Exhibit 99.1
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Enterprise Products Partners L.P. Unaudited Pro Forma Condensed | |
| Consolidated Financial Statements: | |
Introduction | 2 |
Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 2009 | 3 |
| Unaudited Pro Forma Condensed Statement of Consolidated Operations for the six months ended June 30, 2009 | 5 |
| Unaudited Pro Forma Condensed Statement of Consolidated Operations for the year ended December 31, 2008 | 6 |
| Unaudited Pro Forma Condensed Statement of Consolidated Operations for the year ended December 31, 2007 | 7 |
| Unaudited Pro Forma Condensed Statement of Consolidated Operations for the year ended December 31, 2006 | 8 |
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | 9 |
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction
The following unaudited pro forma condensed consolidated financial statements have been prepared to assist in the analysis of financial effects of the proposed merger between Enterprise Products Partners L.P. and TEPPCO Partners, L.P. The unaudited pro forma condensed statements of consolidated operations for the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006 assume the merger-related transactions (as described beginning on page 9) all occurred on January 1 of each period presented. The unaudited pro forma condensed consolidated balance sheet shows the financial effects of the merger-related transactions as if they had occurred on June 30, 2009.
Unless the context requires otherwise, references to “Enterprise” are intended to mean the consolidated business and operations of Enterprise Products Partners L.P., which include Enterprise Products Operating LLC (“EPO”). References to “TEPPCO” are intended to mean the consolidated business and operations of TEPPCO Partners, L.P. References to “TEPPCO GP” are intended to mean Texas Eastern Products Pipeline Company, LLC, which is the general partner of TEPPCO. References to “Enterprise GP Holdings” are intended to mean Enterprise GP Holdings L.P., which owns TEPPCO GP and Enterprise GP. References to “EPCO” mean EPCO, Inc. and its privately held subsidiaries, which are related party affiliates to all of the foregoing named entities. References to “DFI” are intended to mean Duncan Family Interests, Inc., which is a privately held subsidiary of EPCO. Dan L. Duncan is the Group Co-Chairman and controlling shareholder of EPCO.
The unaudited pro forma condensed consolidated financial statements of Enterprise should be read in conjunction with and are qualified in their entirety by reference to the notes accompanying such unaudited pro forma condensed consolidated financial statements and with the historical consolidated financial statements and related notes of Enterprise included in its Form 8-K dated July 8, 2009 for the years ended December 31, 2008, 2007 and 2006 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. The condensed consolidated financial statements of TEPPCO included herein are qualified in their entirety by reference to the historical consolidated financial statements and related notes of TEPPCO included in its Annual Report on Form 10-K for the year ended December 31, 2008 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
The proposed merger transactions will be accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests. The financial and operating policies of Enterprise, TEPPCO, Enterprise GP Holdings and their respective general partners, and EPCO and its privately held subsidiaries, are under common control of Mr. Duncan.
The unaudited pro forma condensed consolidated financial statements do not give effect to any divestiture of assets that may be required for governmental approval of the proposed merger. They also do not give effect to any anticipated commercial synergies or cost savings that management believes may result from the proposed merger. The unaudited pro forma condensed consolidated financial statements also do not reflect any potential payments by TEPPCO related to its settlement of the Brinckerhoff litigation in excess of any expected insurance proceeds.
TEPPCO GP has no assets or liabilities or earnings apart from its investment in TEPPCO. Since these amounts would be eliminated in consolidation, we have not included a separate column for TEPPCO GP in the accompanying unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements are based on assumptions that Enterprise believes are reasonable under the circumstances and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future consolidated results of the combined company.
