Exhibit 99.1
TESORO LOGISTICS LP
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
Background
References to the “Partnership,” “TLLP,” “we,” “us” and “our” mean Tesoro Logistics LP and its consolidated subsidiaries, unless the context otherwise requires. References to “Tesoro” refer collectively to Tesoro Corporation and any of its subsidiaries other than Tesoro Logistics LP, its subsidiaries and Tesoro Logistics GP, LLC (“General Partner” or “TLLP GP”), its general partner.
QEPM Merger
On April 6, 2015, TLLP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLLP GP, QEP Field Services, LLC (“QEP Field Services”), TLLP Merger Sub LLC (“Merger Sub”), QEP Midstream Partners, LP (“QEPM”), and QEP Midstream Partners GP, LLC, the general partner of QEPM (“QEPM GP”). Subject to the satisfaction or waiver of certain conditions in the Merger Agreement, upon the later of the filing with the Secretary of State of the State of Delaware of a certificate of merger or the later date and time set forth in such certificate, Merger Sub will merge with and into QEPM, with QEPM surviving the merger as a wholly owned subsidiary of TLLP (the “Merger”). Following the Merger, QEPM GP will remain the general partner of QEPM, and all outstanding common units representing limited partnership interests in QEPM (the “QEPM Common Units”) other than QEPM Common Units held by QEP Field Services will be converted into the right to receive 0.3088 common units representing limited partnership interests in TLLP (the “TLLP Common Units”). No fractional TLLP Common Units will be issued in the Merger, and holders of QEPM Common Units other than QEP Field Services will instead receive cash in lieu of fractional TLLP Common Units, if any.
Rockies Natural Gas Business Acquisition
On December 2, 2014, pursuant to a definitive membership interest purchase agreement (“the MIPA”), we completed the purchase from QEP Field Services Company (the “QEPFSC”) of all the issued and outstanding membership interests of QEP Field Services, LLC (“QEPFS”), which assets are referred to as the “Rockies Natural Gas Business,” for approximately $2.5 billion in cash, subject to customary post-closing adjustments (the “Rockies Natural Gas Business Acquisition”). Pursuant to the MIPA, we acquired all of the assets and certain liabilities of QEPFS, excluding the Haynesville gathering system, which was retained by QEPFSC (the “QEP Retained Assets”).
West Coast Logistics Assets Acquisition
During the third quarter of 2014, pursuant to a Contribution, Conveyance and Assumption Agreement, we acquired from Tesoro three truck terminals, ten storage tanks, two rail loading and unloading facilities and a refined products pipeline (the “West Coast Logistics Assets”) for approximately $270 million, comprised of $243 million in cash and the remaining $27 million from the issuance of equity to the General Partner (which partnership units consisted of the number of general partner units necessary to increase its ownership to 2% and the remainder of which were common units). The acquisition was completed in two phases, which occurred on July 1, 2014 and on September 30, 2014 (“West Coast Logistics Assets Acquisition”).
Pro Forma Financial Information
The unaudited pro forma condensed combined consolidated financial information of the Partnership reflects adjustments to the historical statements of combined consolidated operations for the year ended December 31, 2014 and the three months ended March 31, 2015 of the Partnership (the “Statements of Operations”), to give effect to (i) the Rockies Natural Gas Business Acquisition, (ii) the offering of $1.3 billion aggregate principal amount of new Senior Notes due 2019 and 2022 on October 29, 2014 (“October Debt Offering”) and use of the proceeds from the October Debt Offering to fund a portion of the purchase price of the Rockies Natural Gas Business acquisition and repay $243 million outstanding under our revolving credit agreement which was used to fund the West Coast Logistics Assets Acquisition, (iii) the entering into and borrowings under our amended and restated credit agreement on December 2, 2014 (“New Credit Agreement”) to fund a portion of the purchase price of the Rockies Natural Gas Business Acquisition, (iv) the offering of common units on October 24, 2014, with an aggregate value of $1.3 billion, which included the purchase of common units equal to $500 million by Tesoro and our General Partner making a capital contribution to acquire general partner units to maintain its current 2% general partner interest in us (“October Equity Offering”), and the use of the net proceeds from the October Equity Offering to fund a portion of the purchase price of the Rockies Natural Gas Business Acquisition, (v) the West Coast Logistics Assets Acquisition, (vi) the Merger and (vii) the payment of fees and expenses in connection with each of the foregoing. These items are collectively referred to as the “Pro Forma Statement of Operations Transactions.”
