Exhibit 99.1
Unaudited Pro Forma Combined Financial Information
These unaudited pro forma combined financial statements have been prepared to reflect the contribution of Southern Union Gathering Company (“SUGS”) to Regency Energy Partners LP (the “Partnership”). On February 27, 2013, the Partnership, a Delaware limited partnership, Southern Union Company (the “Contributor”), Regency Western G&P LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of the Partnership, ETP Holdco Corporation, Energy Transfer Equity, L.P., Energy Transfer Partners, L.P. and ETC Texas Pipeline, Ltd. entered into a Contribution Agreement (the “Contribution Agreement”), pursuant to which the Contributor has agreed to contribute to the Partnership (the “Contribution”) all of the issued and outstanding membership interests in SUGS and its subsidiaries. The Contribution Agreement was previously reported in Regency’s Current Report on Form 8-K dated February 27, 2013. The contribution consideration of $1.5 billion to be paid by the Partnership will be funded $750 million through the issuance of Partnership common units, $150 million through the issuance of Partnership Class F common units and $600 million in cash.
The contribution of SUGS from the Contributor to the Partnership is a transaction between entities under common control. Accordingly, the Partnership has recorded the assets and liabilities of SUGS at their historical carrying value in a manner similar to a pooling of interests for all periods in which common control exists (March 26, 2012 forward) following the guidance in FASB Accounting Standards Codification Topic 805, Business Combinations.
The unaudited pro forma combined balance sheet reflects the transaction described above and the pro forma adjustments as though the Contribution occurred on December 31, 2012, while the unaudited pro forma combined statement of operations reflects the transaction and the pro forma adjustments as though the Contribution occurred as of January 1, 2012. The pro forma adjustments were prepared applying the rules established by the Securities and Exchange Commission in Article 11 of Regulation S-X.
The historical financial information included in the column entitled “Partnership” was derived from the audited financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012. The historical financial information included in the columns entitled “SUGS” was derived from SUGS’ audited financial statements included in this Current Report at Exhibit 99.2.
The unaudited pro forma combined financial information is based on assumptions that the Partnership believes are reasonable under the circumstances and are intended for informational purposes only. Actual results may differ from the estimates and assumptions used. The unaudited pro forma combined financial information is not necessarily indicative of the financial results that would have occurred if these transactions had taken place on the dates indicated, nor is it indicative of future consolidated results.
| Unaudited Pro Forma Combined Balance Sheet | |||||||||||||||||
| December 31, 2012 | |||||||||||||||||
| (in millions) | |||||||||||||||||
| Partnership | SUGS | Combined Historical | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
| ASSETS | |||||||||||||||||
| Current Assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 53 | $ | - | $ | 53 | $ | - | $ | 53 | |||||||
| Trade accounts receivable, net of allowance | 40 | 75 | 115 | - | 115 | ||||||||||||
| Accrued revenues | 107 | - | 107 | - | 107 | ||||||||||||
| Related party receivables | 4 | 4 | 8 | - | 8 | ||||||||||||
| Derivative assets | 4 | - | 4 | - | 4 | ||||||||||||
| Other current assets | 29 | 25 | 54 | - | 54 | ||||||||||||
| Total current assets | 237 | 104 | 341 | - | 341 | ||||||||||||
| Property, Plant and Equipment: | |||||||||||||||||
| Gathering and transmission systems | 852 | 1,149 | 2,001 | - | 2,001 | ||||||||||||
| Compression equipment | 961 | - | 961 | - | 961 | ||||||||||||
| Gas plants and buildings | 232 | 10 | 242 | - | 242 | ||||||||||||
| Other property, plant and equipment | 189 | 185 | 374 | - | 374 | ||||||||||||
| Construction-in-progress | 283 | 224 | 507 | - | 507 | ||||||||||||
| Total property, plant and equipment | 2,517 | 1,568 | 4,085 | - | 4,085 | ||||||||||||
| Less accumulated depreciation | (355 | ) | (45 | ) | (400 | ) | - | (400 | ) | ||||||||
| Property, plant and equipment, net | 2,162 | 1,523 | 3,685 | - | 3,685 | ||||||||||||
| Other Assets: | |||||||||||||||||
| Investment in unconsolidated subsidiaries | 2,214 | 1 | 2,215 | - | 2,215 | ||||||||||||
| Long-term derivative assets | 1 | - | 1 | - | 1 | ||||||||||||
| Other, net | 41 | - | 41 | - | 41 | ||||||||||||
| Total other assets | 2,256 | 1 | 2,257 | - | 2,257 | ||||||||||||
| Intangible Assets and Goodwill: | |||||||||||||||||
| Intangible assets, net of accumulated amortization | 712 | - | 712 | - | 712 | ||||||||||||