2
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET — PART I
June 30, 2009
(Amounts in millions)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 65.0 | $ | — | $ | 3.7 | (b) | $ | 42.6 | |||||||
| (26.1 | )(d) | |||||||||||||||
Accounts and notes receivable, net | 1,279.6 | 995.5 | 40.3 | (b) | 2,265.9 | |||||||||||
| (49.5 | )(c) | |||||||||||||||
Inventories | 965.8 | 95.6 | (13.1 | )(a) | 1,050.8 | |||||||||||
| 2.5 | (b) | |||||||||||||||
Prepaid and other current assets | 558.5 | 38.7 | 13.1 | (a) | 614.0 | |||||||||||
| 3.7 | (b) | |||||||||||||||
Total current assets | 2,868.9 | 1,129.8 | (25.4 | ) | 3,973.3 | |||||||||||
Property, plant and equipment, net | 13,582.0 | 2,591.6 | 1,042.7 | (b) | 17,230.1 | |||||||||||
| 13.8 | (e) | |||||||||||||||
| Investments in and advances to unconsolidated affiliates, net | 901.4 | 1,198.9 | (1,199.6 | )(b) | 900.7 | |||||||||||
| 2,755.2 | (g) | |||||||||||||||
| (2,755.2 | )(l) | |||||||||||||||
Intangible assets, net | 813.5 | 195.1 | 129.9 | (b) | 1,139.6 | |||||||||||
| 1.1 | (e) | |||||||||||||||
Goodwill | 706.9 | 106.6 | 2.8 | (b) | 2,019.7 | |||||||||||
| 1,203.4 | (e) | |||||||||||||||
Other assets | 149.8 | 132.9 | 2.0 | (b) | 283.0 | |||||||||||
| (1.7 | )(h) | |||||||||||||||
Total assets | $ | 19,022.5 | $ | 5,354.9 | $ | 1,169.0 | $ | 25,546.4 | ||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
3
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET — PART II
June 30, 2009
(Amounts in millions)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
Current maturities of debt | $ | 181.4 | $ | — | $ | 181.4 | ||||||||||
Accounts payable and accrued expenses | 2,102.1 | 1,065.8 | $ | 23.0 | (b) | 3,141.4 | ||||||||||
| (49.5 | )(c) | |||||||||||||||
Other current liabilities | 528.1 | 21.1 | 4.6 | (b) | 553.8 | |||||||||||
Total current liabilities | 2,811.6 | 1,086.9 | (21.9 | ) | 3,876.6 | |||||||||||
| Long-term debt: | ||||||||||||||||
Senior debt obligations — principal | 7,950.1 | 2,423.3 | (723.3 | )(h) | 10,373.4 | |||||||||||
| 723.3 | (h) | |||||||||||||||
Junior subordinated notes — principal | 1,232.7 | 300.0 | 1,532.7 | |||||||||||||
Other | 41.5 | 10.5 | 52.0 | |||||||||||||
Total long-term debt | 9,224.3 | 2,733.8 | 11,958.1 | |||||||||||||
Other long-term liabilities | 167.7 | 27.8 | 0.4 | (b) | 195.9 | |||||||||||
| Commitments and contingencies | ||||||||||||||||
| Equity: | ||||||||||||||||
| Partners’ equity: | ||||||||||||||||
Limited partners | 6,310.8 | 1,675.7 | (25.6 | )(d) | 8,995.9 | |||||||||||
| 1,193.9 | (e) | |||||||||||||||
| 2,700.1 | (g) | |||||||||||||||
| (1.7 | )(h) | |||||||||||||||
| (2,857.3 | )(l) | |||||||||||||||
General partner | 128.6 | (126.3 | ) | (0.5 | )(d) | 183.4 | ||||||||||
| 24.4 | (e) | |||||||||||||||
| 55.1 | (g) | |||||||||||||||
| 102.1 | (l) | |||||||||||||||
Accumulated other comprehensive loss | (130.9 | ) | (43.0 | ) | (173.9 | ) | ||||||||||
Total partners’ equity | 6,308.5 | 1,506.4 | 1,190.5 | 9,005.4 | ||||||||||||
Noncontrolling interest | 510.4 | — | 510.4 | |||||||||||||
Total equity | 6,818.9 | 1,506.4 | 1,190.5 | 9,515.8 | ||||||||||||
Total liabilities and equity | $ | 19,022.5 | $ | 5,354.9 | $ | 1,169.0 | $ | 25,546.4 | ||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
4
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
For the Six Months Ended June 30, 2009
(Amounts in millions, except per unit amounts)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
Revenues | $ | 6,931.0 | $ | 3,370.8 | $ | 120.7 | (b) | $ | 10,321.2 | |||||||
| (101.3 | )(c) | |||||||||||||||
Costs and expenses | 6,226.3 | 3,229.2 | 60.7 | (b) | 9,415.2 | |||||||||||
| (101.3 | )(c) | |||||||||||||||
| 0.3 | (f) | |||||||||||||||
Equity earnings | (4.2 | ) | — | 12.9 | (a) | (51.4 | ) | |||||||||
| (60.1 | )(b) | |||||||||||||||
Operating income | 700.5 | 141.6 | 12.5 | 854.6 | ||||||||||||
| Other income (expense): | ||||||||||||||||
Interest expense | (246.6 | ) | (64.4 | ) | — | (i) | (311.0 | ) | ||||||||
Equity earnings | — | 12.9 | (12.9 | )(a) | — | |||||||||||
Other, net | 0.9 | 1.0 | 0.1 | (b) | 2.0 | |||||||||||