The unaudited pro forma condensed combined consolidated financial information of the Partnership reflects adjustments to the historical balance sheet as of March 31, 2015 (the “Balance Sheet”) of the Partnership to give effect to (i) the Merger and (ii) the payment of fees and expenses in connection with the Merger. These items are collectively referred to as the “Pro Forma Balance Sheet Transactions.”
The pro forma adjustments have been prepared as if the transactions described above had taken place as of January 1, 2014 for the Pro Forma Statement of Operations Transactions and as of March 31, 2015 for the Pro Forma Balance Sheet Transactions.
The historical financial information of QEPFSC reflects the business, financial condition and operations of the Rockies Natural Gas Business that we acquired pursuant to the MIPA for the nine months ended September 30, 2014, except that the historical financial information reflects the inclusion of operating results of the QEP Retained Assets. The historical financial information of QEPFSC for the period from October 1, 2014 through December 1, 2014 does not include operating results of the QEP Retained Assets. The following unaudited pro forma condensed combined consolidated financial information reflects adjustments to exclude the QEP Retained Assets for the nine months ended September 30, 2014.
The unaudited pro forma condensed combined consolidated financial information has been prepared for illustrative purposes only and is not necessarily indicative of our results of operations had the Pro Forma Statement of Operations Transactions actually occurred on the date assumed, nor is such unaudited pro forma condensed combined consolidated financial information necessarily indicative of the operating results to be expected for any future period.
The pro forma adjustments for the Pro Forma Statement of Operations Transactions are based on preliminary estimates and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma condensed combined consolidated financial information provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma condensed combined consolidated financial information.
The unaudited pro forma condensed combined consolidated financial information and related notes thereto should be read in conjunction with our audited combined consolidated financial statements and related notes thereto for the year ended December 31, 2014, included in our annual report on Form 10-K, our unaudited condensed combined consolidated financial statements and related notes thereto for the quarterly period ended March 31, 2015, included in our quarterly report on Form 10-Q and the historical financial statements of QEP Field Services Company included in our current reports on Form 8-K filed with the Securities and Exchange Commission on October 20, 2014 and December 8, 2014 and the amendment to our current report on Form 8-K/A filed on December 11, 2014.
The Partnership’s purchase price allocation related to the Rockies Natural Gas Business is pending finalization of a detailed independent valuation study to determine the required estimates of the fair value of the assets acquired and the liabilities assumed. Accordingly, the pro forma adjustments for depreciation and amortization for the Rockies Natural Gas Business Acquisition are preliminary and subject to further adjustments as additional information becomes available and the independent appraisals and other evaluations are finalized. The adjustments can be made to the purchase price allocation through the end of TLLP’s measurement period, which is not to exceed one year from the acquisition date.
TESORO LOGISTICS LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2015
|
| | | | | | | | | | | |
| | Tesoro Logistics LP | | Merger Pro Forma Adjustments | | Tesoro Logistics LP Pro Forma |
| | (Dollars in millions) |
| | ASSETS |
| CURRENT ASSETS | | | | | |
| Cash and cash equivalents | $ | 16 |
| | $ | (2 | ) | (a) | $ | 14 |
|
| | | | | | |
| Receivables | | | | | |
| Trade | 125 |
| | — |
| | 125 |
|
| Affiliate | 76 |
| | — |
| | 76 |
|
| Other | 16 |
| | — |
| | 16 |
|
| Prepayments and other | 4 |
| | — |
| | 4 |
|
| Total Current Assets | 237 |
| | (2 | ) | | 235 |
|
| NET PROPERTY, PLANT AND EQUIPMENT | 3,335 |
| | — |
| | 3,335 |
|
| INTANGIBLES | 966 |
| | — |
| | 966 |
|
| GOODWILL | 168 |
| | — |
| | 168 |
|
| INVESTMENT IN UNCONSOLIDATED AFFILIATES | 59 |
| | — |
| | 59 |
|
| OTHER NONCURRENT ASSETS | 31 |
| | — |
| | 31 |
|
| Total Assets | $ | 4,796 |
| | $ | (2 | ) | | $ | 4,794 |
|
| | | | | | |
| | LIABILITIES AND EQUITY |
| CURRENT LIABILITIES | | | | | |
| Accounts payable | | | | | |
| Trade | $ | 112 |
| | $ | — |
| | $ | 112 |
|
| Affiliate | 68 |
| | — |
| | 68 |
|
| Accrued interest and financing costs | 62 |
| | — |
| | 62 |
|
| Other current liabilities | 57 |
| | — |
| | 57 |
|
| Total Current Liabilities | 299 |
| | — |
| | 299 |
|
| OTHER NONCURRENT LIABILITIES | 62 |
| | — |
| | 62 |
|
| DEBT | 2,520 |
| | — |
| | 2,520 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | |
| EQUITY | | | | | |
| Common unitholders | 1,500 |
| | 394 |
| (b) | 1,892 |
|
| | | | (2 | ) | (a) | |
| General partner | (21 | ) | | — |
| | (21 | ) |
| Noncontrolling interest | 436 |
| | (394 | ) | (b) | 42 |
|
| Total Equity | 1,915 |
| | (2 | ) | | 1,913 |
|
| Total Liabilities and Equity | $ | 4,796 |
| | $ | (2 | ) | | $ | 4,794 |
|
See accompanying notes to unaudited pro forma condensed combined consolidated financial information.