| Goodwill | 790 | 338 | 1,128 | - | 1,128 | ||||||||||||
| Total intangible assets and goodwill | 1,502 | 338 | 1,840 | - | 1,840 | ||||||||||||
| TOTAL ASSETS | $ | 6,157 | $ | 1,966 | $ | 8,123 | $ | - | $ | 8,123 | |||||||
| LIABILITIES & PARTNERS' CAPITAL AND NONCONTROLLING INTEREST | |||||||||||||||||
| Current Liabilities: | |||||||||||||||||
| Drafts payable | $ | 6 | $ | 4 | $ | 10 | $ | - | 10 | ||||||||
| Trade accounts payable | 102 | 20 | 122 | - | 122 | ||||||||||||
| Accrued cost of gas and liquids | 83 | 50 | 133 | - | 133 | ||||||||||||
| Related party payables | 37 | 59 | 96 | - | 96 | ||||||||||||
| Deferred revenues, including related party amounts | 17 | - | 17 | - | 17 | ||||||||||||
| Derivative liabilities | 1 | 5 | 6 | - | 6 | ||||||||||||
| Other current liabilities | 41 | 64 | 105 | - | 105 | ||||||||||||
| Total current liabilities | 287 | 202 | 489 | - | 489 | ||||||||||||
| Long-term derivative liabilities | 25 | - | 25 | - | 25 | ||||||||||||
| Deferred tax liabilities | - | 339 | 339 | (339 | ) | d | - | ||||||||||
| Other long-term liabilities | 5 | 16 | 21 | - | 21 | ||||||||||||
| Long-term debt, net | 2,157 | - | 2,157 | 600 | a | 2,757 | |||||||||||
| Commitments and contingencies | |||||||||||||||||
| Series A convertible redeemable preferred units | 73 | - | 73 | - | 73 | ||||||||||||
| Partners' Capital and Noncontrolling Interest: | |||||||||||||||||
| Common units | 3,207 | - | 3,207 | 750 | a | 3,881 | |||||||||||
| (1,245 | ) | b | |||||||||||||||
| 1,172 | c | ||||||||||||||||
| (3 | ) | e | |||||||||||||||
| Class F common units | - | - | - | 150 | a | 135 | |||||||||||
| (255 | ) | b | |||||||||||||||
| 240 | c | ||||||||||||||||
| Member's equity | 1,412 | 1,412 | (1,412 | ) | c | - | |||||||||||
| General partner interest | 326 | - | 326 | 339 | d | 665 | |||||||||||
| Accumulated other comprehensive loss | - | (3 | ) | (3 | ) | 3 | e | - | |||||||||
| Total partners' capital | 3,533 | 1,409 | 4,942 | (261 | ) | 4,681 | |||||||||||
| Noncontrolling interest | 77 | - | 77 | - | 77 | ||||||||||||
| Total partners' capital and noncontrolling interest | 3,610 | 1,409 | 5,019 | (261 | ) | 4,758 | |||||||||||
| TOTAL LIABILITIES AND PARTNERS' CAPITAL AND NONCONTROLLING INTEREST | $ | 6,157 | $ | 1,966 | $ | 8,123 | $ | 0 | $ | 8,123 | |||||||
| See accompanying notes to unaudited pro forma combined financial information | |||||||||||||||||
| Unaudited Pro Forma Consolidated Statement of Operations | ||||||||||||||||||||
| For the Twelve Months Ended December 31, 2012 | ||||||||||||||||||||
| (in millions except unit data and per unit data) | ||||||||||||||||||||
| SUGS | ||||||||||||||||||||
| Successor | Predecessor | |||||||||||||||||||
| Partnership | Period from Acquisiton (March 26, 2012) to December 31, 2012 | Period from January 1, 2012 to March 25, 2012 | Combined Historical | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||
| REVENUES | ||||||||||||||||||||
| Gas sales, including related party amounts | $ | 329 | $ | - | $ | - | $ | 329 | $ | - | $ | 329 | ||||||||
| NGL sales, including related party amounts | 539 | - | - | 539 | - | 539 | ||||||||||||||
| Gathering, transportation and other fees, including related party amounts | 403 | 662 | 245 | 1,310 | - | 1,310 | ||||||||||||||
| Net realized and unrealized loss from derivatives | 11 | 1 | 2 | 14 | 3 | e | 17 | |||||||||||||
| Other | 57 | - | - | 57 | - | 57 | ||||||||||||||
| Total revenues | 1,339 | 663 | 247 | 2,249 | 3 | 2,252 | ||||||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||||||
| Cost of sales, including related party amounts | 871 | 518 | 196 | 1,585 | - | 1,585 | ||||||||||||||
| Operation and maintenance | 166 | 79 | 22 | 267 | - | 267 | ||||||||||||||
| General and administrative, including related party amounts | 63 | 22 | 5 | 90 | (10 | ) | f | 80 | ||||||||||||
| Loss on asset sales, net | 3 | - | - | 3 | - | 3 | ||||||||||||||
| Depreciation and amortization | 201 | 51 | 18 | 270 | (3 | ) | h | 267 | ||||||||||||
| Total operating costs and expenses | 1,304 | 670 | 241 | 2,215 | (13 | ) | 2,202 | |||||||||||||
| OPERATING INCOME | 35 | (7 | ) | 6 | 34 | 16 | 50 | |||||||||||||
| Income from unconsolidated subsidiaries | 114 | (9 | ) | - | 105 | - | 105 | |||||||||||||
| Interest expense, net | (122 | ) | - | - | (122 | ) | (33 | ) | g | (155 | ) | |||||||||
| Loss on debt refinancing, net | (8 | ) | - | - | (8 | ) | - | (8 | ) | |||||||||||
| Other income and deductions, net | 30 | - | - | 30 | - | 30 | ||||||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 49 | (16 | ) | 6 | 39 | (17 | ) | 22 | ||||||||||||
| Income tax expense | 1 | 1 | 3 | 5 | - | 5 | ||||||||||||||
| NET INCOME (LOSS) | $ | 48 | $ | (17 | ) | $ | 3 | $ | 34 | $ | (17 | ) | $ | 17 | ||||||
