances |
|
2 |
|
Issuance |
|
2 |
|
March 31, 2014 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
REVENUES |
|
$ |
18,427,562 |
|
$ |
12,042 |
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
18,439,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
COST OF SALES |
|
17,693,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,693,688 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OPERATING COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating and general and administrative |
|
450,356 |
|
8,082 |
|
(805 |
) |
(j) |
|
|
|
|
|
|
|
|
|
457,633 |
| ||||||
Depreciation and amortization |
|
181,672 |
|
696 |
|
4,518 |
|
(k) |
|
|
|
|
|
|
|
|
|
186,886 |
| ||||||
Operating income (loss) |
|
101,846 |
|
3,264 |
|
(3,713 |
) |
|
|
|
|
|
|
|
|
|
|
101,397 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings (loss) of unconsolidated entities |
|
1,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,577 |
| ||||||
Interest expense |
|
(88,051 |
) |
(62 |
) |
(844 |
) |
(l) |
|
13,871 |
|
(o) |
|
(12,917 |
) |
(q) |
|
(88,003 |
) | ||||||
Other, net |
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73 |
| ||||||
Income (Loss) Before Income Taxes |
|
15,445 |
|
3,202 |
|
(4,557 |
) |
|
|
13,871 |
|
|
|
(12,917 |
) |
|
|
15,044 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INCOME TAX (PROVISION) BENEFIT |
|
(1,178 |
) |
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,252 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from continuing operations |
|
14,267 |
|
3,128 |
|
(4,557 |
) |
|
|
13,871 |
|
|
|
(12,917 |
) |
|
|
13,792 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER |
|
(14,094 |
) |
|
|
1 |
|
(m) |
|
(14 |
) |
(p) |
|
14 |
|
(r) |
|
(14,093 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
(20,524 |
) |
(1,033 |
) |
1,033 |
|
(n) |
|
|
|
|
|
|
|
|
|
(20,524 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS |
|
$ |
(20,351 |
) |
$ |
2,095 |
|
$ |
(3,523 |
) |
|
|
$ |
13,857 |
|
|
|
$ |
(12,903 |
) |
|
|
$ |
(20,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic and diluted loss per unit from continuing operations (Note 3) - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.24 |
) | |||||
Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.24 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average units outstanding - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,427,921 |
| ||||||
Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,919,346 |
|
See accompanying notes.
NGL ENERGY PARTNERS LP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 2014
(Amounts in Thousands, Except Unit and Per Unit Amounts)
|
|
Historical |
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
Trans |
|
|
|
|
|
|
|
|
|
Pro Forma |
| |||||
|
|
NGL |
|
Montaigne |
|
|
|
|
|
|
|
|
|
NGL |
| |||||
|
|
Three Months |
|
Three Months |
|
Pro Forma Adjustments |
Three Months |
| ||||||||||||
|
|
Ended |
|
Ended |
|
Trans |
|
Note |
|
Equity |
|
Note |
|
Ended |
| |||||
|
|
June 30, 2014 |
|
June 30, 2014 |
|
Montaigne |
|
2 |
|
Issuance |
|
2 |
|
June 30, 2014 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
REVENUES |
|
$ |
3,648,614 |
|
$ |
1.962,455 |
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
5,611,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
COST OF SALES |
|
3,534,053 |
|
1,979,490 |
|
|
|
|
|
|
|
|
|
5,513,543 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
OPERATING COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating and general and administrative |
|
95,741 |
|
32,121 |
|
(710 |
) |
(s) |
|
|
|
|
|
127,152 |
| |||||
Depreciation and amortization |
|
39,375 |
|
8,674 |
|
3,999 |
|
(t) |
|
|
|
|
|
52,048 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Income (Loss) |
|
(20,555 |
) |
(57,830 |
) |
(3,289 |
) |
|
|
|
|
|
|
(81,674 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Earnings of unconsolidated entities |
|
2,565 |
|
1,275 |
|
(267 |
) |
(t) |
|
|
|
|
|
3,573 |
| |||||
Interest expense |
|
(20,494 |
) |
(2,107 |
) |
(2,799 |
) |
(u) |
|
1,680 |
|
(w) |
|
(23,720 |
) | |||||
Other, net |
|
(391 |
) |
|
|
|
|
|
|
|
|
|
|
(391 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (Loss) Before Income Taxes |
|
(38,875 |
) |
(58,662 |
) |
(6,355 |
) |
|
|
1,680 |
|
|
|
(102,212 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
INCOME TAX (PROVISION) BENEFIT |
|
(1,035 |
) |
(151 |
) |
|
|
|
|
|
|
|
|
