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8-K - FORM 8-K - SUBURBAN PROPANE PARTNERS LPd382407d8k.htm
EX-2.1 - THIRD AMENDMENT TO CONTRIBUTION AGREEMENT - SUBURBAN PROPANE PARTNERS LPd382407dex21.htm

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF SUBURBAN

On April 25, 2012, Suburban entered into a Contribution Agreement, as amended on June 15, 2012, July 6, 2012 and July 19, 2012 (the “Contribution Agreement”), with Inergy, L.P., a Delaware limited partnership (“Inergy”), Inergy GP, LLC, a Delaware limited liability company (“NRGY GP”), and Inergy Sales & Service, Inc., a Delaware corporation (“Inergy Sales”).

The Contribution Agreement provides that Inergy and NRGY GP will contribute to Suburban 100% of the limited liability company interests (the “Inergy Propane Interests”) in Inergy Propane, LLC, a Delaware limited liability company, which at the closing of the transaction will hold only the following interests: (i) 100% of the limited partner interests in Liberty Propane, L.P., a Delaware limited partnership (“Liberty Propane”), which in turn owns 100% of the limited liability company interests in Liberty Propane Operations, LLC, a Delaware limited liability company (“Liberty Operations”); and (ii) 100% of the limited liability company interests in Liberty Propane GP, LLC, a Delaware limited liability company (“Liberty Propane GP”), which in turn owns 100% of the general partner interest in Liberty Propane (collectively with the Inergy Propane Interests, these interests are referred to herein as the “Acquired Interests”). Inergy will also contribute certain assets of Inergy Sales to Suburban (the “Acquired Assets”). Prior to the closing date of the Inergy Propane Acquisition, certain subsidiaries of Inergy Propane, LLC, which will not be contributed pursuant to the Contribution Agreement, will be distributed by Inergy Propane, LLC to Inergy. Following the closing of the Inergy Propane Acquisition (as defined below), Inergy Propane, Liberty Propane, Liberty Operations and Liberty Propane GP will be indirect wholly-owned subsidiaries of Suburban.

Upon contribution, transfer, assignment, and delivery of the Acquired Interests and Acquired Assets to Suburban, Suburban will issue and deliver to Inergy and Inergy Sales, as consideration in connection with the Inergy Propane Acquisition, subject to certain adjustments, an aggregate of up to 15,940,869 newly issued Suburban common units (the “Equity Consideration”). The Equity Consideration consists of (i) the “Initial Equity Consideration” which is equal to 13,892,587 Suburban common units, and (ii) the “Additional Equity Consideration” which is equal to a number of Suburban common units determined by dividing (a) the Inergy Cash Consideration (as defined below) by (b) $42.50, rounded to the nearest whole Suburban common unit; provided that the aggregate amount of Additional Equity Consideration shall not exceed 2,048,282 Suburban common units. Inergy Sales will distribute any and all Suburban common units it receives in connection with the Inergy Propane Acquisition to Inergy. Thereafter, in connection with the Inergy Propane Acquisition and pursuant to the Contribution Agreement, Inergy will distribute ninety-nine percent (99%) of any and all Equity Consideration received to its unitholders and will retain one percent (1%) of any and all Equity Consideration.

Pursuant to the Contribution Agreement, Suburban and its wholly-owned subsidiary Suburban Energy Finance Corp. commenced a private offer to exchange (the “Exchange Offers”) any and all of the outstanding unsecured 7% Senior Notes due 2018 (the “2018 Inergy Notes”) and 6 7/8% Senior Notes due 2021 (the “2021 Inergy Notes”, and together with the 2018 Inergy Notes, the “Inergy Notes”) issued by Inergy and Inergy Finance Corp., which have an aggregate principal amount outstanding of $1.2 billion, for a combination of up to $1.0 billion in aggregate principal amount of new unsecured 7 1/2% Senior Notes due 2018 and 7 3/8% Senior Notes due 2021, respectively, issued by Suburban and Suburban Energy Finance Corp. (collectively, the “SPH Notes”) and up to $200.0 million in cash to be paid to tendering noteholders (the “Exchange Offer Cash Consideration”). Pursuant to the Contribution Agreement, we must pay Inergy the difference, if any, between $200.0 million and the actual Exchange Offer Cash Consideration paid in accordance with the terms of the Exchange Offers (such payment, the “Inergy Cash Consideration”). Suburban will satisfy the Inergy Cash Consideration solely by delivering to Inergy the Additional Equity Consideration.

