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8-K/A - FORM 8-K/A - Rose Rock Midstream, L.P.d476144d8ka.htm
EX-99.5 - EX-99.5 - Rose Rock Midstream, L.P.d476144dex995.htm
EX-99.4 - EX-99.4 - Rose Rock Midstream, L.P.d476144dex994.htm
EX-23.1 - EX-23.1 - Rose Rock Midstream, L.P.d476144dex231.htm
EX-99.3 - EX-99.3 - Rose Rock Midstream, L.P.d476144dex993.htm
EX-23.2 - EX-23.2 - Rose Rock Midstream, L.P.d476144dex232.htm

EXHIBIT 99.2

Index to SemCrude Pipeline, L.L.C. Financial Statements

 

     Page
SemCrude Pipeline, L.L.C.   

Report of Independent Registered Public Accounting Firm

   2

Balance Sheets – as of December 31, 2011 and 2010

   3

Statements of Operations – for the two years ended December 31, 2011 and 2010, the one month ended December 31, 2009 (Successor) and the eleven months ended November 30, 2009 (Predecessor)

   4

Statements of Changes in Member’s Equity—for the two years ended December 31, 2011 and 2010, the one month ended December 31, 2009 (Successor) and the eleven months ended November 30, 2009 (Predecessor)

   5

Statements of Cash Flows – for the two years ended December 31, 2011 and 2010, the one month ended December 31, 2009 (Successor) and the eleven months ended November 30, 2009 (Predecessor)

   6

Notes to Financial Statements

   7


Report of Independent Registered Public Accounting Firm

Board of Directors

SemGroup Corporation

Tulsa, Oklahoma

We have audited the accompanying balance sheets of SemCrude Pipeline, L.L.C. (the “Company”) as of December 31, 2011 and 2010 (Successor) and the related statements of operations, member’s equity, and cash flows for the two years ended December 31, 2011 and 2010 and for the one month ended December 31, 2009 (Successor), and for the eleven months ended November 30, 2009 (Predecessor). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SemCrude Pipeline, L.L.C. at December 31, 2011 and 2010 (Successor), and the results of its operations and its cash flows for the two years ended December 31, 2011 and 2010 and for the one month ended December 31, 2009 (Successor), and for the eleven months ended November 30, 2009 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, effective November 30, 2009, the Company emerged from bankruptcy and applied fresh start accounting. As a result, the statements of operations and cash flows for the two years ended December 31, 2011 and 2010 and for the one month ended December 31, 2009, are presented on a different basis than for the periods before fresh-start and, therefore, are not comparable.

/s/ BDO USA, LLP

BDO USA, LLP

Dallas, Texas

February 5, 2013

 

2


SEMCRUDE PIPELINE, L.L.C.

Balance Sheets

(In thousands)

 

     December 31,
2011
     December 31,
2010
 

ASSETS

     

Investment in affiliate

   $ 143,259       $ 152,020   
  

 

 

    

 

 

 

Total assets

   $ 143,259       $ 152,020   
  

 

 

    

 

 

 

LIABILITIES AND MEMBER’S EQUITY

     

Payable to affiliates

   $ —         $ 255   

Member’s equity:

     

Member capital

     136,355         159,864   

Retained earnings (accumulated deficit)

     6,904         (8,099
  

 

 

    

 

 

 

Total member’s equity

     143,259         151,765   
  

 

 

    

 

 

 

Total liabilities and member’s equity

   $ 143,259       $ 152,020   
  

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements.

 

3


SEMCRUDE PIPELINE, L.L.C.

