Energy Transfer, LP - FORM 8-K - EX-99.1 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - March 2, 2015

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ENERGY TRANSFER PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information of Energy Transfer Partners, L.P. (“ETP”) reflects the pro forma impacts of ETP’s proposed merger with Regency Energy Partners LP (“Regency”), which was announced on January 26, 2015 (the “Regency Merger”).

The unaudited pro forma condensed consolidated balance sheet gives effect to the Regency Merger as if it had occurred on December 31, 2014; the unaudited pro forma condensed consolidated statements of operations assume that the Regency Merger was consummated on January 1, 2012. The unaudited pro forma condensed balance sheet and condensed consolidated statements of operations should be read in conjunction with (i) ETP's Annual Report on Form 10-K for the year ended December 31, 2014 and (ii) Regency's Annual Report on Form 10-K for the year ended December 31, 2014.

The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the Regency Merger had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document.

Summary of the Regency Merger

On January 26, 2015, ETP and Regency announced their entry into a definitive merger agreement, and on February 18, 2015, ETP and Regency amended the merger agreement. Under the terms of the amended definitive merger agreement, holders of Regency common and Class F units will receive 0.4066 ETP Common Units plus a number of additional ETP Common Units equal to $0.32 per Regency unit divided by the lesser of (i) the volume weighted average price of ETP Common Units for the five trading days ending on the third trading day immediately preceding the effective time of the Regency Merger and (ii) the closing price of ETP Common Units on the third trading day immediately preceding the effective time of the Regency Merger.

In addition, Energy Transfer Equity, L.P. (“ETE”), which owns the general partner and 100% of the incentive distribution rights (“IDRs”) of both Regency and ETP, has agreed to reduce the incentive distributions it receives from ETP by a total of $320 million over a five year period. The IDR subsidy will be $80 million in the first year post closing and $60 million per year for the following four years. The transaction is expected to close in the second quarter of 2015.

ETP and Regency are under common control of ETE; therefore, we expect to account for the Regency Merger at historical cost as a reorganization of entities under common control. Accordingly, ETP’s consolidated financial statements will be retrospectively adjusted to reflect consolidation of Regency beginning May 26, 2010 (the date ETE acquired Regency’s general partner).









ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2014
(in millions)
 
ETP Historical
 
Regency Historical
 
Pro Forma Adjustments
 
ETP Pro Forma for Regency Merger
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
639

 
$
24

 
$
—

 
$
663

 
Accounts receivable, net
2,879

 
483

 
—

 
3,362

 
Accounts receivable from related companies
210

 
45

 
(116
)
a
139

 
Inventories
1,389

 
67

 
—

 
1,456

 
Exchanges receivable
44

 
—

 
—

 
44

 
Price risk management assets
7

 
75

 
—

 
82

 
Other current assets
271

 
9

 
17

a
297

 
Total current assets
5,439

 
703

 
(99
)
 
6,043

 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, net
29,743

 
9,217

 
(53
)
a
38,907

 
ADVANCES TO AND INVESTMENTS IN AFFILIATES
3,840

 
2,418

 
(1,162
)
b
3,760

 
 
 
 
 
 
(1,336
)
c

 
GOODWILL
6,419

 
1,223

 
—

 
7,642

 
INTANGIBLE ASSETS, net
2,087

 
3,439

 
—

 
5,526

 
OTHER NON-CURRENT ASSETS, net
693

 
103

 
—

 
796

 
Total assets
$
48,221

 
$
17,103

 
$
(2,650
)
 
$
62,674

 


 

See accompanying notes to unaudited condensed consolidated pro forma financial statements.


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2014
(in millions)
 
ETP Historical
 
Regency Historical
 
Pro Forma Adjustments
 
ETP Pro Forma for Regency Merger
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
Accounts payable
$
2,992

 
$
544

 
$
—

 
$
3,536

 
Accounts payable to related companies
62

 
64

 
(105
)
a
21

 
Exchanges payable
183

 
—

 
—

 
183

 
Price risk management liabilities
21

 
—

 
—

 
21

 
Accrued and other current liabilities
1,774

 
148

 
(7
)
a
1,915

 
Current maturities of long-term debt
1,008

 
—

 
—

 
1,008

 
Total current liabilities
6,040

 
756

 
(112
)
 
6,684

 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT, less current maturities
18,332

 
6,641

 
 