The Contribution Agreement provides that Suburban will offer $65.0 million in aggregate cash consent payments in connection with the Exchange Offers and that Inergy will pay $36.5 million to Suburban in cash at the acquisition closing date.

As of July 12, 2012, the consent date for the Exchange Offers, Suburban had received tenders and consents from holders representing approximately 96.75% of the total outstanding principal amount of the 2018 Inergy Notes, and tenders and consents from holders representing approximately 88.75% of the total outstanding principal amount of the 2021 Inergy Notes. As a result, the minimum tender condition has been satisfied with respect to the Exchange Offers and requisite consents have been received for both series of Inergy Notes. As of the date hereof, no additional tenders of Inergy Notes or consents have been received. Based on the results of the Exchange Offers as of the date hereof, the Exchange Offer Cash Consideration due to tendering Inergy noteholders was $112,948,000 and the Inergy Cash Consideration due to Inergy was $87,052,000. The Inergy Cash Consideration will be satisfied by the issuance of the Additional Equity Consideration. The Exchange Offers expire on July 26, 2012 (the “Expiration Date”), subject to extension. Any additional tenders received prior to the Expiration Date (as it may be extended) will increase the Exchange Offer Cash Consideration paid to tendering noteholders and decrease the Inergy Cash Consideration. Accordingly, because the Inergy Cash Consideration will be satisfied solely through issuance of Additional Equity Consideration, any decrease in the Inergy Cash Consideration will reduce the number of Suburban common units issued as Additional Equity Consideration. Assuming that no additional tenders are received pursuant to the Exchange Offers subsequent to the date hereof, Inergy (i) will receive 15,940,869 Suburban common units, (ii) will subsequently distribute 15,781,460 of such Suburban common units to its unitholders as of the Record Date, pro rata, and (iii) will retain 1% of such common units, or 159,409 Suburban common units.

The transactions described above that are contemplated by the terms of the Contribution Agreement are referred to herein as the “Inergy Propane Acquisition.” The Acquired Interests and Acquired Assets are collectively referred to herein as “Inergy Propane.”

As of July 18, 2012, the preliminary fair value of the purchase price for Inergy Propane was $1,860.8 million, consisting of: (i) $1.0 billion of newly issued SPH Notes and $112.9 million in cash to Inergy noteholders pursuant to the Exchange Offers; (ii) $65.0 million in cash to the Inergy noteholders for the consent payments pursuant to the Consent Solicitations; and (iii) $719.4 million of new Suburban common units, which will be distributed to Inergy and Inergy Sales, all but $7.2 million of which will subsequently be distributed by Inergy to its unitholders. The preliminary fair value of the purchase price is net of the $36.5 million of cash to be received from Inergy upon closing of the Inergy Propane Acquisition pursuant to the Contribution Agreement Amendment.

On April 25, 2012, we entered into a commitment letter (the “Bank Commitment Letter”) with certain of our lenders who are party to the Credit Agreement (as defined herein) pursuant to which such lenders committed to provide (i) in the aggregate, subject to the satisfaction of certain conditions precedent, up to $250.0 million senior secured 364-day incremental term loan facility (the “364-Day Facility”) and (ii) an increase in the aggregate, subject to the satisfaction of certain conditions precedent, of our existing revolving credit facility under the Credit Agreement from $250.0 million to $400.0 million (the “Commitment Increase”). We expect to draw $150.0 million on the 364-Day Facility on the Acquisition Closing Date, which, together with available cash, will be used for the purposes of paying (i) the Exchange Offer Cash Consideration, (ii) costs and fees related to the Exchange Offers, and (iii) costs and expenses related to the Inergy Propane Acquisition. We intend to repay such borrowings with an equity financing in the future, subject to market conditions. The following pro form financial information reflects borrowings of $150.0 million under the 364-Day Facility.