TESORO LOGISTICS LP
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Ended March 31, 2015
|
| | | | | | | | | | | |
| | Tesoro Logistics LP Historical | | Merger Pro Forma Adjustments | | Tesoro Logistics LP Pro Forma |
| | (Dollars in millions except unit and per unit amounts) |
| REVENUES | |
| Affiliate | $ | 148 |
| | $ | — |
| | $ | 148 |
|
| Third-party | 115 |
| | — |
| | 115 |
|
| Total Revenues | 263 |
| | — |
| | 263 |
|
| COSTS AND EXPENSES | | | | | |
| Operating and maintenance expenses, net | 86 |
| | — |
| | 86 |
|
| Depreciation and amortization expenses | 44 |
| | — |
| | 44 |
|
| General and administrative expenses | 25 |
| | — |
| | 25 |
|
| Total Costs and Expenses | 155 |
| | — |
| | 155 |
|
| OPERATING INCOME | 108 |
| | — |
| | 108 |
|
| Interest and financing costs | (37 | ) | | — |
| | (37 | ) |
| Equity in earnings of unconsolidated affiliates | 3 |
| | — |
| | 3 |
|
| NET INCOME | $ | 74 |
| | $ | — |
| | $ | 74 |
|
| | | | — |
| | — |
|
| Income attributable to noncontrolling interest | (10 | ) | | 9 |
| (d) | (1 | ) |
| Net income attributable to partners | 64 |
| | 9 |
| | 73 |
|
| General partner’s interest in net income, including incentive distribution rights (c) | (14 | ) | | — |
| | (14 | ) |
| Limited partners’ interest in net income | $ | 50 |
| | $ | 9 |
| | $ | 59 |
|
| | | | | | |
| Net income per limited partner unit: | | | | | |
| Common - basic and diluted | $ | 0.63 |
| | | | $ | 0.66 |
|
| Subordinated - basic and diluted | $ | — |
| | | | $ | — |
|
| | | | | | |
| Weighted average limited partner units outstanding: | | | | | |
| Common units - basic | 80,250,208 |
| | 7,118,289 |
| (e) | 87,368,497 |
|
| Common units - diluted | 80,281,988 |
| | 7,118,289 |
| (e) | 87,400,277 |
|
See accompanying notes to unaudited pro forma condensed combined consolidated financial information.
