SemGroup Corp - FORM 8-K/A - EX-99.3

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EX-99.2 - EX-99.2 - SemGroup Corp	d444725dex992.htm
EX-23.1 - EX-23.1 - SemGroup Corp	d444725dex231.htm
8-K/A - 8-K/A - SemGroup Corp	d444725d8ka.htm

Exhibit 99.3

SemGroup Corporation

Unaudited Pro Forma Combined Condensed Financial Statements

On July 17, 2017, SemGroup Corporation (“SemGroup”) completed the acquisition of Buffalo Parent Gulf Coast Terminals LLC (“BPGCT”), which owns and operates HFOTCO LLC doing business as Houston Fuel Oil Terminal Company (“HFOTCO”), for a purchase price paid, or to be paid, in two payments. The first payment made on July 17, 2017, consisted of $301 million in cash (subject to customary adjustments for working capital, net indebtedness and capital expenditures), funded from our revolving credit facility, issuance of approximately 12.4 million shares of our Class A common stock and the assumption of existing HFOTCO net debt of approximately $761 million. The second payment requires us to pay the sellers $600 million in cash if paid on December 31, 2018 (the “Second Payment”). If paid prior to December 31, 2018, the amount payable will be discounted by 5% per annum. If not paid by December 31, 2018, the amount payable increases to $680 million and is due by December 31, 2019, or earlier if requested by the sellers.

The accompanying unaudited pro forma combined condensed financial statements of SemGroup have been prepared in accordance with Article 11 of Regulation S-X. The accompanying unaudited pro forma combined condensed balance sheet at June 30, 2017, reflects the acquisition as if it had occurred on that date. The accompanying unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2017 and 2016 and the year ended December 31, 2016, reflect the acquisition as if it had occurred on January 1, 2016. The terms “we”, “our”, “us”, and similar language used in these unaudited pro forma combined condensed financial statements refer to SemGroup and its subsidiaries.

These unaudited pro forma combined condensed financial statements have been derived from our historical financial statements, which are included in our quarterly report on Form 10-Q for the quarter ended June 30, 2017 and our annual report on Form 10-K for the year ended December 31, 2016, and the historical financial statements of BPGCT, which are included elsewhere in this current report on Form 8-K/A. These unaudited pro forma combined condensed financial statements should be read in conjunction with our and BPGCT historical financial statements and related notes thereto.

These unaudited pro forma combined condensed financial statements are provided for illustrative purposes only and do not purport to represent what our actual results of operations would have been if the acquisition had occurred on the dates assumed, nor are they necessarily indicative of our future operating results. However, the pro forma adjustments shown in these unaudited pro forma combined condensed financial statements reflect estimates and assumptions that we believe to be reasonable.

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Balance Sheet

June 30, 2017

(in thousands)


	Historical						Pro Forma
	SemGroup			BPGCT			Adjustments				Combined
ASSETS
Current assets:
Cash and cash equivalents	$	56,535		$	3,829		$	(246	)	(a)	$	60,118
Accounts receivable, net		381,345			10,743			285		(a)		392,373
Receivable from affiliates		8,650			—			—				8,650
Inventories		80,446			—			—				80,446
Other current assets		16,150			2,133			106		(a)		18,389

Total current assets		543,126			16,705			145				559,976

Property, plant and equipment, net		1,948,787			613,513			713,520		(b)		3,275,820
Equity method investments		430,514			—			—				430,514
Goodwill		34,802			907,700			(634,497	)	(c)		308,005
Other intangible assets, net		145,639			19,837			266,163		(d)		431,639
Net investment in direct financing lease		—			67,825			(6,305	)	(e)		61,520
Other noncurrent assets		63,350			5,353			(853	)	(f)		67,850

Total assets	$	3,166,218		$	1,630,933		$	338,173			$	5,135,324

LIABILITIES AND OWNERS’ EQUITY
Current liabilities:
Accounts payable	$	326,810		$	8,306		$	(7,700	)	(a)	$	327,416
Payable to affiliates		3,508			—			—				3,508
Accrued liabilities		113,783			7,205			(165	)	(a)		120,823
Deferred revenue		9,425			117			61		(a)		9,603
Other current liabilities		1,920			—			—				1,920
Current portion of long-term debt		28			5,500			—				5,528

