Exhibit 99.1
SemGroup Corporation
Unaudited Pro Forma Combined Condensed Financial Statements
On July 17, 2017, SemGroup Corporation (“SemGroup”) completed the acquisition of Buffalo Parent Gulf Coast Terminals LLC (“BPGCT”), which owns and operates HFOTCO LLC doing business as Houston Fuel Oil Terminal Company (“HFOTCO”), for a purchase price paid, or to be paid, in two payments. The first payment made on July 17, 2017, consisted of $297.8 million in cash, funded from our revolving credit facility, issuance of approximately 12.4 million shares of our Class A common stock and the assumption of existing HFOTCO net debt of approximately $766 million. The second payment requires us to pay the sellers $600 million in cash if paid on December 31, 2018 (the “Second Payment”). If paid prior to December 31, 2018, the amount payable will be discounted by 5% per annum. If not paid by December 31, 2018, the amount payable increases to $680 million and is due by December 31, 2019, or earlier if requested by the sellers.
Effective March 14, 2018, SemGroup completed the sale of its Mexican asphalt business for approximately $78.5 million in cash (subject to customary post-closing adjustments). At December 31, 2017, the Mexican asphalt business was classified as held for sale and a $13.5 millionpre-tax loss was recorded to write the net assets down to net realizable value. The proceeds from the disposal will be used to repay debt.
The accompanying unaudited pro forma combined condensed financial statements of SemGroup have been prepared in accordance with Article 11 of RegulationS-X. The accompanying unaudited pro forma condensed balance sheet at December 31, 2017, reflects the disposal of the Mexico asphalt business as if it had occurred on that date. The BPGCT acquisition is already included in the SemGroup balance sheet at December 31, 2017. The accompanying unaudited pro forma combined condensed statement of operations for the year ended December 31, 2017, reflects the acquisition and disposal as if they had occurred on January 1, 2017. The terms “we”, “our”, “us”, and similar language used in these unaudited pro forma combined condensed financial statements refer to SemGroup and its subsidiaries.
These unaudited pro forma combined condensed financial statements have been derived from our historical financial statements, which are included in our annual report on Form10-K for the year ended December 31, 2017. These unaudited pro forma combined condensed financial statements should be read in conjunction with our historical financial statements and related notes thereto.
These unaudited pro forma combined condensed financial statements are provided for illustrative purposes only and do not purport to represent what our actual results of operations would have been if the acquisition and disposal had occurred on the dates assumed, nor are they necessarily indicative of our future operating results. However, the pro forma adjustments shown in these unaudited pro forma combined condensed financial statements reflect estimates and assumptions that we believe to be reasonable.
SEMGROUP CORPORATION
Unaudited Pro Forma Condensed Balance Sheet
December 31, 2017
(in thousands)
SemGroup Historical | Sale of Mexican asphalt business | Pro Forma Adjustments | SemGroup Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 93,699 | $ | — | $ | — | $ | 93,699 | ||||||||
Accounts receivable, net | 653,484 | — | — | 653,484 | ||||||||||||
Receivable from affiliates | 1,691 | — | — | 1,691 | ||||||||||||
Inventories | 101,665 | — | — | 101,665 | ||||||||||||
Current assets held for sale | 38,063 | (34,946 | ) | — | 3,117 | |||||||||||
Other current assets | 14,297 | — | — | 14,297 | ||||||||||||
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Total current assets | 902,899 | (34,946 | ) | — | 867,953 | |||||||||||
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Property, plant and equipment, net | 3,315,131 | — | — | 3,315,131 | ||||||||||||
Equity method investments | 285,281 | — | — | 285,281 | ||||||||||||
Goodwill | 257,302 | — | — | 257,302 | ||||||||||||
Other intangible assets, net | 398,643 | — | — | 398,643 | ||||||||||||
Other noncurrent assets | 132,600 | — | — | 132,600 | ||||||||||||
Noncurrent assets held for sale | 84,961 | (24,822 | ) | — | 60,139 | |||||||||||
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Total assets | $ | 5,376,817 | $ | (59,768 | ) | $ | — | $ | 5,317,049 | |||||||
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LIABILITIES AND OWNERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 587,898 | $ | — | $ | — | $ | 587,898 | ||||||||
Payable to affiliates | 6,971 | — | — | 6,971 | ||||||||||||
Accrued liabilities | 131,407 | — | — | 131,407 | ||||||||||||
Deferred revenue | 7,518 | — | — | 7,518 | ||||||||||||
Current liabilities held for sale | 23,847 | (19,437 | ) | — | 4,410 | |||||||||||
Other current liabilities | 3,395 | — | — | 3,395 | ||||||||||||
Current portion of long-term debt | 5,525 | — | — | 5,525 | ||||||||||||