TESORO LOGISTICS LP
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED CONSOLIDATED OPERATIONS
Year Ended December 31, 2014
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Tesoro Logistics LP Historical | | QEPFSC Historical through 9/30 | | QEP Retained Assets Pro Forma Adjustments through 9/30 | | QEPFSC Historical from 10/1 through 12/1 | | QEPFSC Pro Forma Adjustments | | West Coast Logistics Assets Pro Forma Adjustments | | Merger Pro Forma Adjustments | | Tesoro Logistics LP Pro Forma |
| | (Dollars in millions except unit and per unit amounts) |
| REVENUES | |
| Affiliate | $ | 497 |
|
| $ | 111 |
| | $ | (14 | ) | | $ | 18 |
| | $ | (115 | ) | (f) | $ | 14 |
| (l) | $ | — |
| | $ | 511 |
|
| Third-party | 103 |
| | 183 |
| | — |
| | 38 |
| | 115 |
| (f) | — |
| | — |
| | 439 |
|
| Total Revenues | 600 |
| | 294 |
| | (14 | ) | | 56 |
| | — |
| | 14 |
| | — |
| | 950 |
|
| COSTS AND EXPENSES | | | | | | | | | | | | | | | |
| Operating and maintenance expenses, net | 247 |
| | 103 |
| | (4 | ) | | 20 |
| | — |
| | — |
| | — |
| | 366 |
|
| Depreciation and amortization expenses | 77 |
| | 50 |
| | (7 | ) | | 11 |
| | 35 |
| (g) | — |
| | — |
| | 166 |
|
| General and administrative expenses | 74 |
| | 48 |
| | (6 | ) | | 19 |
| | (8 | ) | (h) | (2 | ) | (i) | — |
| | 108 |
|
| | | | | | | | | | (17 | ) | (i) | | | | | |
| Gain on asset disposals and impairments | (4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) |
| Total Costs and Expenses | 394 |
| | 201 |
| | (17 | ) | | 50 |
| | 10 |
| | (2 | ) | | — |
| | 636 |
|
| OPERATING INCOME | 206 |
| | 93 |
| | 3 |
| | 6 |
| | (10 | ) | | 16 |
| | — |
| | 314 |
|
| Interest and financing costs | (109 | ) | | (3 | ) | | — |
| | (3 | ) | | (80 | ) | (j) | — |
| | — |
| | (179 | ) |
| | | | | | | | | | 16 |
| (i) | | | | | |
| Equity in earnings of unconsolidated affiliates | 1 |
| | 4 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 6 |
|
| INCOME BEFORE INCOME TAXES | 98 |
| | 94 |
| | 3 |
| | 4 |
| | (74 | ) | | 16 |
| | — |
| | 141 |
|
| Income Taxes | — |
| | (28 | ) | | (1 | ) | | (1 | ) | | 30 |
| (k) | — |
| | — |
| | — |
|
| NET INCOME | $ | 98 |
| | $ | 66 |
| | $ | 2 |
| | $ | 3 |
| | $ | (44 | ) | | $ | 16 |
| | $ | — |
| | $ | 141 |
|
| Loss attributable to Predecessor | 4 |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | (m) | — |
| | — |
|
| Income attributable to noncontrolling interest | (3 | ) | | (18 | ) | | — |
| | (4 | ) | | — |
| | — |
| | 21 |
| (d) | (4 | ) |
| Net income (loss) attributable to partners | 99 |
| | 48 |
| | 2 |
| | (1 | ) | | (44 | ) | | 12 |
| | 21 |
| | 137 |
|
| General partner’s interest in net income, including incentive distribution rights (c) | (43 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (43 | ) |
| Limited partners’ interest in net income (loss) | $ | 56 |
| | $ | 48 |
| | $ | 2 |
| | $ | (1 | ) | | $ | (44 | ) | | $ | 12 |
| | $ | 21 |
| | $ | 94 |
|
| | | | | | | | | | | | | | | | |
| Net income per limited partner unit: | | | | | | | | | | | | | | | |
| Common - basic and diluted | $ | 0.96 |
| | | | | | | | | | | | | | $ | 1.05 |
|
| Subordinated - basic and diluted | $ | 0.62 |
| | | | | | | | | | | | | | $ | 1.60 |
|
| | | | | | | | | | | | | | | | |
| Weighted average limited partner units outstanding: | | | | | | | | | | | | | | | |
| Common units - basic | 54,203,508 |
| | | | | | | | 18,652,055 |
| (e) | 183,897 |
| (e) | 7,118,289 |
| (e) | 80,157,749 |
|
| Common units - diluted | 54,249,416 |
| | | | | | | | 18,652,055 |
| (e) | 183,897 |
| (e) | 7,118,289 |
| (e) | 80,203,657 |
|
| Subordinated - basic and diluted | 5,642,220 |
| | | | | | | | — |
| | — |
| | | | 5,642,220 |
|
See accompanying notes to unaudited pro forma condensed combined consolidated financial information.