Statements of Operations

(In thousands)

 

     Successor      Predecessor  
     Year Ended
December 31,
2011
     Year Ended
December 31,
2010
    Month Ended
December 31,
2009
     Eleven Months
Ended  November

30, 2009
 

Revenues

   $ —         $ 38,898      $ 3,927       $ 20,894   

Expenses:

            

Costs of products sold

     —           2,769        —           —     

Operating

     —           6,292        246         2,101   

General and administrative

     1         2,865        742         1,623   

Depreciation and amortization

     —           17,208        4,119         7,685   

Loss on disposal

     —           6,828        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses

     1         35,962        5,107         11,409   
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings from equity method investments

     15,004         1,949        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income (loss)

     15,003         4,885        (1,180      9,485   

Other (income) expenses:

            

Interest expense

     —           10,979        1,103         4,593   

Other income, net

     —           (586     (1      (32
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other (income) expenses, net

     —           10,393        1,102         4,561   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income (loss) before reorganization items

     15,003         (5,508     (2,282      4,924   

Reorganization items gain

     —           —          —           83,880   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss)

     15,003         (5,508     (2,282      88,804   

Less: net income (loss) attributable to noncontrolling interests

     —           283        26         (550
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to SemCrude Pipeline, L.L.C.

   $ 15,003       $ (5,791   $ (2,308    $ 89,354   
  

 

 

    

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements.

 

4


SEMCRUDE PIPELINE, L.L.C.

Statements of Changes in Member’s Equity

(In thousands)

 

     Units      Member
Capital
    Retained
Earnings/(Accumulated
Deficit)
    Noncontrolling
Interests
    Total
Member’s
Equity
 

Balance at December 31, 2008 (Predecessor)

     100       $ 77,418      $ (5,978   $ 2,000      $ 73,440   

Net income prior to implementation of Plan of Reorganization

     —           —          4,877        68        4,945   

Member contributions

     —           624        —          —          624   

Distributions to noncontrolling interests

     —           —          —          (86     (86
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance prior to implementation of Plan of Reorganization

     100         78,042        (1,101     1,982        78,923   

Forgiveness of affiliate payables

     —           48,038        —          —          48,038   

Adoption of fresh-start reporting

     —           83,376        1,101        (618     83,859   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at November 30, 2009 (Successor)

     100         209,456        —          1,364        210,820   

Net income (loss)

     —           —          (2,308     26        (2,282

Distributions to noncontrolling interests

     —           —          —          (25     (25
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2009 (Successor)

     100         209,456        (2,308     1,365        208,513   

Net income (loss)

     —           —          (5,791     283        (5,508

Net distributions to SemGroup

     —           (49,592     —          —          (49,592

Distributions to noncontrolling interests

     —           —          —          (277     (277

Deconsolidation of White Cliffs

     —           —          —          (1,371     (1,371
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010 (Successor)

     100         159,864        (8,099     —          151,765   

Net income

     —           —          15,003        —          15,003   

Member contributions

     —           477        —          —          477   

Net distributions to SemGroup

     —           (23,986     —          —          (23,986
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011 (Successor)

     100       $ 136,355      $ 6,904      $ —        $ 143,259   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

5


SEMCRUDE PIPELINE, L.L.C.

Statements of Cash Flows

(In thousands)

 

     Successor     Predecessor  
     Year Ended
December 31,
2011
    Year Ended
December 31,
2010
    Month Ended
December 31,
2009
    Eleven Months
Ended  November

30, 2009
 

Cash flows from operating activities:

          

Net income (loss)

   $ 15,003      $ (5,508   $ (2,282   $ 88,804   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

          

Depreciation and amortization

     —          17,208        4,119        7,685   

Amortization of debt issuance costs

     —          4,567        227        1,118   

Loss on disposal

     —          6,828        —          —     

Gain on fresh-start reporting

     —          —          —          (83,859
  

 

 

   

 

 

   

 

 

   

 

 

 
     15,003        23,095        2,064        13,748   

Changes in assets and liabilities:

          

Decrease (increase) in accounts receivable

     —          (1,188     (114     (3,323

Decrease (increase) in inventories

     —          1,665        (490     (1,175

Decrease (increase) in other assets

     —          2,284        2,792        (5,203

Increase (decrease) in payables to affiliates

     —          —          (527     —     

Increase (decrease) in accounts payable

     —          321        (15     (62

Increase (decrease) in accrued liabilities

     —          2,515        (122     2,191   

Increase (decrease) in payable to affiliate

     (255     (520     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     14,748        28,172        3,588        6,176   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Capital expenditures, net of refunds

