SUMMIT MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Throughout this report, when we use the terms "we," "us," "our," "SMLP," or "the Partnership" we are referring to Summit Midstream Partners, LP, the partnership itself or to Summit Midstream Partners, LP and its subsidiaries collectively as the context requires.
We are managed and operated by the board of directors and executive officers of Summit Midstream GP, LLC (the "general partner"). Summit Midstream Partners, LLC ("Summit Investments"), as the ultimate owner of our general partner, controls us and has the right to appoint the entire board of directors of our general partner, including our independent directors.
On May 18, 2015, we acquired certain crude oil and produced water gathering systems held by Polar Midstream, LLC ("Polar Midstream") and transmission pipelines owned by Epping Transmission Company, LLC ("Epping") located in the Williston Basin from a subsidiary of Summit Investments. We also exercised an option to acquire a crude oil transmission project under development (the "Stampede Lateral") by a subsidiary of Summit Investments. The Stampede Lateral was conveyed to Polar Midstream upon exercising the option. We refer to Polar Midstream, Epping and the Stampede Lateral collectively as the "Polar and Divide system." Because we acquired the Polar and Divide system from a subsidiary of Summit Investments (the "Polar and Divide Drop Down"), it was deemed a transaction among entities under common control.
Set forth below are our unaudited pro forma condensed combined financial statements as of and for the three months ended March 31, 2015 and for the years ended December 31, 2014 and 2013 which reflect the net impact of the Polar and Divide Drop Down.
Because the Polar and Divide Drop Down was executed between entities under common control, we will be accounting for it on an “as if pooled” basis for all periods during which common control existed. With respect to Polar Midstream, common control began on February 15, 2013, the date the underlying assets were acquired by Summit Investments. With respect to Epping, common control began on April 22, 2014, the date of its formation by Summit Investments.
The unaudited pro forma condensed combined balance sheet reflects the Polar and Divide Drop Down as if such transaction closed on March 31, 2015. The unaudited pro forma condensed combined statements of operations reflect the Polar and Divide Drop Down as if such transaction had occurred as of the beginning of the fiscal quarter or year presented to the extent the acquired assets and/or entity were in operation during the respective period.
The unaudited pro forma condensed combined balance sheet as of March 31, 2015 and the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2015 were derived from:
| |
| • | SMLP's unaudited condensed consolidated financial statements; and |
| |
| • | the unaudited condensed combined financial statements of Polar Midstream (carve-out basis) and Epping as of and for the three months ended March 31, 2015. |
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 was derived from:
| |
| • | SMLP's audited consolidated financial statements for the year ended December 31, 2014; and |
| |
| • | the audited combined financial statements of Polar Midstream (carve-out basis) and Epping for the year ended December 31, 2014. |
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 was derived from:
| |
| • | SMLP's audited consolidated financial statements for the year ended December 31, 2013; and |
| |
| • | the historical financial statements of Polar Midstream (carve-out basis) for the year ended December 31, 2013. |
The unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statements of operations were derived by adjusting the historical financial statements of SMLP, Polar Midstream (carve-out basis) and Epping based on currently available information and, therefore, actual adjustments may differ materially from the pro forma adjustments. In particular, this unaudited pro forma condensed combined financial
information does not present any pro forma effects in the condensed combined statements of operations for the periods prior to Summit Investments' acquisition of Meadowlark Midstream or its formation of Epping.