(1,186 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) from continuing operations |
|
(39,910 |
) |
(58,813 |
) |
(6,355 |
) |
|
|
1,680 |
|
|
|
(103,398 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER |
|
(9,381 |
) |
|
|
71 |
|
(v) |
|
(1 |
) |
(x) |
|
(9,311 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
(65 |
) |
(7,461 |
) |
1,229 |
|
(t) |
|
|
|
|
|
(6,297 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS |
|
$ |
(49,356 |
) |
$ |
(66,274 |
) |
$ |
(5,055 |
) |
|
|
$ |
1,679 |
|
|
|
$ |
(119,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic and diluted earnings per unit from continuing operations (Note 3) - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common |
|
$ |
(0.61 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(1.36 |
) | |||
Subordinated |
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(1.36 |
) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average units outstanding - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common |
|
74,126,205 |
|
|
|
|
|
|
|
|
|
|
|
81,427,921 |
| |||||
Subordinated |
|
5,919,346 |
|
|
|
|
|
|
|
|
|
|
|
5,919,346 |
|
See accompanying notes.
NGL ENERGY PARTNERS LP
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
Note 1 Basis of Presentation
See Introduction for more information regarding the basis of presentation for our unaudited pro forma condensed consolidated financial statements.
The results of operations of TransMontaigne for the three months ended June 30, 2014 were compiled by reducing the results for the six months ended June 30, 2014 by the results for the three months ended March 31, 2014. The results for the three months ended March 31, 2014 are not separately included herein. The results of operations of OWL LP during the three months ended June 30, 2013 were compiled by reducing the results for the six months ended June 30, 2013 by the results for the three months ended March 31, 2013. The results of operations for the three months ended March 31, 2013 are not separately included herein. The results of operations of Gavilon Energy during the six months ended September 30, 2013 were compiled by reducing the results of operations for the nine months ended September 30, 2013 by the results of operations for the three months ended March 31, 2013. The results of operations for the three months ended March 31, 2013 are not separately included herein.
Note 2 Pro Forma Adjustments
Our unaudited pro forma condensed consolidated financial statements reflect the impact of the following pro forma adjustments:
Pro Forma Consolidated Balance Sheet as of June 30, 2014
TransMontaigne Combination Transaction Adjustments
(a) Represents the consideration paid in the combination and the resulting net adjustment to the historical net assets at June 30, 2014 to reflect the preliminary acquisition accounting based on the following estimates of the fair values of the assets acquired and liabilities assumed at July 1, 2014 (in thousands). We are in the process of identifying and determining the fair value of the assets acquired and liabilities assumed in this business combination. The estimates of fair value reflected below are subject to change, and such changes could be material. We expect to complete this process prior to finalizing our financial statements for the quarter ending June 30, 2015.
Cash and cash equivalents |
|
$ |
1,469 |
|
Accounts receivable |
|
197,349 |
| |
Accounts receivable - affiliates |
|
528 |
| |
Inventories |
|
426,913 |
| |
Prepaid expenses and other current assets |
|
15,373 |
| |
Property, plant and equipment: |
|
|
| |
Terminals, pipelines and equipment (325 years) |
|
479,400 |
| |
Land |
|
56,100 |
| |
Construction in progress |
|
4,500 |
| |
Goodwill |
|
29,118 |
| |
Intangible assets: |
|
|
| |
Customer relationships (7 years) |
|
50,000 |
| |
Pipeline rights (30 years) |
|
87,000 |
| |
Trade names |
|
5,000 |
| |
Equity method investments |
|
250,000 |
| |
Other noncurrent assets |
|
3,911 |
| |
Trade accounts payable |
|
(140,597 |
) | |
Accrued expenses and other payables |
|
(73,565 |
) | |
Advance payments received from customers |
|
(1,919 |
) | |
Accounts payable - affiliates |
|
(69 |
) | |
Long-term debt |
|
(234,000 |
) | |
Other noncurrent liabilities |
|
(34,856 |
) | |
Noncontrolling interests |
|
(567,120 |
) | |
|
|
$ |
554,535 |
|
The pro forma adjustment includes borrowings on our credit facility to fund the acquisition.
