Business Combinations | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
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 11 – Partnership Equity and Distributions. |
Effective September 1, 2014, TEP acquired a 33.3% membership interest in Pony Express for total consideration of approximately $600 million. At closing, Pony Express, TD, and TEP entered into a Second Amended and Restated Limited Liability Company Agreement of Pony Express effective September 1, 2014, which sets forth the relative rights of TD and TEP as the owners of Pony Express. Of the total consideration of $600 million, TEP directly paid TD $30 million, consisting of $27 million in cash and 70,340 TEP common units with an aggregate fair value of approximately $3 million, in exchange for the transfer by TD to TEP of a 1.9585% membership interest in Pony Express (as such percentage is computed before giving effect to the issuance of the new membership interest by Pony Express to TEP). TEP also contributed cash of $570 million to Pony Express in exchange for a newly issued membership interest which, when combined with the membership interest transferred from TD and the parties' entry at closing into the Second Amended and Restated Limited Liability Company Agreement of Pony Express, constitutes TEP's 33.3% membership interest in Pony Express, which represents 100% of the preferred membership units issued by Pony Express. Of the $570 million cash consideration received by Pony Express, $300 million was immediately distributed to TD at closing and $270 million is maintained by Pony Express to fund the estimated remaining costs of construction for the Pony Express Mainline and the Northeast Colorado Lateral. The $270 million cash balance was subsequently swept to TD under a cash management agreement between Pony Express and TD and was recorded as a related party loan which bears interest at TD's incremental borrowing rate. |
The terms of the transaction provide TEP a minimum quarterly preference payment of $16.65 million through the quarter ending September 30, 2015 (pro-rated to approximately $5.4 million for the quarter ending September 30, 2014) with distributions thereafter shared in accordance with the terms of the Second Amended and Restated Limited Liability Company Agreement of Pony Express. TEP has determined that Pony Express is a VIE of which TEP is the primary beneficiary, and consolidates Pony Express accordingly. For additional discussion and disclosure, see Note 3 – Variable Interest Entities. The acquisition of Pony Express represents a transaction between entities under common control and a change in reporting entity. |
Historical Financial Information |
The results of our acquisitions of Trailblazer and Pony Express are included in the consolidated balance sheets as of September 30, 2014 and December 31, 2013. The following table presents the previously reported December 31, 2013 consolidated balance sheet, adjusted for the acquisitions of Trailblazer and Pony Express: |
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | Consolidate Tallgrass Pony Express Pipeline, LLC | | TEP (As currently reported) |
| | (in thousands) |
ASSETS | | | | | | | | |
Current Assets: | | | | | | | | |
Accounts receivable, net | | $ | 27,615 | | | $ | 2,418 | | | $ | — | | | $ | 30,033 | |
|
Gas imbalances | | 2,598 | | | 530 | | | — | | | 3,128 | |
|
Inventories | | 5,148 | | | 401 | | | — | | | 5,549 | |
|
Prepayments and other current assets | | 16,986 | | | — | | | — | | | 16,986 | |
|
Total Current Assets | | 52,347 | | | 3,349 | | | — | | | 55,696 | |
|
Property, plant and equipment, net | | 594,911 | | | 62,869 | | | 459,026 | | | 1,116,806 | |
|
Goodwill | | 304,474 | | | 30,241 | | | — | | | 334,715 | |
|
Intangible asset, net | | — | | | — | | | 102,567 | | | 102,567 | |
|
Unconsolidated investment | | 1,255 | | | — | | | — | | | 1,255 | |