Total other income (expense) | (245.7 | ) | (50.5 | ) | (12.8 | ) | (309.0 | ) | ||||||||
Income before provision for income taxes | 454.8 | 91.1 | (0.3 | ) | 545.6 | |||||||||||
Provision for income taxes | (17.4 | ) | (1.7 | ) | — | (19.1 | ) | |||||||||
Income from continuing operations | $ | 437.4 | $ | 89.4 | $ | (0.3 | ) | $ | 526.5 | |||||||
| Income allocation: | ||||||||||||||||
| Enterprise Products Partners L.P.: | ||||||||||||||||
Limited partners | $ | 333.3 | $ | 66.9 | (m) | $ | 400.2 | |||||||||
General partner | $ | 78.6 | $ | 22.2 | (m) | $ | 100.8 | |||||||||
Noncontrolling interests | $ | 25.5 | $ | 25.5 | ||||||||||||
| Basic earnings per unit: | ||||||||||||||||
Number of units used in denominator | 455.5 | 1.3 | (g) | 582.4 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
Income per unit from continuing operations | $ | 0.73 | $ | (0.05 | )(n) | $ | 0.68 | |||||||||
| Diluted earnings per unit: | ||||||||||||||||
Number of units used in denominator | 455.6 | 1.3 | (g) | 587.0 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
| 4.5 | (k) | |||||||||||||||
Income per unit from continuing operations | $ | 0.73 | $ | (0.05 | )(n) | $ | 0.68 | |||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
5
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
For the Year Ended December 31, 2008
(Amounts in millions, except per unit amounts)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
Revenues | $ | 21,905.7 | $ | 13,532.9 | $ | 233.0 | (b) | $ | 35,469.6 | |||||||
| (202.0 | )(c) | |||||||||||||||
Costs and expenses | 20,551.6 | 13,279.5 | 126.8 | (b) | 33,756.1 | |||||||||||
| (202.0 | )(c) | |||||||||||||||
| 0.2 | (f) | |||||||||||||||
Equity earnings | 59.1 | — | 82.7 | (a) | 34.8 | |||||||||||
| (107.0 | )(b) | |||||||||||||||
Operating income | 1,413.2 | 253.4 | 81.7 | 1,748.3 | ||||||||||||
| Other income (expense): | ||||||||||||||||
Interest expense | (400.7 | ) | (140.0 | ) | (1.7 | )(i) | (542.4 | ) | ||||||||
Equity earnings | — | 82.7 | (82.7 | )(a) | — | |||||||||||
Other, net | 9.3 | 2.1 | 0.8 | (b) | 12.2 | |||||||||||
Total other income (expense) | (391.4 | ) | (55.2 | ) | (83.6 | ) | (530.2 | ) | ||||||||
Income before provision for income taxes | 1,021.8 | 198.2 | (1.9 | ) | 1,218.1 | |||||||||||
Provision for income taxes | (26.4 | ) | (4.6 | ) | — | (31.0 | ) | |||||||||
Income from continuing operations | $ | 995.4 | $ | 193.6 | $ | (1.9 | ) | $ | 1,187.1 | |||||||
| Income allocation: | ||||||||||||||||
| Enterprise Products Partners L.P.: | ||||||||||||||||
Limited partners | $ | 811.5 | $ | 150.7 | (m) | $ | 962.2 | |||||||||
General partner | $ | 142.5 | $ | 41.0 | (m) | $ | 183.5 | |||||||||
Noncontrolling interests | $ | 41.4 | $ | 41.4 | ||||||||||||
| Basic earnings per unit: | ||||||||||||||||
Number of units used in denominator | 437.4 | 1.3 | (g) | 564.3 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
Income per unit from continuing operations | $ | 1.84 | $ | (0.15 | )(n) | $ | 1.69 | |||||||||
| Diluted earnings per unit: | ||||||||||||||||
Number of units used in denominator | 437.6 | 1.3 | (g) | 569.0 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
| 4.5 | (k) | |||||||||||||||
Income per unit from continuing operations | $ | 1.84 | $ | (0.16 | )(n) | $ | 1.68 | |||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
6
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
For the Year Ended December 31, 2007
(Amounts in millions, except per unit amounts)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
Revenues | $ | 16,950.1 | $ | 9,658.1 | $ | 204.1 | (b) | $ | 26,713.3 | |||||||
| (99.0 | )(c) | |||||||||||||||
Costs and expenses | 16,096.7 | 9,408.5 | 117.0 | (b) | 25,523.4 | |||||||||||
| (99.0 | )(c) | |||||||||||||||
| 0.2 | (f) | |||||||||||||||
Equity earnings | 29.6 | — | 68.8 | (a) | 10.4 | |||||||||||
| (88.0 | )(b) | |||||||||||||||
Operating income | 883.0 | 249.6 | 67.7 | 1,200.3 | ||||||||||||
| Other income (expense): | ||||||||||||||||
Interest expense | (311.8 | ) | (101.2 | ) | 0.4 | (i) | (412.6 | ) | ||||||||