The following unaudited pro forma condensed combined financial information of Suburban has been prepared to illustrate the effect of the Inergy Propane Acquisition on us and has been prepared for informational purposes only. The unaudited pro forma condensed combined financial information is based upon the historical consolidated financial statements and notes thereto of Suburban and Inergy Propane and should be read in conjunction with the:

 

   

audited annual financial statements and the accompanying notes of Suburban Propane Partners, L.P. for the fiscal year ended September 24, 2011, and the unaudited condensed consolidated financial statements and accompanying notes for the quarterly period ended March 24, 2012, both of which are included in this prospectus; and

 

   

audited historical financial statements and accompanying notes of Inergy Propane, LLC as of September 30, 2011 and 2010, and for each of the three years in the period ended September 30, 2011, and the unaudited interim historical financial statements and accompanying notes for the six months ended March 31, 2012 and 2011, both of which are included in this prospectus.

 

1


The historical consolidated financial information has been adjusted in the following unaudited pro forma condensed combined financial statements to give pro forma effect to events that are (1) directly attributable to the Inergy Propane Acquisition and related financing, (2) factually supportable, and (3) with respect to the statements of operations, are expected to have a continuing impact on the combined results of Suburban. Although Suburban has entered into the Contribution Agreement with Inergy, there is no guarantee that the Inergy Propane Acquisition will be completed in the manner contemplated or at all. The unaudited pro forma condensed combined statements of operations have been prepared assuming the Inergy Propane Acquisition had been completed on September 26, 2010, the first day of Suburban’s 2011 fiscal year. The unaudited pro forma condensed combined balance sheet has been prepared assuming the Inergy Propane Acquisition had been completed on March 24, 2012, the last day of Suburban’s 2012 second fiscal quarter. The unaudited pro forma condensed combined financial information has been adjusted with respect to certain aspects of the Inergy Propane Acquisition to reflect:

 

   

the consummation of the Inergy Propane Acquisition (including completion of the Exchange Offers assuming that no Inergy Notes are tendered subsequent to the consent date and $150 million of borrowings under the 364-Day Facility as described above);

 

   

exclusion of historical assets and liabilities of Inergy Propane, LLC not acquired or assumed as part of the Inergy Propane Acquisition and changes in certain revenues and expenses resulting from the exclusion of these assets and liabilities;

 

   

re-measurement of the assets and liabilities of Inergy Propane (as disclosed in more detail below) to record their preliminary estimated fair values at the date of the closing of the Inergy Propane Acquisition and adjustment of certain expenses resulting therefrom;

 

   

additional indebtedness, including, but not limited to, debt issuance costs and interest expense, incurred in connection with the exchange of Inergy Notes for the SPH Notes;

 

   

additional indebtedness, including, but not limited to, debt issuance costs and interest expense incurred in connection with borrowing under the 364-Day Facility;

 

   

no tax adjustments were made as Suburban is a publicly traded master limited partnership and has no substantial federal or state income tax liability.

The unaudited pro forma condensed combined financial information was prepared in accordance with the acquisition method of accounting. The pro forma information presented, including allocation of the purchase price, is based on preliminary estimates of fair values of assets acquired and liabilities assumed in connection with the Inergy Propane Acquisition. These preliminary estimates are based on available information and certain assumptions that may be revised as additional information becomes available.

The final purchase price allocation for the Inergy Propane Acquisition will be dependent upon the finalization of asset and liability valuations, which may depend in part on prevailing market rates and conditions, as well as the final form of financing that Suburban will utilize to effect the Inergy Propane Acquisition. Any final adjustments may be materially different from the preliminary estimates, and may result in a change to the unaudited pro forma condensed combined financial information presented in this prospectus.

We believe that the assumptions used to derive the unaudited pro forma condensed combined financial information are reasonable given the information available; however, such assumptions are subject to change and the effect of any such change could be material. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations that would have been reported had the Inergy Propane Acquisition been completed as of or for the periods presented, nor are they necessarily indicative of future results.

