Business Combinations | 6 Months Ended |
Jun. 30, 2014 |
Business Combinations [Abstract] | ' |
Business Combinations | ' |
Business Combinations |
On April 1, 2014, TEP closed the acquisition of Trailblazer from a wholly owned subsidiary of TD for total consideration valued at approximately $164 million, consisting of $150 million in cash and the issuance of 385,140 common units (valued at approximately $14 million based on the March 31, 2014 closing price of TEP’s common units). On that same date, the general partner contributed additional capital in the amount of approximately $263,000 in exchange for the issuance of 7,860 general partner units in order to maintain its 2% general partner interest. The acquisition of Trailblazer represents a change in reporting entity and a transaction between entities under common control. The excess purchase price over the net book value of Trailblazer's assets and liabilities was accounted for as a deemed distribution as discussed further in Note 9 – Partnership Equity and Distributions. |
Historical Financial Information |
The results of our acquisition of Trailblazer are included in the consolidated balance sheets as of June 30, 2014 and December 31, 2013. The following table presents the previously reported December 31, 2013 consolidated balance sheet, adjusted for the acquisition of Trailblazer from TD: |
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| | As of December 31, 2013 | | | | | | | | | | | |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | TEP (as currently reported) | | | | | | | | | | | |
| | (in thousands) | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | $ | 27,615 | | | $ | 2,418 | | | $ | 30,033 | | | | | | | | | | | | |
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Gas imbalances | | 2,598 | | | 530 | | | 3,128 | | | | | | | | | | | | |
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Inventories | | 5,148 | | | 401 | | | 5,549 | | | | | | | | | | | | |
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Prepayments and other current assets | | 16,986 | | | — | | | 16,986 | | | | | | | | | | | | |
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Total Current Assets | | 52,347 | | | 3,349 | | | 55,696 | | | | | | | | | | | | |
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Property, plant and equipment, net | | 594,911 | | | 62,869 | | | 657,780 | | | | | | | | | | | | |
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Goodwill | | 304,474 | | | 30,241 | | | 334,715 | | | | | | | | | | | | |
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Unconsolidated investment | | 1,255 | | | — | | | 1,255 | | | | | | | | | | | | |
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Deferred financing costs | | 4,512 | | | — | | | 4,512 | | | | | | | | | | | | |
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Deferred charges and other assets | | 10,299 | | | 1,000 | | | 11,299 | | | | | | | | | | | | |
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Total Assets | | $ | 967,798 | | | $ | 97,459 | | | $ | 1,065,257 | | | | | | | | | | | | |
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LIABILITIES AND PARTNERS’ EQUITY | | | | | | | | | | | | | | | | | |
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Current Liabilities: | | | | | | | | | | | | | | | | | |
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Accounts payable | | $ | 54,621 | | | $ | 5,619 | | | $ | 60,240 | | | | | | | | | | | | |
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Accounts payable to related parties | | 7,134 | | | 3 | | | 7,137 | | | | | | | | | | | | |
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Gas imbalances | | 3,142 | | | 522 | | | 3,664 | | | | | | | | | | | | |
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Derivative liabilities at fair value | | 184 | | | — | | | 184 | | | | | | | | | | | | |
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Accrued taxes | | 4,427 | | | 1,093 | | | 5,520 | | | | | | | | | | | | |
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Accrued other current liabilities | | 14,777 | | | 1,971 | | | 16,748 | | | | | | | | | | | | |
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Total Current Liabilities | | 84,285 | | | 9,208 | | | 93,493 | | | | | | | | | | | | |
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Long-term debt | | 135,000 | | | — | | | 135,000 | | | | | | | | | | | | |
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Other long-term liabilities and deferred credits | | 4,572 | | | — | | | 4,572 | | | | | | | | | | | | |
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Total Long-term Liabilities | | 139,572 | | | — | | | 139,572 | | | | | | | | | | | | |
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Partners’ Equity: | | | | | | | | | | | | | | | | | |
Net Equity | | 743,941 | | | 88,251 | | | 832,192 | | | | | | | | | | | | |
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Total Partners’ Equity | | 743,941 | | | 88,251 | | | 832,192 | | | | | | | | | | | | |