(b) Reflects the elimination of the historical net equity of TransMontaigne as of June 30, 2014.
Pro Forma Statement of Operations for the Year Ended March 31, 2014
TransMontaigne Combination Transaction Adjustments
(c) Reflects an increase in historical depreciation and amortization expense of the TransMontaigne long-lived assets, based on the estimated fair value of the assets acquired in the business combination and the share of this incremental expense attributable to noncontrolling interests. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 8%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $0.1 million to pro forma depreciation and amortization expense for the year ended March 31, 2014.
(d) Reflects the additional interest expense resulting from advances of $582.0 million from our acquisition facility to finance the TransMontaigne acquisition at the interest rate in effect on LIBOR option borrowings at June 30, 2014 of 2.16%. A change in the interest rate of 0.125% would result in a change of approximately $0.7 million in pro forma interest expense for the year ended March 31, 2014.
(e) Reflects the general partners share of the loss of TransMontaigne after the effect of the pro forma adjustments.
Gavilon Energy Combination Transaction Adjustments
(f) Reflects the elimination of expenses incurred by us in connection with our acquisition of Gavilon Energy.
(g) Reflects an increase in the historical depreciation and amortization expense of the Gavilon Energy long-lived assets based on the estimated fair value of the assets acquired in the business combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 10%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $0.1 million to pro forma depreciation and amortization expense for the year ended March 31, 2014. The estimated fair value of the depreciable property, plant and equipment and amortizable intangible assets acquired in the business combination is summarized below (in thousands):
Property, plant and equipment: |
|
|
| |
Crude oil tanks and related equipment (340 years) |
|
$ |
83,429 |
|
Information technology equipment (37 years) |
|
4,046 |
| |
Buildings and leasehold improvements (340 years) |
|
7,716 |
| |
Vehicles (3 years) |
|
791 |
| |
Other (7 years) |
|
170 |
| |
Intangible assets: |
|
|
| |
Customer relationships (1020 years) |
|
101,600 |
| |
Lease agreements (15 years) |
|
8,700 |
| |
(h) Represents the reduction of Gavilon Energys historical interest expense (exclusive of letter of credit fees) to the pro forma interest expense resulting from advances of $832.4 million from our revolving credit facility to finance the Gavilon combination at the 2.16% interest rate in effect on LIBOR option borrowings at June 30, 2014. A change in the assumed interest rate of 0.125% would result in a change of approximately $0.5 million in pro forma interest expense for the year ended March 31, 2014.
(i) Represents the general partners 0.1% share of the loss of Gavilon after the effect of the pro forma adjustments.
OWL LP Combination Transaction Adjustments
(j) Reflects the elimination of expenses incurred by us in connection with our acquisition of OWL LP.
(k) Reflects an increase in the historical depreciation and amortization expense of the OWL Entities long-lived assets based on the fair value of the assets acquired in the business combination. The fair value of the depreciable property, plant and equipment and amortizable intangible assets acquired in the business combination is summarized below (in thousands):
Property, plant and equipment: |
|
|
| |
Water treatment facilities and equipment (330 years) |
|
$ |
23,173 |
|
Vehicles (510 years) |
|
8,143 |
| |
Buildings and leasehold improvements (730 years) |
|
2,198 |
| |
Other (35 years) |
|
53 |
| |
Intangible assets: |
|
|
| |
Customer relationships (810 years) |
|
110,000 |
| |
Non-compete agreements (3 years) |
|
2,000 |
| |
|
|
|
| |
(l) Represents the additional interest expense resulting from advances of $167.7 million from our revolving credit facility to finance the OWL Entities combination at the interest rate in effect on LIBOR option borrowings of 2.16% at June 30, 2014. A change in the interest rate of 0.125% would result in a change of approximately $0.1 million in pro forma interest expense for the year ended March 31, 2014.
(m) Represents the general partners 0.1% share of the loss of the OWL Entities after the effect of pro forma adjustments.