 

2


SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 24, 2012 (*)

(in thousands)

 

    Historical
Suburban
Propane
Partners, L.P.
(2)
    Historical
Inergy
Propane, LLC
(3)
    Elimination of
Assets Not
Acquired and
Liabilities Not
Assumed

(4)
    Reclassifications
(5)
    Financing
Activities
    Other Pro
Forma
Adjustments
    Pro
Forma
Combined
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 96,202      $ 11,800      $ (1,248   $ —        $ (24,298   $ —   (6)    $ 82,456   

Accounts receivable, less allowance for doubtful accounts

    106,843        161,200        (80,138         —          187,905   

Inventories

    67,287        88,300        (46,896         —          108,691   

Assets from price risk management activities

    —          14,100        (14,100         —          —     

Other current assets

    12,199        10,000        (8,050       2,250        —   (7)      16,399   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    282,531        285,400        (150,432     —          (22,048     —          395,451   

Property, plant and equipment, net

    330,452        658,200        (185,817         141,715 (8)      944,550   

Other intangible assets, net

    14,582        306,600        (4,646         78,595 (9)      395,131   

Receivable from Inergy Midstream, L.P.

    —          300        (300         —          —     

Goodwill

    277,651        336,500        (379         447,028 (10)      1,060,800   

Other assets

    26,262        2,000        (1,463       14,850        —   (11)      41,649   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 931,478      $ 1,589,000      $ (343,037   $ —        $ (7,198   $ 667,338      $ 2,837,581   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL/ MEMBER’S EQUITY

  

       

Current liabilities:

             

Accounts payable

  $ 34,208      $ 114,100      $ (113,509   $ (566   $ —        $ —        $ 34,233   

Accrued employment and benefit costs

    14,832        —          —          2,607          —          17,439   

Customer deposits and advances

    34,968        26,800        —          4,046          —          65,814   

Short term borrowings and current portion of long-term borrowings

    —          4,200        (97     (4,103     150,000        —   (12)      150,000   

Liabilities from price risk management activities

    —          5,100        (5,100         —          —     

Other current liabilities

    27,241        28,800        (18,473     (1,984       —          35,584   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    111,249        179,000        (137,179     —          150,000        —          303,070   

Long-term borrowings

    348,277        12,500        (1,879     (10,621     1,000,000        —   (13)      1,348,277   

Accrued insurance

    41,218        —          —              —          41,218   

Other liabilities

    54,501        14,100        (14,100     10,621          —          65,122   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    555,245        205,600        (153,158     —          1,150,000        —          1,757,687   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ capital/member’s equity

    376,233        1,383,400            703,661        (1,383,400 )(14)      1,079,894   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and partners’ capital/member’s equity

  $ 931,478      $ 1,589,000      $ (153,158   $ —        $ 1,853,661      $ (1,383,400   $ 2,837,581   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Suburban Propane Partners, L.P. uses a 52/53 week fiscal year which ends on the last Saturday in September and its fiscal quarters are generally 13 weeks in duration. Inergy Propane, LLC uses a fiscal year end which ends on September 30. Accordingly, the second fiscal quarter ended on March 24, 2012 for Suburban and March 31, 2012 for Inergy Propane.

 

3


SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 24, 2012 (*)

(in thousands, except per unit amounts)

 

    Historical
Suburban
Propane
Partners, L.P.
(2)
    Historical
Inergy
Propane, LLC
(3)
    Elimination of
Assets Not
Acquired and
Liabilities Not
Assumed

(4)
    Reclassifications
(5)
    Financing
Activities
    Other Pro
Forma
Adjustments
    Pro
Forma
Combined
 

Revenues

             

Propane

  $ 524,115      $ 928,600      $ (423,046   $ —        $ —        $ —        $ 1,029,669   

Fuel oil and other refined fuels

    74,729        —          —          77,372          —          152,101   

Other

    58,668        291,700        (179,614     (77,372       —          93,382   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    657,512        1,220,300        (602,660     —          —          —          1,275,152   

Costs and expenses

             

Cost of products sold

    391,975        930,100        (562,228         —          759,847   

Operating and administrative expenses

    163,688        146,400        (20,028         —          290,060   

Loss on disposal of assets

    —          3,600        2            —          3,602   

Depreciation and amortization

    15,434        57,400        (21,872         9,983 (15)      60,945   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    571,097        1,137,500        (604,126     —          —          9,983        1,114,454   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    86,415        82,800        1,466        —          —          (9,983     160,698   