| Net income attributable to noncontrolling interest | (2 | ) | - | - | (2 | ) | - | (2 | ) | |||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO REGENCY ENERGY PARTNERS LP | $ | 46 | $ | (17 | ) | $ | 3 | $ | 32 | $ | (17 | ) | $ | 15 | ||||||
| Amounts attributable to Series A convertible redeemable preferred units | 10 | 10 | ||||||||||||||||||
| General partner's interest, including IDR | 9 | 8 | ||||||||||||||||||
| Amounts attributable to Class F common units | - | 3 | ||||||||||||||||||
| Limited partners' interest in net income | $ | 27 | $ | (6 | ) | |||||||||||||||
| Basic and diluted earnings per common unit | ||||||||||||||||||||
| Amount allocated to common units | $ | 27 | $ | (6 | ) | |||||||||||||||
| Weighted average number of common units outstanding | 167,492,735 | 198,865,154 | ||||||||||||||||||
| Basic net income per common unit | $ | 0.16 | $ | (0.04 | ) | |||||||||||||||
| Diluted net income per common unit | $ | 0.13 | $ | (0.06 | ) | |||||||||||||||
| Basic and diluted earnings per Class F common unit | ||||||||||||||||||||
| Amount allocated to Class F common units | $ | - | $ | 3 | ||||||||||||||||
| Total number of Class F common units | - | 6,274,483 | ||||||||||||||||||
| Income per Class F common units | $ | - | $ | 0.48 | ||||||||||||||||
| See accompanying notes to unaudited pro forma combined financial information | ||||||||||||||||||||
Regency Energy Partners LP
Notes to Unaudited Pro Forma Combined Consolidated Financial Information
The following notes discuss the columns presented and the entries made to the unaudited pro forma condensed consolidated financial information.
Partnership
This column represents the historical audited consolidated balance sheet as of December 31, 2012 and the related statement of operations of the Partnership for the year ended December 31, 2012. These financial statements were derived from the Partnership’s audited financial statements as reported in its Annual Report on Form 10-K for the year ended December 31, 2012.
SUGS
This column represents the historical audited consolidated balance sheet as of December 31, 2012 and the related statement of operations of SUGS for the periods from Acquisition (March 26, 2012) to December 31, 2012 and from January 1, 2012 to March 25, 2012. These financial statements were derived from SUGS’ audited financial statements included herein as Exhibit 99.2 in this Current Report.
Pro Forma Adjustments
a. Represents the funding received by the Partnership for the $1.5 billion contribution consideration to be paid, consisting of $600 million long-term debt, $750 million in Partnership common units, and $150 million in Partnership Class F common units.
b. Represents the payment of contribution consideration to the holders of the Partnership common units and the Partnership Class F common units issued due to the transaction.
c. Represents the allocation of SUGS issued and outstanding membership interests to the holders of Partnership common units and Partnership Class F common units issued due to the transaction. SUGS membership interest was converted to Partnership common units and Partnership Class F common units.
d. Represents the elimination of the deferred tax liability to the General Partner interest as a deemed contribution as the contribution consideration was less than SUGS historical asset value. Upon the closing of the Contribution Agreement, SUGS tax status will change, causing the Partnership to derecognize the deferred tax liability through the Statement of Operations as a benefit to income tax expense, based on the requirements of accounting principles generally accepted in the United States of America ("GAAP").
e. Represents the elimination of the outstanding value in other comprehensive income related to SUGS cash flow hedges. As provided in Section 5.17 of the Contribution Agreement, all hedges shall be terminated on or prior to the closing of the transaction, therefore, this adjustment assumes that the OCI balance was charged to the income statement.
f. Represents the elimination of the $10 million annual management fee paid by the Partnership to ETE. The Contribution Agreement in effect amended the Services Agreement between ETE Services Company, LLC, Energy Transfer Equity, L.P. and the Partnership dated May 26, 2010, to eliminate the $10 million annual management fee for two years post-transaction close.
g. Represents the incremental interest expense incurred for the year ended December 31, 2012 on the additional borrowings assuming the Partnership issued Senior Notes with a 5.5% interest rate, consistent with the Senior Notes issued in October 2012. If the estimated interest rate varied by 0.125% in either direction, there would be a $750,000 impact on the Unaudited Pro Forma Consolidated Statement of Operations.
h. Represents the adjustment to decrease the SUGS predecessor period depreciation expense to reflect the impact of the March 2012 acquisition of SUGS by ETE.