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Total Liabilities and Partners’ Equity | | $ | 967,798 | | | $ | 97,459 | | | $ | 1,065,257 | | | | | | | | | | | | |
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The results of our acquisition of Trailblazer are included in the condensed consolidated statements of income for the three and six months ended June 30, 2014 and 2013. The following tables present the previously reported condensed consolidated statements of income for the three and six months ended June 30, 2013, adjusted for the acquisition of Trailblazer from TD: |
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| | Three Months Ended June 30, 2013 | | | | | | | | | | | |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | TEP (as currently reported) | | | | | | | | | | | |
| | (in thousands) | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | |
Natural gas liquids sales | | $ | 31,690 | | | $ | — | | | $ | 31,690 | | | | | | | | | | | | |
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Natural gas sales | | 3,888 | | | 360 | | | 4,248 | | | | | | | | | | | | |
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Transportation services | | 25,324 | | | 5,585 | | | 30,909 | | | | | | | | | | | | |
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Processing and other revenues | | 2,500 | | | — | | | 2,500 | | | | | | | | | | | | |
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Total Revenues | | 63,402 | | | 5,945 | | | 69,347 | | | | | | | | | | | | |
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Operating Costs and Expenses: | | | | | | | | | | | | | | | | | |
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Cost of sales and transportation services | | 32,358 | | | 2,899 | | | 35,257 | | | | | | | | | | | | |
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Operations and maintenance | | 8,305 | | | 924 | | | 9,229 | | | | | | | | | | | | |
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Depreciation and amortization | | 7,436 | | | 1,896 | | | 9,332 | | | | | | | | | | | | |
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General and administrative | | 5,039 | | | 1,478 | | | 6,517 | | | | | | | | | | | | |
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Taxes, other than income taxes | | 1,394 | | | 269 | | | 1,663 | | | | | | | | | | | | |
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Total Operating Costs and Expenses | | 54,532 | | | 7,466 | | | 61,998 | | | | | | | | | | | | |
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Operating Income (Loss) | | 8,870 | | | (1,521 | ) | | 7,349 | | | | | | | | | | | | |
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Other (Expense) Income: | | | | | | | | | | | | | | | | | |
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Interest (expense) income, net | | (3,500 | ) | | 5 | | | (3,495 | ) | | | | | | | | | | | |
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Loss on extinguishment of debt | | (17,526 | ) | | — | | | (17,526 | ) | | | | | | | | | | | |
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Other income, net | | 429 | | | 16 | | | 445 | | | | | | | | | | | | |
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Total Other (Expense) Income | | (20,597 | ) | | 21 | | | (20,576 | ) | | | | | | | | | | | |
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Net Loss | | $ | (11,727 | ) | | $ | (1,500 | ) | | $ | (13,227 | ) | | | | | | | | | | | |
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| | Six Months Ended June 30, 2013 | | | | | | | | | | | |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | TEP (as currently reported) | | | | | | | | | | | |
| | (in thousands) | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | |
Natural gas liquids sales | | $ | 65,091 | | | $ | — | | | $ | 65,091 | | | | | | | | | | | | |
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Natural gas sales | | 4,189 | | | 509 | | | 4,698 | | | | | | | | | | | | |
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Transportation services | | 49,661 | | | 10,866 | | | 60,527 | | | | | | | | | | | | |
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Processing and other revenues | | 4,719 | | | — | | | 4,719 | | | | | | | | | | | | |
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Total Revenues | | 123,660 | | | 11,375 | | | 135,035 | | | | | | | | | | | | |
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Operating Costs and Expenses: | | | | | | | | | | | | | | | | | |
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Cost of sales and transportation services | | 61,828 | | | 4,615 | | | 66,443 | | | | | | | | | | | | |
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Operations and maintenance | | 14,840 | | | 1,752 | | | 16,592 | | | | | | | | | | | | |
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Depreciation and amortization | | 14,982 | | | 3,740 | | | 18,722 | | | | | | | | | | | | |