(n) Represents the elimination of the noncontrolling interest recorded by OWL LP, due to the fact that we acquired all of the ownership interests in the OWL Entities.
Equity Issuance Transaction Adjustments
(o) Represents a pro forma reduction to interest expense related to the repayment of debt upon completion of the following equity issuances:
· Our sale of common units in July 2013 in a public offering for net proceeds of $287.5 million;
· Our sale of common units in September 2013 in a public offering for net proceeds of $127.6 million;
· Our sale of common units in December 2013 in a private placement for net proceeds of $235.1 million; and
· Our sale of common units in June 2014 in a public offering for net proceeds of $338.0 million.
The pro forma adjustment to interest expense was calculated using the rate of 2.16% that was in effect for LIBOR rate borrowings at June 30, 2014. A change in the assumed interest rate of 0.125% would result in a change of $0.3 million to pro forma interest expense for the year ended March 31, 2014.
(p) Reflects the general partners interest in the pro forma reduction to interest expense related to the equity issuances.
Debt Issuance Transaction Adjustments
(q) Represents a pro forma increase to interest expense related to our October 2013 issuance of 6.875% Senior Notes Due 2021. The pro forma adjustment also includes a reduction to interest expense related to the use of proceeds from the note issuances to repay debt under our revolving credit facility, calculated using the 2.16% rate in effect on LIBOR rate borrowings at June 30, 2014. A change in the interest rate of 0.125% would result in a change of approximately $0.8 million in pro forma interest expense for the year ended March 31, 2014.
(r) Reflects the general partners share of the pro forma increase to interest expense related to the debt issuance.
Pro Forma Statement of Operations for the Three Months Ended June 30, 2014
TransMontaigne Combination Transaction Adjustments
(s) Reflects the elimination of expenses incurred by us in connection with our acquisition of TransMontaigne.
(t) Reflects an increase in historical depreciation and amortization expense of the TransMontaigne long-lived assets, based on the estimated fair value of the assets acquired in the business combination and the share of this incremental expense attributable to noncontrolling interests. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 8%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of less than $0.1 million to pro forma depreciation and amortization expense for the three months ended June 30, 2014.
(u) Reflects the additional interest expense resulting from advances of $582.0 million from our acquisition facility to finance the TransMontaigne acquisition at the interest rate in effect on LIBOR option borrowings at June 30, 2014 of 2.16%. A change in the interest rate of 0.125% would result in a change of approximately $0.2 million in pro forma interest expense for the three months ended June 30, 2014.
(v) Reflects the general partners share of the loss of TransMontaigne after the effect of pro forma adjustments.
June 2014 Equity Issuance
(w) Represents a pro forma reduction to interest expense related to the repayment of debt upon completion of our June 2014 equity issuance. The pro forma adjustment was calculated using the rate of 2.16% that was in effect for LIBOR rate borrowings at June 30, 2014. A change in the assumed interest rate of 0.125% would result in a change of $0.1 million to pro forma interest expense for the three months ended June 30, 2014.
(x) Reflects the general partners interest in the pro forma reduction to interest related to the equity issuance.
Note 3 Pro Forma Earnings per Unit from Continuing Operations
Our income for financial statement presentation purposes is allocated to our general partner and limited partners in accordance with their respective ownership interests, and in accordance with our partnership agreement after giving effect to priority income allocations for incentive distributions to our general partner, the holders of the incentive distribution rights pursuant to our partnership agreement, which are declared and paid following the close of each quarter. These incentive distributions result in less income allocable to the common and subordinated unitholders.
For purposes of computing pro forma basic and diluted income per common and subordinated unit, we have used the actual incentive distributions paid to the general partner during the periods presented. Any earnings in excess of distributions are allocated to our general partner and limited partners based on their respective ownership interests.
The pro forma earnings per unit have been computed based on earnings or losses allocated to the limited partners after deducting the total earnings allocated to the general partner. The pro forma weighted-average units outstanding in the table below represent the number of units outstanding as of June 30, 2014. For the pro forma earnings per unit computation, we have assumed that all such units were outstanding during the entire year ended March 31, 2014 and the three months ended June 30, 2014. The pro forma basic and diluted earnings per unit are equal, as there were no dilutive units during the year ended March 31, 2014 or the three months ended June 30, 2014.
