Spectra Energy Partners, LP - FORM 8-K/A - EX-99.5

Attached files

file	filename
8-K/A - FORM 8-K/A - Spectra Energy Partners, LP	d625912d8ka.htm
EX-99.2 - EX-99.2 - Spectra Energy Partners, LP	d625912dex992.htm
EX-99.4 - EX-99.4 - Spectra Energy Partners, LP	d625912dex994.htm

Exhibit 99.5

Spectra Energy Partners, LP

Pro Forma Condensed Combined Consolidated Financial Information

(Unaudited)

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions)


	As of September 30, 2013
	Spectra Energy Partners (a)		Contributed Entities (c)		Pro Forma Consolidation Adjustments (d)			First Closing Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
ASSETS
Current Assets
Cash and cash equivalents	$	93	$	—	$	46		$	400	(e)	$	342
									2,003	(e)
									(2,200	)(e)
Receivables, net		59		113		36			—			208
Natural gas imbalances receivable		—		74		(3	)		—			71
Inventory		—		31		4			—			35
Collateral assets		—		22		(22	)		—			—
Fuel tracker		—		56		—			—			56
Other		21		22		2			—			45

Total current assets		173		318		63			203			757

Investments and Other Assets
Investment in and loans to unconsolidated affiliates		894		1,740		(1,128	)		70	(f)		1,377
									(199	)(g)
Goodwill		940		2,088		201			—			3,229
Other		2,003		1		—			(2,003	)(e)		1

Total investments and other assets		3,837		3,829		(927	)		(2,132	)		4,607

Property, Plant and Equipment
Cost		2,854		9,796		1,793			—			14,443
Less accumulated depreciation and amortization		306		2,425		455			—			3,186

Net property, plant and equipment		2,548		7,371		1,338			—			11,257

Regulatory Assets and Deferred Debits		23		151		69			—			243

Total Assets	$	6,581	$	11,669	$	543		$	(1,929	)	$	16,864

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions)


	As of September 30, 2013
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
ASSETS
Current Assets
Cash and cash equivalents	$	342	$	—		$	342
Receivables, net		208		—			208
Natural gas imbalances receivable		71		—			71
Inventory		35		—			35
Collateral assets		—		—			—
Fuel tracker		56		—			56
Other		45		—			45

Total current assets		757		—			757

Investments and Other Assets
Investments in and loans to unconsolidated affiliates		1,377		199	(k)		1,576
Goodwill		3,229		—			3,229
Other		1		—			1

Total investments and other assets		4,607		199			4,806

Property, Plant and Equipment
Cost		14,443		—			14,443
Less accumulated depreciation and amortization		3,186		—			3,186

Net property, plant and equipment		11,257		—			11,257

Regulatory Assets and Deferred Debits		243		—			243

Total Assets	$	16,864	$	199		$	17,063

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions)


	As of September 30, 2013
	Spectra Energy Partners (a)		Contributed Entities (c)		Pro Forma Consolidation Adjustments (d)			First Closing Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	52	$	106	$	1		$	—		$	159
Notes payable - affiliates		16		17		(16	)		—			17
Taxes accrued		19		26		6			—			51
Interest accrued		13		25		11			(4	)(i)		45
Gas imbalances payable		—		62		3			—			65
Current maturities of long-term debt		28		—		420			—			448
Commercial paper		545		—		—			—			545
Collateral liabilities		—		20		—			—			20
Fuel tracker		—		25		1			—			26
Other		23		28		1			—			52

Total current liabilities		696		309		427			(4	)		1,428

Notes Payable - Affiliates		—		4,270		—			(4,270	)(i)		—

Long-term Debt		2,786		1,995		—			400	(e)		5,181

Deferred Credits and Other Liabilities
Deferred income taxes		45		88		3			(83	)(j)		53
Regulatory and other		7		103		—			—			110

Total deferred credits and other liabilities		52		191		3			(83	)		163

Commitments and Contingencies
Historical Members’ Equity		—		4,904		113			(5,017	)(h)		—

