2. ACQUISITIONS AND DISPOSITIONS

Acquisitions

The acquisitions of terminals from an affiliate of Royal Dutch Shell plc (“Shell”) and from affiliates of FRC Founders Corporation (“First Reserve”) and Vopak Bahamas B.V. (“Vopak”) and the acquisition of pipeline and terminal assets from BP Products North America Inc. and its affiliates (“BP”) have been accounted for as business combinations. The total purchase price for these acquisitions was allocated to the fair value of the assets acquired and the liabilities assumed based on an assessment of their fair values at the acquisition date, with amounts exceeding the fair values being recorded as goodwill. The results of their operations have been included in our condensed consolidated financial statements since their respective acquisition dates.

Puerto Rico Terminal Acquisition

On December 10, 2010, we, through a wholly owned subsidiary, acquired a refined petroleum products terminal in Yabucoa, Puerto Rico from an affiliate of Shell for $32.8 million, net of cash acquired of $3.5 million. The terminal includes 44 storage tanks with approximately 4.6 million barrels of gasoline, jet fuel, diesel, fuel oil and crude oil storage capacity. Shell entered into a commercial contract with us concurrent with the acquisition regarding usage of the acquired facility. We believe the acquisition of these assets furthers our geographic diversification efforts as this was our first acquisition outside the continental United States and enables us to participate in a growth market outside our existing system footprint. The operations of these acquired assets are reported in the International Operations segment. The purchase price has been allocated to tangible and intangible assets acquired as follows (in thousands):


Current assets	$	183
Inventory		867
Property, plant and equipment		31,770
Intangible assets		3,363
Other assets		17,720
Current liabilities		(3,413	)
Other liabilities		(17,720	)

Allocated purchase price	$	32,770

We completed the acquisition of the refined petroleum products terminal in Yabucoa, Puerto Rico through the acquisition of a Puerto Rican entity, which is undergoing an audit of its Puerto Rico income tax returns for the tax years 2002 through 2005. The Puerto Rico Treasury Department has notified the entity of certain areas for discussion but has not issued a preliminary or final notice of debt regarding such years. Pursuant to the purchase and sale agreement we entered into in connection with this acquisition, an affiliate of Shell has assumed the full responsibility, through an indemnity and hold harmless provision, for the payment of any income tax debt that may be assessed by the Puerto Rico Treasury Department under this audit. In the purchase price allocation above, we recorded a $17.7 million liability related to the uncertain outcome of the income tax audit with an offsetting indemnification asset from Shell for the same amount.

BORCO Acquisition

On December 18, 2010, we, through a wholly owned subsidiary, entered into a sale and purchase agreement with affiliates of First Reserve, pursuant to which we agreed to acquire First Reserve’s indirect 80% interest in FR Borco Coop Holdings, L.P. (“FRBCH”), the indirect owner of BORCO, for $1.15 billion, financed through a combination of debt and equity, including the issuance of Class B units representing limited partner interests (“Class B Units”) and LP Units to First Reserve. BORCO is the fourth largest oil and petroleum products storage terminal in the world and the largest petroleum products facility in the Caribbean with current storage capacity of approximately 21.6 million barrels. On January 18, 2011, we completed the purchase of First Reserve’s interest in BORCO through the acquisition by us of all of the partnership interests in FR Borco Topco, L.P., which indirectly owned First Reserve’s interest.

Vopak, which is based in The Netherlands, owned the remaining 20% interest in FRBCH. On February 16, 2011, Vopak sold its 20% interest in FRBCH to us for approximately $276.5 million of cash and equity, which is a proportionate price and on the same terms and conditions as those in the sale and purchase agreement with First Reserve.

The following table presents the aggregate consideration paid or issued to complete the BORCO acquisition (in thousands):


	First Reserve		Vopak		Combined

Cash consideration	$	644,049	$	164,616	$	808,665
Fair value of LP Units and Class B Units issued (1)		407,391		96,110		503,501
Cash paid on behalf of the sellers (2)		96,241		15,780		112,021

Consideration issued to effect the transactions	$	1,147,681	$	276,506	$	1,424,187

(1)

On January 18, 2011, we issued 2,483,444 LP Units and 4,382,889 Class B Units to First Reserve, which represented a negotiated value of $400.0 million of consideration. On February 16, 2011, we issued 620,861 LP Units and 1,095,722 Class B Units to Vopak, which represented a negotiated value of $100.0 million of consideration. In accordance with accounting for business combinations, the fair values of the units issued to First Reserve and Vopak on their respective acquisition dates were determined to be $407.4 million and $96.1 million, respectively.

(2)

Approximately $79.3 million was to be held in escrow related to Bahamian transfer taxes payable, approximately $23.2 million was used to make certain payments to BORCO’s operator and indirect minority owner and to pay certain fees and expenses incurred by FRBCH and its affiliates in connection with the transaction and approximately $9.5 million was used to pay bonuses to employees that became payable as a result of the transaction.

On January 13, 2011, we issued $650.0 million aggregate principal amount of 4.875% Notes due 2021 (the “4.875% Notes”) in an underwritten public offering. The notes were issued at 99.62% of their principal amount. Total proceeds from this offering, after underwriters’ fees, expenses and debt issuance costs of $4.9 million, were approximately $642.6 million, and were used to fund a portion of the purchase price of the BORCO acquisition.