Loss on debt extinguishment

    (507     —          —              —          (507

Interest expense, net

    (13,263     (600     34          (41,930     —   (16)      (55,759

Other income

    —          1,400        (1,293         —          107   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit from) provision for income taxes

    72,645        83,600        207        —         
(41,930

    (9,983     104,539   

(Benefit from) provision for income taxes

    (160     —          (43         —          (203
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 72,805      $ 83,600      $ 250      $ —        $ (41,930   $ (9,983   $ 104,742   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income per Common Unit — basic

  $ 2.05                $ 2.03   
 

 

 

             

 

 

 

Weighted average number of units outstanding — basic

    35,588                15,941 (14)      51,529   
 

 

 

             

 

 

 

Income per Common Unit — diluted

  $ 2.03                $ 2.02   
 

 

 

             

 

 

 

Weighted average number of units outstanding — diluted

    35,808                15,941 (14)      51,749   
 

 

 

             

 

 

 

 

(*) Suburban Propane Partners, L.P. uses a 52/53 week fiscal year which ends on the last Saturday in September and its fiscal quarters are generally 13 weeks in duration. Inergy Propane, LLC uses a fiscal year end which ends on September 30. Accordingly, the second fiscal quarter ended on March 24, 2012 for Suburban and March 31, 2012 for Inergy Propane.

 

4


SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED SEPTEMBER 24, 2011 (*)

(in thousands, except per unit amounts)

 

    Historical
Suburban
Propane
Partners, L.P.
(2)
    Historical
Inergy
Propane, LLC
(3)
    Elimination of
Assets Not
Acquired and
Liabilities Not
Assumed

(4)
    Reclassifications
(5)
    Financing
Activities
    Other Pro
Forma
Adjustments
    Pro
Forma
Combined
 

Revenues

             

Propane

  $ 929,492      $ 1,461,900      $ (602,294   $ —        $ —        $ —        $ 1,789,098   

Fuel oil and other refined fuels

    139,572        —          —          128,300          —          267,872   

Other

    121,488        486,800        (294,082     (128,300       —          185,906   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,190,552        1,948,700        (896,376     —          —          —          2,242,876   

Costs and expenses

             

Cost of products sold

    678,719        1,424,100        (822,250         —          1,280,569   

Operating and administrative expenses

    330,977        285,800        (28,713         —          588,064   

Severance charge

    2,000        —          —              —          2,000   

Loss on disposal of assets

    —          10,800        113            —          10,913   

Depreciation and amortization

    35,628        117,200        (42,700         18,809 (15)      128,937   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,047,324        1,837,900        (893,550     —          —          18,809        2,010,483   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    143,228        110,800        (2,826     —          —          (18,809     232,393   

Interest expense, net

    (27,378     (1,500     100          (83,861     —   (16)      (112,639

Other income

    —          200        —              —          200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

    115,850        109,500        (2,726     —          (83,861     (18,809     119,954   

Provision for income taxes

    884        500        (100         —          1,284   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 114,966      $ 109,000      $ (2,626   $ —        $ (83,861   $ (18,809   $ 118,670   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income per Common Unit — basic

  $ 3.24                $ 2.31   
 

 

 

             

 

 

 

Weighted average number of units outstanding — basic

    35,525                15,941 (14)      51,466   
 

 

 

             

 

 

 

Income per Common Unit — diluted

  $ 3.22                $ 2.30   
 

 

 

             

 

 

 

Weighted average number of units outstanding — diluted

    35,723                15,941 (14)      51,664   
 

 

 

             

 

 

 

 

(*) Suburban Propane Partners, L.P. uses a 52/53 week fiscal year which ends on the last Saturday in September and its fiscal quarters are generally 13 weeks in duration. Inergy Propane, LLC uses a fiscal year end which ends on September 30.