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General and administrative | | 9,673 | | | 2,871 | | | 12,544 | | | | | | | | | | | | |
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Taxes, other than income taxes | | 3,171 | | | 538 | | | 3,709 | | | | | | | | | | | | |
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Total Operating Costs and Expenses | | 104,494 | | | 13,516 | | | 118,010 | | | | | | | | | | | | |
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Operating Income (Loss) | | 19,166 | | | (2,141 | ) | | 17,025 | | | | | | | | | | | | |
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Other (Expense) Income: | | | | | | | | | | | | | | | | | |
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Interest (expense) income, net | | (9,064 | ) | | 5 | | | (9,059 | ) | | | | | | | | | | | |
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Loss on extinguishment of debt | | (17,526 | ) | | — | | | (17,526 | ) | | | | | | | | | | | |
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Other income, net | | 768 | | | 33 | | | 801 | | | | | | | | | | | | |
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Total Other (Expense) Income | | (25,822 | ) | | 38 | | | (25,784 | ) | | | | | | | | | | | |
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Net Loss | | $ | (6,656 | ) | | $ | (2,103 | ) | | $ | (8,759 | ) | | | | | | | | | | | |
Formation of BNN Water Solutions, LLC |
On November 26, 2013, TEP, through its wholly-owned subsidiary Tallgrass Energy Investments, LLC (“TEI”), entered into a joint venture agreement with BNN Energy LLC (“BNN”) to form Grasslands Water Services I, LLC (“GWSI”). GWSI subsequently built and began operating an intrastate water pipeline in Colorado. TEP accounted for its 50% equity interest in GWSI as an equity method investment. On May 13, 2014, TEI entered into a contribution agreement with BNN and several other parties to form a new entity known as BNN Water Solutions, LLC (“Water Solutions”). Under the terms of the contribution agreement, TEI agreed to contribute its existing 50% interest in GWSI, along with $7.6 million cash, in exchange for an 80% equity interest in Water Solutions. As part of the transaction, GWSI was renamed BNN Redtail, LLC (“Redtail”), became a subsidiary of Water Solutions, and issued preferred equity interests to TEI. Among the assets contributed by BNN and the other parties to the transaction were the other 50% interest in GWSI and a 100% equity interest in Alpha Reclaim Technology, LLC (“Alpha”), a company which sources treated wastewater from municipalities. Alpha is wholly-owned by Redtail. |
Upon closing of the transaction, TEP obtained a controlling financial interest in Water Solutions and accordingly has accounted for the transaction as a step acquisition under ASC 805. On the acquisition date, TEP remeasured its previously held 50% equity interest in GWSI to its fair value of $11.9 million, recognized a gain of $9.4 million, and consolidated Water Solutions. The 20% equity interest in Water Solutions held by noncontrolling interests was recorded at its acquisition date fair value of $1.4 million. The fair values of the previously held equity interest and the noncontrolling interest were determined using a discounted cash flow based on forecasted cash flows for the business. These fair value measurements are based on significant inputs that are not observable in the market and thus represent fair value measurements categorized within Level 3 of the fair value hierarchy under ASC 820. |
The following represents the fair value of assets acquired and liabilities assumed at May 13, 2014: |
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Accounts receivable | $ | 790 | | | | | | | | | | | | | | | | | | | | | |
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Property, plant and equipment | 4,100 | | | | | | | | | | | | | | | | | | | | | |
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Intangible assets | 8,200 | | (1) | | | | | | | | | | | | | | | | | | | |
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Accounts payable and accrued liabilities | (134 | ) | | | | | | | | | | | | | | | | | | | | |
Distribution payable | (634 | ) | | | | | | | | | | | | | | | | | | | | |
Net identifiable assets acquired | 12,322 | | | | | | | | | | | | | | | | | | | | | |
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Goodwill | 8,573 | | | | | | | | | | | | | | | | | | | | | |
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Net assets acquired | $ | 20,895 | | | | | | | | | | | | | | | | | | | | | |
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(1) | The $8.2 million intangible asset acquired represents a major customer contract and is subject to amortization over the remaining contract term (approximately 1.6 years). Amortization of $0.7 million was recorded during the period from May 13, 2014 to June 30, 2014. | | | | | | | | | | | | | | | | | | | | | | |