|
Deferred financing costs | | 4,512 | | | — | | | — | | | 4,512 | |
|
Deferred charges and other assets | | 10,299 | | | 1,000 | | | 4,563 | | | 15,862 | |
|
Total Assets | | $ | 967,798 | | | $ | 97,459 | | | $ | 566,156 | | | $ | 1,631,413 | |
|
LIABILITIES AND PARTNERS’ EQUITY | | | | | | | | |
|
Current Liabilities: | | | | | | | | |
|
Accounts payable | | $ | 54,621 | | | $ | 5,619 | | | $ | 89,212 | | | $ | 149,452 | |
|
Accounts payable to related parties | | 7,134 | | | 3 | | | — | | | 7,137 | |
|
Gas imbalances | | 3,142 | | | 522 | | | — | | | 3,664 | |
|
Derivative liabilities at fair value | | 184 | | | — | | | — | | | 184 | |
|
Accrued taxes | | 4,427 | | | 1,093 | | | — | | | 5,520 | |
|
Accrued other current liabilities | | 14,777 | | | 1,971 | | | 35 | | | 16,783 | |
|
Total Current Liabilities | | 84,285 | | | 9,208 | | | 89,247 | | | 182,740 | |
|
Long-term debt | | 135,000 | | | — | | | — | | | 135,000 | |
|
Other long-term liabilities and deferred credits | | 4,572 | | | — | | | — | | | 4,572 | |
|
Total Long-term Liabilities | | 139,572 | | | — | | | — | | | 139,572 | |
|
Partners’ Equity: | | | | | | | | |
Net Equity | | 743,941 | | | 88,251 | | | 476,909 | | | 1,309,101 | |
|
Total Partners’ Equity | | 743,941 | | | 88,251 | | | 476,909 | | | 1,309,101 | |
|
Total Liabilities and Partners’ Equity | | $ | 967,798 | | | $ | 97,459 | | | $ | 566,156 | | | $ | 1,631,413 | |
|
The results of our acquisitions of Trailblazer and Pony Express are included in the condensed consolidated statements of income for the three and nine months ended September 30, 2014 and 2013. The following tables present the previously reported condensed consolidated statements of income for the three and nine months ended September 30, 2013, adjusted for the acquisitions of Trailblazer and Pony Express: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2013 |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | Consolidate Tallgrass Pony Express Pipeline, LLC | | TEP (As currently reported) |
| | (in thousands) |
Revenues: | | | | | | | | |
Natural gas liquids sales | | $ | 32,216 | | | $ | — | | | $ | — | | | $ | 32,216 | |
|
Natural gas sales | | 3,053 | | | 328 | | | — | | | 3,381 | |
|
Transportation services | | 23,785 | | | 5,131 | | | — | | | 28,916 | |
|
Processing and other revenues | | 4,205 | | | — | | | — | | | 4,205 | |
|
Total Revenues | | 63,259 | | | 5,459 | | | — | | | 68,718 | |
|
Operating Costs and Expenses: | | | | | | | | |
|
Cost of sales and transportation services | | 32,307 | | | 2,697 | | | — | | | 35,004 | |
|
Operations and maintenance | | 8,588 | | | 689 | | | — | | | 9,277 | |
|
Depreciation and amortization | | 7,342 | | | 1,771 | | | 757 | | | 9,870 | |
|
General and administrative | | 6,071 | | | 1,249 | | | 1 | | | 7,321 | |
|
Taxes, other than income taxes | | 1,577 | | | 268 | | | — | | | 1,845 | |
|
Total Operating Costs and Expenses | | 55,885 | | | 6,674 | | | 758 | | | 63,317 | |
|
Operating Income (Loss) | | 7,374 | | | (1,215 | ) | | (758 | ) | | 5,401 | |
|
Other (Expense) Income: | | | | | | | | |
|
Interest (expense) income, net | | (1,422 | ) | | 46 | | | — | | | (1,376 | ) |
|
Loss on extinguishment of debt | | — | | | — | | | — | | | — | |
|
Other income, net | | 1,054 | | | 16 | | | — | | | 1,070 | |
|
Total Other (Expense) Income | | (368 | ) | | 62 | | | — | | | (306 | ) |
|
Net Income (Loss) | | $ | 7,006 | | | $ | (1,153 | ) | | $ | (758 | ) | | $ | 5,095 | |
|
Net loss attributable to noncontrolling interests | | — | | | — | | | 505 | | | 505 | |
|
Net Income (Loss) attributable to partners | | $ | 7,006 | | | $ | (1,153 | ) | | $ | (253 | ) | | $ | 5,600 | |
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2013 |
| | TEP | | Consolidate Trailblazer Pipeline Company LLC | | Consolidate Tallgrass Pony Express Pipeline, LLC | | TEP (As currently reported) |