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Total current liabilities | 766,561 | (19,437 | ) | — | 747,124 | |||||||||||
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Long-term debt, net | 2,853,095 | — | (78,543 | )(a) | 2,774,552 | |||||||||||
Deferred income taxes | 46,585 | — | — | 46,585 | ||||||||||||
Other noncurrent liabilities | 38,495 | — | — | 38,495 | ||||||||||||
Noncurrent liabilities held for sale | 13,716 | (700 | ) | — | 13,016 | |||||||||||
Commitments and contingencies | ||||||||||||||||
SemGroup owners’ equity: | ||||||||||||||||
Preferred stock, $0.01 par value | — | — | — | — | ||||||||||||
Common stock, $0.01 par value | 786 | — | — | 786 | ||||||||||||
Additionalpaid-in capital | 1,770,117 | — | — | 1,770,117 | ||||||||||||
Treasury stock, at cost | (8,031 | ) | — | — | (8,031 | ) | ||||||||||
Accumulated deficit | (50,706 | ) | — | 8,035 | (a) | (42,671 | ) | |||||||||
Accumulated other comprehensive loss | (53,801 | ) | 30,877 | — | (22,924 | ) | ||||||||||
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Total owners’ equity | 1,658,365 | 30,877 | 8,035 | 1,697,277 | ||||||||||||
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Total liabilities and owners’ equity | $ | 5,376,817 | $ | 10,740 | $ | (70,508 | ) | $ | 5,317,049 | |||||||
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SEMGROUP CORPORATION
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 2017
(in thousands, except per share amounts)
SemGroup Historical | BPGCT Historical | Sale of Mexican asphalt business | Pro Forma Adjustments | SemGroup Pro Forma | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Product | $ | 1,621,918 | $ | — | $ | (153,164 | ) | $ | — | $ | 1,468,754 | |||||||||
Service | 391,266 | 77,837 | (1,841 | ) | — | 467,262 | ||||||||||||||
Lease | 5,843 | 6,941 | — | — | 12,784 | |||||||||||||||
Other | 62,890 | 1,821 | — | — | 64,711 | |||||||||||||||
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Total revenues | 2,081,917 | 86,599 | (155,005 | ) | — | 2,013,511 | ||||||||||||||
Expenses: | ||||||||||||||||||||
Costs of products sold, exclusive of depreciation and amortization shown below | 1,514,891 | — | (130,910 | ) | — | 1,383,981 | ||||||||||||||
Operating | 254,764 | 17,836 | (7,905 | ) | (560 | )(f) | 264,135 | |||||||||||||
General and administrative | 110,373 | 12,200 | (8,045 | ) | (26,090 | )(f) | 88,438 | |||||||||||||
Depreciation and amortization | 158,421 | 15,984 | (4,045 | ) | 24,402 | (b) | 194,762 | |||||||||||||
Loss on disposal or impairment, net | 13,333 | — | 481 | — | 13,814 | |||||||||||||||
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Total expenses | 2,051,782 | 46,020 | (150,424 | ) | (2,248 | ) | 1,945,130 | |||||||||||||
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Earnings from equity method investments | 67,331 | — | — | — | 67,331 | |||||||||||||||
Operating income | 97,466 | 40,579 | (4,581 | ) | 2,248 | 135,712 | ||||||||||||||
Other expenses (income), net: | ||||||||||||||||||||
Interest expense | 103,009 | 15,811 | (53 | ) | 32,792 | (c) | 147,239 | |||||||||||||
(4,320 | )(g) | |||||||||||||||||||
Loss on early extinguishment of debt | 19,930 | — | — | — | 19,930 | |||||||||||||||
Foreign currency transaction gain | (4,709 | ) | — | (224 | ) | — | (4,933 | ) | ||||||||||||
Other expense (income), net | (1,226 | ) | 23 | 1,016 | — | (187 | ) | |||||||||||||
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Total other expenses, net | 117,004 | 15,834 | 739 | 28,472 | 162,049 | |||||||||||||||
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Income (loss) from continuing operations before income taxes | (19,538 | ) | 24,745 | (5,320 | ) | (26,224 | ) | (26,337 | ) | |||||||||||
Income tax expense (benefit) | (2,388 | ) | 354 | (1,396 | ) | (693 | )(d) | (4,123 | ) | |||||||||||
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Net income (loss) | $ | (17,150 | ) | $ | 24,391 | $ | (3,924 | ) | $ | (25,531 | ) | $ | (22,214 | ) | ||||||
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Net loss attributable to SemGroup per common share: | ||||||||||||||||||||
Basic | $ | (0.24 | ) | $ | (0.28 | ) | ||||||||||||||
Diluted | $ | (0.24 | ) | $ | (0.28 | ) | ||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 71,418 | 6,718 | (e) | 78,136 | ||||||||||||||||
Diluted | 71,418 | 6,718 | (e) | 78,136 |
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SEMGROUP CORPORATION
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. | Basis of presentation |
The historical consolidated financial information of SemGroup has been adjusted in the accompanying unaudited pro forma combined condensed financial information to give effect to pro forma events that are (i) directly attributable to the acquisition of BPGCT and the disposition of our Mexican asphalt business, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined condensed statement of operations, are expected to have a continuing impact on the results of operations.