At June 30, 2014, the assets acquired and liabilities assumed in the acquisition were recorded at provisional amounts based on the preliminary purchase price allocation. TEP is in the process of obtaining additional information to identify and measure all assets acquired and liabilities assumed in the acquisition within the measurement period. Such provisional amounts will be adjusted if necessary to reflect any new information about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of these amounts. |
Actual revenue and net loss attributable to TEP from Water Solutions of $0.9 million and $0.2 million, respectively, was recognized in the accompanying Condensed Consolidated Statements of Income for the period from May 13, 2014 to June 30, 2014. |
Pro Forma revenue and net income attributable to TEP for the three and six months ended June 30, 2014 is presented in the following table. No pro forma information is presented for the three and six months ended June 30, 2013 as Water Solutions did not begin commercial operations until the first quarter of 2014. |
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| Three Months Ended June 30, 2014 | | Six Months Ended June 30, 2014 | | | | | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | | | | | | | | |
Revenue | $ | 78,084 | | | $ | 174,540 | | | | | | | | | | | | | | | | | |
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Net income attributable to TEP | $ | 7,642 | | | $ | 26,541 | | | | | | | | | | | | | | | | | |
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This unaudited pro forma financial information for TEP is presented as if the acquisition of Water Solutions had been completed on January 1, 2013. The pro forma financial information is not necessarily indicative of what the actual results of operations or financial position of TEP would have been if the transactions had in fact occurred on the date or for the period indicated, nor do they purport to project the results of operations or financial position of TEP Predecessor for any future periods or as of any date. The pro forma financial information does not give effect to any cost savings, operating synergies, or revenue enhancements expected to result from the transactions or the costs to achieve these cost savings, operating synergies, and revenue enhancements. The pro forma revenue and net income includes adjustments for the three and six months ended June 30, 2014 to give effect to the following: |
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(a) | Reduction in net income attributable to TEP to remove equity in earnings of GWSI recorded for the period from January 1, 2014 to May 13, 2014. | | | | | | | | | | | | | | | | | | | | | | |
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(b) | Increase in revenue and net income attributable to TEP to reflect TEP's consolidated 80% equity interest in the operations of GWSI for the period from January 1, 2014 to May 13, 2014. | | | | | | | | | | | | | | | | | | | | | | |
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(c) | Reduction in net income attributable to TEP to remove gain on remeasurement of previously held equity interest in GWSI. | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Goodwill |
The following table presents a reconciliation of the carrying amount of goodwill by reportable segment for the reporting period: |
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| Three Months Ended June 30, 2014 | | Three Months Ended June 30, 2013 |
| Gas Transportation and storage | | Processing | | Total | | Gas Transportation and storage | | Processing | | Total |
| | | (in thousands) | | | | | | (in thousands) | | |
Balance at beginning of period | $ | 255,558 | | | $ | 79,157 | | | $ | 334,715 | | | $ | 255,100 | | | $ | 78,057 | | | $ | 333,157 | |
|
Goodwill acquired | — | | | 8,573 | | (1) | 8,573 | | | — | | | — | | | — | |
|
Balance at end of period | $ | 255,558 | | | $ | 87,730 | | | $ | 343,288 | | | $ | 255,100 | | | $ | 78,057 | | | $ | 333,157 | |
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| Six Months Ended June 30, 2014 | | Six Months Ended June 30, 2013 |
| Gas Transportation and storage | | Processing | | Total | | Gas Transportation and storage | | Processing | | Total |
| | | (in thousands) | | | | | | (in thousands) | | |
Balance at beginning of period | $ | 255,558 | | | $ | 79,157 | | | $ | 334,715 | | | $ | 255,100 | | | $ | 78,057 | | | $ | 333,157 | |
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Goodwill acquired | — | | | 8,573 | | (1) | 8,573 | | | — | | | — | | | — | |
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Balance at end of period | $ | 255,558 | | | $ | 87,730 | | | $ | 343,288 | | | $ | 255,100 | | | $ | 78,057 | | | $ | 333,157 | |
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(1) The $8.6 million of goodwill was recorded in connection with the acquisition of a controlling interest in Water Solutions on May 13, 2014. |