Equity earnings | — | 68.8 | (68.8 | )(a) | — | |||||||||||
Gain on sale of equity interest | — | 59.6 | — | 59.6 | ||||||||||||
Other, net | 8.3 | 3.0 | 0.9 | (b) | 12.2 | |||||||||||
Total other income (expense) | (303.5 | ) | 30.2 | (67.5 | ) | (340.8 | ) | |||||||||
Income before provision for income taxes | 579.5 | 279.8 | 0.2 | 859.5 | ||||||||||||
Provision for income taxes | (15.2 | ) | (0.6 | ) | — | (15.8 | ) | |||||||||
Income from continuing operations | $ | 564.3 | $ | 279.2 | $ | 0.2 | $ | 843.7 | ||||||||
| Income allocation: | ||||||||||||||||
| Enterprise Products Partners L.P.: | ||||||||||||||||
Limited partners | $ | 417.8 | $ | 241.8 | (m) | $ | 659.6 | |||||||||
General partner | $ | 115.9 | $ | 37.6 | (m) | $ | 153.5 | |||||||||
Noncontrolling interests | $ | 30.6 | $ | 30.6 | ||||||||||||
| Basic earnings per unit: | ||||||||||||||||
Number of units used in denominator | 434.0 | 1.3 | (g) | 560.9 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
Income per unit from continuing operations | $ | 0.95 | $ | 0.22 | (n) | $ | 1.17 | |||||||||
| Diluted earnings per unit: | ||||||||||||||||
Number of units used in denominator | 434.4 | 1.3 | (g) | 565.8 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
| 4.5 | (k) | |||||||||||||||
Income per unit from continuing operations | $ | 0.95 | $ | 0.21 | (n) | $ | 1.16 | |||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
7
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
For the Year Ended December 31, 2006
(Amounts in millions, except per unit amounts)
Enterprise Historical | TEPPCO Historical | Pro Forma Adjustments | Enterprise Pro Forma | |||||||||||||
Revenues | $ | 13,991.0 | $ | 9,607.5 | $ | 82.2 | (b) | $ | 23,610.5 | |||||||
| (70.2 | )(c) | |||||||||||||||
Costs and expenses | 13,152.5 | 9,377.7 | 49.3 | (b) | 22,509.5 | |||||||||||
| (70.2 | )(c) | |||||||||||||||
| 0.2 | (f) | |||||||||||||||
Equity earnings | 21.6 | — | 36.8 | (a) | 25.3 | |||||||||||
| (33.1 | )(b) | |||||||||||||||
Operating income | 860.1 | 229.8 | 36.4 | 1,126.3 | ||||||||||||
| Other income (expense): | ||||||||||||||||
Interest expense | (238.0 | ) | (86.2 | ) | 0.4 | (i) | (323.8 | ) | ||||||||
Equity earnings | — | 36.8 | (36.8 | )(a) | — | |||||||||||
Other, net | 8.0 | 3.0 | 0.2 | (b) | 11.2 | |||||||||||
Total other income (expense) | (230.0 | ) | (46.4 | ) | (36.2 | ) | (312.6 | ) | ||||||||
Income before provision for income taxes | 630.1 | 183.4 | 0.2 | 813.7 | ||||||||||||
Provision for income taxes | (21.3 | ) | (0.7 | ) | — | (22.0 | ) | |||||||||
Income from continuing operations | $ | 608.8 | $ | 182.7 | $ | 0.2 | $ | 791.7 | ||||||||
| Income allocation: | ||||||||||||||||
| Enterprise Products Partners L.P.: | ||||||||||||||||
Limited partners | $ | 504.2 | $ | 152.2 | (m) | $ | 656.4 | |||||||||
General partner | $ | 97.0 | $ | 30.7 | (m) | $ | 127.7 | |||||||||
Noncontrolling interests | $ | 7.6 | $ | 7.6 | ||||||||||||
| Basic earnings per unit: | ||||||||||||||||
Number of units used in denominator | 414.4 | 1.3 | (g) | 541.3 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
Income per unit from continuing operations | $ | 1.20 | $ | — | (n) | $ | 1.20 | |||||||||
| Diluted earnings per unit: | ||||||||||||||||
Number of units used in denominator | 414.8 | 1.3 | (g) | 546.2 | ||||||||||||
| 125.6 | (j) | |||||||||||||||
| 4.5 | (k) | |||||||||||||||
Income per unit from continuing operations | $ | 1.20 | $ | (0.01 | )(n) | $ | 1.19 | |||||||||
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
8
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
These unaudited pro forma condensed consolidated financial statements and underlying pro forma adjustments are based upon currently available information and certain estimates and assumptions made by the management of Enterprise; therefore, actual results could materially differ from the pro forma information. However, Enterprise believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions noted herein. Enterprise believes that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma information.