 

5


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands of dollars, except per unit data)

Note 1. The unaudited pro forma condensed combined financial information was prepared based on the preliminary valuation of the purchase price of $1,860,859 and allocation to the identifiable assets acquired and liabilities assumed. The purchase price was determined and allocated for accounting purposes as follows:

 

Consideration:

  

Cash consideration to Inergy noteholders pursuant to the Exchange Offers

   $ 112,948   

Cash consideration to Inergy noteholders for consent payment pursuant to the Consent Solicitations

     65,000   

SPH Notes issued to Inergy noteholders

     1,000,000   

Initial Equity Consideration (see Note 14)

     626,972   

Additional Equity Consideration (see Note 14)

     92,439   

Cash consideration from Inergy pursuant to the Contribution Agreement

     (36,500
  

 

 

 
   $ 1,860,859   
  

 

 

 

 

Preliminary purchase price allocation:

  

Current assets

   $ 134,968   

Property, plant and equipment

     614,098   

Other intangible assets

     380,549   

Goodwill

     783,149   

Other assets

     537   

Current liabilities

     (41,821

Non-current liabilities

     (10,621
  

 

 

 
   $ 1,860,859   
  

 

 

 

Pursuant to the Contribution Agreement, the purchase price is subject to adjustment for working capital and certain liabilities of Inergy Propane that are being assumed by Suburban in the Inergy Propane Acquisition. These liabilities consist primarily of non-interest bearing obligations due under non-competition agreements between Inergy Propane and the sellers of retail propane companies acquired by Inergy Propane in the past, as well as certain other accrued liabilities. The actual amounts of these adjustments will depend on the fair value of the working capital and the fair value of the assumed liabilities on the closing date of the Inergy Propane Acquisition.

In addition, on the closing date of the Inergy Propane Acquisition, Inergy will provide Suburban with cash in an amount equal to the amount of accrued and unpaid interest on the Inergy Notes through the closing date of the Inergy Propane Acquisition, which Suburban will distribute to the Inergy noteholders participating in the Exchange Offers on the Acquisition Closing Date.

Note 2. Represents the historical consolidated results of operations and financial position of Suburban.

Note 3. Represents the historical consolidated results of operations and financial position of Inergy Propane, LLC.

Note 4. Reflects the elimination of the historical consolidated results of operations, assets and liabilities of Inergy Propane not to be acquired by Suburban.

Note 5. Reflects reclassifications of amounts included on Inergy Propane’s financial statements to conform to Suburban’s presentation.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands of dollars, except per unit data)

 

 

Note 6. Reflects pro forma adjustments to cash and cash equivalents as follows:

 

Gross proceeds from borrowings under 364-Day Facility

   $ 150,000   

Cash consideration from Inergy pursuant to the Contribution Agreement

     36,500   

Cash payments to Inergy noteholders pursuant to the Exchange Offers

     (112,948

Cash payments to Inergy noteholders for consent payment pursuant to the consent solicitations

     (65,000

Payment of debt origination costs

     (17,100

Payment of acquisition-related costs

     (15,750
  

 

 

 
   $ (24,298
  

 

 

 

Note 7. Reflects pro forma adjustments to record estimated debt issuance costs in conjunction with the 364-Day Facility.

Note 8. Reflects pro forma adjustments to record property, plant and equipment at estimated fair value as follows:

 

To record estimated fair value of Inergy Propane property, plant and equipment

   $ 614,098   

Eliminate historical net book value of Inergy Propane property, plant and equipment

     (472,383
  

 

 

 
   $ 141,715   
  

 

 

 

Note 9. Reflects pro forma adjustments to record other intangible assets at estimated fair value as follows:

 

Allocation of purchase price to customer relationships

   $ 363,000   

Allocation of purchase price to tradenames

     2,200   

Allocation of purchase price to non-competes

     15,349   

Eliminate historical cost of Inergy Propane’s other intangible assets

     (301,954
  

 

 

 
   $ 78,595   
  

 

 

 

Note 10. Reflects pro forma adjustments to remove Inergy Propane’s historical goodwill of $336,121 and to record goodwill of $783,149 representing the excess of the net purchase price over the preliminary fair values of the net assets acquired and liabilities assumed. Such goodwill principally comprises buyer-specific synergies and assembled workforce.

Note 11. Reflects pro forma adjustments to record estimated debt issuance costs in conjunction with the issuance of $1,000,000 in aggregate principal amount of SPH Notes.

Note 12. Reflects borrowings under the 364-Day Facility.