Partners’ Capital
Limited partner units		2,137		—		728			7,284	(h)		9,769
									(185	)(h)
									(195	)(g)
General partner units		54		—		15			149	(h)		210
									(4	)(h)
									(4	)(g)
Accumulated other comprehensive income		4		—		—			—			4
Noncontrolling interests		852		—		(743	)		—			109

Total Partners’ Capital		3,047		—		—			7,045			10,092

Total Liabilities and Equity	$	6,581	$	11,669	$	543		$	(1,929	)	$	16,864

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions)


	As of September 30, 2013
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	159	$	—		$	159
Notes payable - affiliates		17		—			17
Taxes accrued		51		—			51
Interest accrued		45		—			45
Gas imbalances payable		65		—			65
Current maturities of long-term debt		448		—			448
Commercial paper		545		—			545
Collateral liabilities		20		—			20
Fuel tracker		26		—			26
Other		52		—			52

Total current liabilities		1,428		—			1,428

Notes Payable - Affiliates		—		—			—

Long-term Debt		5,181		—			5,181

Deferred Credits and Other Liabilities
Deferred income taxes		53		—			53
Regulatory and other		110		—			110

Total deferred credits and other liabilities		163		—			163

Commitments and Contingencies
Historical Members’ Equity		—		—			—

Partners’ Capital
Limited partner units		9,769		195	(k)		9,964
General partner units		210		4	(k)		214
Accumulated other comprehensive income		4		—			4
Noncontrolling interests		109		—			109

Total Partners’ Capital		10,092		199			10,291

Total Liabilities and Equity	$	16,864	$	199		$	17,063

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per-unit amounts)


	Nine Months Ended September 30, 2013
	Spectra Energy Partners (a)		Express Platte (b)			Contributed Entities (c)			Pro Forma Consolidation Adjustments (d)			First Closing Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
Operating Revenues
Transportation of natural gas	$	159	$	—		$	798		$	124		$	—		$	1,081
Transportation of crude oil		151		53			—			—			—			204
Storage of natural gas and other services		27		—			120			66			—			213
Other		—		5			5			(5	)		—			5

Total operating revenues		337		58			923			185			—			1,503

Operating Expenses
Operating, maintenance and other		119		19			288			22			36	(n)		484
Depreciation and amortization		43		7			121			28			(2	)(l)		197
Property and other taxes		17		3			66			12			—			98

Total operating expenses		179		29			475			62			34			779

Operating Income		158		29			448			123			(34	)		724

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		92		—			65			(84	)		(8	)(g)		65
Other income and expenses, net		—		(15	)		48			—			—			33

Total other income and expenses		92		(15	)		113			(84	)		(8	)		98

Interest Income		—		—			—			—			—			—
Interest Expense		35		—			37			29			65	(m)		173
													4	(m)
													1	(m)
													2	(m)
Interest Expense - Affiliates		—		—			198			—			(198	)(i)		—

Earnings Before Income Taxes		215		14			326			10			84			649
Income Tax Expense		3		5			(3	)		—			4	(j)		9

Net Income		212		9			329			10			80			640
Net Income - Noncontrolling Interests		34		—			—			(22	)		—			12

Net Income - Controlling Interests	$	178	$	9		$	329		$	32		$	80		$	628

Weighted-average limited partner units outstanding - basic and diluted		109		n/a			n/a			n/a			168			277
Net income per limited partner unit - basic and diluted	$	1.35		n/a			n/a			n/a			n/a			n/a

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per unit amounts)


	Nine Months Ended September 30, 2013
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
Operating Revenues
Transportation of natural gas	$	1,081	$	—		$	1,081
Transportation of crude oil		204		—			204
Storage of natural gas and other services		213		—			213
Other		5		—			5

Total operating revenue		1,503		—			1,503

Operating Expenses
Operating, maintenance and other		484		—			484
Depreciation and amortization		197		—			197
Property and other taxes		98		—			98

Total operating expenses		779		—			779

Operating Income		724		—			724

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		65		8	(k)		73
Other income and expenses, net		33		—			33