On January 18 and 19, 2011, we issued 5,794,725 LP Units and 1,314,870 Class B Units to institutional investors for aggregate consideration of approximately $425.0 million to fund a portion of the BORCO acquisition. On January 18, 2011, we issued 2,483,444 LP Units and 4,382,889 Class B Units to First Reserve as $400.0 million of consideration to fund a portion of the BORCO acquisition. On February 16, 2011, we issued 620,861 LP Units and 1,095,722 Class B Units to Vopak as $100.0 million of consideration to fund a portion of the BORCO acquisition. Equity issuance costs incurred on these transactions were approximately $4.6 million. The remaining purchase price was funded with cash on hand at closing and borrowings under our unsecured revolving credit agreement (“Credit Facility”).

On January 18, 2011, in connection with the BORCO acquisition, we repaid all of BORCO’s outstanding indebtedness and settled BORCO’s interest rate derivative instruments, consisting of approximately $318.2 million.

The results of operations of the BORCO acquisition are included in our consolidated financial statements from the date of acquisition and are included in our International Operations segment. The acquisition cost has been allocated to assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with amounts exceeding the fair value recorded as goodwill, which represents both expected synergies from combining the BORCO acquisition with our existing operations and the economic value attributable to future expansion projects resulting from this acquisition. Fair values have been developed using recognized business valuation techniques and are subject to change pending final valuation analysis. The purchase price has been allocated to tangible and intangible assets acquired, on a preliminary basis, as follows (in thousands):


Current assets	$	41,540
Inventory		1,645
Property, plant and equipment		1,105,278
Intangible assets		206,000
Other assets		415
Goodwill		497,454
Current liabilities		(55,270	)
Debt, including interest rate derivative instruments		(318,167	)
Other non-current liabilities		(54,708	)

Allocated purchase price	$	1,424,187

Pipeline and Terminals Acquisition

On June 1, 2011, we acquired 33 refined petroleum products terminals with total storage capacity of over 10 million barrels and approximately 650 miles of refined petroleum products pipelines from BP for $166.0 million. The terminal and pipeline assets are located in the Midwestern, Southeastern and Western United States. BP entered into a commercial contract with us concurrent with the acquisition relating to the continued usage of these terminals. We believe the acquisition of these assets further extends our operations into new, key geographic markets. The operations of these acquired assets are reported in the Pipelines & Terminals segment. We funded this acquisition with borrowings under our Credit Facility. We continue to evaluate and may revise the preliminary purchase price allocation, primarily the value of property, plant and equipment, in future periods as estimated fair values are finalized. The purchase price has been allocated to tangible assets acquired, on a preliminary basis, as follows (in thousands):


Inventory	$	1,161
Property, plant and equipment		183,537
Environmental and other liabilities		(18,722	)

Allocated purchase price	$	165,976

Unaudited Pro forma Financial Results

Our condensed consolidated statements of operations do not include earnings from BORCO prior to January 18, 2011, the effective date of the BORCO acquisition. The following table presents selected unaudited pro forma earnings information for the three months ended June 30, 2010 and the six months ended June 30, 2011 and 2010, as if the BORCO acquisition had occurred on January 1, 2010. This pro forma information does not give effect to any of the other acquisitions we have made since January 1, 2010, as pro forma results including those acquisitions would not be materially different from the information presented in our accompanying condensed consolidated statements of operations. The pro forma information presented below was prepared using BORCO’s historical financial data and reflects certain estimates and assumptions made by our management. Our unaudited pro forma financial information was prepared for comparative purposes only and is not necessarily indicative of what our consolidated financial results would have been had we actually acquired BORCO on January 1, 2010 or the results that may be attained in the future (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Revenues:
As reported	$	1,077,092	$	667,276	$	2,329,628	$	1,398,450
Pro forma adjustments		—		49,904		8,358		96,414


Pro forma revenues	$	1,077,092	$	717,180	$	2,337,986	$	1,494,864


Net income:
As reported	$	92,021	$	11,507	$	158,514	$	22,777
Pro forma adjustments		—		17,000		4,057		33,782


Pro forma net income	$	92,021	$	28,507	$	162,571	$	56,559


Pro forma earnings per unit:
Basic	$	1.00	$	0.80	$	1.85	$	1.58

Diluted	$	1.00	$	0.80	$	1.85	$	1.58


Pro forma weighted average number of units outstanding:
Basic		91,743		35,829		87,728		35,760

Diluted		92,088		35,829		88,042		35,760

Dispositions

On May 11, 2011, we sold our 20% interest in West Texas LPG Pipeline Limited Partnership (“WT LPG”) to affiliates of Atlas Pipeline Partners L.P. for $85.0 million. WT LPG owns a 2,295-mile common-carrier pipeline system that transports natural gas liquids from points in New Mexico and Texas to Mont Belvieu, Texas for fractionation. Chevron Pipeline Company, which owns the remaining 80% interest, is the operator of WT LPG. The proceeds from the sale will be used to fund a portion of our internal growth capital projects in 2011. We recognized a gain of $34.1 million on the sale of our interest in WT LPG.