Note 13. Reflects the issuance of $1,000,000 in aggregate principal amount of SPH Notes. The fair value of the SPH Notes to be issued to Inergy noteholders on the closing date of the Inergy Propane Acquisition will be used for the final purchase price allocation for the Inergy Propane Acquisition, which may be different than the $1,000,000 reflected in the preliminary purchase price allocation and pro forma adjustment above.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands of dollars, except per unit data)

 

 

Note 14. Reflects total pro forma adjustments to partners’ capital accounts as follows:

 

     Suburban
Common
Units
     Suburban Common
Unitholders /
Member’s Equity
 
     (in thousands)         

Elimination of historical Inergy Propane member’s capital

      $ (1,383,400

Issuance of Suburban common units (Initial Equity Consideration)

     13,893         626,972   

Additional issuance of Suburban common units (Additional Equity Consideration)

     2,048         92,439   

Acquisition-related costs

        (15,750
  

 

 

    

 

 

 
     15,941       $ (679,739
  

 

 

    

 

 

 

In accordance with the Contribution Agreement, the number of Suburban common units to be issued to Inergy and Inergy Sales as Initial Equity Consideration in the aggregate is determined by dividing $600,000 by the average of the high and low sales prices of Suburban’s common units for the twenty consecutive trading days ending on the day prior to the execution of the Contribution Agreement, which was determined to be $43.1885, resulting in 13,893 common units. The number of additional units to be issued to Inergy as Additional Equity Consideration is determined by dividing the Inergy Cash Consideration by $42.50. On July 18, 2012, the Inergy Cash Consideration was estimated to be $87,052, which results in the issuance of 2,048 additional common units. A decrease in the Inergy Cash Consideration will result in a decrease in cash and cash equivalents and a corresponding decrease in partners’ capital.

The pro forma adjustment regarding the 15,941 Suburban common units to be issued to Inergy and Inergy Sales was determined based on the reported closing price of a Suburban common unit on the New York Stock Exchange on July 18, 2012. The fair value of the Suburban common units on the closing date of the Inergy Propane Acquisition will be used for the final purchase price allocation for the Inergy Propane Acquisition, which may be different than the amounts reflected in the preliminary purchase price allocation and pro forma adjustment above. If the fair value of Suburban’s common units on the closing date of the Inergy Propane Acquisition are 10% higher or lower than the preliminary fair value used for the preliminary valuation of the total purchase price of the Inergy Propane Acquisition, goodwill will increase (if higher) or decrease (if lower) by $71,941 in the final purchase price allocation.

Note 15. Reflects pro forma adjustments to depreciation and amortization expense as follows:

 

     For the Six
Months Ended
March 24,
2012
    For the Year
Ended
September 24,
2011
 

Eliminate historical depreciation and amortization expense of Inergy Propane

   $ (35,528   $ (74,500

Depreciation and amortization expense reflecting preliminary allocation of the purchase price:

    

Depreciation expense on property, plant and equipment (5 to 40 years)

     25,551        53,389   

Amortization expense of customer list intangibles (10 years)

     18,150        36,300   

Amortization expense of non-compete agreement intangibles (5 years)

     1,535        550   

Amortization expense of tradename intangibles (4 years)

     275        3,070   
  

 

 

   

 

 

 
   $ 9,983      $ 18,809   
  

 

 

   

 

 

 

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands of dollars, except per unit data)

 

 

Note 16. Reflects pro forma adjustments to interest expense as follows:

 

     For the Six
Months Ended
March 24,
2012
     For the Year
Ended
September 24,
2011
 

Interest on SPH Notes

   $ 37,187       $ 74,375   

Interest on borrowings under the 364-Day Facility

     2,625         5,250   

Amortization of debt issuance costs

     2,118         4,236   
  

 

 

    

 

 

 
   $ 41,930       $ 83,861   
  

 

 

    

 

 

 

Borrowing under the 364-Day Facility bears interest at prevailing interest rates based upon 3-month LIBOR, which was approximately 0.5% as of July 18, 2012, plus 300 basis points. Accordingly, interest expense on borrowing of $150,000 for the full term of the 364-Day Facility would approximate $5,250 using an interest rate of 3.5%. If the 3-month LIBOR increased or decreased by 12.5 basis points from the rate as of July 18, 2012, annual interest expense would increase or decrease by $188.

 

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