The assets acquired and liabilities assumed by SMLP in the Polar and Divide Drop Down have been reflected at Summit Investments' historical cost of construction or fair value of the assets and liabilities at acquisition. Descriptions of the adjustments for the Polar and Divide Drop Down are presented in the notes to the unaudited pro forma condensed combined financial information. This unaudited pro forma condensed combined financial information and accompanying notes should be read in conjunction with:
| |
| • | SMLP's historical financial statements filed with the Securities and Exchange Commission; and |
| |
| • | the historical financial statements included in Exhibits 99.1 and 99.2 to this Amendment No. 1 to SMLP's Current Report on Form 8-K. |
This unaudited pro forma condensed combined financial information does not:
| |
| • | purport to present our financial position or the results of operations had the Polar and Divide Drop Down actually been completed as of March 31, 2015 or for the periods indicated; |
| |
| • | purport to present our financial position or results of operations had SMLP's May 2015 primary offering of 6.5 million common units been completed at an earlier date; |
| |
| • | purport to present our financial position or results of operations had SMLP's May 2015 draw of $92.5 million on its revolving credit facility been completed at an earlier date; and |
| |
| • | reflect the effects of any cost savings or other synergies that may be achieved as a result of the Polar and Divide Drop Down. |
Further, this unaudited pro forma condensed combined financial information is:
| |
| • | based on assumptions that we believe are reasonable under the circumstances; |
| |
| • | intended for informational purposes only; and |
| |
| • | not intended to project our financial position or results of operations for any future date or period. |
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2015
|
| | | | | | | | | | | | | | | | | | | |
| | Historical | | | | Summit Midstream Partners, LP pro forma |
| | Summit Midstream Partners, LP | | Polar Midstream Company, LLC (carve-out basis) | | Epping Transmission Company, LLC | | Pro forma adjustments | |
| | (In thousands) |
| Assets | | | | | | | | | |
| Current assets | $ | 59,536 |
| | $ | 5,020 |
| | $ | 58 |
| | $ | 197,500 |
| (a) | $ | 64,614 |
|
| | | | | | | | 92,500 |
| (b) | |
| | | | | | | | (290,000 | ) | (c) | |
| Property, plant and equipment, net | 1,234,229 |
| | 185,819 |
| | 6,095 |
| | — |
| | 1,426,143 |
|
| Intangible assets, net | 456,930 |
| | 11,138 |
| | 669 |
| | — |
| | 468,737 |
|
| Goodwill | 61,689 |
| | 203,373 |
| | — |
| | — |
| | 265,062 |
|
| Other noncurrent assets | 16,604 |
| | 15 |
| | — |
| | — |
| | 16,619 |
|
| Total assets | $ | 1,828,988 |
| | $ | 405,365 |
| | $ | 6,822 |
| | $ | — |
| | $ | 2,241,175 |
|
| | | | | | | | | | |
| Liabilities and Partners' Capital, Owner's Net Investment and Membership Interests | | | | | | | | | |
| Current liabilities | $ | 33,201 |
| | $ | 15,478 |
| | $ | 131 |
| | $ | 555 |
| (c) | $ | 49,365 |
|
| Long-term debt | 796,000 |
| | — |
| | — |
| | 92,500 |
| (b) | 888,500 |
|
| Other noncurrent liabilities | 65,922 |
| | — |
| | — |
| | — |
| | 65,922 |
|
| Total liabilities | 895,123 |
| | 15,478 |
| | 131 |
| | 93,055 |
| | 1,003,787 |
|
| Commitments and contingencies | | | | | | | | | |
| | | | | | | | | | |
| Common limited partner capital | 630,241 |
| | — |
| | — |
| | 193,375 |
| (a) | 884,462 |
|
| | | | | | | | (319 | ) | (c) | |
| | | | | | | | 61,165 |
| (d) | |
| Subordinated limited partner capital | 279,524 |
| | — |
| | — |
| | (225 | ) | (c) | 322,581 |
|
| | | | | | | | 43,282 |
| (d) | |
| General partner interests | 24,100 |
| | — |
| | — |
| | 4,125 |
| (a) | 30,345 |
|
| | | | | | | | (11 | ) | (c) | |
| | | | | | | | 2,131 |
| (d) | |
| Owner's net investment and membership interests | — |
| | 389,887 |
| | 6,691 |
| | (396,578 | ) | (d) | — |
|
| Total partners' capital, owner's net investment and membership interests | 933,865 |
| | 389,887 |
| | 6,691 |
| | (93,055 | ) | | 1,237,388 |