Total other income and expenses		98		8			106

Interest Income		—		—			—
Interest Expense		173		—			173
Interest Expense - Affiliates		—		—			—

Earnings Before Income Taxes		649		8			657
Income Tax Expense		9		—			9

Net Income		640		8			648
Net Income - Noncontrolling Interests		12		—			12

Net Income - Controlling Interests	$	628	$	8		$	636

Weighted-average limited partner units outstanding - basic and diluted		277		4			281
Net income per limited partner unit - basic and diluted		n/a		n/a		$	1.96

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per-unit amounts)


	Year Ended December 31, 2012
	Spectra Energy Partners (a)		Express US (b)			Express Canada (b)			Contributed Entities (c)		Pro Forma Consolidation Adjustments (d)			First Closing and Other Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
Operating Revenues
Transportation of natural gas	$	218	$	—		$	—		$	1,086	$	161		$	—		$	1,465
Transportation of crude oil		—		198			50			—		—			—			248
Storage of natural gas and other services		18		—			—			164		106			—			288
Other		1		14			6			7		(6	)		—			22

Total operating revenues		237		212			56			1,257		261			—			2,023

Operating Expenses
Operating, maintenance and other		69		88			25			430		22			51	(n)		685
Depreciation and amortization		37		25			9			157		37			(7	)(l)		258
Property and other taxes		13		12			2			79		14			—			120

Total operating expenses		119		125			36			666		73			44			1,063

Gains on Sales of Other Assets and Other, net		—		—			—			1		—			—			1
Operating Income		118		87			20			592		188			(44	)		961

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		108		—			—			102		(110	)		(13	)(g)		87
Other income and expenses, net		—		(5	)		(3	)		27		—			—			19

Total other income and expenses		108		(5	)		(3	)		129		(110	)		(13	)		106

Interest Income		—		—			—			1		—			—			1
Interest Expense		31		—			—			76		40			88	(m)		244
															5	(m)
															3	(m)
															1	(m)
Interest Expense - Affiliates		—		—			—			260		—			(260	)(i)		—

Earnings Before Income Taxes		195		82			17			386		38			106			824
Income Tax Expense		1		31			—			7		1			(38	)(j)		2

Net Income		194		51			17			379		37			144			822
Net Income - Noncontrolling Interests		—		—			—			—		15			—			15

Net Income - Controlling Interests	$	194	$	51		$	17		$	379	$	22		$	144		$	807

Weighted-average limited partner units outstanding - basic and diluted		97		n/a			n/a			n/a		n/a			175			272
Net income per limited partner unit - basic and diluted	$	1.69		n/a			n/a			n/a		n/a			n/a			n/a

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per-unit amounts)


	Year Ended December 31, 2012
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
Operating Revenues
Transportation of natural gas	$	1,465	$	—		$	1,465
Transportation of crude oil		248		—			248
Storage of natural gas and other services		288		—			288
Other		22		—			22

Total operating revenues		2,023					2,023

Operating Expenses
Operating, maintenance and other		685		—			685
Depreciation and amortization		258		—			258
Property and other taxes		120		—			120

Total operating expenses		1,063					1,063

Gains on Sales of Other Assets and Other, net		1		—			1
Operating Income		961		—			961

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		87		13	(k)		100
Other income and expenses, net		19		—			19

Total other income and expenses		106		13			119

Interest Income		1		—			1
Interest Expense		244		—			244
Interest Expense - Affiliates		—		—			—

Earnings Before Income Taxes		824		13			837
Income Tax Expense		2		—			2

Net Income		822		13			835
Net Income - Noncontrolling Interests		15		—			15

Net Income - Controlling Interests	$	807	$	13		$	820

Weighted-average limited partner units outstanding - basic and diluted		272		4			276
Net income per limited partner unit - basic and diluted		n/a		n/a		$	2.66

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per-unit amounts)


	Year Ended December 31, 2011
	Spectra Energy Partners (a)		Contributed Entities (c)		Pro Forma Consolidation Adjustments (d)			First Closing Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
Operating Revenues
Transportation of natural gas	$	182	$	1,067	$	—		$	—		$	1,249
Storage of natural gas and other services		18		195		115			—			328
Other		5		7		(6	)		—			6