     —          (53     11        (23,241

Distributions in excess of equity earnings

     12,455        3,819        —          —     

Investment in non-consolidated subsidiaries

     (3,694     (867     —          —     

De-consolidation of subsidiaries

     —          (5,519     —          —     

Proceeds from sale of non-consolidated subsidiaries

     —          140,765        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     8,761        138,145        11        (23,241
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Increase in payables to affiliates

     —          —          —          22,050   

Debt issuance costs

     —          —          —          (3,494

Principal payments on long-term debt

     —          (119,086     (5,914     —     

Member contributions

     477        —          —          —     

Net distributions to SemGroup

     (23,986     (49,592     —          —     

Distributions to non-controlling interest

     —          (277     (25     (86
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (23,509     (168,955     (5,939     18,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     —          (2,638     (2,340     1,405   

Cash and cash equivalents at beginning of period

     —          2,638        4,978        3,573   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ —        $ 2,638      $ 4,978   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

6


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

1. OVERVIEW

SemCrude Pipeline, L.L.C. (“SCPL”) is a Delaware limited liability company, which is a subsidiary of SemGroup Corporation (“SemGroup”). SCPL owns a 51% interest in White Cliffs Pipeline, L.L.C. (“White Cliffs”). SemGroup serves as manager of White Cliffs. White Cliffs owns a 527-mile crude oil pipeline with origination points in Platteville, Colorado and Healy, Kansas and a termination point in Cushing, Oklahoma.

SCPL generates substantially all of its earnings through its investment in White Cliffs. Prior to September 30, 2010, SCPL owned approximately 99% of White Cliffs. At the end of September 2010, the other members exercised certain rights to purchase additional membership interests, and SCPL’s membership interest was reduced to 51%. Subsequent to purchasing these additional membership interests, the other members gained substantive rights to participate in the management of White Cliffs. Because of this, SCPL deconsolidated White Cliffs on September 30, 2010 and began accounting for it under the equity method. The terms “we,” “our,” “us,” “the Company” and similar language used in these notes to the financial statements refer to SemCrude Pipeline, L.L.C.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.

On July 22, 2008 (the “Petition Date”), SemGroup, L.P. and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, SemGroup, L.P. filed a plan of reorganization with the court, which was confirmed on October 28, 2009 (the “Plan of Reorganization”). The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence, and the financing arrangements upon emergence. SemGroup, including its subsidiary, SCPL, emerged from bankruptcy protection on November 30, 2009 (the “Emergence Date”).

These financial statements of SCPL and its predecessor include activity prior to emergence from bankruptcy and activity subsequent to emergence from bankruptcy. As described in Note 2, SCPL’s predecessor applied fresh-start reporting on the Emergence Date. As a result, the consolidated financial statements subsequent to the Emergence Date are not comparable to the consolidated financial statements prior to the Emergence Date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Prior to the deconsolidation of White Cliffs, our significant estimates included, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impacts depreciation; (3) estimated fair values of long-lived assets recorded in fresh-start reporting; (4) estimated fair values of long-lived assets used in impairment tests; (5) fair values of derivative instruments; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.

FRESH-START REPORTING – We adopted fresh-start reporting on the Emergence Date. In connection with fresh-start reporting, we recorded our assets and liabilities at fair value at the Emergence Date.

CASH AND CASH EQUIVALENTS—Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.

PROPERTY, PLANT AND EQUIPMENT—Prior to the deconsolidation of White Cliffs, property, plant and equipment was recorded at cost (although, as described above, property, plant and equipment was adjusted to fair value at November 30, 2009 upon adoption of fresh-start reporting). We capitalized costs that extended or increased the future economic benefits of property, plant and equipment, and expensed maintenance costs that did not. Property, plant and equipment includes interest costs incurred during construction. We capitalized $2.1 million of interest costs during the eleven month period ended November 30, 2009, using interest rates ranging from 5.5% to 6.5%.