|
| Total liabilities and partners' capital, owner's net investment and membership interests | $ | 1,828,988 |
| | $ | 405,365 |
| | $ | 6,822 |
| | $ | — |
| | $ | 2,241,175 |
|
The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2015
|
| | | | | | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Summit Midstream Partners, LP | | Polar Midstream Company, LLC (carve-out basis) | | Epping Transmission Company, LLC | | Pro forma adjustments | | Summit Midstream Partners, LP pro forma | |
| | (In thousands, except per-unit amounts) | |
| Total revenues | $ | 68,579 |
| | $ | 8,582 |
| | $ | — |
| | $ | — |
| | $ | 77,161 |
| |
| | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | |
| Cost of natural gas and NGLs | 6,695 |
| | — |
| | — |
| | — |
| | 6,695 |
| |
| Operation and maintenance | 17,429 |
| | 2,219 |
| | 98 |
| | — |
| | 19,746 |
| |
| General and administrative | 8,351 |
| | 1,173 |
| | 134 |
| | — |
| | 9,658 |
| |
| Depreciation and amortization | 22,143 |
| | 1,559 |
| | 53 |
| | — |
| | 23,755 |
| |
| Total costs and expenses | 54,618 |
| | 4,951 |
| | 285 |
| | — |
| | 59,854 |
| |
| Other income | 1 |
| | — |
| | — |
| | — |
| | 1 |
| |
| Interest expense | (12,118 | ) | | — |
| | — |
| | (502 | ) | (b) | (12,620 | ) | |
| Income before income taxes | 1,844 |
| | 3,631 |
| | (285 | ) | | (502 | ) | | 4,688 |
| |
| Income tax expense | (177 | ) | | — |
| | — |
| | — |
| | (177 | ) | |
| Net income (loss) | $ | 1,667 |
| | $ | 3,631 |
| | $ | (285 | ) | | $ | (502 | ) | | $ | 4,511 |
| |
| Less: net income attributable to general partner, including IDRs | 1,568 |
| |
| | | | 226 |
| | 1,794 |
| |
| Net income attributable to limited partners | $ | 99 |
| |
| | | | $ | 2,618 |
| | $ | 2,717 |
| |
| | | | | | | | | | | |
| Earnings per common unit – basic | $ | 0.00 |
| | | | | | | | $ | 0.04 |
| |
| Earnings per common unit – diluted | $ | 0.00 |
| | | | | | | | $ | 0.04 |
| |
| Earnings per subordinated unit – basic and diluted | $ | 0.00 |
| | | | | | | | $ | 0.04 |
| |
| | | | | | | | | | | |
| Weighted-average common units outstanding – basic | 34,439 |
| | | | | | | | 40,939 |
| (e) |
| Weighted-average common units outstanding – diluted | 34,585 |
| | | | | | | | 41,085 |
| (f) |
| Weighted-average subordinated units outstanding – basic and diluted | 24,410 |
| | | | | | | | 24,410 |
| |
The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014
|
| | | | | | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Summit Midstream Partners, LP | | Polar Midstream Company, LLC (carve-out basis) | | Epping Transmission Company, LLC | | Pro forma adjustments | | Summit Midstream Partners, LP pro forma | |
| | (In thousands, except per-unit amounts) | |
| Total revenues | $ | 330,686 |
| | $ | 22,449 |
| | $ | — |
| | $ | — |
| | $ | 353,135 |
| |
| | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | |
| Cost of natural gas and NGLs | 58,094 |
| | — |
| | — |
| | — |
| | 58,094 |
| |
| Operation and maintenance | 76,272 |
| | 7,332 |
| | 76 |
| | — |
| | 83,680 |
| |
| General and administrative | 34,017 |
| | 4,207 |
| | 45 |
| | — |
| | 38,269 |
| |
| Transaction costs | 730 |
| | — |
| | — |
| | — |
| | 730 |
| |
| Depreciation and amortization | 82,990 |
| | 4,326 |
| | 33 |
| | — |
| | 87,349 |
| |
| Loss on asset sales, net | 442 |
| | — |
| | — |
| | — |
| | 442 |
| |
| Goodwill impairment | 54,199 |
| | — |
| | — |
| | — |
| | 54,199 |
| |
| Long-lived asset impairment | 5,505 |
| | — |
| | — |
| | — |
| | 5,505 |
| |
| Total costs and expenses | 312,249 |
| | 15,865 |
| | 154 |
| | — |
| | 328,268 |
| |
| Other income | 1,189 |
| | — |
| | — |
| | — |
| | 1,189 |
| |
| Interest expense | (40,159 | ) | | — |
| | — |
| | (1,885 | ) | (b) | (42,044 | ) | |
| Loss before income taxes | (20,533 | ) | | 6,584 |
| | (154 | ) | | (1,885 | ) | | (15,988 | ) | |
| Income tax expense | (631 | ) | | — |
| | — |
| | — |
| | (631 | ) | |
| Net (loss) income | $ | (21,164 | ) | | $ | 6,584 |
| | $ | (154 | ) | | $ | (1,885 | ) | | $ | (16,619 | ) | |
| Less: net income attributable to Summit Investments | 2,828 |