Total current liabilities		455,474			21,128			(7,804	)			468,798

Long-term debt, net		1,215,244			744,998			549,934		(g1)		2,826,501
								300,823		(g2)
								15,502		(g3)
Deferred income taxes		63,323			—			—				63,323
Other noncurrent liabilities		26,778			12,805			1,379		(h)		40,962
Commitments and contingencies
SemGroup owners’ equity:
Preferred stock, $0.01 par value		—			—			—				—
Common stock, $0.01 par value		661			—			124		(i)		785
Additional paid-in capital		1,505,941			—			330,217		(i)		1,836,158
Treasury stock, at cost		(7,824	)		—			—				(7,824	)
Accumulated deficit		(34,450	)		—			—				(34,450	)
Accumulated other comprehensive loss		(58,929	)		(6,976	)		6,976		(i)		(58,929	)
Members’ Capital		—			858,978			(858,978	)	(i)		—

Total owners’ equity		1,405,399			852,002			(521,661	)			1,735,740

Total liabilities and owners’ equity	$	3,166,218		$	1,630,933		$	338,173			$	5,135,324

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Six Months Ended June 30, 2017

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments					Combined
Revenues:
Product	$	741,367		$	—	$	—				$	741,367
Service		156,680			71,016		—					227,696
Lease		—			6,391		—					6,391
Other		31,142			1,913		—					33,055

Total revenues		929,189			79,320		—					1,008,509
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		689,105			—		—					689,105
Operating		125,429			16,419		—					141,848
General and administrative		48,396			7,509		(5,453	)	(n	)		50,452
Depreciation and amortization		50,201			13,359		23,236		(j	)		86,796
Loss on disposal or impairment, net		2,176			—		—					2,176

Total expenses		915,307			37,287		17,783					970,377

Earnings from equity method investments		34,844			—		—					34,844
Operating income		48,726			42,033		(17,783	)				72,976
Other expenses (income), net:
Interest expense		27,344			14,216		30,270		(k	)		71,830
Loss on early extinguishment of debt		19,930			—		—					19,930
Foreign currency transaction gain		(1,011	)		—		—					(1,011	)
Other expense (income), net		(591	)		23		—					(568	)

Total other expenses, net		45,672			14,239		30,270					90,181

Income (loss) from continuing operations before income taxes		3,054			27,794		(48,053	)				(17,205	)
Income tax expense (benefit)		3,720			318		(7,638	)	(l)			(3,600	)

Net income (loss)	$	(666	)	$	27,476	$	(40,415	)			$	(13,605	)

Net loss attributable to SemGroup per common share:
Basic	$	(0.01	)								$	(0.17	)
Diluted	$	(0.01	)								$	(0.17	)
Weighted average common shares outstanding:
Basic		65,717					12,384		(m	)		78,101
Diluted		65,717					12,384		(m	)		78,101

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Year Ended December 31, 2016

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments				Combined
Revenues:
Product	$	1,009,409		$	—	$	—			$	1,009,409
Service		265,030			142,647		—				407,677
Lease		—			12,825		—				12,825
Other		57,725			3,506		—				61,231

Total revenues		1,332,164			158,978		—				1,491,142
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		873,431			—		—				873,431
Operating		212,099			31,589		—				243,688
General and administrative		83,908			13,373		—				97,281
Depreciation and amortization		98,804			29,352		49,638		(j)		177,794
Loss on disposal or impairment, net		16,048			—		—				16,048

Total expenses		1,284,290			74,314		49,638				1,408,242

Earnings from equity method investments		73,757			—		—				73,757
Loss on issuance of common units by equity method investee		(41	)		—		—				(41	)

Operating income		121,590			84,664		(49,638	)			156,616
Other expenses (income), net:
Interest expense		62,650			31,787		60,540		(k)		154,977
Foreign currency transaction loss		4,759			—		—				4,759
Loss on sale or impairment of equity method investment		30,644			—		—				30,644
Other expense (income), net		(994	)		51		—				(943	)