When assets were disposed of, their cost and related accumulated depreciation were removed from the balance sheet, and any resulting gain or loss was recorded within operating expenses in the statements of operations. Subsequent to deconsolidation, we do not have any property, plant and equipment.

 

7


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

Depreciation was calculated primarily on the straight-line method over the following estimated useful lives:

 

Pipelines and related facilities

     20 years   

Storage and terminal facilities

     10 –25 years   

Other property and equipment

     3 – 7 years   

OTHER INTANGIBLE ASSETS – In connection with fresh-start reporting, the Company recorded an intangible asset related to its customer relationships. The Company is amortizing this asset on an accelerated basis over the estimated periods of benefit. Subsequent to the deconsolidation of White Cliffs, we have no intangible assets.

IMPAIRMENT OF LONG-LIVED ASSETS – We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.

CONTINGENT LOSSES – SCPL records a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. SCPL records attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred, and does not record liabilities for attorneys’ fees that are expected to be incurred in the future.

ASSET RETIREMENT OBLIGATIONS – Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. SCPL records liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made. No asset retirement obligations have been recognized.

INTERCOMPANY ACCOUNTS – SCPL participates in SemGroup’s cash management program. Under this program, cash distributed to SCPL by White Cliffs is transferred to SemGroup on a regular basis; when SCPL uses cash for contributions to White Cliffs or for other purposes, SemGroup transfers cash to SCPL to cover the payments. In addition, SemGroup incurs certain expenses on behalf of White Cliffs, which are allocated to SCPL. SCPL passes these costs to White Cliffs. However, as the other members of White Cliffs are not responsible for the payment of these costs, SCPL treats these costs as an equity contribution to White Cliffs.

SCPL records transactions with SemGroup and its other controlled subsidiaries to intercompany accounts. When SCPL’s intercompany accounts are in a net receivable position, the balance is reported as a reduction to equity on the balance sheet. When SCPL’s intercompany accounts are in a net payable position, the balance is reported as a current liability on the balance sheet. In the statements of cash flows, SCPL reports the net change in the intercompany accounts as a financing cash flow within “net contributions from (distributions to) SemGroup”. SCPL reports the net change in equity associated with these transactions as “net contributions from SemGroup” or “net distributions to SemGroup” in the statements of changes in member’s equity.

SCPL’s intercompany accounts were in a net receivable position of $73.6 million and $49.6 million at December 31, 2011 and 2010, respectively. SCPL has reported this balance as a reduction to equity on the balance sheet, as SCPL does not expect to collect these intercompany receivables.

Affiliate payable balances of SCPL’s predecessor were forgiven at the Emergence Date. See Note 5 for additional information related to the reorganization.

EQUITY METHOD INVESTMENTS – We account for an investment under the equity method when we have significant influence over, but not control of, the significant operating decisions of the investee. Under the equity method, we record in the statement of operations our share of the earnings or losses of the investee, with a corresponding adjustment to the investment balance on our balance sheet. When we receive a distribution from an equity method investee, we record a corresponding reduction to the investment balance.

REVENUE RECOGNITION – Prior to the deconsolidation of White Cliffs in September 2010, revenue for the transportation of product was recognized upon delivery of the product to its destination. Subsequent to deconsolidation, we do not generate revenue.