The proposed merger between Enterprise and TEPPCO involves the following two steps:
| • | Step One. A newly formed and wholly-owned subsidiary of Enterprise merges with and into TEPPCO GP, with TEPPCO GP surviving (the “GP merger”). Enterprise GP Holdings is TEPPCO GP’s current sole member. The GP merger agreement provides for the following: |
| • | The general partner of Enterprise (on behalf of Enterprise GP Holdings as a wholly-owned subsidiary of Enterprise GP Holdings) will be credited in its Enterprise capital account an amount to maintain its 2% general partner interest in Enterprise as partial consideration in exchange for the TEPPCO GP member interests owned by Enterprise. |
| • | 1,331,681 Enterprise common units will be issued to Enterprise GP Holdings as the remaining consideration in exchange for the TEPPCO GP membership interests. |
As a result of Step One of the merger, Enterprise will own 100% of the TEPPCO GP member interests and TEPPCO GP will be a direct wholly-owned subsidiary of Enterprise. After the merger, Enterprise expects that it will amend the TEPPCO partnership agreement to eliminate the TEPPCO incentive distribution rights and TEPPCO GP will own a fixed 2% general partner interest in TEPPCO.
| • | Step Two. A newly formed and wholly-owned subsidiary of Enterprise merges with and into TEPPCO, with TEPPCO surviving the merger (the “merger”). The merger agreement provides for the following: |
| • | each TEPPCO unit will be converted into Enterprise common units based on an exchange ratio of 1.24 Enterprise common units for each TEPPCO unit. Based on the 104,943,004 TEPPCO units outstanding on June 30, 2009, after excluding 3,645,509 TEPPCO units owned by DFI, there would be approximately 126,940,575 Enterprise common units issued in exchange for the TEPPCO units in the merger. |
| • | 3,645,509 TEPPCO units owned by DFI (the “designated TEPPCO units”) will be exchanged for 4,520,431 Enterprise Class B units based on an exchange ratio of 1.24 Enterprise Class B units for each designated TEPPCO unit. The Class B units will not be entitled to regular quarterly cash distributions by Enterprise until the date immediately following the payment date of the 16th quarterly distribution following the closing of the proposed merger (i.e., after four years of distributions). The Class B units will automatically convert into Enterprise common units on a one-for-one basis on the date they become eligible for regular cash distributions. The Class B units will be entitled to vote to the same extent as Enterprise common units on partnership matters. |
As a result of Step Two of the merger, Enterprise will own 100% of the limited partner interests of TEPPCO and TEPPCO will be an indirect wholly-owned subsidiary of Enterprise.
Pro Forma Adjustments
The pro forma adjustments made to the historical financial statements of Enterprise and TEPPCO are described as follows:
(a) Reflects reclassifications to conform the presentation of TEPPCO’s consolidated financial statements to Enterprise’s historical practice. The conforming adjustments are as follows:
9
| • | Enterprise’s equity investments with industry partners are a vital component of its business strategy. These equity investments are a means by which Enterprise conducts its operations to align its interests with those of its customers and suppliers. This method of operation enables Enterprise to achieve favorable economies of scale relative to the level of investment and business risk assumed versus what it could accomplish on a stand-alone basis. Many of these equity investments perform supporting or complementary roles to Enterprise’s other business operations. TEPPCO’s relationship with its equity investees is similar in nature. The pro forma adjustments reclassify the equity earnings recorded by TEPPCO from other income to a separate component of operating income to conform to Enterprise’s historical presentation of its consolidated statements of operations. |
| • | Enterprise classifies spare parts inventory as a component of other current assets on its consolidated balance sheet whereas TEPPCO records spare parts as part of the inventory line item on its consolidated balance sheet. This pro forma adjustment reclassifies TEPPCO’s spare parts inventory (valued at $13.1 million at June 30, 2009) to other current assets to conform to the Enterprise presentation. |
(b) Reflects consolidation of Jonah Gas Gathering Company (“Jonah”), which is a joint venture between Enterprise and TEPPCO that is accounted for using the equity method by both owners. The pro forma adjustments add the accounts of Jonah and eliminate the related investment, equity income and other amounts recorded by Enterprise and TEPPCO.
(c) Reflects the pro forma elimination of revenues and expenses and receivables and payables between Enterprise, TEPPCO and Jonah as appropriate in consolidation.
(d) Reflects the payment of an aggregate $26.1 million of estimated transaction fees by Enterprise and TEPPCO. Enterprise is expected to incur $13.6 million of such fees with TEPPCO incurring the balance of $12.5 million. For purposes of pro forma presentation, this material non-recurring charge has been reflected in the pro forma balance sheet only, with 98%, or $25.6 million, of the charge allocated to limited partners and the balance of $0.5 million to the general partners.