Total operating revenue		205		1,269		109			—			1,583

Operating Expenses
Operating, maintenance and other		72		451		7			48	(n)		578
Depreciation and amortization		33		152		11			—			196
Property and other taxes		12		73		6			—			91

Total operating expenses		117		676		24			48			865

Gains on Sales of Other Assets and Other, net		—		6		—			—			6

Operating Income		88		599		85			(48	)		724

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		107		98		(84	)		(10	)(g)		111
Other income and expenses, net		2		25		—			—			27

Total other income and expenses		109		123		(84	)		(10	)		138

Interest Income		1		—		—			—			1
Interest Expense		23		81		—			88	(m)		201
									5	(m)
									4	(m)
Interest Expense - Affiliates		2		261		—			(261	)(i)		2

Earnings Before Income Taxes		173		380		1			106			660
Income Tax Expense		1		7		—			(6	)(j)		2

Net Income	$	172	$	373	$	1		$	112		$	658

Weighted-average limited partner units outstanding - basic and diluted		93		n/a		n/a			168			261
Net income per limited partner unit - basic and diluted	$	1.63		n/a		n/a			n/a			n/a

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per unit amounts)


	Year Ended December 31, 2011
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
Operating Revenues
Transportation of natural gas	$	1,249	$	—		$	1,249
Storage of natural gas and other services		328		—			328
Other operating revenues		6		—			6

Total operating revenue		1,583		—			1,583

Operating Expenses
Operating, maintenance and other		578		—			578
Depreciation and amortization		196		—			196
Property and other taxes		91		—			91

Total operating expenses		865		—			865

Gains on Sales of Other Assets and Other, net		6		—			6

Operating Income		724		—			724

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		111		10	(k)		121
Other income and expenses, net		27		—			27

Total other income and expenses		138		10			148

Interest Income		1		—			1
Interest Expense		201		—			201
Interest Expense - Affiliates		2		—			2

Earnings Before Income Taxes		660		10			670
Income Tax Expense		2		—			2

Net Income	$	658	$	10		$	668

Weighted-average limited partner units outstanding - basic and diluted		261		4			265
Net income per limited partner unit - basic and diluted		n/a		n/a		$	2.29

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per unit amounts)


	Year Ended December 31, 2010
	Spectra Energy Partners (a)		Contributed Entities (c)		Pro Forma Consolidation Adjustments (d)			First Closing Pro Forma Transaction Adjustments			Pro Forma Spectra Energy Partners Subtotal
Operating Revenues
Transportation of natural gas	$	169	$	1,019	$	—		$	—		$	1,188
Storage of natural gas and other services		18		186		105			—			309
Other operating revenues		11		6		1			—			18

Total operating revenue		198		1,211		106			—			1,515

Operating Expenses
Operating, maintenance and other		73		445		7			48	(n)		573
Depreciation and amortization		29		141		15			—			185
Property and other taxes		8		75		4			—			87

Total operating expenses		110		661		26			48			845

Gains on Sales of Other Assets and Other, net		—		10		—			—			10

Operating Income		88		560		80			(48	)		680

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		75		121		(78	)		(10	)(g)		108
Other income and expenses, net		1		19		1			—			21

Total other income and expenses		76		140		(77	)		(10	)		129

Interest Income		—		—		—			—			—
Interest Expense		12		94		—			88	(m)		203
									5	(m)
									4	(m)
Interest Expense - Affiliates		4		258		—			(258	)(i)		4

Earnings Before Income Taxes		148		348		3			103			602
Income Tax Expense		—		6		—			(6	)(j)		—

Net Income	$	148	$	342	$	3		$	109		$	602

Weighted-average limited partner units outstanding - basic and diluted		81		n/a		n/a			168			249
Net income per limited partner unit - basic and diluted	$	1.70		n/a		n/a			n/a			n/a

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

SPECTRA ENERGY PARTNERS, LP

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In millions, except per unit amounts)