LINE LOSS DEDUCTIONS AND INVENTORY – Prior to the deconsolidation of White Cliffs, we recorded a pipeline loss allowance (PLA) in the amount of two-tenths of one percent of any customer product placed in the system. The PLA was intended to compensate for expenses associated with product shrinkage and evaporation. If the PLA exceeded the actual amount of product loss, we were entitled to sell the product overage for our own gain. The PLA was recorded to revenue

 

8


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

and inventory in the month in which the shipment occurred. Gains or losses resulting from actual product overages or shortages were also recorded to cost of goods sold and inventory during the month the overage or shortage occurred. We recorded $0.9 million and $0.5 million and our predecessor recorded $1.2 million of revenue related to PLA during the period prior to deconsolidation for the year ended December 31, 2010, the month ended December 31, 2009 and the eleven months ended November 30, 2009, respectively. We recorded $1.1 million in cost of goods sold related to the actual product shortages during the period prior to deconsolidation for the year ended December 31, 2010. No actual product shortages were recorded during the month ended December 31, 2009 and the eleven months ended November 30, 2009. Prior to deconsolidation in 2010, we sold $2.0 million of inventory. Subsequent to deconsolidation, we no longer record a PLA or inventory.

INTEREST EXPENSE DURING REORGANIZATION – During the time between the Petition Date and the Emergence Date, we only recorded interest expense to the extent such interest was expected to be paid. Interest obligations that were expected to be compromised in the reorganization process were not recorded as expenses. The total amount of interest that we would have been contractually obligated to pay, but which was compromised in the reorganization process and neither paid nor recorded as an expense, was $3.3 million during the eleven months ended November 30, 2009.

REORGANIZATION ITEMS – We reported revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business as reorganization items in the consolidated statement of operations for the eleven months ended November 30, 2009. The reorganization items relate primarily to the gain resulting from fresh-start reporting.

INCOME TAXES – SCPL is a pass-through entity for federal and state income tax purposes. Our earnings are allocated to our members, who are responsible for any related income taxes. Because of this, no provision for income taxes is reported in the accompanying financial statements.

SUBSEQUENT EVENTS – SCPL has evaluated subsequent events for accrual or disclosure in these financial statements through February 5, 2013, which is the date these financial statements were issued.

In August 2012, the members of White Cliffs approved an expansion project to construct a 12” pipeline from Platteville, Colorado to Cushing, Oklahoma. The project is expected to cost approximately $300 million which will be funded by capital calls to members. SCPL’s funding requirement will be 51% of the total cost. SCPL is expected to contribute approximately $2 million for project funding in the fourth quarter of 2012 and $119 million and $30 million in 2013 and 2014, respectively.

On January 11, 2013, Rose Rock Midstream, L.P. (“RRMS”) acquired 33.33% of the outstanding membership interests in SemCrude Pipeline, L.L.C. from SemGroup in exchange for cash and equity interests in RRMS.

3. INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES

Until the end of September 2010, we owned 99.17% of White Cliffs, and the remaining interests were held by two unaffiliated parties. During 2010, both of these parties exercised their rights under an agreement to purchase additional membership interests in White Cliffs. Subsequent to the closing of these transactions, we own 51% of White Cliffs. After purchasing these membership interests, the other members have substantive rights to participate in the management of White Cliffs; because of this, we deconsolidated White Cliffs at the end of September 2010, and began accounting for it under the equity method. We reported the $6.8 million loss on disposal in the statement of operations related to these transactions, see Note 4 for additional information.

Certain summarized balance sheet information of White Cliffs is shown below (in thousands):

 

     December 31,
2011
     (unaudited)
December 31, 2010
 

Current assets

   $ 11,653       $ 9,797   

Property, plant and equipment, net

     222,473         234,300   

Goodwill

     17,000         17,000   

Other intangible assets, net

     33,073         40,848   
  

 

 

    

 

 

 

Total assets

   $ 284,199       $ 301,945   
  

 

 

    

 

 

 

Current liabilities

   $ 3,259       $ 3,824   

Members’ equity

     280,940         298,121   
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 284,199       $ 301,945   
  

 

 

    

 

 

 

 

9


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

Under the equity method, we do not report the individual assets and liabilities of White Cliffs on our balance sheets. Instead, our membership interest is reflected in one line as a noncurrent asset on our balance sheets.