TESORO LOGISTICS LP
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
NOTE A. Pro Forma Adjustments and Assumptions
| |
| (a) | Reflects the estimated fees associated with the Merger. Including, but not limited to, legal and accounting services and other costs, which will be allocated to all unitholders. |
| |
| (b) | Reflects the Merger transaction, which reclassifies TLLP’s noncontrolling interest attributable to the QEPM public unit holders to TLLP limited partners. |
| |
| (c) | The pro forma effect of the general partner’s interest in net income, including incentive distribution rights, has not been adjusted to include the distributions that would have been allocated to the units issued in connection with the Pro Forma Statement of Operations Transactions. |
| |
| (d) | Reflects the adjustment to remove the income attributable to noncontrolling interest related to TLLP’s noncontrolling interest in QEPM based on the pro forma assumption that the Merger occurred on January 1, 2014. |
| |
| (e) | Reflects the impact of the issuance of 23,000,000 common units in connection with the October Equity Offering, 370,843 common units issued to Tesoro in connection with the West Coast Logistics Assets Acquisition on July 1, 2014 and 7,118,289 common units issued in connection with the Merger. The pro forma units issued in connection with the Merger are calculated based on the QEPM units outstanding as of April 6, 2015, the date of the Merger Agreement. |
| |
| (f) | Reflects the adjustment to the historical financial results of the Rockies Natural Gas Business to reclassify revenue, from transactions with QEPFSC affiliates as third-party revenue. There were no historical transactions between the Partnership or any of its affiliates and QEPFSC. |
| |
| (g) | Reflects the adjustment to depreciation and amortization expenses for the assets acquired in the Rockies Natural Gas Business acquisition based upon the preliminary estimated fair values allocated to the acquired property, plant and equipment and the intangible assets for customer relationships. Certain valuations and other studies have not been finalized, including estimates for property, plant and equipment values, asset retirement obligations and values for intangible assets. Additionally, we have not yet finalized the related evaluation of the useful lives; accordingly, future amortization of intangible assets related to customer relationships may be revised. |
| |
| (h) | Reflects an adjustment to remove the accelerated amortization of certain QEPFS deferred costs included in the QEPFSC historical information from October 1, 2014 through December 1, 2014 as a result of the Rockies Natural Gas Business Acquisition. |
| |
| (i) | Reflects adjustments to remove direct and incremental costs of the Rockies Natural Gas Business Acquisition and West Coast Logistics Assets Acquisition included in TLLP’s general and administrative expenses primarily related to advisory, legal and accounting fees. An adjustment is also included to remove amounts included in interest and financing costs, net for TLLP’s alternative financing arrangement related to the Rockies Natural Gas Business acquisition. |
| |
| (j) | Reflects adjustments to interest and financing costs for the Rockies Natural Gas Business Acquisition, including: |
•interest expense related to the October Debt Offering;
| |
| • | amortization of deferred financing costs associated with the New Credit Agreement and the October Debt Offering; |
| |
| • | the incremental interest on the net increase in borrowings outstanding under the New Credit Agreement; and |
| |
| • | the incremental increase in commitment fees on the New Credit Agreement as a result of its expansion. |
We used a portion of the net proceeds from the October Debt Offering to repay $243 million outstanding under our revolving credit agreement which was used to fund the West Coast Logistics Assets Acquisition. As such, a portion of the interest expense adjustment related to the October Debt Offering includes incremental interest expense for the West Coast Logistics Assets Acquisition. A 0.125% increase or decrease to the assumed interest rate on the borrowings would increase or decrease pro forma interest expense by approximately $2 million on an annual basis.
| |
| (k) | Adjustment to remove historical QEPFSC income tax expense as the Partnership is a disregarded entity for federal and state income tax purposes. |
TESORO LOGISTICS LP
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION - (Continued)
| |
| (l) | Reflects recognition of affiliate revenues as if services were provided to Tesoro with respect to the West Coast Logistics Assets prior to July 1, 2014, the acquisition date. Volumes used in the calculation of affiliate revenues are the greater of the West Coast Logistics Assets’ historical volumes or the minimum throughput as indicated by the commercial agreements entered into with Tesoro on July 1, 2014. Fees used in the calculation were based on the contractual terms under the commercial agreements that were entered into with Tesoro at the closing of the West Coast Logistics Assets Acquisition. |
| |
| (m) | Reflects the adjustment to remove the loss attributable to predecessor based on the pro forma assumption that the acquisition occurred on January 1, 2014. |
NOTE B. Pro Forma Net Income per Unit
In connection with the Rockies Natural Gas Business Acquisition, our general partner waived its right to receive an aggregate of $10 million of general partner distributions with respect to incentive distribution rights during 2015 (pro rata on a quarterly basis). We have not reflected the impact of the general partner waiving its right to these distributions in the pro forma condensed combined consolidated financial information for the year ended December 31, 2014. The impact of the general partner waiving its right to these distributions has been reflected in the pro forma condensed consolidated financial information for the three months ended March 31, 2015.