| | (in thousands) |
Revenues: | | | | | | | | |
Natural gas liquids sales | | $ | 97,307 | | | $ | — | | | $ | — | | | $ | 97,307 | |
|
Natural gas sales | | 7,242 | | | 837 | | | — | | | 8,079 | |
|
Transportation services | | 73,446 | | | 15,997 | | | — | | | 89,443 | |
|
Processing and other revenues | | 8,924 | | | — | | | — | | | 8,924 | |
|
Total Revenues | | 186,919 | | | 16,834 | | | — | | | 203,753 | |
|
Operating Costs and Expenses: | | | | | | | | |
|
Cost of sales and transportation services | | 94,135 | | | 7,312 | | | — | | | 101,447 | |
|
Operations and maintenance | | 23,428 | | | 2,441 | | | — | | | 25,869 | |
|
Depreciation and amortization | | 22,324 | | | 5,511 | | | 2,271 | | | 30,106 | |
|
General and administrative | | 15,744 | | | 4,120 | | | 3 | | | 19,867 | |
|
Taxes, other than income taxes | | 4,748 | | | 806 | | | — | | | 5,554 | |
|
Total Operating Costs and Expenses | | 160,379 | | | 20,190 | | | 2,274 | | | 182,843 | |
|
Operating Income (Loss) | | 26,540 | | | (3,356 | ) | | (2,274 | ) | | 20,910 | |
|
Other (Expense) Income: | | | | | | | | |
|
Interest (expense) income, net | | (10,486 | ) | | 51 | | | — | | | (10,435 | ) |
|
Loss on extinguishment of debt | | (17,526 | ) | | — | | | — | | | (17,526 | ) |
|
Other income, net | | 1,822 | | | 49 | | | — | | | 1,871 | |
|
Total Other (Expense) Income | | (26,190 | ) | | 100 | | | — | | | (26,090 | ) |
|
Net Income (Loss) | | 350 | | | (3,256 | ) | | (2,274 | ) | | (5,180 | ) |
|
Net loss attributable to noncontrolling interests | | — | | | — | | | 1,516 | | | 1,516 | |
|
Net Income (Loss) attributable to partners | | $ | 350 | | | $ | (3,256 | ) | | $ | (758 | ) | | $ | (3,664 | ) |
|
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 (in thousands): |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Accounts receivable | $ | 790 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Property, plant and equipment | 4,100 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Intangible assets | 8,200 | | (1) | | | | | | | | | | | | |
| | | | | | | | | | | |
Accounts payable and accrued liabilities | (134 | ) | | | | | | | | | | | | | |
Distribution payable | (634 | ) | | | | | | | | | | | | | |
Net identifiable assets acquired | 12,322 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Goodwill | 8,573 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Net assets acquired | $ | 20,895 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) | The $8.2 million intangible asset acquired represents a major customer contract. See Note 8 – Goodwill and Other Intangible Assets for additional information. | | | | | | | | | | | | | | | |
At September 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 $3.1 million and $0.2 million, respectively, was recognized in the accompanying Condensed Consolidated Statements of Income for the period from May 13, 2014 to September 30, 2014. Pro Forma revenue and net income attributable to TEP for the nine months ended September 30, 2014 was $264.9 million and $34.9 million, respectively. No pro forma information is presented for the three and nine months ended September 30, 2013 as Water Solutions did not begin commercial operations until the first quarter of 2014. |
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 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 nine months ended September 30, 2014 to give effect to the following: |
| | | | | | | | | | | | | | | | |
(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. | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(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. | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(c) | Reduction in net income attributable to TEP to remove gain on remeasurement of previously held equity interest in GWSI. | | | | | | | | | | | | | | | |