Certain summarized statement of operations information of White Cliffs for the year ended December 31, 2011 and the three months ended December 31, 2010 is shown below (in thousands):

 

     Year Ended December
31, 2011
     (unaudited) Three
Months Ended
December 31, 2010
 

Revenue

   $ 66,097       $ 13,619   

Operating, general and administrative expenses

     12,746         3,294   

Depreciation and amortization expense

     20,842         5,680   

Net income

     32,509         4,645   

Distributions paid to SCPL

     27,459         5,768   

The equity in earnings of White Cliffs for the periods reported in our statement of operations is less than 51% of the net income of White Cliffs for the same periods. This is due to certain general and administrative expenses incurred by and allocated from our parent, SemGroup, in managing the operations of White Cliffs, which are allocated to SCPL, that the other members are not obligated to share. Such expenses are recorded by White Cliffs, and are allocated to our membership interests. White Cliffs recorded $3.2 million of such general and administrative expense during the year ended December 31, 2011 and $0.9 million during the three months ended December 31, 2010.

4. DISPOSALS OF LONG-LIVED ASSETS

As described in Note 3, we sold a portion of our membership interests in White Cliffs during September 2010. We received $140.8 million of proceeds from these transactions which were used to make principal payments on long-term debt. We recorded a loss of $6.8 million upon conversion to the equity method, which is included as a loss on disposal or impairment of long-lived assets, net in the statement of operations. In September 2012, we received an additional $3.5 million related to this transaction.

Upon closing, we deconsolidated White Cliffs and recorded our investment at fair value, which approximated 51% of the net book value of White Cliffs (the book value of White Cliffs had been adjusted to fair value on November 30, 2009, in connection with fresh-start reporting). The assets and liabilities of White Cliffs had the following net book values at the date of deconsolidation (in thousands):

 

Accounts receivable

   $ 4,625   

Other current assets

     143   

Property, plant and equipment, net

     237,506   

Goodwill

     17,000   

Other intangible assets

     43,267   

Accounts payable and accrued liabilities

     (3,736

Payables to affiliates

     (659
  

 

 

 

Net assets

   $ 298,146   
  

 

 

 

5. REORGANIZATION

On July 22, 2008, SemGroup Corporation and many of its subsidiaries, including the Company, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to the Petition Date, SemGroup continued operations as a debtor-in-possession.

SemGroup filed a Plan of Reorganization with the Court, which was confirmed on October 28, 2009. The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of SemGroup upon emergence, and the financing arrangements of SemGroup upon emergence. SemGroup and the Company emerged from bankruptcy protection on November 30, 2009.

 

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SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

Reorganization value

An essential element in negotiating a reorganization plan with the various classes of creditors is the determination of the reorganization value by the parties in interest. In the event that the parties in interest cannot agree on the reorganization value, the court may be called upon to determine the reorganization value of the entity before a plan of reorganization can be confirmed.

During SemGroup’s reorganization process, a reorganization value was proposed. This reorganization value was ultimately agreed to by the creditors and confirmed by the Court. The proposed reorganization value was determined by applying the following valuation methods:

 

   

a “guideline company” approach, in which valuation multiples observed from industry participants were considered and comparisons were made between the expected performance of SemGroup, relative to other industry participants, to determine appropriate multiples to apply to SemGroup’s financial metrics;

 

   

analysis of recent transactions involving companies determined to be similar to SemGroup; and

 

   

a calculation of the present value of the estimated future cash flows of SemGroup.

This proposed reorganization value was determined using numerous projections and assumptions. These estimates are subject to significant uncertainties, many of which are beyond the control of SemGroup, including, but not limited to, the following:

 

   

changes in the economic environment;

 

   

changes in supply or demand for petroleum products;

 

   

changes in prices of petroleum products;

 

   

SemGroup’s ability to successfully implement expansion projects;

 

   

SemGroup’s ability to improve relationships with customers and suppliers, as these relationships were adversely impacted by the bankruptcy filing;

 

   

SemGroup’s ability to renew certain business operations that were limited during the bankruptcy due to limitations on access to capital; and

 

   

SemGroup’s ability to manage the additional costs associated with being a public company.