(e) Reflects pro forma application of the push down basis of accounting in connection with Enterprise’s acquisition of 100% of the limited and general partner interests of TEPPCO as a result of the proposed merger. The basis differential of property, plant and equipment and intangible assets and related goodwill recorded by privately held affiliates of EPCO in connection with their acquisition of TEPPCO GP and certain TEPPCO units from a third party in February 2005 will be recorded by TEPPCO using the push down basis of accounting. The basis differential and related amounts include those allocated (at carryover basis) to Enterprise GP Holdings when it acquired TEPPCO GP and certain TEPPCO units from these affiliates in May 2007. Immediately following completion of the proposed merger, we expect to cancel the TEPPCO GP incentive distribution rights; therefore, the value assigned to these rights by Enterprise GP Holdings will be classified as goodwill. The following table presents the carryover basis values and goodwill to be recorded by TEPPCO at the time of the merger (dollars in millions):
Property, plant and equipment | $ | 13.8 | ||
Intangible assets — customer relationships | 1.1 | |||
Goodwill | 1,203.4 | |||
Total | $ | 1,218.3 |
The $1.2 billion in push down carryover basis, which is primarily goodwill related to TEPPCO’s assets and underlying future cash flows, is allocated 98% to TEPPCO’s limited partners’ and 2% to its general partner. The goodwill amount represents the excess of the purchase price paid by EPCO affiliates to acquire ownership interests in TEPPCO in February 2005 over the respective fair value of assets acquired and liabilities assumed in the February 2005 transaction. Management attributes the $1.2 billion of goodwill to the future benefits we may realize from Enterprise’s ownership of TEPPCO, including anticipated commercial synergies and cost savings. We do not amortize goodwill; however, we test goodwill for impairment annually, or more frequently if circumstances indicate that it is more likely than not that the fair value of goodwill is less than its carrying value.
(f) Reflects an increase in depreciation and amortization expense associated with the step-up in basis of property, plant and equipment and intangible assets presented in Note (e). On a pro forma basis, costs and expenses increased by $0.3 million for the six months ended June 30, 2009 and $0.2 million for each of the years ended December 31, 2008, 2007 and 2006, respectively.
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(g) Reflects a pro forma $55.1 million increase in the capital account of Enterprise’s general partner (on behalf of Enterprise GP Holdings) and the issuance of 1,331,681 Enterprise common units to Enterprise GP Holdings in connection with Enterprise’s acquisition of TEPPCO GP under Step One of the proposed merger. The proposed merger transactions will be accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests. As a pooling transaction, the carrying value assigned to the equity issued by Enterprise in the unit exchange will be the same as the historical carrying value of the TEPPCO equity given up.
The purpose of the $55.1 million adjustment to the capital account of Enterprise’s general partner is to maintain its 2% general partner interest in Enterprise. As presented in the following table, the pro forma adjustment is determined by reference to the aggregate $2.8 billion increase in the consolidated net assets of Enterprise as a result of the merger (dollars in millions):
| Historical carrying value of TEPPCO limited and general partner capital accounts at June 30, 2009 | $ | 1,549.4 | ||
Merger transaction fees (see Note (d)) | (12.5 | ) | ||
| Push down of TEPPCO-related basis differentials and goodwill amounts from Enterprise GP Holdings and privately held affiliates of EPCO (see Note (f)) | 1,218.3 | |||
Total TEPPCO carryover basis | $ | 2,755.2 | ||
Amount credited to Enterprise general partner equal to 2% of total carryover basis | $ | 55.1 | ||
Amount credited to Enterprise limited partners equal to 98% of total carryover basis | $ | 2,700.1 |
On a standalone basis, the offset to the amounts credited to Enterprise equity is a $2.8 billion investment in TEPPCO, which is subsequently eliminated in consolidation (see Note (l)).
(h) Reflects the repayment of $723.3 million of principal outstanding under TEPPCO’s revolving credit facility at June 30, 2009 using borrowings under EPO’s multi-year revolving credit facility. There is no overall impact on total long-term debt as a result of this assumed repayment and borrowing of equal amounts; however, $1.7 million of unamortized debt issuance costs related to the TEPPCO revolver would be written off at June 30, 2009.