 
24,973

 
DEFERRED INCOME TAXES
4,226

 
—

 
—

 
4,226

 
NON-CURRENT PRICE RISK MANAGEMENT LIABILITIES
138

 
16

 
—

 
154

 
OTHER NON-CURRENT LIABILITIES
1,206

 
72

 
—

 
1,278

 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SERIES A PREFERRED UNITS
—

 
33

 
—

 
33

 
REDEEMABLE NONCONTROLLING INTEREST
15

 
—

 
—

 
15

 
 
 
 
 
 
 
 
 
 
EQUITY:
 
 
 
 
 
 
 
 
General Partner
184

 
781

 
—

 
965

 
Limited Partners
 
 
 
 
 
 


 
Common unitholders
10,430

 
8,531

 
(1,183
)
c
17,738

 
 
 
 
 
 
(40
)
a
 
 
 
 
 
 
 
 
 
 
 
Class F Units
—

 
153

 
(153
)
c
—

 
Class H Units
1,512

 
—

 
—

 
1,512

 
Accumulated other comprehensive income
(56
)
 
—

 
—

 
(56
)
 
Total partners’ capital
12,070

 
9,465

 
(1,376
)
 
20,159

 
Noncontrolling interest
6,194

 
120

 
(1,162
)
b
5,152

 
Total equity
18,264

 
9,585

 
(2,538
)
 
25,311

 
Total liabilities and equity
$
48,221

 
$
17,103

 
$
(2,650
)
 
$
62,674

 


See accompanying notes to unaudited condensed consolidated pro forma financial statements.


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
For the Year Ended December 31, 2014
(in millions, except per unit data)
 
ETP Historical
 
Regency Historical
 
Pro Forma Adjustments
 
ETP Pro Forma
 
REVENUES
$
51,158

 
$
4,951

 
$
(524
)
a
$
55,585

 
 
 
 
 
 
 
 
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Cost of products sold
45,540

 
3,452

 
(508
)
a
48,484

 
Operating expenses
1,636

 
448

 
—

 
2,084

 
Depreciation and amortization
1,130

 
541

 
—

 
1,671

 
Selling, general and administrative
377

 
158

 
—

 
535

 
Gain on asset sales, net
—

 
(1
)
 
—

 
(1
)
 
Impairment charge
 
 
370

 
 
 
370

 
Total costs and expenses
48,683

 
4,968

 
(508
)
 
53,143

 
OPERATING INCOME
2,475

 
(17
)
 
(16
)
 
2,442

 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(860
)
 
(304
)
 
 
 
(1,164
)
 
Equity in earnings of unconsolidated affiliates
234

 
195

 
(98
)
b
331

 
Gain on sale of AmeriGas common units
177

 
—

 
—

 
177

 
Losses on interest rate derivatives
(157
)
 
—

 
—

 
(157
)
 
Other, net
(25
)
 
(13
)
 
—

 
(38
)
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
1,844

 
(139
)
 
(114
)
 
1,591

 
Income tax expense from continuing operations
355

 
3

 
—

 
358

 
INCOME FROM CONTINUING OPERATIONS
$
1,489

 
$
(142
)
 
$
(114
)
 
$
1,233

 
 
 
 
 
 
 
 
 
 
ALLOCATIOAN OF INCOME FROM CONTINUING OPERATIONS:


 


 


 


 
General Partner
$
517

 
$
31

 
$
—

 
$
548

 
Limited Partners
525

 
(199
)
 
9

d
335

 
Other Securities
230

 
11

 
(7
)
d
234

 
Noncontrolling Interests
217

 
15

 
(116
)
b
116

 
 
$
1,489

 
$
(142
)
 
$
(114
)
 
$
1,233

 
INCOME FROM CONTINUING OPERATIONS PER COMMON UNIT:
 
 
 
 
 
 


 
Basic
$
1.58

 
$
(0.57
)
 
 
 
$
0.72

 
Diluted
$
1.58

 
$
(0.57
)
 
 
 
$
0.72

 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE LIMITED PARTNER UNITS:
 
 
 
 
 
 
 
 
Basic
331.5

 
348.1

 
 
 
464.0

e
Diluted
332.8

 
348.1

 
 
 
465.3

e



See accompanying notes to unaudited condensed consolidated pro forma financial statements.