SemGroup’s reorganization value was determined to be $1.5 billion. SemGroup determined that $334.5 million of its total reorganization value was attributable to the SCPL. The use of different estimates could have resulted in a materially different proposed reorganization value, and there can be no assurance that actual results will be consistent with the estimates that were used to determine the proposed reorganization value.

Valuation of assets and liabilities

SCPL recorded individual assets and liabilities based on their fair values at the Emergence Date. We recorded $17.0 million of goodwill, which represents the excess of the reorganization value attributable to the SCPL over the fair value of the identifiable assets and liabilities.

 

11


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

November 30, 2009 balance sheet

The following table shows the effects of the emergence from bankruptcy on our November 30, 2009 consolidated balance sheet (in thousands):

 

     Predecessor      Reorganization
Adjustments
    Fresh Start
Adjustments
    Successor  

Current assets:

         

Cash and cash equivalents

   $ 14,081       $ (9,103 )(a)    $ —        $ 4,978   

Accounts receivable

     3,323         —          —          3,323   

Other current assets

     1,276         —          —          1,276   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     18,680         (9,103     —          9,577   
  

 

 

    

 

 

   

 

 

   

 

 

 

Property, plant and equipment

     235,258         —          12,859 (f)      248,117   

Goodwill

     —           —          17,000 (f)      17,000   

Other intangible assets

     —           —          54,000 (f)      54,000   

Other assets, net

     —           9,912 (b)      —          9,912   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 253,938       $ 809      $ 83,859      $ 338,606   
  

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities:

         

Accounts payable

   $ 21       $ —        $ —        $ 21   

Accrued liabilities

     1,795         (491 )(c)      —          1,304   

Payables to affiliates

     49,499         (48,038 )(d)      —          1,461   

Current portion of long-term debt

     123,700         (109,700 )(e)      —          14,000   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     175,015         (158,229     —          16,786   
  

 

 

    

 

 

   

 

 

   

 

 

 

Long-term debt

     —           111,000 (e)      —          111,000   

Members’ equity:

         

SemCrude Pipeline equity

     76,941         48,038 (d)      84,477 (g)      209,456   

Noncontrolling interests

     1,982         —          (618 )(g)      1,364   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total members’ equity

     78,923         48,038        83,859        210,820   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and members’ equity

   $ 253,938       $ 809      $ 83,859      $ 338,606   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(a) Represents the net impact on cash of the refinancing of the Company’s credit facility. The Company borrowed $125.0 million and repaid $123.7 million of principal, paid $4.8 million of fees to the lender, and paid approximately $0.5 million in accrued interest. The adjustment also includes the reclassification to other noncurrent assets of $5.1 million of cash that became restricted under the terms of the new credit agreement.
(b) Includes $4.8 million of fees paid to the lender under the new credit facility and $5.1 million of cash that became restricted under the terms of the new agreement.
(c) Reflects the payment of accrued interest.
(d) Pursuant to SemGroup’s Plan of Reorganization, most of the Company’s obligations to SemGroup were forgiven upon emergence from bankruptcy protection.
(e) Reflects the retirement of the previous credit facility and the issuance of new debt.
(f) Reflects the adjustments to the recorded values of assets resulting from fresh-start reporting.
(g) Reflects the reorganization gain (loss) resulting from fresh-start reporting.

SemCrude Pipeline, L.L.C.’s subsidiaries did not file for bankruptcy protection. The following debtor-only condensed statement of operations and cash flows reflect the activities of SemCrude Pipeline, L.L.C., and not its subsidiaries. The subsidiaries are accounted for as equity-method investments in the condensed financial statements of the debtor below. The condensed combined financial statements below are presented on the same basis as the consolidated financial statements of the Company, except as described above.