	Year Ended December 31, 2010
	Pro Forma Spectra Energy Partners Subtotal		Second and Third Closing Pro Forma Adjustments			Pro Forma Spectra Energy Partners
Operating Revenues
Transportation of natural gas	$	1,188	$	—		$	1,188
Storage of natural gas and other services		309		—			309
Other operating revenues		18		—			18

Total operating revenue		1,515		—			1,515

Operating Expenses
Operating, maintenance and other		573		—			573
Depreciation and amortization		185		—			185
Property and other taxes		87		—			87

Total operating expenses		845		—			845

Gains on Sales of Other Assets and Other, net		10		—			10

Operating Income		680		—			680

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		108		10	(k)		118
Other income and expenses, net		21		—			21

Total other income and expenses		129		10			139

Interest Income		—		—			—
Interest Expense		203		—			203
Interest Expense - Affiliates		4		—			4

Earnings Before Income Taxes		602		10			612
Income Tax Expense		—		—			—

Net Income	$	602	$	10		$	612

Weighted-average limited partner units outstanding - basic and diluted		249		4			253
Net income per limited partner unit - basic and diluted		n/a		n/a		$	2.28

See Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

(1)

Basis of Presentation

The terms “we,” “our,” “us” and “the Partnership” as used herein refer collectively to Spectra Energy Partners, LP and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity within the Partnership.

On August 2, 2013, the Partnership completed the closing of the acquisition of a 40% ownership interest in the U.S. portion of the Express-Platte Pipeline System (Express US), and a 100% ownership interest in the Canadian portion of the Express-Platte Pipeline System (Express Canada), from subsidiaries of Spectra Energy Corp (SE Corp).

On August 5, 2013, the Partnership entered into a Contribution Agreement (the Contribution Agreement) with SE Corp, pursuant to which SE Corp agreed to contribute to the Partnership substantially all of its interests in SE Corp’s subsidiaries that own U.S. transmission and storage and liquids assets (as more fully defined in Note 1 to the unaudited condensed combined financial statements of the Contributed Entities filed as Exhibit 99.4 to this Current Report on Form 8-K/A), including the remaining 60% ownership interest in Express US, and to assign to the Partnership its interests in certain related contracts (collectively, the Dropdown Transactions). On October 31, 2013, the Partnership entered into the First Amendment to Contribution Agreement (the Amendment) and on November 1, 2013 completed the closing of substantially all of the Dropdown Transactions (the First Closing), which consisted of all contributed entities contemplated in the Dropdown Transactions as described below, excluding a 25.05% ownership interest in Southeast Supply Header, LLC (SESH) and a 1% ownership interest in Steckman Ridge, LP (Steckman Ridge). The first of the remaining two closings of the Dropdown Transactions is expected to occur at least 12 months following the First Closing, (the Second Closing), consisting of a 24.95% ownership interest in SESH and the remaining 1% ownership interest in Steckman Ridge, with the final closing expected to occur at least 12 months thereafter (the Third Closing), consisting of the remaining 0.10% ownership interest in SESH.

Following the Third Closing, aggregate consideration for the Dropdown Transactions would consist of an aggregate of 175,510,204 of the Partnership’s common units and general partner units (collectively, the Total Unit Consideration) issued to certain subsidiaries of SE Corp and to Spectra Energy Partners (DE) GP, LP, the general partner of the Partnership (the General Partner), respectively. Aggregate consideration for the Dropdown Transactions also consists of (i) approximately $70 million in cash representing a loan from the Partnership to one of the contributed assets, the proceeds of which were used to repay intercompany indebtedness to a subsidiary of SE Corp, (ii) approximately $2.2 billion in cash paid to the General Partner and another subsidiary of SE Corp, after taking into account customary closing adjustments, and (iii) the assumption (indirectly by acquisition of the contributed assets) of approximately $2.4 billion of third-party indebtedness of the contributed assets. The Total Unit Consideration was allocated between common units and general partner units in order to maintain the General Partner’s 2% general partner interest in the Partnership. The receipt of the common units and general partner units increased SE Corp’s ownership in the Partnership from 58% to approximately 84%.