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
For the Year Ended December 31, 2013
(in millions, except per unit data)
 
ETP Historical
 
Regency Historical
 
Pro Forma Adjustments
 
ETP Pro Forma
 
REVENUES
$
46,339

 
$
2,521

 
$
(246
)
a
$
48,346

 
 
 
 
 
 
(268
)
f
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Cost of products sold
41,204

 
1,793

 
(228
)
a
42,546

 
 
 
 
 
 
(223
)
f
 
 
Operating expenses
1,441

 
296

 
(39
)
f
1,698

 
Depreciation and amortization
1,032

 
287

 
(21
)
f
1,298

 
Selling, general and administrative
432

 
88

 
(19
)
f
501

 
Loss on asset sales, net
—

 
2

 
—

 
2

 
Impairment charges and other
689

 
—

 
—

 
689

 
Total costs and expenses
44,798

 
2,466

 
(530
)
 
46,734

 
OPERATING INCOME
1,541

 
55

 
16

 
1,612

 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(849
)
 
(164
)
 
 
 
(1,013
)
 
Equity in earnings of unconsolidated affiliates
172

 
135

 
(64
)
b
235

 
 
 
 
 
 
(8
)
c
 
 
Gain on sale of AmeriGas common units
87

 
—

 
—

 
87

 
Gains on interest rate derivatives
44

 
—

 
—

 
44

 
Non-operating environmental remediation
(168
)
 
—

 
—

 
(168
)
 
Other, net
5

 
—

 
2

f
7

 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
832

 
26

 
(54
)
 
804

 
Income tax expense from continuing operations
97

 
(1
)
 
—

 
96

 
INCOME FROM CONTINUING OPERATIONS
$
735

 
$
27

 
$
(54
)
 
$
708

 
 
 
 
 
 
 
 
 
 
ALLOCATIOAN OF INCOME FROM CONTINUING OPERATIONS:
 
 
 
 
 
 
 
 
General Partner
$
507

 
$
11

 
$
—

 
$
518

 
Limited Partners
(78
)
 
34

 
(18
)
 
(62
)
 
Other Securities
10

 
10

 
(8
)
 
12

 
Noncontrolling Interests
296

 
(28
)
 
(64
)
 
240

 
 
 
 
 
 
36

 
 
 
 
$
735

 
$
27

 
$
(54
)
 
$
708

 
INCOME FROM CONTINUING OPERATIONS PER COMMON UNIT:
 
 
 
 
 
 
 
 
Basic
$
(0.23
)
 
$
0.17

 
 
 
$
(0.15
)
 
Diluted
$
(0.23
)
 
$
0.17

 
 
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE LIMITED PARTNER UNITS:
 
 
 
 
 
 
 
 
Basic
343.4

 
196.2

 
 
 
418.1

e
Diluted
343.4

 
198.7

 
 
 
419.1

e

See accompanying notes to unaudited condensed consolidated pro forma financial statements.


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
For the Year Ended December 31, 2012
(in millions, except per unit data)
 
ETP Historical
 
Regency Historical
 
Pro Forma Adjustments
 
ETP Pro Forma
 
REVENUES
$
15,702

 
$
2,000

 
$
(47
)
a
$
16,994

 
 
 
 
 
 
(661
)
e
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Cost of products sold
12,266

 
1,387

 
(38
)
a
13,099

 
 
 
 
 
 
(516
)
f
 
 
Operating expenses
953

 
228

 
(1
)
a
1,118

 
 
 
 
 
 
(62
)
f
 
 
Depreciation and amortization
656

 
252

 
(51
)
f
857

 
Selling, general and administrative
433

 
100

 
(2
)
a
494

 
 
 
 
 
 
(37
)
f
 
 
Loss on asset sales, net
—

 
3

 
—

 
3

 
Total costs and expenses
14,308

 
1,970

 
(707
)
 
15,571

 
OPERATING INCOME
1,394

 
30

 
(1
)
 
1,423

 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(665
)
 
(122
)
 
 
 
(787
)
 
Equity in earnings of unconsolidated affiliates
142

 
105

 
(44
)
b
212

 
 
 
 
 
 
9

f
 
 
Gain on deconsolidation of Propane Business
1,057

 
—

 
—

 
1,057

 
Loss on extinguishment of debt
(115
)
 
(8
)
 
 
 
(123
)
 
Losses on interest rate derivatives
(4
)
 
—

 
—

 
(4
)
 
Other, net
11

 
29

 
1

f
41

 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
1,820

 
34

 
(35
)
 
1,819

 
Income tax expense from continuing operations
63

 
—

 
1

f
64

 
INCOME FROM CONTINUING OPERATIONS
$
1,757

 
$
34

 
$
(36
)
 