| | | | | | — |
| | 2,828 |
| |
| Net (loss) income attributable to SMLP | (23,992 | ) | |
| | | | 4,545 |
| | (19,447 | ) | |
| Less: net (loss) income attributable to general partner, including IDRs | 3,125 |
| |
| | | | 489 |
| | 3,614 |
| |
| Net loss attributable to limited partners | $ | (27,117 | ) | |
| | | | $ | 4,056 |
| | $ | (23,061 | ) | |
| | | | | | | | | | | |
| Loss per common unit – basic | $ | (0.49 | ) | | | | | | | | $ | (0.34 | ) | |
| Loss per common unit – diluted | $ | (0.49 | ) | | | | | | | | $ | (0.34 | ) | |
| Loss per subordinated unit – basic and diluted | $ | (0.44 | ) | | | | | | | | $ | (0.40 | ) | |
| | | | | | | | | | | |
| Weighted-average common units outstanding – basic | 33,311 |
| | | | | | | | 39,811 |
| (g) |
| Weighted-average common units outstanding – diluted | 33,311 |
| | | | | | | | 39,811 |
| (g) |
| Weighted-average subordinated units outstanding – basic and diluted | 24,410 |
| | | | | | | | 24,410 |
| |
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2013
|
| | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Summit Midstream Partners, LP | | Polar Midstream Company, LLC (carve-out basis) | | Pro forma adjustments | | Summit Midstream Partners, LP pro forma | |
| | (In thousands, except per-unit amounts) | |
| Total revenues | $ | 292,920 |
| | $ | 3,893 |
| | $ | — |
| | $ | 296,813 |
| |
| | | | | | | | | |
| Costs and expenses: | | | | | | | | |
| Cost of natural gas and NGLs | 44,233 |
| | — |
| | — |
| | 44,233 |
| |
| Operation and maintenance | 72,465 |
| | 1,580 |
| | — |
| | 74,045 |
| |
| General and administrative | 30,105 |
| | 1,824 |
| | — |
| | 31,929 |
| |
| Transaction costs | 2,841 |
| | 4 |
| | — |
| | 2,845 |
| |
| Depreciation and amortization | 69,962 |
| | 612 |
| | — |
| | 70,574 |
| |
| Loss on asset sales, net | 113 |
| | — |
| | — |
| | 113 |
| |
| Total costs and expenses | 219,719 |
| | 4,020 |
| | — |
| | 223,739 |
| |
| Other income | 5 |
| | — |
| | — |
| | 5 |
| |
| Interest expense | (19,173 | ) | | — |
| | (2,274 | ) | (b) | (21,447 | ) | |
| Income before income taxes | 54,033 |
| | (127 | ) | | (2,274 | ) | | 51,632 |
| |
| Income tax expense | (729 | ) | | — |
| | — |
| | (729 | ) | |
| Net income (loss) | $ | 53,304 |
| | $ | (127 | ) | | $ | (2,274 | ) | | $ | 50,903 |
| |
| Less: net income attributable to Summit Investments | 9,720 |
| | | | — |
| | 9,720 |
| |
| Net income (loss) attributable to SMLP | 43,584 |
| | | | (2,401 | ) | | 41,183 |
| |
| Less: net income attributable to general partner, including IDRs | 1,035 |
| | | | (28 | ) | | 1,007 |
| |
| Net income (loss) attributable to limited partners | $ | 42,549 |
| | | | $ | (2,373 | ) | | $ | 40,176 |
| |
| | | | | | | | | |
| Earnings per common unit – basic | $ | 0.86 |
| | | | | | $ | 0.75 |
| |
| Earnings per common unit – diluted | $ | 0.86 |
| | | | | | $ | 0.74 |
| |
| Earnings per subordinated unit – basic and diluted | $ | 0.79 |
| | | | | | $ | 0.65 |
| |
| | | | | | | | | |
| Weighted-average common units outstanding – basic | 26,951 |
| | | | | | 32,632 |
| (h) |
| Weighted-average common units outstanding – diluted | 27,101 |
| | | | | | 32,782 |
| (i) |
| Weighted-average subordinated units outstanding – basic and diluted | 24,410 |
| | | | | | 24,410 |
| |
The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Pro forma adjustments
(a) On May 13, 2015, we closed an underwritten public offering of 6,500,000 common limited partner units. Concurrent with and as a result of the offering, SMLP's general partner made an additional capital contribution to maintain its 2% general partner interest. Net proceeds from the offering totaled $197.5 million (including the general partner contribution) and were used to partially fund the purchase of Polar Midstream and Epping. This presentation does not reflect the impact of the underwriter's subsequent exercise of their option to purchase additional units.
(b) We borrowed $92.5 million under our revolving credit facility to fund the remaining balance of the purchase price of Polar Midstream and Epping.