(i) Reflects pro forma adjustments to interest expense for replacement borrowings under EPO’s multi-year revolving credit facility assuming that the TEPPCO revolving credit facility had been repaid at January 1, 2006. The pro forma adjustment to interest expense is no change for the six months ended June 30, 2009, an increase of $1.7 million for the year ended December 31, 2008, a decrease of $0.4 million for the year ended December 31, 2007, and a decrease of $0.4 million for the year ended December 31, 2006. The pro forma adjustments remove the interest expense (including any amortization of related debt issuance costs) recognized by TEPPCO in connection with its revolving credit facility and add interest expense under EPO’s revolver based on the weighted-average of principal amounts borrowed under the TEPPCO revolver during each period and the weighted-average interest rate actually paid by EPO under its revolver during each period. The weighted-average interest rate paid by EPO during each period was 1.03% for the six months ended June 30, 2009 and 3.54%, 5.78% and 5.66% for the years ended December 31, 2008, 2007 and 2006, respectively. The following table presents a sensitivity analysis of the pro forma interest rate adjustments to a 1/8% increase in the underlying variable interest rates used in each calculation (dollars in millions):
| Six Months | ||||||||||||||||
| Ended | ||||||||||||||||
| June 30, | For the Year Ended December 31, | |||||||||||||||
| 2009 | 2008 | 2007 | 2006 | |||||||||||||
| Pro forma interest expense increase (decrease) using historical variable interest rates paid by EPO | $ | — | $ | 1.7 | $ | (0.4 | ) | $ | (0.4 | ) | ||||||
| Pro forma interest expense increase (decrease) assuming that historical variable interest rate paid by EPO was 1/8% higher | $ | 0.4 | $ | 2.3 | $ | 0.1 | $ | 0.1 | ||||||||
(j) Reflects the issuance of 125,608,894 Enterprise common units (excluding the 1,331,681 common units reflected in Note (h)) in connection with Step Two of the proposed merger. These units are included in Enterprise’s pro forma basic and diluted earnings per unit calculations. This amount does not include any common units that may be issued in the future in connection with the future exercise of 574,500 TEPPCO unit options, which will be converted to Enterprise unit options when the proposed merger is completed based on the 1.24 to 1 exchange ratio.
(k) Reflects the issuance of 4,520,431 Enterprise Class B units to a privately held affiliate of EPCO in connection with Step Two of the proposed merger. Although the Class B units are non-distribution bearing for the first sixteen quarters following the closing of the proposed merger, they are entitled to vote on partnership matters and will automatically convert to Enterprise common units once they are eligible to receive regular quarterly cash distributions. As a result, the Class B units are included in Enterprise’s diluted earnings per unit calculations.
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(l) Reflects elimination of the Enterprise investment in TEPPCO against its underlying limited partners and general partner capital accounts at TEPPCO as appropriate in consolidation.
(m) Reflects pro forma adjustments to the allocation of Enterprise’s earnings to its limited and general partners as a result of the proposed merger. The pro forma adjustments to the earnings allocated to Enterprise’s general partner include an increase in incentive earnings allocations to the general partner of Enterprise due to the issuance of 126,940,575 distribution-bearing Enterprise common units in connection with the proposed merger. The percentage interest of Enterprise’s general partner in Enterprise’s quarterly cash distributions is increased after certain specified target levels of quarterly distributions are met. For the periods presented in these pro forma condensed consolidated financial statements, Enterprise was at the highest tier of such incentive targets. The incentive distribution rights of Enterprise’s general partner are as follows:
| • | 2.0% of quarterly cash distributions up to $0.253 per unit; |
| • | 15.0% of quarterly cash distributions from $0.253 per unit up to $0.3085 per unit; and |
| • | 25.0% of quarterly cash distributions that exceed $0.3085 per unit. |
The following table summarizes the calculation of the pro forma earnings allocation, including pro forma incentive earnings allocations, for each period presented (dollars in millions):
| Six Months | ||||||||||||||||
| Ended | ||||||||||||||||
| June 30, | For the Year Ended December 31, | |||||||||||||||