Earnings (loss) from continuing operations per unit are computed as follows (amounts in thousands, except unit and per unit information):
|
|
Year Ended |
|
Three Months Ended |
| ||||||||
|
|
March 31, 2014 |
|
June 30, 2014 |
| ||||||||
|
|
|
|
Pro |
|
|
|
Pro |
| ||||
|
|
Historical |
|
Forma |
|
Historical |
|
Forma |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations attributable to parent equity |
|
$ |
47,655 |
|
$ |
(6,732 |
) |
$ |
(39,975 |
) |
$ |
(109,363 |
) |
|
|
|
|
|
|
|
|
|
| ||||
General partner share of income from continuing operations |
|
(14,148 |
) |
(14,093 |
) |
(9,381 |
) |
(9,311 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations allocated to limited partners |
|
$ |
33,507 |
|
$ |
(20,825 |
) |
$ |
(49,356 |
) |
$ |
(118,674 |
) |
Common unitholders |
|
$ |
31,614 |
|
$ |
(19,414 |
) |
$ |
(45,343 |
) |
$ |
(110,632 |
) |
Subordinated unitholders |
|
$ |
1,893 |
|
$ |
(1,411 |
) |
$ |
(4,013 |
) |
$ |
(8,042 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted earnings (loss) per unit from continuing operations |
|
|
|
|
|
|
|
|
| ||||
Common unitholders |
|
$ |
0.51 |
|
$ |
(0.24 |
) |
$ |
(0.61 |
) |
$ |
(1.36 |
) |
Subordinated unitholders |
|
$ |
0.32 |
|
$ |
(0.24 |
) |
$ |
(0.68 |
) |
$ |
(1.36 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Weighted average units outstanding |
|
|
|
|
|
|
|
|
| ||||
Common |
|
61,970,471 |
|
81,427,921 |
|
74,126,205 |
|
81,427,921 |
| ||||
Subordinated |
|
5,919,346 |
|
5,919,346 |
|
5,919,346 |
|
5,919,346 |
|
Note 4 Long-Term Debt
Our historical and pro forma long-term debt as of June 30, 2014 is as follows (in thousands):
|
|
Historical |
|
Pro Forma |
| ||
Working capital facility |
|
$ |
465,500 |
|
$ |
846,484 |
|
Expansion capital facility |
|
270,000 |
|
443,551 |
| ||
Notes due 2021 |
|
450,000 |
|
450,000 |
| ||
Notes due 2022 |
|
250,000 |
|
250,000 |
| ||
TLP credit facility |
|
|
|
234,000 |
| ||
Other |
|
12,543 |
|
12,543 |
| ||
|
|
1,448,043 |
|
2,236,578 |
| ||
|
|
|
|
|
| ||
Less - Current maturities |
|
6,168 |
|
6,168 |
| ||
Long-term debt |
|
$ |
1,441,875 |
|
$ |
2,230,410 |
|
Note 5 Other Information
As described in Note 1, the pro forma statement of operations for the year ended March 31, 2014 includes the results of operations of Gavilon Energy for the six months ended September 30, 2013. The results of operations of Gavilon Energy for the three months ended March 31, 2013 are not included in either of the accompanying pro forma statements of operations.
As described in Note 1, the pro forma statement of operations for the three months ended June 30, 2014 includes the results of operations of TransMontaigne. The results of operations of TransMontaigne for the three months ended March 31, 2014 are not separately included herein. During the three months ended March 31, 2014, TransMontaigne generated $68.0 million of operating income and $66.3 million of income from continuing operations.
Gavilon Energy and TransMontaigne historically conducted trading operations, whereas NGL operates as a logistics business. Gavilon Energys and TransMontaignes historical results of operations were subject to more volatility as a result of the trading operations than we would expect future results of operations to have under NGLs business model. In the accompanying pro forma condensed consolidated statements of operations, no pro forma effect was given to the change in business model from a trading business to a logistics business.
In July 2014, the underwriters exercised their option to purchase an additional 767,100 units following our June 2014 public offering of common units. We received net proceeds of $32.5 million from the sale of these units. The accompanying pro forma financial statements do not give pro forma effect to this transaction, as this transaction occurred subsequent to our acquisition of TransMontaigne.