The unaudited pro forma condensed combined statement of operations impact for each of the periods presented reflects incremental interest expense on related borrowings based on the following rates for the periods included in the respective quarterly or annual period:
|
| | | | | |
| | Borrowing rate | | Commitment fee |
| Attributable to the quarter ended: | | | |
| March 31, 2015 | 2.67 | % | | 0.500 | % |
| December 31, 2014 | 2.41 | % | | 0.375 | % |
| September 30, 2014 | 2.40 | % | | 0.375 | % |
| June 30, 2014 | 2.42 | % | | 0.375 | % |
| March 31, 2014 | 2.42 | % | | 0.375 | % |
| December 31, 2013 | 3.43 | % | | 0.500 | % |
| September 30, 2013 | 2.71 | % | | 0.500 | % |
| June 30, 2013 | 2.71 | % | | 0.500 | % |
| March 31, 2013 | 2.98 | % | | 0.500 | % |
The borrowing rate and commitment fee indicated above represent our historical average rates under our revolving credit facility during the respective period and assumes that the interest expense impact of the additional outstanding balance is partially offset by a reduction in the historical commitment fee for the same principal amount for each respective period.
(c) Reflects the total purchase price for SMLP's acquisition of Polar Midstream, Epping and the exercise of the Stampede Lateral option, calculated as follows (in thousands):
|
| | | |
| Aggregate cash consideration paid to Summit Investments | $ | 290,000 |
|
| Direct acquisition costs | 555 |
|
| Total Polar Midstream and Epping acquisition purchase price | $ | 290,555 |
|
Direct acquisition costs have been accrued as of March 31, 2015 but have not been given pro forma effect in the unaudited pro forma condensed combined statement of operations.
(d) Reflects partner's capital contribution by Summit Investments for the contribution of assets in excess of consideration paid by SMLP for Polar Midstream and Epping (in thousands):
|
| | | | | | | |
| Summit Investments' owner's net investment in Polar Midstream and membership interests in Epping, net | | | $ | 396,578 |
|
| Net cash received from primary offering | $ | 197,500 |
| | |
| Borrowings under revolving credit facility | 92,500 |
| | |
| Total cash consideration paid by SMLP | | | 290,000 |
|
| Summit Investments' contribution of net assets in excess of consideration paid | | | $ | 106,578 |
|
| | | | |
| Allocation of contribution: | | | |
| Common limited partner capital | $ | 61,165 |
| | |
| Subordinated limited partner capital | 43,282 |
| | |
| General partner interests | 2,131 |
| | |
| Partners' capital allocation | | | $ | 106,578 |
|
The general partner interests allocation was calculated based on a 2% general partner interest in the contribution of net assets by Summit Investments in excess of consideration paid by SMLP. Common and subordinated limited partner capital allocations were calculated as their respective percentages of total limited partner capital as of March 31, 2015 applied to the balance of the contribution by Summit Investments after giving effect to the general partner interests allocation.
(e) The pro forma basic weighted-average number of common units outstanding for the three months ended March 31, 2015 was calculated as follows:
|
| | |
| Basic weighted-average number of common units outstanding—as reported | 34,439 |
|
| Adjustment for impact of common units issued to partially fund the purchase of Polar Midstream and Epping | 6,500 |
|
| Pro forma basic weighted-average number of common units outstanding | 40,939 |
|
(f) The pro forma diluted weighted-average number of common units outstanding for the three months ended March 31, 2015 was calculated as follows:
|
| | |
| Diluted weighted-average number of common units outstanding—as reported | 34,585 |
|
| Adjustment for impact of common units issued to partially fund the purchase of Polar Midstream and Epping | 6,500 |
|
| Pro forma diluted weighted-average number of common units outstanding | 41,085 |
|
(g) The pro forma basic and diluted weighted-average number of common units outstanding for the year ended December 31, 2014 was calculated as follows:
|
| | |
| Basic and diluted weighted-average number of common units outstanding—as reported | 33,311 |
|
| Adjustment for impact of common units issued to partially fund the purchase of Polar Midstream and Epping | 6,500 |
|
| Pro forma basic and diluted weighted-average number of common units outstanding | 39,811 |
|
(h) The pro forma basic weighted-average number of common units outstanding for the year ended December 31, 2013 was calculated as follows:
|
| | |
| Basic weighted-average number of common units outstanding—as reported | 26,951 |
|
| Adjustment for impact of common units issued to partially fund the purchase of Polar Midstream and Epping | 5,681 |
|
| Pro forma basic weighted-average number of common units outstanding | 32,632 |
|
(i) The pro forma diluted weighted-average number of common units outstanding for the year ended December 31, 2013 was calculated as follows:
|
| | |
| Diluted weighted-average number of common units outstanding—as reported | 27,101 |
|
| Adjustment for impact of common units issued to partially fund the purchase of Polar Midstream and Epping | 5,681 |
|
| Pro forma diluted weighted-average number of common units outstanding | 32,782 |
|