Total other expenses, net		97,059			31,838		60,540				189,437

Income (loss) from continuing operations before income taxes		24,531			52,826		(110,178	)			(32,821	)
Income tax expense (benefit)		11,268			572		(21,622	)	(l)		(9,782	)

Income (loss) from continuing operations		13,263			52,254		(88,556	)			(23,039	)
Loss from discontinued operations, net of income taxes		(1	)		—		—				(1	)

Net income (loss)		13,262			52,254		(88,556	)			(23,040	)
Less: net income attributable to noncontrolling interests		11,167			—		—				11,167

Net income (loss) attributable to SemGroup	$	2,095		$	52,254	$	(88,556	)		$	(34,207	)

Net income (loss) attributable to SemGroup per common share:
Basic	$	0.04								$	(0.53	)
Diluted	$	0.04								$	(0.53	)
Weighted average common shares outstanding:
Basic		51,889					12,384		(m)		64,273
Diluted		52,281					12,384		(m)		64,665

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Six Months Ended June 30, 2016

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments				Combined
Revenues:
Product	$	447,022		$	—	$	—			$	447,022
Service		126,273			72,143		—				198,416
Lease		—			6,449		—				6,449
Other		28,933			2,101		—				31,034

Total revenues		602,228			80,693		—				682,921
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		373,789			—		—				373,789
Operating		104,899			14,789		—				119,688
General and administrative		41,835			7,207		—				49,042
Depreciation and amortization		49,106			14,927		27,468		(j)		91,501
Loss on disposal or impairment, net		14,992			—		—				14,992

Total expenses		584,621			36,923		27,468				649,012

Earnings from equity method investments		40,149			—		—				40,149
Loss on issuance of common units by equity method investee		(41	)		—		—				(41	)

Operating income		57,715			43,770		(27,468	)			74,017
Other expenses (income), net:
Interest expense		35,588			20,525		30,270		(k)		86,383
Foreign currency transaction loss		3,012			—		—				3,012
Loss on sale or impairment of equity method investment		30,644			—		—				30,644
Other expense (income), net		(678	)		26		—				(652	)

Total other expenses, net		68,566			20,551		30,270				119,387

Income (loss) from continuing operations before income taxes		(10,851	)		23,219		(57,738	)			(45,370	)
Income tax expense (benefit)		(16,749	)		248		(13,014	)	(l)		(29,515	)

Income (loss) from continuing operations		5,898			22,971		(44,724	)			(15,855	)
Loss from discontinued operations, net of income taxes		(4	)		—		—				(4	)

Net income (loss)		5,894			22,971		(44,724	)			(15,859	)
Less: net income attributable to noncontrolling interests		10,942			—		—				10,942

Net income (loss) attributable to SemGroup	$	(5,048	)	$	22,971	$	(44,724	)		$	(26,801	)

Net loss attributable to SemGroup per common share:
Basic	$	(0.11	)							$	(0.47	)
Diluted	$	(0.11	)							$	(0.47	)
Weighted average common shares outstanding:
Basic		44,553					12,384		(m)		56,937
Diluted		44,553					12,384		(m)		56,937

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

1.	Basis of presentation

The historical consolidated financial information of the Company has been adjusted in the accompanying unaudited pro forma combined condensed financial information to give effect to pro forma events that are (i) directly attributable to the acquisition of BPGCT, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined condensed statements of operations, are expected to have a continuing impact on the results of operations.

The unaudited pro forma combined condensed financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.

2.	Pro forma adjustments

These adjustments reflect the estimated consideration paid or to be paid by SemGroup to acquire BPGCT. The following table represents the preliminary purchase price allocation to the assets acquired and liabilities assumed from BPGCT. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma combined condensed financial statements. The final purchase price allocation may differ from these estimates and could differ materially from the preliminary allocation described below (in thousands):


Preliminary consideration
Cash	$	300,823
Common shares		330,341
Second Payment		549,934
Liabilities assumed
Fair value of long-term debt		766,000
Pension obligation		10,610

Total preliminary consideration	$	1,957,708

Allocation to assets acquired
Cash acquired	$	3,583
Net working capital		6,369
Property, plant and equipment		1,327,033
Net investment in direct financing lease		61,520
Finite-lived intangible assets
Customer relationships		255,000
Customer contract		1,000
Non-compete agreement		30,000
Goodwill		273,203

Total fair value of assets acquired	$	1,957,708

(a) Adjustments to reflect the preliminary fair values of working capital items at the acquisition date. Final working capital adjustments will be made within 60 days of close.