The cash portion of the aggregate consideration was paid with restricted funds on hand and a portion of a $400 million borrowing under the Partnership’s term loan facility. The remaining funds borrowed under the term loan facility were held as cash and cash equivalents.

The contributed assets provide transportation and storage of natural gas, crude oil, and natural gas liquids for customers in various regions of the U.S. and in Alberta, Canada. The contributed assets included in the Dropdown Transactions consist of:

•

a 100% ownership interest in Texas Eastern Transmission, LP (Texas Eastern)

•

a 100% ownership interest in Algonquin Gas Transmission, LLC

•

the remaining 60% ownership interest in Express US

•

the remaining 38.77% ownership interest in Maritimes & Northeast Pipeline, L.L.C. (M&N US)

•

a 33.3% ownership interest in DCP Sand Hills Pipeline, LLC

•

a 33.3% ownership interest in DCP Southern Hills Pipeline, LLC

•

an additional 1% ownership interest in Gulfstream Natural Gas System, LLC

•

a 50% ownership interest in SESH

•

a 100% ownership interest in Bobcat Gas Storage

•

the remaining 50% of Market Hub Partners Holding (Market Hub)

•

a 50% ownership interest in Steckman Ridge

•

Texas Eastern’s and Express-Platte’s storage facilities

The unaudited pro forma condensed combined consolidated financial statements (the financial statements) have been derived from the audited and unaudited historical financial statements of the Partnership included in its 2012 Annual Report on Form 10-K and in its Quarterly Report on Form 10-Q for the period ended September 30, 2013. The financial statements should be read in conjunction with all such historical audited and unaudited financial statements and related notes.

The Partnership’s pro forma Condensed Combined Consolidated Statement of Operations for the nine months ended September 30, 2013 excludes a $309 million benefit related to the elimination of accumulated deferred income tax liabilities of Express US that is presented on the accompanying Express US Condensed Consolidated Statement of Operations for the same period, and also excludes an $83 million benefit related to the elimination of accumulated deferred income tax liabilities of Contributed Entities for the same period. These benefits were excluded as they represent material non-recurring benefits related to the Dropdown Transactions. These benefits, however, will be reflected in the actual financial statements of the Partnership for the year ended December 31, 2013 when issued.

The financial statements reflect pro forma adjustments that are described in the accompanying notes and are based upon currently available information and certain estimates and assumptions we believe are factually supportable and directly attributable to the transactions described above, and for purposes of the unaudited pro forma condensed combined consolidated statements of operations, are expected to have a continuing impact. In our opinion, all adjustments that are necessary to fairly present the financial statements have been made. The financial statements do not purport to represent what the Partnership’s results of operations would have been if the Dropdown Transactions had occurred on January 1, 2010, or what the Partnership’s financial position would have been if the Dropdown Transactions and the associated sources and uses of funds had occurred on September 30, 2013. The financial statements are not necessarily indicative of the Partnership’s operations going forward. The actual effects of Dropdown Transactions will differ from the pro forma adjustments.

(2)

Unaudited Pro Forma Adjustments and Assumptions

Amounts were derived from the historical audited or unaudited financial statements of the Partnership.

Amounts were derived from the historical audited or unaudited financial statements of Express US and/or Express Canada.

Amounts were derived from the historical audited or unaudited financial statements of the Contributed Entities.

Reflects the assets, liabilities, revenues, and expenses of Market Hub and M&N US obtained by the Partnership as a result of the First Closing. Historically, the Partnership accounted for Market Hub as an equity method investment, however, following the First Closing, the Partnership will consolidate 100% of Market Hub. On October 31, 2012, the Partnership acquired a 38.76% ownership interest in M&N US, while the remaining 38.77% was held at SE Corp. Following the First Closing, the Partnership will consolidate M&N US, and account for the remaining 22.47% as noncontrolling interests. On August 2, 2013, the Partnership acquired a 40% ownership interest in Express US (which is accounted for as a variable interest entity and thereby consolidated), while the remaining 60% was held at SE Corp and reflected as noncontrolling interest on the Partnership’s financial statements. Following the First Closing, the Partnership will have a 100% ownership interest in Express US.