 

12


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

Following is the condensed statement of operations of SemCrude Pipeline, L.L.C. (debtor company only) for the eleven months ended November 30, 2009 (in thousands):

 

     Predecessor  
     Eleven Months
Ended  November

30, 2009
 

Revenues

   $   

General and administrative expense

     150   
  

 

 

 

Operating loss

     (150
  

 

 

 

Equity in earnings of non-debtors (*)

     (94,052

Interest expense

     4,593   

Other income

     (24
  

 

 

 

Income before reorganization items

     89,333   

Reorganization items gain

     21   
  

 

 

 

Net income

   $ 89,354   
  

 

 

 

 

(*) Includes reorganization items of non-debtors

Following is the condensed statement of cash flows of SemCrude Pipeline, L.L.C. (debtor company only) for the eleven months ended November 30, 2009 (in thousands):

 

     Predecessor  
     Eleven Months Ended
November 30, 2009
 

Net cash provided by (used in):

  

Operating activities

   $ 2,885   

Investing activities

     (23,241

Financing activities

     16,856   
  

 

 

 

Net increase in cash and cash equivalents

     (3,500

Cash and cash equivalents, beginning of period

     3,500   
  

 

 

 

Cash and cash equivalents, end of period

       
  

 

 

 

6. LONG-TERM DEBT

We borrowed $125 million under a credit agreement on November 30, 2009. We retired this facility during September 2010.

Interest was generally charged on the SemCrude Pipeline credit facility at a floating rate, which was calculated as 6% plus the greater of LIBOR or 1.5%. In addition, we paid $4.8 million in fees to the lender at the inception of the agreement, which have been fully amortized. We recorded interest expense related to this facility of $11.0 million during the period prior to deconsolidation for the year ended December 31, 2010, and $1.1 million for the month ended December 31, 2009.

7. CONTINGENCIES

We are a party to various claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these claims, legal actions, and complaints, after consideration of amounts accrued, insurance coverage, and other arrangements, will not have a material adverse effect on our combined financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our liabilities may change materially as circumstances develop.

 

13


SEMCRUDE PIPELINE, L.L.C.

Notes to Financial Statements

 

8. RELATED PARTY TRANSACTIONS

The employees who perform work in support of White Cliffs are employees of SemGroup, which charges White Cliffs for wage and benefits costs of employees who directly support the White Cliffs’ operations. Prior to deconsolidation, we recorded charges to White Cliffs from SemGroup of $0.4 million and $0.1 million and our predecessor recorded $0.6 million for such direct costs during the nine months ended September 30, 2010, the month ended December 31, 2009 and the eleven-months ended November 30, 2009, respectively.

SemGroup incurs certain general and administrative expenses on behalf of White Cliffs. Prior to the deconsolidation of White Cliffs, these costs were allocated to White Cliffs in the amount of $4.3 million, $0.7 million and $1.5 million for the nine months ended September 30, 2010, the month ended December 31, 2009 and the eleven months ended November 30, 2009, respectively.

Subsequent to the deconsolidation of White Cliffs, these general and administrative costs are allocated to SCPL and are treated as member contributions to White Cliffs. SCPL was allocated $3.2 million and $0.9 million of such general and administrative expense during the year ended December 31, 2011 and the three months ended December 31, 2010, respectively. White Cliffs recorded corresponding member contributions from SCPL, since White Cliffs was not required to reimburse SCPL or SemGroup for these expenses.

9. SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash transactions

SCPL retired $123.7 million of debt and paid $1.3 million of debt issuance costs by issuing new debt with a principal balance of $125.0 million upon emergence from bankruptcy. During the eleven months ended November 30, 2009, the predecessor converted $3.7 million of accrued interest to long-term debt. At December 31, 2008, the SCPL’s predecessor accrued $4.2 million of capital expenditures that were incurred in 2008 and paid for in 2009.

Cash paid for interest

SCPL paid $6.4 million and $0.9 million of cash for interest during the year ended December 31, 2010 and the month ended December 31, 2009, respectively. The predecessor paid $3.2 million of cash for interest during the eleven months ended November 30, 2009.

 

14