The unaudited pro forma combined condensed financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.
2. | Pro forma adjustments |
These adjustments reflect the consideration paid or to be paid by SemGroup to acquire BPGCT. The following table represents the purchase price allocation to the assets acquired and liabilities assumed from BPGCT. The purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma combined condensed financial statements (in thousands):
Consideration | ||||
Cash | $ | 297,822 | ||
Common shares | 330,341 | |||
Second Payment | 549,900 | |||
Liabilities assumed | ||||
Accounts payable and accrued liabilities | 9,876 | |||
Current portion of long-term debt | 5,500 | |||
Fair value of long-term debt | 760,500 | |||
Other noncurrent liabilities | 13,884 | |||
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Total consideration | $ | 1,967,823 | ||
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Allocation to assets acquired | ||||
Cash acquired | $ | 3,583 | ||
Accounts receivable | 11,101 | |||
Other current assets | 5,277 | |||
Property, plant and equipment | 1,327,168 | |||
Finite-lived intangible assets | ||||
Customer relationships | 260,000 | |||
Customer contract | 1,000 | |||
Non-compete agreement | 30,000 | |||
Goodwill | 257,302 | |||
Other noncurrent assets | 72,392 | |||
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Total fair value of assets acquired | $ | 1,967,823 | ||
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(a) Adjustments to reflect proceeds on sale of Mexican asphalt business of $78.5 million and apre-tax gain on sale of $8.0 million based on the carrying value of the business at December 31, 2017. As of December 31, 2017, the business had been written-down to a $70.5 million carrying value.
(b) Adjustments to reflect increased depreciation and amortization expense due to increase in property, plant and equipment to fair value and the recognition of finite-lived intangible assets.
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SEMGROUP CORPORATION
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Property, plant and equipment is depreciated over periods of up to 25 years on a straight-line basis. Pro forma depreciation expense is based on the fair value of the assets at the acquisition date and is based on the expected useful life based
on asset class and company policy. Adjustments to historical depreciation were made to bring total depreciation of BPGCT assets up to $26.0 million for the period from January 1, 2017 to July 16, 2017.
Finite-lived intangibles are amortized over their estimated useful lives. Thenon-compete agreement is effective for two years from the acquisition date and will be amortized straight-line over thetwo-year period. Customer relationships are being amortized over 28.5 years on an accelerated basis which matches the incremental cash flow models used to value the intangible assets and in consideration of a historical customer attrition rate of 5%. Customer contracts are being amortized over three years on a straight-line basis. Adjustments to amortization expense were made to remove historical amortization expense and reflect $13.7 million of amortization expense related to the finite-lived intangibles recognized in the acquisition for the period from January 1, 2017 to July 16, 2017.
Amortization of intangible assets for the five years following the acquisition is expected to be (in thousands):
Year ended December 31, 2017 | Year ended December 31, 2018 | Year ended December 31, 2019 | Year ended December 31, 2020 | Year ended December 31, 2021 | ||||||||||||||||
Non-compete agreement | $ | 6,250 | $ | 15,000 | $ | 8,750 | $ | — | $ | — | ||||||||||
Customer relationships | 13,500 | 10,000 | 22,300 | 21,800 | 22,000 | |||||||||||||||
Customer contracts | 400 | 400 | 200 | — | — | |||||||||||||||
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Total | $ | 20,150 | $ | 25,400 | $ | 31,250 | $ | 21,800 | $ | 22,000 | ||||||||||
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(c) Adjustments to recognize interest expense related to the Second Payment which was discounted at 8% and SemGroup’s $297.8 million acquisition payment made from a borrowing on our revolving credit facility at 5.5%.
(d) Adjustments to recognize additional income tax expense based on SemGroup’s historical blended statutory rate of 37.8%. BPGCT is a pass-through entity for income tax purposes and therefore it’s historical financial statements only reflect Texas margins tax.
(e) Adjustment to reflect the 12.4 million common shares issued as consideration for the acquisition as if the acquisition had occurred on January 1, 2017. For the year to date period ended December 31, 2017, these shares were included in the historical results of SemGroup from the acquisition date at July 17, 2017. As such, the pro forma adjustment was reduced accordingly. Common shares issued were valued based on the acquisition date market price of $26.68 per share.
(f) Adjustment to remove BPGCT acquisition costs included in the historical financial statements of SemGroup and BPGCT.
(g) Adjustment to reflect reduction of interest expense from use of Mexican asphalt business sales proceeds to pay down revolving credit facility borrowings, as required by SemGroup’s credit agreement, at a rate of 5.5%.
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