Reflects the following transactions:

Proceeds of $400 million from borrowings under the Partnership’s term loan agreement on November 1, 2013, net of discounts and issuance costs which will be amortized to interest expense over the term of the loan. Note that only $197 million of the proceeds will be paid to SE Corp as consideration for the Contributed Entities, with the remaining proceeds held as cash and cash equivalents.

ii.

Payment of $2,200 million in cash used as partial consideration paid to SE Corp to fund the First Closing.

iii.

The reclassification of $2,003 million from restricted cash to cash and cash equivalents used to fund the contribution.

Reflects the adjustment to record the $70 million note receivable from Steckman Ridge payable to the Partnership associated with the First Closing.

Reflects the adjustment to remove a 25.05% ownership interest in SESH and a 1% ownership interest in Steckman Ridge from the Contributed Entities as the Contributed Entities financial statements reflect a 50% ownership interest in each entity. The First Closing consisted of a 24.95% ownership interest in SESH being contributed. The remaining 25.05% ownership interest in SESH will be contributed as part of the probable Second Closing and Third Closing. The remaining 1% ownership interest in Steckman Ridge will be contributed as part of the probable Second Closing. Consideration to be paid for the Second and Third Closings will be in limited and general partner units.

Reflects the consideration to be paid to SE Corp to acquire the Contributed Entities and the remaining 60% ownership interest in Express US. The aggregate consideration is as follows (in millions):


Cash consideration⁽¹⁾	$	2,200
Debt assumed⁽²⁾		2,519
Limited partner and general partner units issued⁽³⁾		7,433

Total consideration		12,152

Settlement of affiliate debt, including accrued interest of $4 million, with equity		(4,274	)
Debt assumed⁽²⁾		(2,519	)
Steckman Ridge receivable		(70	)
Settlement of deferred income taxes to equity		(83	)
Historical equity		(5,017	)

Net assets acquired		(11,963	)

Net adjustments to Partners’ Capital	$	189

Adjustment for distribution of assets under common control:
Limited Partner	$	185
General Partner		4

	$	189

⁽¹⁾

Cash consideration consists of the following: a) Proceeds from a debt issuance on September 25, 2013 of $1,883 million, net of issuance costs, b) Proceeds from borrowings under a term loan agreement on November 1, 2013 of $197 million, net of discounts and issuance costs, and c) Use of restricted cash, classified as Other Investments, held by the Partnership of $120 million.

⁽²⁾

The debt assumed consists of the following: Express US ($99 million (60% of $165 million)), M&N US ($420 million — classified as current maturities), and Contributed Entities ($2,000 million).

⁽³⁾

The Partnership issued an aggregate 168 million limited partner units and 3.4 million general partner units with a value of $7,284 million and $149 million, respectively, calculated based on the number of units issued to SE Corp and to the Partnership’s general partner and the closing price of the Partnership’s common units on November 1, 2013.

Reflects the adjustment to extinguish intercompany debt and intercompany interest expense between the Contributed Entities and SE Corp as part of the Contribution Agreement.

Reflects the elimination of deferred income tax liability and federal income tax expense (benefit) for Express US and the Contributed Entities as the Partnership is not a taxable entity for federal income tax purposes.

Reflects the adjustment to include the aggregate 25.05% ownership interest in SESH which will be contributed to the Partnership in the Second Closing and Third Closing. Consideration to be paid for the Second Closing and Third Closing will be in limited and general partner units.

Reflects the adjustment to depreciation expense associated with the Express Canada and Express US assets during the periods prior to their acquisition by SE Corp in which these assets were not under common control.