| 2009 | 2008 | 2007 | 2006 | |||||||||||||
| Pro forma amounts: | ||||||||||||||||
Income from continuing operations | $ | 526.5 | $ | 1,187.1 | $ | 843.7 | $ | 791.7 | ||||||||
Less: Noncontrolling interests | (25.5 | ) | (41.4 | ) | (30.6 | ) | (7.6 | ) | ||||||||
Income attributable to Enterprise | 501.0 | 1,145.7 | 813.1 | 784.1 | ||||||||||||
| Less: Incentive earnings allocation to Enterprise general partner | (92.6 | ) | (163.8 | ) | (140.0 | ) | (114.3 | ) | ||||||||
Subtotal income available to partners | 408.4 | 981.9 | 673.1 | 669.8 | ||||||||||||
Multiplied by 2% Enterprise general partner interest | 2.0 | % | 2.0 | % | 2.0 | % | 2.0 | % | ||||||||
Standard earnings allocation to Enterprise general partner | $ | 8.2 | $ | 19.7 | $ | 13.5 | $ | 13.4 | ||||||||
Income attributable to Enterprise | $ | 501.0 | $ | 1,145.7 | $ | 813.1 | $ | 784.1 | ||||||||
| Less earnings allocation to Enterprise general partner: | ||||||||||||||||
Incentive earnings | 92.6 | 163.8 | 140.0 | 114.3 | ||||||||||||
Standard earnings allocation | 8.2 | 19.7 | 13.5 | 13.4 | ||||||||||||
Total earnings allocation to Enterprise general partner | 100.8 | 183.5 | 153.5 | 127.7 | ||||||||||||
Income allocated to Enterprise limited partners | $ | 400.2 | $ | 962.2 | $ | 659.6 | $ | 656.4 | ||||||||
| Pro forma adjustments: | ||||||||||||||||
| Income allocated to Enterprise limited partners: | ||||||||||||||||
Pro forma total (see above) | $ | 400.2 | $ | 962.2 | $ | 659.6 | $ | 656.4 | ||||||||
Less historical allocation | 333.3 | 811.5 | 417.8 | 504.2 | ||||||||||||
Pro forma adjustment | $ | 66.9 | $ | 150.7 | $ | 241.8 | $ | 152.2 | ||||||||
| Income allocated to Enterprise general partner: | ||||||||||||||||
Pro forma total (see above) | $ | 100.8 | $ | 183.5 | $ | 153.5 | $ | 127.7 | ||||||||
Less historical allocation | 78.6 | 142.5 | 115.9 | 97.0 | ||||||||||||
Pro forma adjustment | $ | 22.2 | $ | 41.0 | $ | 37.6 | $ | 30.7 | ||||||||
(n) Reflects pro forma adjustments to Enterprise’s basic and diluted earnings per unit calculations as presented in the following table (amounts in millions, except per unit amounts). For purpose of computing basic and diluted earnings per unit, we apply the provisions of Emerging Issues Task Force (“EITF”) 07-4, Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships.
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| Six Months | ||||||||||||||||
| Ended | ||||||||||||||||
| June 30, | For the Year Ended December 31, | |||||||||||||||
| 2009 | 2008 | 2007 | 2006 | |||||||||||||
| Pro forma amounts: | ||||||||||||||||
Income allocated to Enterprise general partner (Note (m)) | $ | 100.8 | $ | 183.5 | $ | 153.5 | $ | 127.7 | ||||||||
Adjustment for EITF 07-4 | 3.4 | 6.6 | 5.9 | 7.4 | ||||||||||||
| Income allocated to Enterprise general partner for earnings per unit (“EPU”) purposes | $ | 104.2 | $ | 190.1 | $ | 159.3 | $ | 135.1 | ||||||||
Income attributable to Enterprise (Note (m)) | $ | 501.0 | $ | 1,145.7 | $ | 813.1 | $ | 784.1 | ||||||||
| Less: Income allocated to Enterprise general partner for EPU purposes | (104.2 | ) | (190.1 | ) | (159.4 | ) | (135.1 | ) | ||||||||
| Income allocated to Enterprise limited partners for EPU purposes | $ | 396.8 | $ | 955.7 | $ | 653.7 | $ | 649.0 | ||||||||
| Basic earnings per unit: | ||||||||||||||||
| Pro forma: | ||||||||||||||||
| Income allocated to Enterprise limited partners for EPU purposes (numerator) | $ | 396.8 | $ | 955.7 | $ | 653.7 | $ | 649.0 | ||||||||
| Number of units outstanding for basic earnings per unit (denominator) | 582.4 | 564.3 | 560.9 | 541.3 | ||||||||||||
Pro forma basic earnings per unit | $ | 0.68 | $ | 1.69 | $ | 1.17 | $ | 1.20 | ||||||||
Historical basic earnings per unit | $ | 0.73 | $ | 1.84 | $ | 0.95 | $ | 1.20 | ||||||||
Pro forma adjustment to basic earnings per unit | $ | (0.05 | ) | $ | (0.15 | ) | $ | 0.22 | $ | — | ||||||
| Diluted earnings per unit: | ||||||||||||||||
| Pro forma: | ||||||||||||||||
| Income allocated to Enterprise limited partners for EPU purposes (numerator) | $ | 396.8 | $ | 955.7 | $ | 653.7 | $ | 649.0 | ||||||||
| Number of units outstanding for earnings per unit (denominator) | 587.0 | 569.0 | 565.8 | 546.2 | ||||||||||||
Pro forma diluted earnings per unit | $ | 0.68 | $ | 1.68 | $ | 1.16 | $ | 1.19 | ||||||||
Historical diluted earnings per unit | $ | 0.73 | $ | 1.84 | $ | 0.95 | $ | 1.20 | ||||||||
Pro forma adjustment to diluted earnings per unit | $ | (0.05 | ) | $ | (0.16 | ) | $ | 0.21 | $ | (0.01 | ) | |||||
* * *
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