(b) Adjustment to reflect the fair value of property, plant and equipment acquired.

(c) Adjustment to remove historical goodwill of BPGCT and record $273.2 million of goodwill reflected in the purchase price allocation.

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

(d) Adjustment to remove historical intangible assets of BPGCT and record $286.0 million of intangibles reflected in the purchase price allocation.

(e) Adjustment to reflect the net investment in the direct financing lease at fair value on acquisition date.

(f) Adjustment to write-off historical BPGCT debt issuance costs associated with the HFOTCO revolving credit facility.

(g1) Adjustment to reflect the fair value of the Second Payment on the acquisition date.

(g2) Adjustment to reflect SemGroup’s revolver borrowing for cash consideration paid of $300.8 million

(g3) Adjustment to record assumed debt at fair value on acquisition date.

(h) Adjustments to record pension liability and interest rate swap liability at acquisition date fair values of $10.6 million and $3.5 million, respectively, and to write-off historical BPGCT contract liability of $0.2 million.

(i) Adjustments to write-off historical BPGCT equity including accumulated other comprehensive loss and record SemGroup par value and additional paid-in capital related to the acquisition.

(j) Adjustments to reflect increased depreciation and amortization expense due to increase in property, plant and equipment to fair value and the recognition of finite-lived intangible assets.

Property, plant and equipment is depreciated over periods of up to 25 years on a straight-line basis. Pro forma depreciation expense is based on the fair value of the assets at the acquisition date and is based on the expected useful life based on asset class and company policy. Adjustments to historical depreciation were made to bring total depreciation of BPGCT assets up to the following amounts (in thousands):


Six Months ended June 30, 2017		Year ended December 31, 2016		Six Months ended June 30, 2016
$	24,028	$	48,057	$	24,028

Finite-lived intangibles are amortized over their estimated useful lives. The non-compete agreement is effective for two years from the acquisition date and will be amortized straight-line over the two-year period. Customer relationships are being amortized over 20 years on an accelerated basis which matches the incremental cash flow models used to value the intangible assets and in consideration of a historical customer attrition rate of 5%. Customer contracts are being amortized over three years on a straight-line basis. Adjustments to amortization expense were made to remove historical amortization expense and reflect the following amounts of amortization expense related to the finite-lived intangibles recognized in the acquisition (in thousands):


Six Months ended June 30, 2017		Year ended December 31, 2016		Six Months ended June 30, 2016
$	12,567	$	30,933	$	18,367

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

Amortization of intangible assets for the five years following the acquisition is expected to be (in thousands):


	Year ended December 31, 2017		Year ended December 31, 2018		Year ended December 31, 2019		Year ended December 31, 2020		Year ended December 31, 2021
Non-compete agreement	$	7,500	$	15,000	$	7,500	$	—	$	—
Customer relationships		10,700		9,800		22,000		21,500		21,800
Customer contracts		167		333		333		167		—

Total	$	18,367	$	25,133	$	29,833	$	21,667	$	21,800

(k) Adjustments to recognize interest expense related to the Second Payment which was discounted at 8% and SemGroup’s $300.8 million acquisition payment made from a borrowing on our revolving credit facility at 5.5%.

(l) Adjustments to recognize additional income tax expense based on SemGroup’s historical blended statutory rate of 37.7%. BPGCT is a pass-through entity for income tax purposes and therefore it’s historical financial statements only reflect Texas margins tax.

(m) Adjustment to reflect the 12.4 million common shares issued as consideration for the acquisition as if the acquisition had occurred on January 1, 2016. Common shares issued were valued based on the acquisition date market price of $26.68 per share.

(n) Adjustment to remove acquisition costs included in the historical financial statements of SemGroup.

SemGroup Corp - FORM 8-K/A - EX-99.3 - August 31, 2017

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