Reflects the net pro forma adjustment to interest expense related to (i) the Partnership’s issuance of $1,900 million aggregate principal amount of senior unsecured notes on September 25, 2013, consisting of: a) $500 million, maturing in 5 years, with an interest rate of 2.95%; b) $1,000 million, maturing in 10.5 years, with an interest rate of 4.75%; and c) $400 million, maturing in 30 years, with an interest rate of 5.95%, (ii) the Partnership’s $400 million term loan borrowing on November 1, 2013, maturing in 5 years, with an interest rate of 1.316%, of which $197 million was used as consideration paid to SE Corp for the Dropdown Transactions, (iii) the commitment fees on the Partnership’s $2,000 million revolving credit facility at an interest rate of 0.2%, and (iv) the increase in the Partnership’s commercial paper liabilities used to acquire the 40% ownership interest in Express US on August 2, 2013, with an interest rate of 0.6%.

Reflects the adjustment to record the annual service charge allocated to the Partnership from SE Corp based on the amended and restated Omnibus Agreement with SE Corp of $36 million related to the Contributed Entities for the nine months ended September 30, 2013, $51 million ($3 million related to Express US and Express Canada and $48 million related to the Contributed Entities) for the year ended December 31, 2012, and $48 million for each of the years ended December 31, 2011 and December 31, 2010.

(3)

Pro forma Net Income per Unit

Basic pro forma net income per unit is determined by dividing the pro forma net income that would have been allocated, in accordance with the Partnership’s partnership agreement, to the limited partner unit holders, by the number of limited partner units expected to be outstanding at the completion of the Dropdown Transactions. For purposes of this calculation, the Partnership assumed that pro forma distributions would have been paid on all outstanding units based on the historically declared per unit amount for each period presented. All limited partner units issued as partial consideration for the Dropdown Transactions were assumed to have been outstanding since January 1, 2010. All limited partner units issued for the consummated acquisition and contribution of 100% of Express Canada and 40% of Express US are treated as if they had been issued on January 1, 2012. For purposes of this calculation, the Partnership assumed that basic and diluted pro forma net income per unit are equivalent as there are not expected to be any dilutive units at the date of closing of the contribution of Express Canada and Express US or the Contributed Entities.


	Nine Months Ended September 30, 2013
	Historical		Pro Forma
	(in millions, except per-unit amounts)
Net Income - Controlling Interests	$	178	$	636
Less:
General partner’s interest in net income - 2%		4		13
General partner’s interest in net income attributable to incentive distribution rights		28		72

Limited partner’s interest in net income	$	146	$	551

Weighted-average limited partner units outstanding - basic and diluted		109		281
Net income per limited partner unit - basic and diluted	$	1.35	$	1.96


	Year Ended December 31, 2012
	Historical		Pro Forma
	(in millions, except per-unit amounts)
Net Income - Controlling Interests	$	194	$	820
Less:
General partner’s interest in net income - 2%		4		16
General partner’s interest in net income attributable to incentive distribution rights		25		71

Limited partner’s interest in net income	$	165	$	733

Weighted-average limited partner units outstanding - basic and diluted		97		276
Net income per limited partner unit - basic and diluted	$	1.69	$	2.66


	Year Ended December 31, 2011
	Historical		Pro Forma
	(in millions, except per-unit amounts)
Net Income - Controlling Interests	$	172	$	668
Less:
General partner’s interest in net income - 2%		3		13
General partner’s interest in net income attributable to incentive distribution rights		17		48

Limited partner’s interest in net income	$	152	$	607

Weighted-average limited partner units outstanding - basic and diluted		93		265
Net income per limited partner unit - basic and diluted	$	1.63	$	2.29


	Year Ended December 31, 2010
	Historical		Pro Forma
	(in millions, except per-unit amounts)
Net Income - Controlling Interests	$	148	$	612
Less:
General partner’s interest in net income - 2%		3		12
General partner’s interest in net income attributable to incentive distribution rights		8		24

Limited partner’s interest in net income	$	137	$	576

Weighted-average limited partner units outstanding - basic and diluted		81		253
Net income per limited partner unit - basic and diluted	$	1.70	$	2.28

Spectra Energy Partners, LP - FORM 8-K/A - EX-99.5 - November 18, 2013

Attached files

Spectra Energy Partners, LP Reports