$
1,755

 
 
 
 
 
 
 
 
 
 
ALLOCATIOAN OF INCOME FROM CONTINUING OPERATIONS:
 
 
 
 
 
 
 
 
General Partner
$
462

 
$
9

 
$
—

 
$
471

 
Limited Partners
1,224

 
27

 
(6
)
d
1,245

 
Other Securities
9

 
10

 
—

 
19

 
Noncontrolling Interests
62

 
(12
)
 
(44
)
b
20

 
 
 
 
 
 
14

f
 
 
 
$
1,757

 
$
34

 
$
(36
)
 
$
1,755

 
INCOME FROM CONTINUING OPERATIONS PER COMMON UNIT:
 
 
 
 
 
 
 
 
Basic
$
4.93

 
$
0.16

 
 
 
$
3.92

 
Diluted
$
4.91

 
$
0.13

 
 
 
$
3.89

 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE LIMITED PARTNER UNITS:
 
 
 
 
 
 
 
 
Basic
248.3

 
167.5

 
 
 
317.3

e
Diluted
249.0

 
172.4

 
 
 
320.0

e
 

See accompanying notes to unaudited condensed consolidated pro forma financial statements.



ENERGY TRANSFER PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the Regency Merger had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document.

Pro Forma Adjustments

Following is a description of the pro forma adjustments made to the combined historical financial statements of ETP and Regency:

a.
Pro forma adjustments to eliminate related party balances and transactions between ETP and Regency, including commercial transactions, as well as fees for services provided under an operating and service agreement between ETP and Regency. These adjustments also include the elimination of profit recognized by a subsidiary of ETP from sales of equipment to Regency, including elimination of the cumulative amount of ETP’s profit related to such equipment sales included in Regency’s property, plant and equipment, net, as of December 31, 2014.
b.
Pro forma adjustments to eliminate Regency’s investment in Lone Star NGL LLC (“Lone Star”), a consolidated subsidiary of ETP. ETP owns a 70% interest in Lone Star, and Regency owns a 30% interest in Lone Star. Regency’s interest in Lone Star is reflected as a noncontrolling interest in ETP’s historical consolidated financial statements and is reflected as an equity method investment in Regency’s historical consolidated financial statements.
c.
Pro forma adjustment to eliminate limited partner interests in Regency held by a subsidiary of ETP. ETP indirectly owns 31.4 million Regency common units and all of the outstanding Regency Class F units; these interests were acquired in the SUGS Contribution (described below) on April 30, 2013. These limited partner interests are expected to convert to limited partner interests in ETP upon the closing of the merger, and the related amounts will subsequently be eliminated from ETP’s consolidated financial statements.
d.
Pro forma adjustments to limited partners’ income from continuing operations reflect the elimination of intercompany earnings between ETP and Regency. In addition, for the years ended December 31, 2014 and 2013, $7 million and $4 million, respectively, of income attributable to Regency’s Class F units was reclassified from “other securities” to “limited partners” based on the assumed conversion of Regency’s Class F units to common units.
e.
Pro forma weighted average limited partner units outstanding reflects (i) the assumed conversion of Regency’s common and Class F units to ETP common units, based on the weighted average of Regency’s common and Class F units outstanding during the respective periods multiplied by the conversion rate of 0.4066 and (ii) the assumed issuance of approximately 1.1 million additional ETP common units on January 1, 2012 based on the portion of the additional unit consideration described above. In addition, for the years ended December 31, 2014 and 2013, the pro forma weighted average also reflects the elimination of Regency common units held by a subsidiary of ETP (see additional information in note (c) above).
f.
Pro forma adjustments to eliminate the results of operations of Southern Union Gas Services (“SUGS”) for the period from March 26, 2012 through April 30, 2013, as such results are included in the historical consolidated financial statements of both ETP and Regency. ETP contributed SUGS to Regency on April 30, 2013 (the “SUGS Contribution”). The SUGS Contribution was a reorganization of entities under common control; accordingly, Regency retrospectively adjusted its historical consolidated financial statements to reflect the consolidation of SUGS beginning March 26, 2012 (the date that common control of SUGS began). ETP’s historical consolidated financial statements continued to reflect SUGS’ results of operations for March 26, 2012 through April 30, 2013. As a result, SUGS’ results of operations are included in the historical consolidated financial statements of both ETP and Regency for the period from March 26, 2012 through April 30, 2013.

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